Disconnect between gold prices and gold stocks

That's recently traded into all-time record highs but Gavin the mining stocks are languishing to look at uh an index of the mining stocks or some of the bellweather names in the sector you would not guess that gold is trading at its highest price ever absolutely and it's a remarkable disconnect because normally uh gold miners are regarded as.

Leveraged plays on the price of the metal uh not necessarily financially leverag but operationally leveraged because each dollar increase in the price of an ounce of gold all other things being will drop straight through to their bottom line yet we have gold as you mentioned at an all-time high $2,200 an ounce um although actually of course.

If you were to adjust it adjust it for inflation $850 40 odd years ago would be somewhere well north of $5,000 now uh but nonetheless in nominal terms it's hitting new all-time highs and yet the gold stocks sit there uh at a complete lack of interest and this is I think a disconnect between the metal where Asian buyers particularly obviously China and.

India but also interestingly central banks around the world not M Asian central banks but countries like Russia or Poland or Hungary um are actually buying lots of gold as a diversifier for their International reserves um and yet um the Western investor is completely disinterested money has been coming out of uh GDX which is the um major uh ETF.

Which invests in gold miners and yet um I say the price of gold itself is hitting the all-time highs so as a result gold stocks are as cheap as they've been relative to the metal probably for 20 years the last time we were at the bottom of the last big gold bare Market when it hit $250 an ounce and Gordon Brown the then Chancellor of.

The exj in England was busy selling most of the UK's gold reserves because it was an out an outdated barbarous Relic um so it looks to be a very good opportunity to be buying and in the meantime would you believe Paul you're actually getting fairly decent dividends out a lot of these large gold miners because they are concentrating on profitability not on.

Making overpriced Acquisitions of other gold mines Skeptics would say Gavin that uh when an investor buys exposure to Gold itself through perhaps an ETF that investor doesn't have to deal with things like poor quarterly results uh mergers and Acquisitions that don't deliver shareholder value troubles in uh political risk troubles in jurisdictions.

Which the companies can't control in other words there's all kinds of ways that gold companies can put their foot in it and uh and and disappoint investors absolutely and that's one of the reasons why you probably want to have a well Diversified exposure in the gold sector but the old rule of thumb for um preservers of what capital uh.

People like the old swis private Banks was you should have between five and 10% of your total asset exposure in precious metals because it was a diversifier it was nobody else's liability unlike uh Fiat currencies printed by governments and yes you can buy the gold but the good thing is if you're in a well-run gold mine in politically stable.

Jurisdictions a company like for example ago Eagle uh which is the largest uh Canadian gold miner has all its mines in Canada or Finland I I think they now have uh one in Australia as well because of uh the recent merger with part of yamas um then you're actually fairly well insulated from the political risk uh and secondly you've got a management.

With a demonstrated track record of delivering value but if you're also a diversified minor like for example the gold royalty company Franco Nevada which is largest royalty is the one on the copper mine in Panama cobre Panama which of course the Panamanian government in its infinite wisdom has decided to close down there goes 5% of the country's GDP.

But do not worry um you actually have a whole bunch of other royalties Diversified geographically and even by metal for example which enables you to actually ride out some of these bumps uh I think the feeling is that the fall in Franken Nevada share price since the C Panama situation blew up is about three times its contribution to uh Franken.

Nada's profits in the last full year it was running properly so if you're actually able to be in a well Diversified company with good management you'll do pretty well and I think for example Franco Nevada is up something like 10 times since it went public relisted 15 years ago while the price of gold isn't you know maybe it's gone up.

50% in that period Gavin Graham is our

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