Precious metals fund manager Chris Beer is not too fussed about predicting the future price of gold. A former geologist and mining analyst, he is more concerned about getting the right direction. And now, he sees the yellow metal continued to head north. Gold recent peak near $ 1.260 (U.S.) per ounce but has peeled back a bit. “Gold is every year since 2001 in 10 currencies,” says Mr. Beer of RBC Asset Management Inc. He is also trying to establish their businesses bottom line regardless of the price of gold may also be increased by higher production and lower costs. Since 2003 he has run $ 988 one million RBC Global Precious Metals Fund, 41.2 percent achieved for the year ended May 31 and 26 percent annually over five years.
What is driving gold?
Recently, a lot of Europeans buying gold because they are unsure whether the euro is going to survive, and it is the same worldwide. The people can make a dollar commitment to them next. With people worried about the euro, global deflation, global inflation, gold is usually a safe haven. But more people are looking at gold as an investment asset class that is not someone else’s liability. You can not print, and it is not a currency that people can abuse.
Is gold a bubble?
No, at present, gold is half of one percent of global financial assets [including shares and bonds]. It is as high as 5 percent in the late sixties. Prior to 1971, when U.S. president Richard Nixon took the dollar to the gold standard, gold was converted into the dollar. If gold were to 7 percent of financial assets, or if people lining up outside Scotiabank to buy precious metals, as in the late seventies, it was more of a bubble.
So what is your outlook for the gold price?
The inflation-adjusted price of gold suggests that its $ 850-an-ounce high in 1980, approximately $ 2,400 gold today. That’s why people come out with that kind of where the gold price should be. If gold breaks decisively through $ 1,260 to $ 1,280 per ounce, then we are probably in a period where gold may continue to trend higher. I do not see why we could not get an inflation-adjusted price of $ 2,000 per ounce. The fundamental factors influencing gold appear to be in place.
What are these factors?
Deficit spending is resulting in intense pressure for currencies worldwide. My production was last year for the first time in 20 years. It might be a bit up this year, but generally you get no new mine production in gold. If people printing of currency, gold is going against all currencies because you have less gold than dollars, euros or yen.
So why has gold retreated after hitting highs?
In the short term, we see a bit of a pullback in June and perhaps July. Often seasonal, we get a pullback. And there is profit taking. Gold is too fast for people who say it goes up just because the euro is weak and people rushing to safety. All I know is that from a medium-to long-term perspective, there is an up trend [was from when gold soil just over $ 250 per ounce in 1999], and the factors affecting gold are still in place.
Is it better to buy bullion or shares?
We do not hold bullion because we are positive about the gold price. If gold rises 25 percent, historically stocks will rise 75 percent. That relationship in the past few years has contracted for three times the gold price up, at this time, probably 1.5 times. It has contracted, because, while the gold price has risen, the profit margin per ounce is not really grown [as costs rose.] But it seems like we continue to see margin expansion. In that environment, gold stocks will outperform bullion.
What advice would you give investors consider gold?
Gold is a way to diversify your portfolio. Even in the financial crisis, gold outperformed the average stock. Gold stock has not initially do well, but in the latter part of 2008 and early 2009, they were one of the first to raise. Barrick Gold Corp. and almost doubled. In Canada, gold is about 12 percent of the TSX. If you buy a Canadian equity fund market weight gold, you get pretty good exposure to gold. If you buy a global index fund you do not get that much exposure – if any – for gold.
Chris Beer Picks
Goldcorp Inc. (G-T46.61—-%): The low-cost gold producer, which has assets in “safe jurisdictions” such as Canada and Mexico, has a strong executive team, good balance and a robust growth profile, he says. “Goldcorp has increased from approximately 2.3 million ounces per year more than 3.5 million over the next two years.” The Mexican Pena Quito mine will add to growth in 2010 and 2011, he said.
Rand Gold Resources Ltd (GOLD-Q92.66-2.09 to 2.21%): The gold digger and explorer, led by CEO Mark Bristow is “one of our favorite mid-to large-cap names,” he said. “The company was one of the first West African to be identified as a great place to explore and develop gold mines.” Rand Gold has two mines in Mali that free cash flow to two “outstanding projects in Senegal to generate fund,” he added.
Aura Minerals Inc (ORA-T4.03 —%): The junior miner is run by Patrick Downey who headed Viceroy Exploration Ltd. prior to Yamana Gold Inc. was sold in 2006. Aura has “exciting exploration potential at its Aranzazu copper-gold project in Mexico,” said Mr. Beer. Aura, who also bought Yamana the mines in Honduras and Brazil last year, trades attractively at less than five times cash flow, he said.
source:theglobeandmail
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