They say a dog is a man’s best friend, but for investors in these turbulent times, I would say having an exposure to gold is a good equivalent

The past few months have seen gold and most other commodities come off record highs. Whenever any market moves up or down so quickly we get some sort of a correction.

But a correction does not mean the long-term trend is over. If you go back to the bull market in stocks before 2000, we had many bumps along the way, so it would be foolish to think that commodities would act any differently. 

Just when everyone was convinced that oil prices were on the way to $200 a barrel and the experts were telling us to get out of the US dollar and into oil, we now see exactly the reverse, the dollar bouncing and oil moving to $100 – not a bargain but better than $150.

Gold has to be one of the best commodities to hold at present, even with the stronger US dollar, which makes gold more expensive for overseas buyers. So far, gold is holding up extremely well.

Seasonally, gold tends to do well from September to December. The recent summer sell-off in gold was nothing new, and anyone buying gold at below $800 should be well rewarded in the next few months.

You can back gold in various ways including spread bets, fixed odds and warrants. At present, I have trades on gold using all three methods. For most, a covered warrant on gold would be a fairly safe way to get exposure to gold with a strictly limited risk. The SG $800 December calls 08 are currently trading at 30p (Code: SK72).

What I am looking for is gold, and possibly silver, to decouple from other commodities and move higher, even if oil continues going down. Gold is accumulated as a store of wealth rather than actually used as in the case of copper. While I am long gold, I am short copper as I see demand falling for industrial metals until at least early next year.

Reduced risk appetite
From my own research and talking to banks who deal with wealthy clients, there has been a large shift away from any investment with high risk. In fact, one Swiss-based bank told me that most clients were holding large amounts of cash on account rather than speculating on the stock market or any other market. You could say that this is a good contrary indicator, as at some stage these clients will get fed up of earning small returns on cash and want to get back into the markets, but this could be some time yet, perhaps running into months. What we could see is more wealthy customers looking at gold as a store of wealth, and this could be what propels the next big move up in gold, which could easily take us to around the $1,000 level before spring 2009. 

What about gold shares?
Investing in physical gold and investing in gold mining shares are two different animals. Just because actual gold prices go up, it doesn’t mean that gold mining shares will do likewise; although we are due a bounce in mining shares. One way to trade gold mining shares is via the Market Vectors Gold Miners ETF (AMEX: GDX) This gives you exposure to a basket of major mining companies including: Barrick Gold Corporation, 12.60%, Goldcorp Inc, 10.67%, Newmont Mining, 7.65%, Kinross Gold Corporation, 5.70%, Agnico-Eagle Mines, 5.38%, Yamana Gold Inc, 5.27%, Gold Fields Ltd ADR, 4.78%, Harmony Gold Mining Company Ltd ADR, 4.60%, Randgold Resources Ltd ADR, 4.59% and Buenaventura Mining Company Inc ADR, 4.32%. The percentages represent the weighting of each share.

Every time the GDX gets to around the $32 level, we see a strong rebound, so this could be a good trade for the next few months. IG Index and most spread betting companies offer a spread bet on GDX. You could look at the December contract with a stop
at around $28.00.

Vince Stanzione has produced a home-study course to teach private investors how to benefit from trading financial spread bets and fixed odds, priced at £347. For more details, visit www.fintrader.net or call 01189 476630.