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Not Everyone Is Running Away From Gold

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The way gold bashers are crawling out of the woodwork to herald the end of the yellow-brick road, one might suppose they've been transported to a new financial reality in which skyrocketing debt and all of our myriad fiscal woes had found a magical overnight cure.

Serious precious metal investors know better, and recognize the recent pullback in gold prices as a welcome pause in what had become an uninterrupted surge from the $1,000 breakout in September to just under $1,220 in early December. The dollar has reclaimed support above 76 on the U.S. Dollar Index (USDX), and Fools who were left out in the cold without gold as it sprinted to new highs, will be watching the dollar to telegraph the depth of this minor corrective pause.

Although sensational headlines are reversing gold mania into bubble fear at the drop of a hat -- sending newcomers and fence-straddlers running for the exits -- not everyone is wrapped up in the noise of near-term volatility. Eric Sprott, founder of Sprott Asset Management, is one prominent fund manager who is not about to reverse his long-term outlook for gold just because the dollar experiences a little counter-cyclical rally.

When gold remained locked in range-bound trading beneath $1,000, Sprott's chief investment strategist John Embry projected that gold "at worst will trade at several multiples of the current price." Sprott offers multiple options for investors seeking exposure to that kind of upside potential. The Sprott Gold and Precious Minerals Fund features several of this Fool's favorites among its top ten holdings, including Goldcorp (NYSE: GG  ) , IAMGOLD (NYSE: IAG  ) , and Yamana Gold (NYSE: AUY  ) . Even the less targeted Sprott Growth Fund sports a 40% allocation to mining and precious minerals, including Kinross Gold (NYSE: KGC  ) and this Fool's top overall equity pick: Silver Wheaton (NYSE: SLW  ) .

In an effort to challenge to the market dominance of the SPDR Gold Shares (NYSE: GLD  ) exchange traded fund (ETF), Sprott intends to offer a new vehicle for exposure to gold bullion with a $575 million IPO called the Sprott Physical Gold Trust. In an apparent nod to persistent murmurs of concern among some gold investors about the sanctity of physical holdings behind competing bullion proxies, Sprott has applied for a ticker symbol that would convey its singular focus: PHYS. Unlike GLD or the iShares COMEX Gold Trust (NYSE: IAU  ) , investors in the Sprott fund will have the option to more easily redeem holdings for physical bullion on a monthly basis.

I have made my case for gold exposure, and no doubt by now you have encountered some opposing perspectives. Ultimately, each Fool will reach their own conclusions about gold, and only time will settle the debate once and for all. Please share your own perspective on gold in the comments section below, and by voting in the following Motley Poll.

Gold is a hot topic on the blogs at Motley Fool CAPS. Join the free service today and see just how many Fools are taking the long view when it comes to investing in gold. The "Gold" tag at CAPS lists 49 potential investments, and you'll find Christopher's comments on most of them.

Fool contributor Christopher Barker carries a silver coin that reads: "Honest value never fails." He can be found blogging actively and acting Foolishly in the CAPS community under the user name TMFSinchiruna. He tweets. He owns shares of IAMGOLD, Kinross Gold, Silver Wheaton, and Yamana Gold. The Motley Fool's disclosure policy is 0.999 pure.

Read/Post Comments (5) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 16, 2009, at 4:34 PM, prginww wrote:


    I appreciate you taking the time to give us the nitty-gritty according to your hard work. Yes, I said nitty-gritty. I agree that precious metals are far from done. You know me, I'm no gold or silver bug. I just believe it is the reality in today's world.

    If we are to use history as a tool for seeing how things may still unfold I think it is important to look at what happened during the Carter adminisration, 1976-1980, when discussing precious metals. I could be wrong but I think we are in a period that looks and feels much like 1977. If events do follow the same course by 2012 gold could be $3,500.

    Please feel free to correct me if my crystal ball was dusty and gave me a bad reading.


  • Report this Comment On December 16, 2009, at 5:33 PM, prginww wrote:


    I completely understand the temptation to relate this bull market to historical events, and there is indeed much insight to be gained by observing how historical bull market cycles in gold and silver have unfolded, but as I expressed in the following article about silver, I believe that: "since the nature of our global fiscal predicament differs materially from the challenges faced at that time, comparisons to 1980 provide little insight to those wrapping their heads around gold and silver."

    You may indeed have identified a reasonable target for gold. I am sticking with my conservative target of $2,000, and will reassess the fundamental landscape as we approach the mark. Whichever price gold ultimately hits during this bull market, there are two important points I would like to make:

    1. The factors at play in determining where the bull market ultimately reverses course will have nothing at all to do with extrapolated versions of historical charts. Our fiscal predicament and the complex array of fundamental factors at work makes any attempt to place today into a neat slot within an historical price chart a rather unfruitful exercise, in my opinion. The inflation-adjusted high from 1980 will have some psychological significance among traders, perhaps, but it will not influence my analysis to any meaningful degree.

    2. There is a distinct likelihood that the trajectory of the present bull market will further diverge from historical experience in that we are not likely to see this event culminate in a dramatic spiking event followed by such a dramatic and abrupt return to "normal" levels. To the contrary, I believe that gold is likely to trade at prices substantially higher than today's prices for several years after any lasting "peak" is attained. If I thought that such an abrupt peak were likely this time around, I would be employing a distinctly more cautious tone about exit strategies and the dangers of being caught holding the hot potato, but Fools will note I have not discussed these issues at length. I will discuss exit strategies as the bull market matures further, but I envision a more gradual move away from gold rather than a panic-driven free-for-all a la 1980.

    You said nitty-gritty.

  • Report this Comment On December 16, 2009, at 5:35 PM, prginww wrote:

    I just wrote lengthy response to your comment, but it appears to have been lost in the ether. :( Let me revisit this later.

    Mr. Nitty Gritty

  • Report this Comment On December 16, 2009, at 7:48 PM, prginww wrote:

    National debt ceiling raised to 14 trillion.

  • Report this Comment On December 19, 2009, at 4:29 AM, prginww wrote:

    Check out VHGI Gold

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