Seven picks for gold-hungry clients

By Don Sutton | September 15, 2011 | Last updated on September 15, 2011
3 min read

  • Has your faith in gold slipped? Vote in our poll.

    As sovereign debt problems in Europe and stagnant economic growth in America continue to dog the world economy, investors naturally turn to safer havens like precious metals for security. The price of gold has touched close to $1,900 but is still nowhere near its highest value when inflation is factored in.

    So, if the markets can’t seem to get any worse, are gold equities still a reasonably safe place to be?

    Ross Healy thinks some gold stocks are worthy of investment. Healy is chairman and CEO of Strategic Analysis Corporation and formerly director of research at Merrill Lynch Canada. With 46 years of investing experience, Healy is most famous (at least to me) for his contrarian announcement in 1999 that Nortel Networks shares were worth less than $10 at a time when Nortel shares were hitting highs of more than $110.

    Healy was not quite right—Nortel shares declined to almost nothing in two short years and I have been client of his ever since.

    In an investment letter on Friday, Healy wrote that he continues to like the potential of some gold stocks particularly because they have lagged behind the value of the price of bullion.

    Healy writes, “We also continue to recommend the use of those stocks as ‘catastrophe insurance’. While the potential for an explosive move upwards in those stocks remains a clear possibility because of the political and economic risks in the global economy today, we cannot predict—obviously—that such an event is likely to occur “now” as opposed to next week or next year. All that we do know is that such moves have occurred four times previously in the past 31 years and the dynamics for such a move are certainly present.”

    I shudder at the mention of ‘catastrophe insurance’ and wonder how much worse things can get for the world economy. While obviously many investors flock to gold in these circumstances, we are reminded of the rich people on the Titanic who allegedly held on tightly to their gold coins and bars all the way to the bottom of the cold Atlantic.

    So with a word of warning that economic events may have to get a lot worse before they get better, here are seven Canadian gold stocks that are at or near year highs.

    1. Barrick Gold Corp. Headed by Peter Munk, Barrick is one of the largest gold producers in the world with diversified assets in the Americas, Africa and the Australian-Pacific region. It recently announced promising drill results from Cortez Hills mine in Nevada. A favourite of Strategic Analysis.

    2. Goldcorp Inc. Calling itself the lowest-cost senior gold producer, Gorldcorp has operations throughout the Americas. In June, it announced that Q2 revenues increased 62% over 2010 to $1.3 billion on gold sales of 606,400 ounces.

    3. Yamana Gold Inc. Another favourite of Strategic Analysis, which rated it a ‘Buy’ in August. The company holds properties throughout central and South America. It recorded record revenue growth in Q2 of 63% of $573 million.

    4. Eldorado Gold Corporation Eldorado has operating mines in China, Turkey, Greece and Brazil. In June, the company announced the startup of the Efemcukuru Gold Mine in Turkey, which is expected to produce 120,000 ounces of gold per year when it hits full production.

    5. IAMGold Corp. IAMGold has operating mines in Quebec as well as mines in Mali, Suriname and Burkina Faso. Recently it sold its Mupane Gold Mine in Botswana to Galane Gold for $12.5 million, $17.9 million in shares and $3.8 million in promissory notes in Galane.

    6. Central Fund of Canada Ltd. Central Fund is a gold and silver investment company holding a 50-50 split of gold and silver bullion worth about $6.3 billion.

    7. Franco-Nevada Corp. A royalty company that buys interests in a diversified range of gold mines as well as interests in oil and gas and other assets. On Sept. 6, the company celebrated its listing on the New York Stock Exchange.

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    Don Sutton