The trigger for a rally in gold is…. By Amanda van Dyke
A
dversity in the financial markets is the trigger that will force the general investment world to become interested in gold again.
There are machinations taking place in China and at the Federal Reserve right now. Monetary policy has forced investors into riskier assets. When the tables turn and people start experiencing losses they run for the cover of liquidity and insurance.
rather than on the strength of the market. Similarly taking an asset and putting it into production, significantly changing your debt situation or changing your position on the cost curve. Single events can change the outlook and seriously de-risk a project . When it gets recognized you get much more of a return on a junior than you would in a large-cap name.
There is loss of confidence in the Fed and a general downturn in financial markets, which is long overdue. That is when investors will look at safe places to go. Gold has always acted as wealth insurance. Whenever we have had extreme financial events throughout history, gold has always been the last man standing. Gold’s purchasing power lasted through the crisis in 2008 and every crisis before that. When the gold price begins to move the majors as a group will move before the juniors. They will be the first ones to be repriced. To make money in the short term though you need to be a stock picker in this market and the smaller companies offer a better return than the large caps do. With the mid and smaller caps, there’s more value creation for mine building and discovery of new reserves. It moves the needle more than you could get in a large-cap company. Those are very identifiable events. In large cap companies there are so many more moving parts and significant developments are often obscured in the mix of assets around the world. A single a discovery or mine going into production isn’t going to change the outlook of a larger company. But with the mid- and small-cap companies, a big discovery is value creating. If a junior finds a worldclass asset, it will rise based on its own success
There is 3 essential criteria you need to look for in juniors that are going to re rate. Value changing events and catalysts, companies that are in the bottom half of the cost curve (as in they will be producing at a profit margin no matter what the commodity price), and an excellent management team that is invested heavily in the company. There is no better place to meet management teams than a conference like Gold Bears and Traders. There are some great companies out there, with commercial assets that can be put into commercial production even at these prices, where investment dollars, will go directly into creating shareholder value. You have the time to do your homework and seriously analyze which mining companies are of good value and have the kind of management teams capable of creating value for shareholders. I hope people at the show will walk the booths and ask questions and hold management teams to account. That is how you will figure out which companies are going to perform and which companies will not. It’s as simple as that.
UK Investor Magazine — 3 — November 2015