SPDR Gold Trust (ETF) (GLD), Barrick Gold Corporation (USA) (ABX), Goldcorp Inc. (USA) (GG): Will the Sequestration Deal Hammer Gold?

The net result, then, is that while the cuts will impose some highly overdue discipline, they will hurt growth, destroy jobs, push quantitative easing, and fuel inflation and economic instability. These elements combine to make a recipe for another run in gold. One issue to remember, however, is that these factors may take time to develop and are not universally accepted. I believe it is premature to pile into gold, but particularly at currently depressed levels, I would keep an allocation.

How to play gold
While the GLD is an effective way to get commodity-like gold exposure, it is worth exploring the relative attractiveness of the miners before making a decision. Companies like Barrick Gold Corporation (USA) (NYSE:ABX) and Goldcorp Inc. (USA) (NYSE:GG) have significantly underperformed the commodity over the past six months. This can be largely explained by the recessionary pressures that have hit the miners. When Barrick Gold Corporation (USA) (NYSE:ABX) released its most recent earnings, CEO Jamie Sokalsky explained some of the pressures faced by the industry: “Rising costs, poor capital allocation and the pursuit of production growth at any cost in the industry have led to declining equity valuations across the sector. The message is clear: the industry must chart a new path forward.” Goldcorp Inc. (USA) (NYSE:GG) faced these same pressures and has seen similar results.

GLD data by YCharts

If, however, you consider the long-term behavior of the commodity relative to miners in the chart, what you notice is that over time (using Goldcorp Inc. (USA) (NYSE:GG) for this example), the relative performance winner shifts. Miners have significantly underperformed, meaning that if the tide turns, gold miners may catch up in a hurry. GLD is the more conservative option, and, given the economic uncertainty in the market, likely the better choice, but it is always important to put these decisions into context.

The article Will the Sequestration Deal Hammer Gold? originally appeared on Fool.com and is written by Doug Ehrman.

Fool contributor Doug Ehrman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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