Get Ready For the New Gold Rush

03/29/2007 12:00 am EST


Eric Roseman

Editor, The Commodity Trend Alert

Eric Roseman, president of ENR Asset Management and editor of Commodity Trend Alert, says gold prices are heading up again-and with them will go the lagging shares of large-cap gold producers.

Over the last 12 months, spot gold prices have gained 17.9%, [while] the large-cap gold stocks have declined 20% or more. This year Goldcorp is down 12.6%, Barrick Gold is off 5.3% and Newmont Mining is 3.6% lower. The XAU Index of mostly large-cap gold stocks is down 3.5% in 2007. The bull market for gold remains very firmly intact as supply and demand are about even. Gold has emerged as a surrogate currency in the 2000's as most currencies are bulging at the seams with explosive debt, including the euro. Many central banks, especially in the emerging markets, are aggressively accumulating gold reserves. Inflation is also climbing, with government statistics on consumer prices fabricated and not a reflection of the true price level. Are you really paying just 2.4% more for goods and services over the last 12 months? We all know better, and so does gold.

Also, over the next several months, the Federal Reserve will have to cut lending rates in order to save the housing market. That's when the dollar will resume its bear market and gold will blast off above $700 for good. I think we're going to break last June's 26-year high of $730 an ounce this summer and by June 2008, we'll trade over $850 an ounce, a new all-time high for gold.

It's exactly at $730 an ounce, I believe, that the major large-cap gold stocks will truly break out of their recent morass. That's why I continue to recommend Goldcorp and this week, Newmont Mining (NYSE: NEM), which I believe will be purchased by Barrick Gold or another major producer. (See Top Pros' Top Picks, "Newmont Looks Like a Pot of Gold," March 26.) The large-cap gold stocks have lagged badly over the last 18 months and still trade about 30%-40% below their May 2006 highs.

From late 2004 until May 2006, we more than doubled our money on Goldcorp (NYSE: GG). Then the precious metals corrected last spring followed by news of GG's Agnico-Eagle acquisition, of which the market does not approve. I'm for this merger, despite its massive price tag, because it will add to Goldcorp's booming reserves. GG is already the world's fifth-largest gold producer. This merger will increase its cost base per ounce, but over the next few years, I fully expect gold prices to blast through $1,000 an ounce and beyond. As gold prices continue to rise, we will break through GG's May 2006 all-time high of $41 and eventually, surpass $100. Yes, that's not a misprint: I said "surpass $100."

This week, I'm placing Goldcorp and Newmont Mining back in the Best Buys list. Both  companies offer superb long-term value at these low prices. Buy Goldcorp up to $27 (it closed Wednesday at $24.61) and Newmont Mining up to $48 (it closed Wednesday at $42.78).

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