SPDR Gold: Set to Shine?

09/11/2014 9:00 am EST

Focus: ETFs

Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

This featured low risk idea is a trust trading as an ETF (exchange traded fund) that seeks to replicate the performance of the price of gold bullion, suggests value specialist J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.

The SPDR Gold Shares ETF (GLD) trust physically holds gold bullion and no other assets. GLD, created in 2004, maintains a low management fee of 0.40%.

Gold mining companies, such and Barrick Gold (ABX) and GoldCorp (GG) are experiencing declining mine production while incurring higher mining costs and higher labor costs.

The uncertain near-term future of gold mining companies can be avoided by buying gold ETFs. In addition, SPDR Gold Shares are a lot less volatile than most gold mining company stocks.

The recent volatility in gold has subsided. Since the beginning of 2013, GLD has been trading in a range that is getting noticeably narrower. I believe GLD will not decline further and will rise considerably during the next 12 months.

Investments in gold rise when international currencies become unstable. In addition, gold prices rise when consumer prices increase due to inflation.

Gold has been problematic. Usually, gold prices rise when economic or political problems become severe, but gold was in a steady decline from September 2011 to June 2013.

For this reason, I did not include GLD in the Cabot Value Model during the past several months. But now that GLD is trading at around $120 and the stock market is hitting all-time highs, I am recommending GLD as part of my defensive strategy.

GLD does not pay a dividend and is low risk. I expect GLD shares to rise to my minimum sell price target of $175.00 within one to two years. I also expect that this ETF will rise if hostilities in the Middle East escalate.

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