Tickers in this Article: ABX, GG, NEM, AMEX:NG, KGC, AU, GLD, JPM
Another rate hike from the world's fastest growing economy failed to make gold lose its luster, and miners will dig up good fortune from resilient gold prices.

Spot gold futures doggedly climbed 1% last Tuesday in the face of China's aggressive monetary policy tightening. For the second time in a little over six weeks, China hiked its benchmark interest rates. One-year deposit rates were increased to 3%, and one-year lending rates were boosted to 6.06%. Considering global interest rates' one-way ticket up, gold's stubborn rise to a thee-week high is telling of the metal's core strength. (For more, see 8 Reasons To Own Gold.)

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There may be no better long-term asset class than gold right now. The 10-year gold chart looks like a stairway to heaven, and the fundamental reasons to own gold are still in place. These include:

  • Strong long-term global demand, particularly from India and China, underpinning precious metal prices.
  • Gold becoming the de facto safe haven global currency against inflationary pressures.
In addition to gold's bullish reaction to China's monetary policy move, recent M&A activity suggests gold miners are optimistic. On February 3, 2011, Denver-based Newmont Mining Corporation (NYSE:NEM) announced a $2.33 billion acquisition of Canadian miner Fronteer Gold Inc. (AMEX:FRG). The deal represented a hefty 37% premium to Fronteer's February 2 closing price. Based on this confluence of factors, it could be time to take advantage of gold's poor January performance and increase your portfolio's exposure.

Gold Shakes Off Rust
Comex gold weakened under pressure following China's previous rate increase, falling from an all-time high of $1,423.70 set in December to below $1,320 in late January. Meanwhile, the SPDR Gold Trust ETF (NYSE:GLD) - which aims to mirror the price of gold - peeled back more than 8% from its own all-time high of $139.54 until the January 27 spot gold low. But a two-week gold winning streak has reclaimed a chunk of the January retracement. More importantly, the most recent round of monetary tightening from China failed to chip away at gold as it did back in December, evidenced by the 1% Tuesday rally.

Gold: A Commodity and Currency Trade
While the effects of growing global demand has helped push metals like gold and copper near all-time highs, inflation could be the gold driver to watch. Gold is fast becoming the ultimate safe haven currency. Affirming the gold currency standard, New York-based banking giant JPMorgan (NYSE:JPM) will now accept gold as collateral. (For more, see What To do About Gold Now.)

Global events are forging a gold currency rush. Sovereign debt problems plaguing industrialized nations, coupled with geopolitical volatility - particularly in the Middle East - will support gold as a bullish currency trade.

Miners Looking to Ride Momentum
If gold can continue shining, higher realized prices translate into more profit for miners. Gold miners including Newmont, Barrick Gold Corporation (NYSE:ABX), Goldcorp (NYSE:GG), Kinross Gold (NYSE:KGC), NovaGold Resources (AMEX:NG) and AngloGold Ashanti Limited ADR (NYSE:AU) would be primary beneficiaries from such a spot gold rally. Since gold bounced off the January 27 low, Goldcorp and NovaGold have assumed the leadership position gaining 4.1% and 3.7%, respectively.

There's value to be found in miners as well. While the S&P 500 has returned 5% year-to-date, Kinross is down 11.7%, Barrick Gold has given up 10% and Goldcorp has lost 6.3%. Among this group, Newmont features the best earnings multiple priced at 14.1-times earnings and the biggest yield (a modest 1.04%).

Downhill Battle
Long-term momentum is glaringly transparent in multi-year gold charts, yet there are headwinds to the gold play. As long as the market continues to rally, valuation for both spot gold and the broad market is a concern. Also, investors should be mindful of softer seasonal demand out of India, the world's largest consumer of physical gold, as well as China.

The Bottom Line
Nevertheless, Tuesday's gold signal was clear; the precious metal can withstand China's fight against inflation. Gold's star dimmed slightly in January, improving valuations and setting the stage for the next gold rush. Gold miners will reap the rewards of buoyant bullion prices. (For more, see Is Gold A Safe Investment?)

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