Gold Still Glitters

07/21/2008 12:00 am EST

Focus: GLOBAL

Harry Schultz

Editor, International Harry Schultz Letter

Each week our Global Q&A will feature the views of a leading expert on international investing. We start off with Harry Schultz, a prolific author and a pioneering investment newsletter writer, who gives his views on a popular topic-gold.

Demand for this precious metal from investors throughout the globe has recently driven gold's prices up over $1,000. And although it has retreated, some advisers (including Harry) believe it will soon rally even past that previous high.

Consequently, we asked Harry about his current thoughts on gold and how investors may profit in that market. We conducted the interview by email with Schultz, who lives in Monte Carlo-N.Z.

Q: In your most recent Gold Charts R Us newsletter, you are very bullish on gold's prospects, at least on the metal, and selective on gold shares. For individual investors, would you suggest they stick with gold exchange traded funds (ETFs) instead of individual stocks?

A: Advice to "investors at large" is impractical. All have different situations, needs, incomes, abilities, fears, etc. In any case, most have gotten fairly sophisticated. You mention gold ETFs: they are not my favorite. For this shotgun approach I would prefer they buy SPDR Gold Shares (NYSEArca: GLD). It tracks gold. I prefer investors also buy individual shares among blue-chip golds, like Agnico Eagle (NYSE: AEM) and Goldcorp (NYSE: GG).

Q: Would you tell our readers a few of the most important parameters for separating a potentially strong gold stock from one they should avoid at all costs?

A: Don't buy mines with derivatives or hedges like Newmont and Barrick and many junior golds that get bank loans but get hooked on the terms tied to gold production. Ask questions. Watch the stocks' volume (on charts). Avoid low-volume golds as they are harder to sell at a good price. Learn charting, as a chart tells you whether people have confidence in a company, via chart patterns and trends.

Q: You mentioned that you found Citigroup's (NYSE: C) recent forecast for the doubling or even tripling of gold prices too low. Would you share your long-term target for gold? And how far into the future do you expect this bullish cycle to continue?

A: My targets for gold are $1,000, pause, then $1150, pause, then $1300, pause, then $1600. The pauses are 8% corrections, plus or minus. This is over a framework of one to two years, but starting soon for $1000.

Q: Please give our readers your view of the fundamentals that are driving this gold rush.

A: Gold has no fundamentals that you can invest by. Gold just is. Goldness exists. They give gold medals because people regard gold with respect and trust. Gold moves via emotion, fear, and greed. Not fundamentals per se.

Q: Let's switch to the US stock market, which doesn't look too friendly these days. I note that you see a potential for a short-term technical rebound, but overall, a continued downward spiral. Do you have a near-term target for the Dow Jones Industrial Average and Standard & Poor's  500 and would you project how long investors may have to wait to see a true bullish turnaround in equities?

A: Regarding the US stock market: Stocks in general, worldwide, are falling and will keep falling, on balance for many years, with massive rallies in between. This is due to the debt-black hole the US is in, a hole the US has pulled the world into with it.

For the more sophisticated: Buy gold bars outside the US, e.g., Canada, Switzerland, Australia, New Zealand, and Singapore. Outside is the key word.

For fine-tuning gold: buy today at market, and again if it dips to $905.

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