Inflation or Deflation? Invest in Gold 2 comments
by: Dr. Stephen Leeb September 10, 2009 | about: ASA

The big question remains: will we experience inflation or deflation in the months ahead? The good news for investors in gold is that it doesn't really matter. Precious metals will do well in either scenario.

True, we have seen gold move, more or less, in step with the market of late. But the yellow metal has taken bigger strides. Despite the recent rally, the 12-month return for the overall stock market is negative 17%. Whereas, shares in gold miners - as measured by the Philadelphia Gold & Silver Index (XAU) – have gained 35%. That's a 52% outperformance for gold stocks.

Gold recently broke through $1,000 mark for the first time since February. We're not surprised by this move. And while gold may pull back a little in the near term, we have little doubt the metal of kings will seek much higher heights before too long. In fact, we have far more faith in gold today than we do in the stock market or the economy.

That's why we're recommending everyone own a stake in gold, including this gold fund which we expect will easily outperform the XAU in coming months...

SIDESTEP THE ECONOMY, BEAT THE MARKET:

Within the gold arena, both bullion and the large miners offer potential gains and protection from both the 'flations. However, the strongest growth potential can be found among the small to mid-sized miners that are rapidly expanding their reserves. The easiest way to get diversified exposure to this group is through the closed-end fund, ASA.

We like ASA because its top holdings are not the usual suspects – the handful of large blue chip miners such as Barrick (ABX), Goldcorp (GG), and Newmont (NEM), whose growth potential is limited. ASA does invest in these three, but underweights them in favor of faster growing companies like Randgold Resources (GOLD) and Newcrest Mining (NCMGY.PK).

ASA even includes one of our favorite junior miners, Nova Gold (NG), which is developing one of the largest gold deposits in the world (located in North America). Nova has partnered with Barrick on the project, which pretty much guarantees completion.

Nova shares once traded at around $20, before being trammeled last fall, and the stock carries some risk. But we believe it will eventually surpass its former high, and that the safest way to get a piece of the action is to buy ASA.