4 Prime Precious Metals Stocks

09/06/2011 11:56 am EST

Focus: STOCKS

Curtis Hesler

Editor, Professional Timing Service

It’s looking like there will be a correction in precious metals stocks in coming weeks...but don’t panic. It’s a great time pick up these stocks at bargain prices, writes Curtis Hesler of Professional Timing Service.

I know that there are various companies that have been in the physical gold business for many years. Nevertheless, if you are conservative enough to want actual gold, you need to take delivery and store it yourself.

For those interested in buying or accumulating physical gold, I will leave the logistics to you. I will leave the rare-coin advice to someone else. The key is to take delivery of your coins.

At this stage of the bull market, I recommend that you wait for weakness and then position physical gold by scaling in. Buy some at the $1,750 level and then add in $100 drops—at $1,650, and then at $1,550.

Again, I don’t really expect to see gold to return to $1,550, where there is major support, but it is good to have a plan as to what you might do if it does. I would back up the truck at $1,550.

Silver is not my preference, but I realize some of you are interested in positioning physical silver as well. There is no doubt that silver will appreciate along with gold. My longer-term outlook calls for silver to break $50 next year, with an ultimate high of about $120.

You can’t really buy a barrel of crude and put it in your bank vault, but gold and silver bullion is another matter. Physical silver is a buy at $35 with a “back up the truck” level of $30. I think there is more likelihood of seeing silver fall to $30 than to see gold at $1,550.

Nevertheless, one should use weakness to accumulate positions. One time, all-or-nothing buys—especially of larger commitments—usually do not benefit you as well as taking a more patient approach and accumulating at successively lower price levels if possible.

You all know my feeling about ETFs, and one day there is going to be a big problem with one of these that will, in turn set off a major market calamity.

The SPDR Gold Trust (GLD) is one of the better ETFs out there, but if you are taking a long-term, conservative position by investing in gold, GLD is not the way to do it. Nothing is held in trust for you as a shareholder. There are structural risks in ETFs as well, but GLD is a decent short term trading vehicle if you are interested in that sort of thing with gold.

If you are looking for a long-term investment approach in bullion outside of direct physical gold ownership, my preference is Central Gold Trust (GTU). Our buy price is now $57.50, and that looks good for now. Central Gold Trust is also advantageously taxed as a stock rather than as a commodity like GLD is, and GTU can be purchased in tax-deferred accounts.

Central Gold Trust is a closed-end mutual fund that holds gold bullion. Their sister fund, the Central Fund of Canada (CEF), is coming off toward our buy price. I had originally set this at $20.75, but I would like to suggest a scale-in approach here.

Buy one-half of your intended position at $22 and then the other half at $20.75. This may seem like an odd way to go about positioning; but in the long run, it has advantages when markets become as volatile as they have been lately.

Silver will return to $50, and eventually it will move higher. The Central Fund of Canada holds about 50% in silver bullion. Silver is a substitute for gold in many instances, but I do like to stick with the heart of the matter when investing.

Gold should be your principal play, but silver is not to be discounted and offers some diversification. I still want to buy back Silver Wheaton (SLW). We need to do this advantageously and at a good price. Nevertheless, our $29 buy price is looking a bit low. Raise the buy price to $31.

Silver has been lagging gold, and that was the reason for our sale of Silver Wheaton last May, and why I want it back—only if we can get a leg up price-wise. The media has been suggesting that because of the lag in silver prices, one should sell his gold to buy silver. I am not willing to go that far.

Silver lagging gold of late is a case of what I like to call “comparative weakness,” and it is not a reason to be an overly aggressive buyer. You should always stick with the strongest performers.

Nonetheless, buying back some Silver Wheaton if the price is right will work out for us, as should a few dollars in Central Fund of Canada if we can get it at our price.

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