Fabian: Going for Gold
04/21/2006 12:00 am EST
"If you are extremely risk averse, steer clear of our latest idea," says fund expert Doug Fabian, whose long-term system recently issued a buy signal for gold funds. Here, as well as in his workshops, he looks at markets from the view of both "investors" and "traders."
"We are recommending that you allocate 12.5% of your portfolio to gold stock funds," says Doug Fabian in his Successful Investing newsletter, designed for long-term investors. "The go ahead for issuing this gold Buy was based on the rules of the Fabian Gold Plan, which dictates that if the Gold Fund Composite moves above its previous buy cycle high, we can re-enter gold stocks.
"That move above the previous buy cycle high occurred on Thursday, March 30, and as a result I am giving those investors who can handle the volatility a gold allocation brings the go ahead to get back into funds whose performance is linked to the yellow metal.This time around it is okay for investors to take a position in the streetTRACKS Gold Shares (GLD NYSE). This is an exchange-traded fund that is based on the spot price of gold bullion. This fund is the safest of the gold plays out there, but it is also offers less upside potential than gold mining stock funds. If you want to be more conservative with your gold allocation, GLD is your best option.
"If you want to swing for the fences and are willing to accept a potential 10% drawdown in gold stock funds, then by all means go for one of the recommended gold funds, which are US Global Investors World Precious Minerals (UNWPX NADSAQ), American Centrury Global Gold (BGEIX NASDAQ), Fidelity Select Gold (FSAGX NASDAQ), and Rydex Precious Metals (RYPMX NASDAQ)."
For those with a short-term trading horizon, Fabian also offers his ETF Trader - and that service's latest timely moves were to also shift into gold positions. He explains, "Both streetTRACKS Gold Shares (GLD NYSE) and iShares MSCI South Africa (EZA ASE) have enormous upside potential for two reasons. First, I expect the price of gold to rise in coming months as inflation jitters and international turbulence combine to force investors to build a solid fortress for their wealth. Uncertain times always lead to a flight to quality, and there's no higher-quality investment than gold.
"Both GLD and EZA offer you a way to hedge against a falling US dollar, and to take advantage of a rising rand (South Africa's currency) at the same time. The South African stock market has been rising smartly in recent weeks, as concerns about gold production in rival countries such as Indonesia have led international investors to direct more of their capital toward Johannesburg. South African companies that mine silver, platinum, and copper are also experiencing uptrends.
"Meanwhile, both of these ETFs have seen corrections in recent weeks, but during those corrections they did not break through their 200-day averages. Since then, both funds are now heading higher. With international uncertainties and inflation fears still increasing, I expect that the long-term trend in the natural resources sector will remain positive. So it's a great time to go for the gold."
Editor's Note: Presciently, Fabian's buy signals for gold came before the recent upward surge in price. Despite these near-term gains, we point out that his Successful Investing indicators are based on long-term trends. And regarding his shorter-term advice in The ETF Trader, he adds, "Can prices get any hotter than they are right now? Well, yes, they can. Further, I think they probably will. Now I am not saying there won't be a pullback. But long-term trends are certainly lining up in favor of precious metals prices, and my recommended ETFs are a solid way to profit from this boom."