Buy These Nuggets When Gold Goes on Sale

12/28/2010 10:01 am EST

Focus: COMMODITIES

Curtis Hesler

Editor, Professional Timing Service

Curtis Hesler, editor of Professional Timing Service, expects the precious metal to retreat before soaring to $2,500 an ounce.  

Gold is the prime place for long-term investment money. However, if gold hits $5,000 an ounce—which is possible—you are not going to like the economic environment or the market for paper assets that will accompany that price.

We are talking about double-digit inflation for raw materials priced in US dollars. We are talking about double-digit interest rates for US Treasuries. We are talking about a crippled government with all but a total loss in global influence and hegemony.

I am not saying that I anticipate $5,000 gold at this point, but I do see gold going much higher. My target is $1,600 during 2011, and eventually $2,500. The move from $1,600 to $2,500 will be dynamic, and it will occur during the velocity phase of the gold bull. Obviously, you should have money invested in gold.

After topping out over $1,400 in November, bullion prices are coming off. Some minor support has been established at $1,320, but the possibility is good we will see $1,250 before this correction is over. If you have no physical gold, you might buy a little here. Then add to your position when gold hits $1,320, and accumulate heavily at $1,250 in the event we see that level.

I expect the mining shares to come off a bit more. It is best to concentrate on the established companies and closed-end bullion funds like Goldcorp (NYSE: GG), Royal Gold (NYSE: RGLD), Central Fund of Canada (NYSE: CEF), and Central Gold Trust (AMEX: GTU). Goldcorp is a buy at $42.50 [shares closed just below $47 Tuesday], and the buy price for Central Gold Trust should remain at $49.90 [shares currently fetch $53.60]. I am raising the buy price for Central Fund of Canada to $17 [it currently trades at $19.92] and for Royal Gold to $49.00 [shares closed at $52.37 Tuesday—Editor]. All of these are excellent gold holdings at those respective buy prices.

I also like the Sprott Physical Gold Trust (NYSEArca: PHYS). This is a closed-end fund with favorable tax treatment compared with a gold ETF. Like GTU and CEF, Sprott Physical Gold Trust holds bullion (in this case, 100% gold) and is taxed as a stock—not as a commodity. [Gains on commodities are taxed at the investor’s income-tax rate, which can exceed the tax on long-term capital gains—Editor.] The premium over net asset value fluctuates, so one needs to buy this on weakness, when typically the premium shrinks. If we can pick some up at $11.50 or better, we should be very pleased in the future. [Shares closed at $12.50 Tuesday—Editor.]

[Jim Jubak recently recommended three other plays on higher gold prices, while Eric Roseman was bearish on a big producer ahead of an expected correction. But it’s tough to get a correction when all the bears are waiting to buy—Editor.].

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