Gold Stocks: A Way to Trade the U.S. Government's Decision on Debt

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(List compiled by Andrew Dominguez.)

Gold is considered a safe investment when stock, bond, and currency markets seem risky. As a result, gold prices have been soaring lately on investors’ concerns about debt crises in Europe and sluggish economic growth in the US, a phenomenon commonly referred to as a flight to safety.

When investors’ sentiments improve, gold prices should decrease as investors pull out of gold and re-enter the stock market. The 0.3% decrease in gold futures prices today, the second price drop in as many days, could indicate that investors are increasingly more confident that markets will soon stabilize.

“Gold futures fell for the second straight day on optimism that policy makers in Europe are moving closer to resolving the region’s debt woes, cutting demand for the precious metal as a haven,” write Nicholas Larkin and Pham-Duy Nguyen of Bloomberg.

Edel Tully of UBS AG believes the market is expecting a positive outcome from the upcoming EU summit, add Larkin and Nguyen in their article.

The euro also gained against the dollar in trading today, which reflects both the improving market sentiment regarding Greek debt and the worsening sentiment regarding the impasse over the national debt limit between the Obama administration and Congress.

Congress has until August 2 to finalize a deal regarding the budget, which will likely involve raising the debt limit, a bevy of budget cuts, and possibly tax rate hikes. If the legislators fail to come to terms, the Federal government would shut down for the first time since the Clinton administration and, more gravely, could default on its debt for the first time ever. This would severely hurt the US’ pristine credit rating, which is currently being monitored for revision by the rating agencies.

Interested in turning this news into an investing idea? To help you with your own research, here is a list of gold stocks that have seen sharp decreases in shares shorted over the last month.

Short sellers seem to think the upside of these gold stocks outweigh the downside--do you agree?

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List sorted by decrease in short interest as a percentage of the share float.

1. Allied Nevada Gold Corp. (ANV): Market cap of $3.59B. Shares shorted have decreased from 5.50M shares to 2.88M shares month-over-month, a change representing 3.23% of the company's 81.19M share float.

2. NovaGold Resources Inc. (NG): Market cap of $2.41B. Shares shorted have decreased from 12.49M shares to 11.40M shares month-over-month, a change representing 0.76% of the company's 143.33M share float.

3. Seabridge Gold, Inc. (SA): Market cap of $1.26B. Shares shorted have decreased from 3.30M shares to 3.10M shares month-over-month, a change representing 0.54% of the company's 37.13M share float.

4. IAMGOLD Corp. (IAG): Market cap of $8.08B. Shares shorted have decreased from 2.71M shares to 1.20M shares month-over-month, a change representing 0.48% of the company's 315.65M share float.

5. Royal Gold, Inc. (RGLD): Market cap of $3.54B. Shares shorted have decreased from 3.37M shares to 3.13M shares month-over-month, a change representing 0.47% of the company's 51.42M share float.

6. Harmony Gold Mining Co. Ltd. (HMY): Market cap of $6.14B. Shares shorted have decreased from 3.95M shares to 2.62M shares month-over-month, a change representing 0.36% of the company's 366.07M share float.

7. Jaguar Mining Inc. (JAG): Market cap of $432.82M. Shares shorted have decreased from 10.83M shares to 10.58M shares month-over-month, a change representing 0.34% of the company's 73.34M share float.

8. Compania de Minas Buenaventura SA (BVN): Market cap of $10.78B. Shares shorted have decreased from 3.19M shares to 2.79M shares month-over-month, a change representing 0.22% of the company's 183.36M share float.

9. Gold Fields Ltd. (GFI): Market cap of $11.22B. Shares shorted have decreased from 3.34M shares to 2.40M shares month-over-month, a change representing 0.15% of the company's 636.71M share float.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks


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