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Consider the merits of the ETF
David McKay
Posted: Sun, 02 Apr 2006
[miningmx.com] -- IT’S tempting amid another burst in the gold price to recommend a tilt at South African gold shares. But, no – that might be a mistake. The South African gold industry has somehow continued loss-making throughout much of gold’s rising price, and bullish sentiment concerning gold has pushed the equities far enough.
Also remember that 98.5 million Gold Fields’ shares have been placed in the market following the sale of 20% of the firm by Norilsk Nickel. In addition, a further 32 million AngloGold Ashanti shares are being sold to South African and international buyers by the company itself and its parent, Anglo American. There’s a possibility of a large overhang developing in South African gold shares.
There are reasons for buying certain gold shares – consolidation’s in the air – but it makes more sense now to consider buying gold itself through the New Gold
exchange-traded fund (EFT) rather than the paper of those that produce it.
Holding the ETF represents a relatively cheap way of buying the actual metal, so the exposure is direct to the US dollar price of gold; whereas South African gold stocks are affected by management and currency fluctuations. It’s also worth remembering that a rising interest rate environment and unsteady political conditions favour tangible wealth. Interest in the ETF Streettracks in the US has been so great that the 500t has been bought since start-up last year, more than central bank selling of gold in 2005.
OPPORTUNITIES
Improving sentiment by general investors in gold will see its price maintained or improved over the next 12 to 18 months. With mining equities looking
toppish, buying physical bullion is a more transparent and simpler way to gain exposure to commodities.
RISKS
The gold price could fall out of bed or correct significantly. There have been some pullbacks in the gold price, so the best bet is to wait for another minor correction. Gold has recorded fresh 25 year highs above $580/oz level so it might be a time to hold back on the ETF for a week or two until the price has again retreated.
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