Posted on Monday, January 16th, 2012 | In Jim Cramer
In light of the recent decline of the precious metal, is gold becoming a lackluster investment?
MarketWatch's Claudia Assis had an article from Jan. 13, 2012 on "why gold could lose its glitter in 2012". Assis: "Investors who have recently jumped on the gold bandwagon will need plenty of patience this year, as the anemic global economy and better prospects for the US dollar combine to dim gold's allure."
Whereas gold will probably rise in 2012 for the 12th year in a row, Assis commented that "any advance is expected to be more modest than in recent years." According to Jay Feuerstein, chief investment officer of 2100 Xenon Group, a firm based out of Chicago that deals with commodity futures, "short-term gold speculators are likely to have a tougher time with the metal this year."
According to Assis' analysis of gold's prospects in 2012, "the absence of catalysts to drive buyers to gold is affecting both demand and price." Owing to the fact that there have been no signs of further quantitative easing by the Federal Reserve anytime soon and as the Eurozone struggles with a serious debt crisis, gold appears to be linked to movement in the US dollar. Assis commented that "the dollar is seen as firming this year as the US economy shows strength to other developed nations."
That being the case, there is still room for gold in a balanced portfolio. Feuerstein noted that "gold is a hedge against inflation and currency fluctuations" while recommending that investors limit gold to no more than 5 percent of one's portfolio. As for where gold will finish in 2012, "Feuerstein sees gold ending 2012 not much beyond $1,700 an ounce." In comparison, Michael Widmer of Bank of America Merrill Lynch "sees gold approaching $2,000 by year-end." Gold is currently trading at $1,640 per ounce.
Assis noted that gold may be an advantageous way to offset currency risk, to guard against "global economic uncertainty", or to protect against a "black swan" type event (we are living in the year 2012 after all) that would throw the global economy into tumult. Assis concluded her analysis in that gold miners have underperformed in comparison to gold. Even so, "investors might want to give the miners another chance" owing to the possibility of dividends, growth prospects, and better management in various mining companies. In pertinent part, Assis mentioned Newmont Mining Corp. (NYSE: NEM), Eldorado Gold Corp. (NYSE: EGO), Agnico-Eagle Mines Ltd. (NYSE: AEM), and Osisko Mining Corp. (TSE:OSK) as being possible investment opportunities.
In terms of investing in gold via mining companies, readers may remember my recent discussion on Republican presidential candidate Rep. Ron Paul's investment strategy. Far from ...
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