Gold has faced a tough couple of weeks, but during the wait for renewed weakness in the U.S. dollar and for an investment strategy, investors should focus on the mid-sized and junior exploration companies, says John Ing, the president of Maison Placements Canada Inc.
"We are awash in U.S. dollars and the central bankers are looking for alternatives," Mr. Ing said. "Historically, gold has been an asset of last resort and an alternative currency."
Bullion closed yesterday at $657.20 (U.S.) an ounce, down from about $687 in early May. Mr. Ing expects gold could reach $850 an ounce this year and he forecasts it will continue to climb to $1,000.
"While the seniors remain attractive from a pricing point of view, the lack of growth makes the mid-tier group of companies such as Agnico-Eagle Mines Ltd., Kinross Gold Corp. and Meridian Gold Inc. appealing, given their rising gold production profiles," Mr. Ing said.
"The industry itself is spending very little on grassroots exploration," Mr. Ing said, referring to industry giants such as Barrick Gold Corp., Newmont Mining Corp. and Goldcorp Inc.
Mr. Ing said he has been gravitating to the low-tier companies. "I'm putting a bet on the real junior guys - the guys spending the money," he said. "As a package, we like Continental Minerals Corp., Etruscan Resources Inc., Excellon Resources Inc., St. Andrew Goldfields Ltd., Philex Gold Inc., Unigold Inc. and U.S. Gold Corp."
The idea of buying a group of companies as a package is that the big winners will more than offset the losers, he said.
Continental is a potential near-term gold producer in Tibet; Etruscan owns a huge land position in West Africa; Excellon is developing silver properties in Mexico; Philex is exploring in the Philippines with Anglo American PLC, a partner in one project; St. Andrew is exploring in Timmins, Ont.; Unigold owns properties in Dominican Republic; and U.S. Gold is exploring property in Nevada.
It's a geographically diverse group with good management, Mr. Ing said. As gold goes higher, grassroots exploration companies will benefit, he said.
Yesterday's close: $657.20 U.S., down $4.30