Gold Rush: Why Is Gold Rallying With the Stock Market?

Since the new year, gold prices are up 7%, about the same as the Nasdaq, reports CNNMoney. But Why?

Inflation
"The funny thing about gold is that it often rallies when investors are terrified about deflation. But it also moves higher when investors start anticipating inflation."

Indeed, the financial crisis has brought the prospect of inflation into the limelight: The Unites States and the eurozone are deep in debt, and may print their currency in excess to try to halt the global crises.

Michael Gayed, chief investment strategist with Pension Partners LLC tells CNNMoney the most important factors for gold's rally is inflation expectation. And as long as central banks continue to take steps toward reducing the debt problems, potentially causing inflation, there is no reason the gold rally should stop anytime soon.

China
China's monetary policy is easing and recent data suggests the country is not in for a hard landing, as previously expected.

"A large part of the run in gold is because of the market's perception that China will have a soft landing. That should be bullish for many commodities," says Kevin Mahn, president and chief investment officer of Hennion & Walsh Asset Management.

Hedging expectations
Gold is currently trading at $1,665.94 per ounce, still below its all-time high of $1,925 per ounce in September.

"Gold should continue to rise slowly. But the story from inflation hawks for the past two years is that all the money printing will create inflation. The reality is that overall consumer demand is soft," Oliver Pursche, co-manager of the GMG Defensive Beta Fund tells CNNMoney.

He adds, "Over time, there will be an inflation impact. But gold won't make new highs until real inflationary pressures take hold."

Business section: Investing ideas
Gold prices have been rising, but will this bullishness provide a boost to gold mining stocks?

For ideas, we collected data on institutional money flows and identified 10 gold mining stocks that have seen significant institutional buying during the current quarter.

Big money managers have extensive resources to analyze investing ideas. So if they're buying a certain stock, it's worth paying close attention.

Do you agree with this bullish sentiment? Use this list as a starting point for your own analysis.

List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)

1. AuRico Gold (NYSE: AUQ  ) : Engages in the exploration, development, and production of gold and silver mines and projects in Mexico. Net institutional purchases in the current quarter at 11.1M shares, which represents about 3.96% of the company's float of 280.21M shares.

2. NovaGold Resources (NYSE: NG  ) : Engages in the exploration and development of mineral properties primarily in North America. Net institutional purchases in the current quarter at 20.7M shares, which represents about 12.49% of the company's float of 165.74M shares.

3. Aurizon Mines: Engages in the acquisition, exploration, development, and operation of gold properties in North America. Net institutional purchases in the current quarter at 8.5M shares, which represents about 5.27% of the company's float of 161.39M shares.

4. Jaguar Mining (NYSE: JAG  ) : Engages in the production of gold, as well as in the acquisition, exploration, development, and operation of gold mineral properties in Brazil. Net institutional purchases in the current quarter at 6.5M shares, which represents about 8.86% of the company's float of 73.37M shares.

5. Lake Shore Gold: Engages in the acquisition, exploration, and development of gold properties in northern Ontario and Quebec of Canada, as well as in Mexico. Net institutional purchases in the current quarter at 125.8M shares, which represents about 33.39% of the company's float of 376.74M shares.

6. Richmont Mines: Engages in the acquisition, exploration, development, and operation of mining properties, principally gold in northeast Canada. Net institutional purchases in the current quarter at 1.6M shares, which represents about 5.54% of the company's float of 28.89M shares.

7. Tanzanian Royalty Exploration: Engages in the acquisition and exploration of mineral properties in Africa. Net institutional purchases in the current quarter at 5.0M shares, which represents about 5.14% of the company's float of 97.20M shares.

8. Vista Gold (NYSE: VGZ  ) : Engages in the evaluation, acquisition, exploration, and advancement of gold exploration and development projects in Australia, North America, and Indonesia. Net institutional purchases in the current quarter at 4.5M shares, which represents about 7.22% of the company's float of 62.37M shares.

9. Midway Gold: Engages in the acquisition, exploration, and development of mineral properties in North America. Net institutional purchases in the current quarter at 2.8M shares, which represents about 3.57% of the company's float of 78.34M shares.

10. Pogo Producing (NYSE: PPP  ) : Engages in the production of precious metals in Mexico. Net institutional purchases in the current quarter at 17.5M shares, which represents about 34.95% of the company's float of 50.07M shares.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Institutional data sourced from Fidelity.

The Motley Fool owns shares of Primero Mining. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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