How to Trade $2,000 Gold

09/19/2012 8:00 am EST

Focus: COMMODITIES

John Nyaradi

Publisher, Wall Street Sector Selector

Gold and gold ETFs have been making headlines since the Fed’s announcement of QE3, with some analysts predicting $2,000/oz for the precious metal.

Major players in the gold market, including Jamie Sokalsky, CEO of Barrick Gold (ABX), say that gold could reach as high as $2,000/oz on the strength of quantitative easing, a declining dollar, and declining output from mines.

Many analysts expect gold to continue its bull market that started more than ten years ago, as investors look for a hedge against inflation and the devaluation of the US dollar. QE3 is expected to add to that trend of currency devaluation, and so gold has recently taken on even more luster than it previously enjoyed.

Furthermore, many central banks have become net buyers of gold, which adds to demand. They’re forecast to buy more than 400 tons of the precious metal this year. And while demand is rising, supply is relatively flat, and might even decline worldwide.

Other gold bulls include mainstream analysts like Bank of America (BAC), which recently forecast the possibility of $2,000/oz. gold by the end of 2012.

Here are two gold ETFs you can trade to profit from higher gold prices:

SPDR Gold Trust ETF (GLD)
This ETF reflects the current price and trends of gold bullion, and so offers exposure to the gold market within a brokerage account. The gold spot price for GLD is determined by the 24-hour global over-the-counter (OTC) gold market.

This ETF is the world’s largest gold ETF and second-largest ETF in existence, second only to the S&P 500 ETF (SPY). Here is a recent daily chart:

chart
Click to Enlarge

Next: iShares Gold Trust ETF

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iShares Gold Trust ETF (IAU)
This ETF reflects the current price and trends of gold bullion, and so offers exposure to the gold market within a brokerage account. IAU is backed by gold held in trusts located in London, Toronto, and New York.

The gold spot price for IAU is set by the London PM Fix Price for spot gold, as determined by the London Bullion Market Association. Here is a recent daily chart:

chart
Click to Enlarge

Other ways to access gold are through miners like MarketVectors Gold Miners (GDX) or Market Vectors Junior Gold Miners (GDXJ).

Bottom line: Gold bulls are feeling their oats with QE3 now in play, and if $2,000 gold is a realistic forecast, another 15% gain could be seen as early as the end of the year.

John Nyaradi can be found at WallStreetSectorSelector.com.

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