(03/21/14) Three Reasons to Consider Gold

In October 2011, we came to the conclusion that gold prices appeared "bubblish" and recommended avoiding the sector, recalls Catherine Hetrick in InvesTech Market Analyst.

While we warned subscribers away from gold in the fall of 2011, there are now signs that the worst may be over for gold investments. Let’s look at three reasons why we now believe a position in the gold sector is warranted.

First, there’s been a washout in investor psychology regarding gold, as evidenced by the intense selling pressure last year. Worse yet, the consensus forecast for precious metals in the year ahead is downright depressing, suggesting that the bottom is near for the gold washout.

Second, there’s apparent support for gold prices at the recent low. In June 2013, gold dropped to $1192 an once before rallying. That low was retested on December 20, and, so far, has held firm. If support continues to hold, the downside risk for both gold bullion and gold miners should be limited.

Lastly, and most importantly, the Coppock Guide for the Gold Miners Index appears to be signaling a potential buying opportunity. Basically a momentum oscillator, this indicator reverses direction when the momentum, or rate of change in an index, reaches a peak or trough.

There have been ten potential buy signals in the past 30 years, and seven of those have led to good profit opportunities. Overall, that’s a respectable track record, and the recent uptick may indicate a golden buying opportunity.

We are initiating a position in the Market Vectors Gold Miners ETF (GDX). It was launched in 2006 and its $8.2 billion in assets are invested in 36 stocks—good representation for a gold fund.

For those who would rather invest in stocks, one of the best values in this sector is our featured stock, Barrick Gold Corporation (ABX), one of the most attractive values in the industry.

Headquartered in Toronto, Canada, but traded on the NYSE, this senior mining company is the largest gold producer in the world, with 20 mines in operation, located on five continents.

Among Barrick’s most attractive attributes are its high quality assets. Moreover, a strong pipeline of projects should continue to produce new lower cost mines over time.

Although Barrick, like other gold miners, continues to face headwinds, it remains a premier gold mining company with rich assets and strong financial flexibility. Barrick Gold is one of the more compelling turnaround opportunities in the gold mining industry.

Whether you prefer individual stocks like Barrick Gold, or the more diversified Gold Miners ETF, adding a position in gold mining to your portfolio at this time should provide an attractive opportunity.