Since gold has started the year on a huge tear, every day you can find someone who's willing to say that it is "blowing off" and that its run is unsustainable. Listen, I'm perfectly willing to make a blow-off call if I think it's warranted, but I just don't see it in this case.

Fundamentally, in fact, I think gold is acting quite rationally. The Fed could have chosen to hold the line on interest rates, defend the dollar and let the long-overdue housing bubble burst run its course.

Instead, it has chosen to slash rates and aggressively provide liquidity in the hopes of fending off a recession. And it isn't just the Fed; look for central banks around the world to aggressively join in on this act in 2008.

Will it succeed? It might, it might not, but that added liquidity is going to go somewhere. Whether or not it stimulates some new sector of the economy to offset real estate, it's pretty darn reasonable to assume that liquidity will add to already-high commodity prices.

Further, gold is not just an anti-U.S. dollar story and could rally against all currencies regardless of what the U.S. Dollar Index does this year, much like it did in 2005.

The dollar made its recent low in late November. Since then, gold is up $100 an ounce. So, if gold is still playable, here are a few stocks that are worth examining:

1) Newmont Mining ( NEM) is an unhedged giant that produces gold in many corners of the world, from North America to South America to Asia. Gold bugs, who tend to dislike companies that hedge their production for any reason, tend to favor this stock as a leading large-cap choice. Newmont also mines some copper, silver and zinc. Its previous president, Pierre Lassonde, was well-liked in the gold bug community for his always-bullish outlook on metals prices, but the company often struggled to contain costs. The company may be in better hands under Richard O'Brien, who stepped in last year.

2) Goldcorp ( GG), a Vancouver-based miner, operates geographic zones similar to Newmont's. Record gold production for the company in 2007 is expected to be followed by another record in 2008, and the company just announced its first monthly dividend a few days ago. This well-managed company goes back and forth with Newmont for the title of second-largest gold miner by market cap.

3) Toronto-based Barrick ( ABX), the world's biggest gold company by market cap, has operations in the U.S., Canada, Australia, South America and Africa. Gold bugs have always complained about this company's hedging policy (though it has been scaled back from what it was a few years ago). I happen to think its current policy of hedging specifically to fund future projects represents level-headed management, and its share price has dramatically outperformed that of Newmont over the last three years, although it has underperformed the above-mentioned Goldcorp).

4) Anglogold Ashanti ( AU), the large South African producer, has operations that center on Africa, Asia and South America, but does have some U.S. operations as well. Technical types might like the look of the chart, because although it has underperformed most of the other large caps, it looks like it might be breaking out of a long-term sideways consolidation. If the price of the metal stays here or goes higher in the short-term, this stock might be ready to play catch-up.


With the consolidation activity we've seen in the last couple of years, it is reasonable to assume that trend will continue in 2008. The following companies are worth a look on their fundamentals, but they might also look pretty attractive to potential acquirers.

5) Enough brokerage firms today provide trading access to Canada that investors might want to check out Iamgold (symbol IMG on the Toronto exchange). The company is a producer of more than 1 million ounces of gold annually, along with other mineral and royalty interests that produce cash flow. The company also has four promising exploration projects. Primary operations are in West Africa, North and South America.

6) Because production at its important Morila gold mine is likely to start declining this year (toward its schedule life end-date of 2012), an investor in Rangold Resources ( GOLD) would be buying partly on the belief that its exploration projects will yield big results or that those properties will prove attractive to an acquirer. This all-Africa operator's shares have been performers, though, quadrupling in price over the last three years. Given its symbol, one wonders if some investors mistakenly buy it thinking they're getting the gold ETF?

7) Those who closely follow more speculative mining companies have loved Vancouver-based Novagold ( NG) for quite some time, saying that its properties were going to be true winners and that is was grossly undervalued based on what the company might eventually produce -- perhaps 700,000 to 1 million ounces annually. It is now time to find out, as its first mine is supposed to become commercially operational in the first quarter, producing enough gold to make the company cash-flow positive. Supporters say it is grossly undervalued based on today's gold price and its potentially huge in-ground reserves.

Smaller Speculative Plays

8) Seabridge Gold ( SA) is a North American operator headquartered in Toronto. This is a different sort of company, one that says it has no intention of operating mines itself. The game plan is to buy cheap deposits, study and prove their worth and then bring in an operator as a partner to actually do the mining. I don't tend to like stocks that don't rally in a bull market for their sector, and SA languishes well below its highs, but at least it did seem to do the first part of its strategy well as it bought a lot of property nearly 10 years ago back when gold was down near $300/ounce.

9) Northern Dynasty Minerals ( NAK) is a Vancouver-based company that is exploring for gold and other industrial metals in Alaska; it holds a huge property in Alaska that many analysts think is going to be a doozy. Anglo American, the U.K. mining giant, thinks enough of the property to have committed nearly a billion-and-a-half dollars to a 50/50 joint development partnership. This is not for the faint of heart, though, as this project isn't scheduled for commercial production until 2015.

10) As I recently wrote about more extensively , one other speculative way to play gold is via the Silver ETF ( SLV). Sound odd? Without repeating the comments made in the article I link to here, silver tends to rally most strongly at the end of major gold moves (as do the most junior, speculative mining shares). The fact that silver has not yet blown off suggests to me that more upside remains. If we're nearing the end of an up move in gold, then silver might make a big short-term pop.

Given the course the Fed and other central banks seem sure to follow in 2008, investors can expect the commodities bull market to live on. Precious metals probably have some gas left in the tank.
At the time of publication, Hanlon was long ABX, NEM, GG, AU, SLV and NG, although positions may change at any time.

Charles P. Hanlon focuses on non-dollar investments. He is currently the president of Delta Global Advisors. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Investing in foreign markets involves unique risks including, but not limited to, currency fluctuation and political risk. In addition, international investing is typically more expensive for U.S. investors than buying shares listed on a U.S. exchange. Hanlon appreciates your feedback; click here to send him an email.

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