Though the market bounced back from its 15 minutes of mayhem on Thursday, there’s no denying that the gut-wrenching ride has investors everywhere back on the defensive. Those old fears are creeping in about the safety of equities in general, and more traders are looking to hide out in gold.
Gold prices are up $40 an ounce since Wednesday’s lows, illustrating the demand for the yellow stuff. So what’s the best way for investors to cash in on this trend?
I asked the experts at InvestorPlace to give you their top picks for playing gold now: the iShares MSCI S&P Global Materials Sector Fund (NYSE: MXI) ETF, the SPDR Gold Shares (NYSE: GLD) ETF, Allied Nevada Gold Corp. (AMEX: ANV), Barrick Gold Corporation (NYSE: ABX) and the ING Risk Managed Natural Resources Fund (NYSE: IRR) ETF.
Here’s why each of these gold stocks or exchange-traded funds (ETFs) can play an important role in your portfolio amid the market’s volatility.
Gold ETF – iShares MSCI S&P Global Materials Sector Fund (MXI) ETF
Low-risk, long-term investment expert Richard Young recommends the iShares MSCI S&P Global Materials Sector Fund (MXI) in his Intelligence Report newsletter. This ETF has some of the top gold miners in the world as component companies — including BHP Billiton Limited (ASX: BHP), BHP Billiton plc (ASX: BBL), Rio Tinto plc (NYSE: RTP) and Anglo American plc (OTC: AAUKY).
This provides a great diversification of the industry to limit your risk while you play the appreciation in gold prices. It’s also worth noting that the Index is a subset of the S&P Global 1200 Index, so you will never have to worry about smaller, high-risk stocks creeping into the components.
Gold Stock – Barrick Gold (ABX)
Richard Band, editor of Profitable Investing, recommends one stock in particular right now — Barrick Gold (ABX). According to Richard, “The stock is cheap, assuming a steady to somewhat-higher gold price.” In the wake of the recent surge we saw in gold prices this week, that means ABX is a pretty safe bet.
ABX is up about 9% year-to-date, even though the broader market is flat or in the hole slightly since January 1. Not only has Barrick Gold outperformed the broader market, it is also outperforming other metal and mining stocks right now.
Gold ETF – SPDR Gold Trust (GLD) ETF
According to Asia expert Robert Hsu, “I don’t think mining stocks are the way to go anymore with gold. The purest way to participate in a gold bullion rally without the logistical hassles of buying the yellow metal directly is through the SPDR Gold Trust (GLD) ETF.”
GLD is an exchange-traded investment trust backed by gold bullion, and its price tracks the performance of the metal. Shares in this ETF represent fractional, undivided ownership interests in a trust where the sole assets of which are gold bullion. That means no company between you and the yellow stuff. According to Robert, the ease of use, liquidity and lack of sales charges makes the GLD ETF a much purer way to play gold than the iShares MXI fund.
Gold Stock – Allied Nevada Gold Corp. (ANV)
Renowned growth stock investor Louis Navellier has only one mining stock in his entire database of 5,000 companies that gets a top ranking this week. And that company is Allied Nevada Gold Corp. (ANV)
Allied Nevada Gold explores and mines for gold in Nevada, just as the name implies. It’s a reasonably small miner with a market cap of about $1.5 billion but is a very profitable outfit. In its last quarterly report, it beat Wall Street EPS forecasts by 650%. As of last year, ANV had proven and probable mineral reserves of 1.1 million ounces of gold and is growing fast. The company is up over 17% so far year-to-date — that’s almost twice as much as gold itself has gained since January 1.
Gold ETF – ING Risk Managed Natural Resources Fund (IRR) ETF
Dividend stock investor Bryan Perry has another great ETF for gold investors — the ING Risk Managed Natural Resources Fund (IRR) ETF. If the GLD fund from Robert Hsu is a pure gold play and the MXI fund from Richard Young is mostly miners, think of Bryan’s IRR recommendation as a way to diversify beyond just gold to the entire commodity market.
That’s because the natural resources fund doesn’t just invest in gold; it plays crude oil and natural gas as well. Top components include miner Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX), but also blue chip crude oil stock Exxon Mobil Corp. (NYSE: XOM) and natural gas giant Apache Corp. (NYSE: APA).