Gold Stocks: Are Precious Metals Still a Safe Haven?

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Gold prices fell to $1,731 an ounce on Tuesday, on track for its biggest two-day loss in two weeks, reports Reuters. The drop is partly explained by investor fears over Standard & Poor's credit downgrade warning for eurozone nations.

But should that be the case? It seems odd that gold should fall given its status as a safe-haven asset to shield investors in times of uncertainty.

According to Reuters, gold "has increasingly become prone to pressure from selling in the wider financial market, moving in tandem with other assets as investor sentiment remains fragile."

Investors are likely to keep watch on the developments of the EU summit and the European Central Bank (ECB) meeting on Thursday, when banks are expected to make cuts to its main interest rate.

Gold, the EU, and market liquidity
According to Karim Rahemtulla at Wall Street Daily, Europe's biggest issue comes from the fact that many countries function under the euro currency, but none can actually print the currency. If any could, it would, as a means to pay off debt. "Sure, it would lead to devaluation, but not default."

Without that option, the countries are at the mercy of the Union. So, will the Union decide to print more currency and inject the market with liquidity? If they do, precious metals may be the first to benefit from the inflation outlook.

"Moving forward, people will realize that hard assets -- like gold and silver -- will be the beneficiaries of all this financial chicanery," argues Rahemtulla. "The metals are on the move because there will be more dollars in the market tomorrow than there were yesterday. And there won't be a greater number of hard assets to back them up."

Investing ideas
Karim Rahemtulla adds, "the 'solutions' offered by EU and ECB leaders have been nothing short of reckless money printing. This influx of new money should lead to a never-before-seen rally in silver and gold."

Despite gold's recent setbacks, do you feel that Rahemtulla's theory is valid?

We were wondering, if the ECB injects the market with liquidity to the benefits of precious metals, which companies do sophisticated investors think will rally most?

To find out we took a universe of gold stocks and screened them for those with the highest levels of net institutional buying in the current quarter. Our top results are listed below.

The "smart money" thinks these names have more upside than downside -- do you agree? (Click here to access free, interactive tools to analyze these ideas.)

1. AuRico Gold (NYS: AUQ) : Engages in the exploration, development, and production of gold and silver mines and projects in Mexico. Market cap of $2.60B. Net institutional shares purchased over the current quarter at 12.0M, which is 4.28% of the company's 280.22M share float.

2. Aurizon Mines (NYS: AZK) : Engages in the acquisition, exploration, development, and operation of gold properties in North America. Market cap of $945.52M. Net institutional shares purchased over the current quarter at 7.3M, which is 4.52% of the company's 161.37M share float.

3. Jaguar Mining (NYS: JAG) : Engages in the production of gold, as well as in the acquisition, exploration, development, and operation of gold mineral properties in Brazil. Market cap of $611.13M. Net institutional shares purchased over the current quarter at 5.0M, which is 6.81% of the company's 73.37M share float.

4. Kinross Gold (NYS: KGC) : Engages in mining and processing gold ores. Market cap of $15.74B. Net institutional shares purchased over the current quarter at 36.4M, which is 3.22% of the company's 1.13B share float.

5. Lake Shore Gold (NYS: LSG) : Engages in the acquisition, exploration, and development of gold properties in northern Ontario and Quebec of Canada, as well as in Mexico. Market cap of $552.21M. Net institutional shares purchased over the current quarter at 125.8M, which is 33.39% of the company's 376.73M share float.

6. NovaGold Resources (NYS: NG) : Engages in the exploration and development of mineral properties primarily in North America. Market cap of $2.63B. Net institutional shares purchased over the current quarter at 20.7M, which is 12.50% of the company's 165.63M share float.

7. Rubicon Minerals (NYS: RBY) : Engages in the acquisition, exploration, and development of mineral properties in Canada and the United States. Market cap of $953.14M. Net institutional shares purchased over the current quarter at 6.1M, which is 2.85% of the company's 214.27M share float.

8. Richmont Mines (NYS: RIC) : Engages in the acquisition, exploration, development, and operation of mining properties, principally gold in northeast Canada. Market cap of $386.20M. Net institutional shares purchased over the current quarter at 1.6M, which is 5.53% of the company's 28.91M share float.

9. International Tower Hill Mines (NYS: THM) : Engages in the acquisition, exploration, and development of mineral properties in Alaska and Nevada. Market cap of $437.73M. Net institutional shares purchased over the current quarter at 1.9M, which is 2.78% of the company's 68.32M share float.

10. US Gold (NYS: UXG) : Engages in the exploration for, development of, production, and sale of gold, silver, and other precious metals. Market cap of $541.94M. Net institutional shares purchased over the current quarter at 1.8M, which is 1.62% of the company's 111.03M share float.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Institutional data sourced from Fidelity.

At the time this article was published Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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