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| Spot gold hit a 17-year high, but analysts still see upside in the precious metal. |
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NEW YORK (CNN/Money) -
Even though spot gold prices have jumped to a 17-year high, it may not be too late to get in on the gold rush.
The American Stock Exchange's index of gold-mining stocks, or BUGS, have tracked steadily higher all year, and individual gold and mining stocks including Placer Dome (down $0.27 to $16.68, Research), Newmont Mining (down $0.98 to $45.25, Research) and Barrick Gold (down $0.48 to $28.57, Research) have rallied too.
With prices hovering near $470 an ounce, some analysts see the precious metal hitting $500 or so by year-end.
Alaron Trading forecasts a 2005 high for gold at "conservatively, $490 an ounce," while Citigroup sees gold hitting $500 by year end.
Where is the upside in a commodity that has made a rapid run?
"Gold should be well-positioned if the U.S. economy slows sharply, given debt and dual-deficit strains that would likely emerge," said John Hill in a Citigroup research note.
Many analysts had thought gold would soar after the stock market bubble burst in the late 1990s, but investors sought assets such as real estate and plowed money into hedge funds instead.
Now, with some worried about a housing bubble and hedge fund returns slowing, some money managers see gold as being the next logical investment bet in uncertain times.
"We're seeing the beginning of much higher prices, driven by problems with the dollar," said James Turk, an independent gold analyst and founder of online gold trading platform GoldMoney. "People need to protect themselves in this environment, and investors are getting more defensive," Turk said.
And while global demand for the precious metal is up, Citigroup said production will probably only grow 1.3 percent in the second half of the year, versus earlier forecasts for growth of 3 to 3.5 percent. And global output was flat from in the first half of the year.
Don't buy the metal...
To get into gold, James Dines, author of a metal newsletter The Dines Letter, said that buying the hard metal is not the way to go. "It's too difficult to sell, store and insure," said Dines. "Gold stocks are the best way to go."
According to Citigroup, gold equities underperformed in the first half of 2005 relative to the price of spot gold, but that is unlikely to be the case for long as more investors seek the perceived safety of the precious metal. (For more on what the gold rally means for inflation and the economy, click here).
The investment bank's favorite gold stocks are Barrick Gold (down $0.48 to $28.57, Research), for its growth, and Newmont Mining (down $0.98 to $45.25, Research) for its strength.
"As with all investments, what you buy depends on how much risk you can tolerate," said Dines. If you're conservative, go for a gold blue chip like Newmont. If you are more speculative you can add in something like Goldcorp Inc. (down $0.62 to $19.78, Research)"
Exchange-traded funds are another way to invest in gold. In November 2004, an ETF called StreetTracks Gold Shares (down $0.59 to $46.47, Research) was launched specifically to track the commodity.
According to Morningstar, within weeks after launch, StreetTracks amassed $1.5 billion in assets. The ETF has risen about $4 in the last six months, currently trading at about $46.50 from about $42.50 in April.
Barclays Global Investors was second to market with its gold ETF, the iShares Comex Gold Trust (down $0.57 to $46.53, Research).
There are gold funds managed by companies including First Eagle Funds and top-ranked gold fund the Midas Fund. But some money managers say a fund is not necessary, since there is a limited world of gold stocks to choose from.
As a percentage of a portfolio, gold is a hedge and usually soars in times of economic duress.
Some managers say it should account for no more than 5 percent of a portfolio, but Dines said the percentage should be an individual choice based on the risk an investor is willing to take on, his or her age and individual investment goals.
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Does a fast-growth gold investment mean greater economic woes? Click here for more.
Gold hit a 17-year high. Click here for more.
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