BOLTING LANDING, N.Y. ( Stockpickr) -- Gold seems to be all the rage lately, and the reasons people have for buying gold are various and diverse, even contradictory. Some like gold as a speculative play, others as a hedge against inflation, or against the U.S. dollar, or against the euro, and yet others like it simply as an asset allocation.

Indeed, investing in gold isn't as straightforward as it might seem, and there are many ways to play the shiny precious metal.

Let us begin with gold producers. Two major gold producers reported earnings this week: Newmont Mining ( NEM) and Barrick Gold ( ABX). Newmont reported earnings of 77 cents on revenue of $2.513 billion. Analysts' consensus estimates were for Newmont to earn 84 cents on revenue of $2.22 billion. Barrick Gold reported earnings of 77 cents on revenue of $2.64 billion. Analysts' consensus estimates were for Barrick to earn 72 cents on revenue of $2.61 billion. Both companies raised their quarterly dividends recently.

Gold producers will mine and sell gold. However, their fortunes are not solely tied to the spot price of gold. Gold producer earnings and revenues are derived from five major variables:

  1. The realized price of gold. This is the actual price on average that the producer will sell its gold for.
  2. The quantity, in ounces, of gold sold, which is based on demand from speculators, jewelry producers and industrial users.
  3. The capacity to mine gold. This comes not only from existing mines but also from the ability to open up new mines around the world.
  4. Byproduct sales. In the mining process, other materials are found. We call these byproducts. For example, one of the most abundant materials that is mined along with gold is copper. The mining companies will sell the copper, and from a cost-accounting perspective, the byproduct sales will offset the cost to produce gold.
  5. Energy costs. While gold may be a commodity that is impacted by inflation and currency movements, so are the energy inputs that are necessary to mine and refine the gold.

Thus, while the revenues and earnings of Newmont and Barrick may be linked to the price of gold, it is not a simple correlation. Both of these companies are well-run. On a P/E basis, I would select the cheaper Barrick over Newmont, but either one would make a fine investment in the world of gold mining.
More on Newmont

Let's suppose that you want to ignore all of the above and just invest based on the pure price of gold. There are ways of doing that as well.

The first place that I would look to is to the fund market. You can buy an exchange-traded fund or closed-end fund that holds physical gold. Two suggestions are the SPDR Gold Trust ( GLD) and the Sprott Physical Gold Trust ( PHYS). While there may be some slight discount or premium of the fund price to the price of gold, in general, GLD equals approximately 1/10th of an ounce of gold, and PHYS equals approximately 1/100th the price of gold. I find the GLD, with its better track record and larger market capitalization, to be a better trading and investment vehicle.
Who Owns GLD?

Lastly, if you want to be more consumer-oriented in your precious metal investments, there are many publically owned companies that sell jewelry, across a wide segment of consumer tastes and income levels. At the high end is Tiffany ( TIF), which designs, manufactures and sells jewelry of all sorts, including gold, silver, platinum, diamonds and other semi-precious stones. Tiffany is expected to grow earnings by approximately 30% in its current year and about 14% next year. The stock sells for approximately 16 times earnings, has an excellent balance sheet and is located in some of the finest shopping districts and centers of the world.

On the low end of jewelry retail, you have Wal-Mart ( WMT), which is one of the largest jewelry retailers in the U.S, but it derives only a small percentage of its total revenue and earnings from the jewelry business. Also on the low end are the mall-based jewelers. You can often find three or four jewelry stores in a single mall intersection, which I call Jewelry Crossing. These often include Zales ( ZLC), as wells as competitors Kay Jewelers, Jared Galleria and Littman Jewelers. Jay and Jared are owned by Signet Jewelers ( SIG), and Littman is owned by Kroger ( KR), which is primarily a supermarket and department store operator.
Who Owns Wal-Mart?

In general, I would stay away from the low-end retail jewelers. Zales is an endangered company and could find itself in bankruptcy in the not too distant future. Signet, a better operator than Zales, earned $1.92 a share last year and 60 cents a share in the first quarter of this year. First-quarter same-store sales rose 5.8%. Signet is worth watching, but I would not act until we see its second-quarter results, which the company plans to report this month.

-- Written by Scott Rothbort in Bolton Landing, N.Y..


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At the time of publication, Rothbort had no positions in stocks mentioned, although positions can change at any time.

Scott Rothbort has over 25 years of experience in the financial services industry. He is the Founder and President of LakeView Asset Management, a registered investment advisor specializing in customized separate account management for high net worth individuals. In addition, he is the founder of, an educational social networking site; and, publisher of The LakeView Restaurant & Food Chain Report. Rothbort is also a Term Professor of Finance at Seton Hall University's Stillman School of Business, where he teaches courses in finance and economics. He is the Chief Market Strategist for The Stillman School of Business and the co-supervisor of the Center for Securities Trading and Analysis.

Mr. Rothbort is a regular contributor to's RealMoney Silver website and has frequently appeared as a professional guest on Bloomberg Radio, Bloomberg Television, Fox Business Network, CNBC Television, TV and local television. As an expert in the field of derivatives and exchange-traded funds (ETFs), he frequently speaks at industry conferences. He is an ETF advisory board member for the Information Management Network, a global organizer of institutional finance and investment conferences. In addition, he is widely quoted in interviews in the printed press and on the internet.

Mr. Rothbort founded LakeView Asset Management in 2002. Prior to that, since 1991, he worked at Merrill Lynch, where he held a wide variety of senior-level management positions, including Business Director for the Global Equity Derivative Department, Global Director for Equity Swaps Trading and Risk Management, and Director for secured funding and collateral management for the Global Capital Markets Group and Corporate Treasury. Prior to working at Merrill Lynch, within the financial services industry, he worked for County Nat West Securities and Morgan Stanley, where he had international assignments in Tokyo, Hong Kong and London. He began his career working at Price Waterhouse from 1982 to 1984.

Mr. Rothbort received an M.B.A., majoring in Finance and International Business from the Stern School of Business, New York University, in 1992, and a B.Sc. in Economics, majoring in Accounting, from the Wharton School of Business, University of Pennsylvania, in 1982. He is also a graduate of the prestigious Stuyvesant High School in New York City. Mr. Rothbort is married to Layni Horowitz Rothbort, a real estate attorney, and together they have five children.