not too late for investors

Tony Locantro at Patersons Securities reccomends IGR and talks about Gold
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Not too late for investors to take a shine to gold

Robin Bromby From: The Australian September 29, 2010

AT least Tony Locantro at Patersons Securities is frank when it comes to advising investors about gold.
"I cannot predict what may happen in this gold bubble," he says, adding: "But gold stocks were 18 months behind [the metal's] great run in 1978-80."

There's that word "bubble" again. Billionaire George Soros used it recently when warning the world's investors that gold may be approaching the end of its run, that gold is not safe any more.

On the other hand, the gold bugs are talking about it reaching $US1500, even $US2000 an ounce. Gold is going up, but nothing goes up forever. The one "known unknown" is when the music will stop -- and it will stop -- for the metal.

There's no point worrying about what you can't know. Gold has been on a tear of late, and no sooner had it reached $US1280 an ounce last week than all the talk was about $US1300.


Investors must ask themselves a few questions. One is whether it's already too late to make an entry into gold. The answer is: probably not.

The next question is, having decided to chance your golden arm, whether you invest in physical metal or stocks.

The general consensus is that, apart from having a small amount of metal, stocks are the best bet. After all, as plenty of analysts point out, most gold stocks haven't yet had their day in the sun.

Then comes the hard part: which stocks?

First, let's tempt the gods by asking whether it will be different this time; that we won't have a soar-and-bust gold story as we did 30 years ago?

Locantro has a point about drawing parallels between 1980 (when gold soared to its previous closing high of $US850/oz) and now, when it's breaking records again.

Stocks lagged the metal then, and he thinks this time the physical metal price has left stocks -- other than those exploring in Africa -- asleep in the stalls.

But there are distinct differences between 1980 and now. Back then, the movements were sharp and short-lived. Gold went from a 1978 high of $US243/oz to $US524/oz in 1979, then to the 1980 closing top of $US850. But the shine went off gold very quickly, with 1981's high a disappointing $US599 and 1982's $US488, followed by a gradual deterioration to the 1999 low of $US252.80/oz.

This time the rise has been slower and seemingly more assured: a 2006 high of $US725/oz, up as high as $US841/oz in 2007, $US1011/oz in 2008 and a 2009 closing high of $US1212/oz.

Gold has shown a lot more staying power this time around -- and that 2009 high is not significantly short of where gold has hit in recent weeks, so the term "bubble" might be a tad dramatic.

David Lennox, resources analyst at Fat Prophets, believes there is more to come for gold. With the US probably facing another round of economic stimulation, Washington is left with only one tool -- printing more money. Interest rates can't be lowered any further and the rest of the world is becoming sated on US sovereign debt.

But Lennox says the immediate rise might not be as strong because the already high metal price might restrain the usual big buying associated with China's National Day on Friday and the upcoming Indian wedding season.

Now the hard part: what to buy?

Lennox likes Alkane Resources because of its Tomingley project in NSW (and rare earths, too), Saracen Mineral Holdings with its recent resource upgrade at the Carosue Dam mine in Western Australia, and Prosperity Resources with its exploration successes in Sumatra.

Indonesia is an emerging story for local investors. Wise-Owl recently put a tick beside Arc Exploration with its new gold prospect at the Bima project.

Locantro suggests looking for gold companies that have the potential to either start mining or increase their resource in the next two years. These include Integra Mining, Ramelius Resources and Northern Star Resources. Keep an eye, too, on Pioneer Resources, which is about rev up drilling in the west.

BGF Equities has put a "buy" recommendation on ABM Resources, which is exploring in the Northern Territory's Tanami region and has potential to make a significant find.

This is just a starting point. There are many engaging gold stock stories out there -- provided, of course, the bubble doesn't burst.