Is It Too Late to Buy Gold?
Mining Forum Europe panel considers if investors have missed the boat on gold
Gold is trading at record highs of above US$3100 an ounce, leading some to wonder whether they have missed the opportunity to buy.
Former BlackRock head of mining Cailey Barker told a Mining Forum Europe panel in Zurich that while he wasn’t “uber bullish” on gold, he would still buy today.
Cupel Advisory Corp’s Neil Adshead went further, saying he would buy gold “at any price”.
“Unless something else comes along that humans have great faith in, and there really hasn't been anything else for the past 5000 years that’s a store of value, I think humans are going to continue to buy gold,” he said.
“How human behaviour works, as the price goes up, more people think it's obviously more valuable and more people are going to want to own it.”
Generalist investor, Wasif Latif, of Sarmaya Partners, said the firm was actively buying gold today.
“We've been buying gold for quite a few years,” he said.
“It definitely is the right spot for us, and the reason is, we have, in our view, a secular theme that has been building up. In our view, it earnestly started in 2021, which is a renewed commodity super cycle.”
Latif said as the gold price continued to move higher, more generalists would buy.
“The US$3000 mark is a great threshold that once it crossed, you're going to get more and more people reluctantly beginning to buy gold,” he said.
“I know a lot of folks in the asset allocation business who are managing 60:40 portfolios, and there’s been a lot of reluctance to buy this, and simply because the price action was not able to compete with the likes of technology.”
As cracks appear in the tech boom, that’s when investors will turn to alternatives, according to Latif.
“We think that this is the point at which you're going to start seeing more and more folks reluctantly getting into gold,” he said.
“So for us, US$3100, when we look back on it, will be a great entry point for us.”
Barker added: “Simply put, the pain of not owning gold will be greater than the pain of owning gold for generalists.”
Psychological barrier
Adshead said one thing that many had missed is that the current gold price equates to US$100 per gram of gold.
“In the old days, not too long ago, a one gram deposit was considered a low-grade, medium quality deposit,” he said.
“Whereas now, a one gram deposit is now US$100 per tonne of rock – psychologically for me, that’s pretty valuable rock.
“There are companies sitting on hundreds of millions of tonnes of one gram material so there’s actually a lot of inherent value there.”
Heady days are over
While gold is trading at record highs, equities have largely failed to fire and most analysts believe the sector remains cheap.
Barker said the Australian market had seen stronger buying of gold equities than the Canadian market.
“Some of the juniors there have a fantastic, almost idyllic, opportunity of having a retail community and mining community which are both interested in small-cap equities, and so they have seen a rerating,” he said.
“But the heady days of when Goldcorp traded at three times NAV, when I was on the sales side, trying to explain that to investors, it's just impossible. Why should a company trade at three times its book value? It's hard to justify.
Barker estimated producers were mostly trading at around NAV, while juniors were trading at half to one times NAV.
“That does look incredibly cheap,” he conceded.
“We could see multiples again come back into the gold stocks, but they need to deliver. They need to deliver on their promises. We need success stories.
“We need to see this high gold price translate into massive free cashflow generation and returns to shareholders and I think we need to see that sustained over a period of time.”