Technical Outlook: Golden Inflation Hedge

For example, the Central Fund of Canada (CEF Quote), which is required to have a minimum of 90% of its assets in gold and silver bullion would appear on the surface to be a good way to benefit from rising prices. However, if you do a little bit of research you'll see that this fund is trading at a 10.5% premium to its assets. That means investors are paying $105 more than they need to on every $1,000 invested.

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A better option might be streetTRACKs Gold Shares Trust (GLD Quote). This fund is designed for investors who want a cost effective and convenient way to invest in gold. This fund is currently trading at a 0.23% discount to its net as a value compared to the 10.5% premium of the above fund.

Technically, the fund is holding near the $84-$85 support area, and as long as that holds it may be a good place to start initiating new positions.

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Another interesting option is the Gabelli Global Gold Natural Resources & Income Trust (GGN Quote). The fund isn't a pure play on gold because it holds other mixed assets than just gold companies such as its largest holding Petroleo Brasileiro SA (PBR Quote), which accounts for almost 4% of the total holdings. However, it is currently trading at an 8% discount to its net asset value and investors may benefit from both oil and gold holdings.

Technically, Gabelli Global Gold has been in a trading range between $26 and $31, and I think it's only a matter of time before it breaks out above the upper level and starts a new uptrend. By the way, there's one nice kicker while you wait for the move, because the fund is paying a hefty 6.5% dividend.

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Gold and gold funds can certainly be a volatile area of the market to invest in, but if inflation keeps rising and the long-term trend of the dollar continues down, gold and gold shares are likely to be a solid long-term investment for years to come.