With half of 2012 in the record books, it's important to take a look at whether the stocks that interest you can live up to their full potential. By making sure you know about a company's future plans and possible challenges, you can make a better decision about whether it's a smart investment for your portfolio.
Today, let's take a look at Central Fund of Canada (NYSE: CEF ) . As we saw in our look at the closed-end fund last month, it hasn't moved much so far in 2012, as gold and silver prices have been stuck in the doldrums after an advance to begin the year. Even as European economies continue to deteriorate, gold and silver simply haven't had the safe-haven status they used to. Let's take a quick look at Central Fund of Canada's prospects for the rest of the year and beyond.
Stats on Central Fund of Canada
|HSBC Gold Price Estimate, 2012||$1,760 per ounce|
|HSBC Gold Price Estimate, 2013||$1,775 per ounce|
|Deutsche Bank Silver Price Estimate, 4th Quarter 2012||$38 per ounce|
|Deutsche Bank Silver Price Estimate, 2013||$42 per ounce|
|CAPS Rating (out of 5)||***|
Sources: HSBC, Deutsche Bank, and The Motley Fool.
What will the rest of 2012 bring for Central Fund of Canada?
There are only three things that affect Central Fund of Canada's price. The two most important are the price of gold and silver bullion. Although I've listed a few price estimates above, you can find a wide variety of opinions about where bullion prices could go.
One way to look at demand for precious metals is to look at the holdings of popular exchange-traded funds. For instance, SPDR Gold (NYSE: GLD ) has seen its growth slow down considerably, but it still has more bullion under management than it did a year ago. Similarly, iShares Silver (NYSE: SLV ) owns roughly the same amount of silver it did this time last year. Those trends suggest that the craze to buy precious metals has cooled down, but investors haven't given up on the metals just yet.
The other component of Central Fund's pricing comes from its premium or discount to net asset value. Lately, the fund has had a relatively modest premium of about 3%, well below its five-year average of 7%.
Fool precious metals expert Christopher Barker strongly believes that gold and silver bullion will head higher. But as he points out, miners Goldcorp (NYSE: GG ) and Endeavour Silver (NYSE: EXK ) are both priced as though bullion were trading much lower. With that sort of imbalance, Central Fund may end up not rising as much as mining stocks.
Central Fund of Canada has some interesting prospects, but I'd suggest you look at another company that could do even better. Read The Motley Fool's latest special report on gold to discover the tiny gold stock digging up massive profits. It's free but only available for a limited time.
Click here to add Central Fund of Canada to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.