A Golden Option

09/30/2005 12:00 am EST


Eric Roseman

Editor, The Commodity Trend Alert

"Gold is breaking-out and hitting new 17-year highs and I'm madly bullish about the sector for 2006," notes Eric Roseman, editor of Commodity Trend Alert. Here, the advisor looks at his favorite gold stock to play this expected trend.

"The twin costs of Hurricane Katrina and Rita will be enormous. The budget deficit is now way off the charts and shows no signs of being balanced for the remainder of this administration. The United States is just spending like there's no tomorrow and in time I truly believe we will have higher inflation. If you need proof of higher prices just take a look at gold, which is the most sensitive inflation barometer in the world. Spot gold is near a 17-year high. Gold buyers sense big trouble ahead for the world's largest and most indebted economy.

"Our strategy over the next 12 months is to focus on precious metals and I encourage investors to make sure they have sufficient exposure in this sector within their natural resource portfolio. While I am also very bullish on energy, of the two, I believe gold and silver will rally the most in 2006. Indeed, I expect the precious metals to be home to the next big move in commodities. This is where you want to be for the coming year.

"Goldcorp (GG NYSE), which merged with Canada's Wheaton Minerals last winter, continues to show some excellent technical formation on the charts. The company has a very rich war chest that it plans to use in order to make a large acquisition to further reduce its average cost per ounce, which is already well below the industry's average. I first recommended Goldcorp back in November at $14.97. It now trades just north of $20 a share. Over the next 12 months, amid a very difficult environment for most stocks, a US economy caught in stagflation and rising prices, I expect to see Goldcorp trade above $30.

"For those aware of the inherent risks of options, we suggest the Goldcorp January 2006 22.5 call options at prices up to 1.35. Remember, this is not a defensive hedge. Rather, this is a direct play on a bull market that should yield at least 100% or more by Christmas, if not sooner. Place a small sum of your risk capital into this trade and ride the gold bull."

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