Even though the exchange-traded funds for gold (SPDR Gold Trust, NYSE: GLD) and silver (iShares Silver Trust, NYSE: SLV) have been down for the year, the future is bullish for the precious metals sector.
Due to the Federal Government shutdown in Washington, DC along with the debt ceiling issue looming, the U.S. dollar has fallen in value. Should that continue, which could easily happen as investors lose confidence in the United States Government, more will likely buy gold and silver as “safe haven assets.” If the United States defaults on its debt, that greatly increases the likelihood that the yellow metal and the shiny metal will rise in value.
Factors Driving Gold and Silver Stocks
Adding even more to the potential of gold and silver increasing in value is higher growth returning to the Chinese economy. In a column in Forbes magazine, Lee Kuan Yew, the former prime minister of Singapore, predicted that by 2020, the gross domestic product of China will reach the level of that for the United States. Based on a variety of factors, it should increase more than the American economy from that point, he predicted.
As China is the second largest consumer of gold in the world, that will be very bullish for the precious metals sector.
Especially gaining will be those companies with assets in Asia that can easily service the Chinese demand. BHP Billiton (NYSE: BBL) is the world’s largest commodities company that is based in Australia. Wishbone Gold PLC (PINK: WISHY) is a British company with attractive holdings in the Queensland territory of Australia. Up more than 11% for the quarter, BHP Billiton was upgraded by AlphaValue last month. Beaufort Securities issued a recommendation for Wishbone Gold PLC last month, too.
BHP Billiton and Wishbone Gold PLC demonstrate what the gold and silver sector has to offer from prominent blue-chip and promising small-cap companies. With a market capitalization of around $175 billion, BHP Billiton offers something for everyone, no matter what the investing style: growth, value, or income.
BHP Billiton Is a Strong Investment
For growth investors, analysts project a positive earnings-per-share trend for BHP Billiton over the next five years. Much of that obviously has to do with growth in China. Value investors should be enticed by the falling price-to-earnings ratio.
While the average price-to-earnings ratio for a member of the Standard & Poor’s 500 Index is 19, the forward price-to-earnings ratio for BHP Billiton is estimated to be 14.59. At present, the average dividend yield for a member of the Standard & Poor’s 500 Index is about 2% — BHP Billiton has a dividend yield of 3.59%.
Wishbone Gold PLC Is a Great Growth Play
Wishbone Gold PLC offers a pure growth play in the precious metals sector.
As a small-cap company, it offers a much greater potential for the share price to soar than BHP Billiton. Last month, the company released a positive exploration report for its White Mountain project. About that, the executive chairman of Wishbone Gold PLC, Richard Poulden, stated, “By selecting projects located close to previous workings or discoveries, we are able to refine our work programmes from the outset, which in turn helps reduce costs and the risks associated with exploration. The findings of our latest work are highly encouraging and will provide the foundation for follow-up exploration on the licence with a view to adding to our growing inventory of prospects.”
Consider Gold and Silver ETFs
SPDR Gold Trust and iShares Silver Trust are vehicles for profiting from the overall rise in the price of the yellow metal and the shiny metal, respectively. As exchange-traded funds, they have a large market capitalization and heavy average volume — about $40 billion with volume of around 9.2 million shares daily for the GLD, with a market capitalization of nearly $8 billion for the SLV with the average number of shares traded between the opening and closing bells of more than 10 million.
From prominent blue-chips like BHP Billiton to promising small-cap companies like Wishbone Gold PLC, along with two of the most active exchange-traded funds, there is something for everyone in gold and silver to profit should the prices rise.
With fears of a U.S. credit default looming, are you considering investing in gold and silver?
Jonathan Yates is a financial writer with degrees from Harvard, Johns Hopkins and Georgetown University Law Center. While much of his career was spent working for Members of Congress on Capitol Hill, he was also General Counsel for a publicly traded corporation; and worked in the research department of a brokerage house.