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Stock Strategist

Avoid These Four Gold Stocks

We do not dig these four producers of the yellow metal.

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Gold prices have been skyrocketing recently, continuing the secular bull market in gold that started in 2001. After starting 2005 at $420 per ounce, gold prices have rallied to above $525 per ounce, levels not seen since the late 1980s. Not surprisingly, gold bugs feel vindicated, and the metal and its producers have been getting a lot of attention from the financial media and potential investors.

So, is this a time to invest in gold, gold stocks, gold mutual funds, or gold exchange-traded funds? My colleague Michele Gambera has some interesting thoughts on this subject. As value-oriented investors, we at Morningstar believe in buying assets at a discount to their intrinsic value and waiting patiently for prices to recover. The metal has been justifiably touted, though, as an inflation hedge and portfolio diversifier. However, gold stocks, while highly correlated with gold, carry additional baggage that may offset some of their diversification and inflation-hedge benefits.

Parvathy Krishnan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.