Gold prices hit $1,718 per ounce in Asian trading late Monday on fears regarding the U.S. stock markets and European debt. This was a record high. It also represents a 4.2 percent increase from its Friday close in New York. Gold is up 21 percent year to date (via the Los Angeles Times).
Gold is considered a safe investment because investors believe that it will always retain its value -- it has been a much sought-after commodity for thousands of years and supply is limited. In times of crisis, when investors are most worried that equities, bonds, and currencies could lose value, demand for gold typically soars, usually accompanied by increased demand for other safe-haven investments like U.S. Treasuries in a market phenomenon commonly referred to as a "flight to safety." This year, the flight to safety has included increased demand for the Swiss Franc and silver, in addition to gold and U.S. Treasuries (despite the downgrade).
Gold and silver prices have also been buoyed by the weak dollar. The precious metals (and oil) are priced in U.S. dollars in markets around the world. Because the dollar has depreciated relative to other currencies, foreign investors are able to purchase more dollars for each unit of their currency, which in turn puts upward pressure on the price of dollar-denominated goods and commodities, like gold.
And, because global investors are (rightfully) worried about worsening economic and market conditions in the U.S., Europe, and China, we could be witnessing a global flight to safety.
Inflated gold prices could reward gold miners around the world. Here is a list of gold companies that hedge funds have been snapping up. Do you agree with the optimistic sentiment regarding these stocks?
List sorted by net shares bought by institutional investors as a percentage of the share float. (Click here to access free, interactive tools to analyze these ideas.)
1. Keegan Resources
2. Banro Corporation
3. Gold Resource Corp (Nasdaq: GORO): Market cap of $1.29B. During the current quarter, institutional investors have bought 2.8M shares (net), which represents 8.77% of the 31.91M share float.
4. Allied Nevada Gold Corp.
5. Compania de Minas Buenaventura SA
6. IAMGOLD Corp.
7. Extorre Gold Mines Ltd. Ordinar
8. US Gold Corporation (NYSE: UXG): Market cap of $782.53M. During the current quarter, institutional investors have bought 18.0M shares (net), which represents 16.75% of the 107.47M share float.
9. International Tower Hill Mines Ltd.
10. Exeter Resource Corporation
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.
Kapitall's Andrew Dominguez does not own any of the shares mentioned above.