Recent reports reveal that gold-mining stocks have risen about
10 percent this year, beating its precious metals counterparts.
There have been talks that the shiny yellow commodity is the
economy's hedge against inflation.
As central banks congregate about monetary easing policies,
analysts have looked at the bullish trend of gold as a sign that
investors are looking for a safety net amid ongoing economic
, one of the Gurus actively trading the most gold mining, proves
this notion true. In his
third quarter commentary
, he brings up the Federal Reserve's quantitative easing
initiative, and the reasons his firm looks to gold to predict
upcoming prospects. He says:
"We have managed our funds with what could be described as
aggressive reflection and selective action... We continue to own
gold as a potential hedge against extreme outcomes. Gold is a
perpetual asset; it will likely last forever. Because of this,
the price of gold embodies expectations about the future. As of
this writing, the elevated gold price contains an element of
expectation already of how weak the sovereign financial
architecture is. At the margin we have added to gold mining
stocks over the bullion given they embody less expectation.
"In a world where the monetary base is increasing in its
abundance, we are steadfast in our commitment to investing in
scarcity-scarcity need not only be embodied in our potential
hedge gold but also companies that control hard to replicate
market positions or reserves of supply constrained commodities
and real assets. When we cannot find such scarcity in the
business model or assets, we need the scarcity to be in the price
with an unusually wide margin of safety."
The Royce Funds, headed by Guru
, another active gold-mining stock trader and whose
portfolio sector weightings
is dominated by the industrials and basic materials sectors,
shares the same outlook about maintaining a margin of safety
during financial distress. Principal and portfolio manager,
Francis Gannon, in a commentary titled Quantitative Easing
Distorting Asset Prices? said:
"At Royce, we seek companies with solid, low-debt balance
sheets and the ability to generate free cash.
We place a great deal of emphasis on managing risk...This is an
important part of our ongoing analysis of a company's 'margin of
safety.' If a company is carrying too much debt, it is likely to
struggle (or fail) to meet the challenge of out-of-left-field
occurrences, such as lawsuits and overseas currency crises."
Both investors own gold mining stocks such as Randgold Resources
) which gained 0.53 percent year-to-date and Franco-Nevada Corp.
) which gained 48.99 percent year-to-date.
GOLD data by GuruFocus.com
FNV data by GuruFocus.com
Exchange-traded funds especially share these positive year-end
average annualized returns. iShares Gold Trust (
) has provided a 9.32 percent return year-to-date and Physical
Swiss Gold Trust (
) has delivered 9 percent year-to-date.
Despite a one-year surge, Reuters reports that bullion actually
experienced losses in more recent months, such as October and
November. U.S. gold dropped 0.4 percent at $1,707.80 per ounce
since then. Spot gold prices fell 0.25 percent at $1,709.30 an
MSCI Global Gold Miners Fund (
) has gone down 8.56 percent in the last three months. Similarly,
SPDR Gold Shares (
) has delivered -3.25 percent in returns in its quarter-to-date
Gold prices have additionally dipped at market close today as the
Federal Open Market Committee convened its two-day meeting about
the Federal Reserve's monetary policy.
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