Gold Shares

We invest in gold shares for the following reasons:

  • Gold should perform well as a safe haven investment relative to most asset classes, based on unexpected geopolitical, fiscal and economic events;
  • Gold mining shares have under performed the metal in the five years of bear market from 2011 to 2016.  The major indices, such as the Philadelphia Gold and Silver index, traded near a 35-year low at the end of 2015, presenting the fourth time in this period subsequent to which major bull cycles started. The first leg of a new bull market developed in 2016, it is likely that it will continue this year;
  • The gold mining sector has taken large impairments is the last few years, writing off marginal, uneconomic projects and focusing on profitability, higher grades and longevity of mine life. With a stronger balance sheet and more economic operations, any recovery in the gold price should translate in rapid profitability expansion;
  • Gold shares are relatively more attractive than the metal at the present time particularly of those companies that have viable, profitable operations at current prices whilst retaining the operational flexibility to grow production as the metal price recovers;
  • There is substantial and growing demand for gold and silver coins, especially from Chinese and Indian people;
  • With the unprecedented US deficit and ballooning of debt across the developed economies, countries engage in a futile game of competitive devaluation that benefits gold relative to the weakening currency;
  • Inflation is reported to be rising across the world. The effects of Brexit and a protectionist Trump administration are likely to be inflationary to which central banks will be slow to react, causing real-inflation. Real inflation will encourage gold investments as a hedge and portfolio diversification;
  • For investors who believe that the gold price will continue to rise, the increased operational leverage from gold shares is very attractive. Take, for example, a gold mining company producing at a cost of $600/oz. If the gold price is $1,200/oz and it rose by 25% to $1,500/oz, this would increase the mining company’s profit by $300/oz – a rise of 50%.