The gold price bull-bear debate now is all about the recent trend: Gold prices are up over 35 per cent year to date but have sold-off over $75 in the last week, making many analysts wonder if gold's bubble has burst or if this is a prime opportunity to invest in gold.
Gold bears say that markets never move straight up as gold has in the last two years. They argue that when momentum buying stops the downside will be steep, fast and painful. Friday's sell-off seemed to support the bears' thesis. But Alan Farley, RealMoney.com contributor, technician and stock picker, says he sees an orderly rally not a parabolic one. He says gold's upside move isn't over yet.
Farley: You don't see the momentum type moves like you'll see in a China stock....it's orderly. It's very institutional. You'll get a run-way period like we did with crude oil last year. I think that could be up somewhere between $1,300 and $1,500 and that may not happen until the first quarter of next year.
What kind of corrections can we expect?
Farley: I think we are always vulnerable to little corrections especially in the commodity market. I don't think it's going to be up every day. And I think as the long side gets more crowded I think you're going to have a few more shake outs....but that's all part of building an uptrend and I think this uptrend is not nearly over yet.
Will gold miners see the same upside?
Farley: Gold miners are at the whim of their hedges and also at the whim of the equity markets. In fact the gold miners, Market Vectors Gold Miners , hasn't hit a new high. It hasn't broken out yet. It's still trying to come up to about a two year high...I think there is a lot more upside to these gold miners, but I think you have to be a stock picker because every different gold miner is hedged in a different way.
Which are your favorites?
Farley: GOLD is one of my favorites, which is Randgold Resources ; Very, very strong. I believe they are a South African gold miner. IAMGOLD is another one of my favorite ones and I think if you want to play gold directly Barrick Gold is a good way to go now that their hedges are disappearing.... Of course I love Freeport McMoran . It's one of my absolute favorite stocks in 2009.
Which mining stocks should you avoid?
Farley: I'm not real crazy about Newmont Mining . I'm not that crazy about Kinross even though Kinross Gold just got upgraded. A lot of these mid and small miners I'm not as crazy about them because you're really making bets on what kind of resource they have in the ground. So generally I'd stick with blue chips, even though Newmont is a blue chip and not one of my favorites.
More on gold:
What do you think about the mining ETFs?
Farley: I think the Market Vectors Juniors is geared to the smaller miners. I would stick with the GDX as the direct play if that's what you're interested in. I think....you might want to wait for a little pullback in the [GDX]or take a 3 point profit when it gets to $57/ $57.50 because I think the ETF is going to stall even though the individual stocks embedded in it might continue to move higher
What about SPDR Gold Shares (GLD-N)?
Farley: The GLD, it's a straight play on gold. If you believe gold is going higher, then you buy the GLD. I trade real small now. I won't go in heavy on new gold positions. You still want to try to build...gold positions...take those moments of fear, move in and try to make something from them.
Remember it's a crowded trade on the long side so you don't want to get in there with both barrels now with a heavily margined position in the GLD because it has some downside. You want to try to get these pullbacks. But if you're interested in long exposure....[get a ]small position...build it over time at lower prices.