"Street Critique" -Dave Meger of Alaron
Wednesday, February 25, 2009PAUL KANGAS: My "Street Critique" guest says when it comes to metals, gold is still the shining star. He's Dave Meger, director of metals trading at Alaron futures and options. Dave, welcome to NIGHTLY BUSINESS REPORT.
DAVE MEGER, DIRECTOR OF METALS TRADING, ALARON: Good evening, Paul.
KANGAS: Why do you like gold?
MEGER: Obviously there's a lot of benefits to being in the gold market for the individual investor. Those benefits obviously range from the safe haven aspect of the metal right now to capital preservation to portfolio diversification. So certainly the individual investor should be focused on the gold market at this time.
KANGAS: How much of the buying would you attribute to safe haven versus industrial demand?
MEGER: Obviously right now in the market, the safe haven demand element going on in the market is a significant portion of that buying. Traditionally jewelry demand can run as high as 70 percent of the market's demand source. However in the near term, we believe that investment demand component that's driving market prices at this time.
KANGAS: How much gold should be in a normal person's portfolio?
MEGER: We traditionally recommend between the 5 and 10 percent. However, in this environment certainly I have many clients that are looking at higher percentages based on the fear that we have in the economy right now. Everything from the equity markets to the bond markets. Certainly a lot of people looking for alternative investments at this time.
KANGAS: Dave, what are the pluses and minuses of buying physical gold versus gold futures, gold exchange traded funds or just the stocks outright?
MEGER: Paul, it's really kind of an individual's choice. But certainly you touched on the three ways to invest in gold. There's ETFs such as the GLD. There's holding physical gold in one's account and then there's obviously futures trading. All of these products are essentially tied to the price of gold which is the essential product of how you want to invest in gold as opposed to investing in such things as mining stocks where you're dealing with a lot of things other than the price of gold.
KANGAS: But at least you get dividends from them, some of them.
MEGER: You certainly do, but you're also subject to the management and the accounting and the hedging practices of those individual firms, so certainly I don't consider that to be a true gold investment.
KANGAS: OK. Good point. We just have 30 seconds left but what is your target price over the next year for the price of gold?
MEGER: We actually see gold going through a bit of a correction right now. We would look to be a buyer if you were to get anywhere in the upper 800s to low 900 at this point. We have price targets as high as 1200 to 1500 by the end of the year.
KANGAS: Very interesting indeed. Dave I want to thank you for sharing your insights with us.
MEGER: My pleasure, Paul.
KANGAS: My guest, Dave Meger, director of metals trading at Alaron futures and options.
