Protection Against the Unknown
Coming up a winner in uncertain timesGold is in a secular bull market, a long term uptrend that has seen the price rise for each of the past 9 years.Is the recent pullback in the price of gold an opportunity for those without exposure to the metal or the endof the rally? Hedge fund titans and ultra-successful billionaire investors such as Paul Tudor Jones and JohnPaulson don’t think the move is anywhere near completion. Neither do the central banks of China, Indiaand Russia. All have made large purchases of gold in the past several months, some in the hundreds of tons! Now is the time to act for those who missed out on the first leg of this shift to hard assets. Addingexposure to gold can bring benefits to any investment portfolio in times of uncertainty.Recent price weakness merely brought gold back to its long term trend line.The same forces that drove gold prices from under $300 to over $1,200 during the past decade are still ineffect today, maybe even more so. A weak dollar, trillions pumped into faltering economies around theglobe and enormous accumulated deficits have all fueled gold’s rise. The unprecedented increase in themoney supply floating around world economies could have a very inflationary outcome. Conversely, theinevitable withdrawal of the enormous and unparalleled stimulus programs combined with expanded debtservice may derail the fragile recovery we are experiencing now. Either scenario would be extremely bullish for gold. Ironically, gold production peaked a few years ago and has declined in each of the pastthree years. Increasing demand at a time of lower supply could really rocket prices higher.There are numerous ways to invest in gold, each with its own unique advantages and drawbacks. Buying bullion is inconvenient, inefficient and has incremental transaction and storage costs. The GLD exchangetraded fund (ETF) may not track the price of physical gold exactly—some commodity ETFs have done a poor job of that. However, owning the shares of mining companies is generally a leveraged bet on the priceof gold, as you benefit from both an ongoing production stream and large reserves that will be extracted inthe future at possibly higher prices.Given the strong case for the continued attractiveness of gold and the benefits it can provide to your portfolio if inflation explodes or the economy weakens again, which mining companies should you own? If you currently have no investments in gold, a good approach would be to own a basket of companies todiversify your allocation and have broad exposure to the metal. An excellent way to profit from acontinued move higher in the price of gold with that diversification is a new security that was just launchedin November, the Market Vectors Junior Gold Miners ETF (GDXJ $27.07).