Gold as a 'Go To' Asset Class
Source: David Coffin, HRA Advisory (11/21/09)
We believe there is room for more gold price gain, near term. A "true" gold market in which the yellow metal is being treated as an asset class in its own right is building around the uncertainties in other markets.
While there is a real enough scent of change in the air, this doesn't have to be viewed as a large shift from the norm. A subject we rarely deal with is whether gold is a "commodity" or "money," for the simple reason that doing so sharpens our sense of the market very little. In fact, we have little problem with either concept since we view copper and most other metals as a bit of both too, and focus on which is the better choice to deal with at a given moment. Certainly copper is acting the part of money these days. The inverse relationship between gold and the US$ can never be worked out of the equation, and should be borne in mind both for holders of the metal and for shareholders. The two most important off-site variables for a gold mine, or any mine, are energy costs and the interplay between the Dollar and the mine's local currency and the company's accounting currency in which operating costs are borne and recorded.
In a rising price environment almost all producers will see gains, but the better choices will be companies undergoing expansion and those in friendlier cost environments. Asset holding companies with large deposits of low grade should also being doing well in this environment, and it's wise to consider why they aren't if they appear to be going nowhere. Asset expansion companies still in exploration phase have been seeing mixed results, with some darlings bounding ahead while others seemed fixed in place. So long as the latter group are relatively undervalued based on current data, they should have their day again as profit-takings occur for the darlings. Now through the year end, and especially into next year, is typically when that takes place. Our top producer pick from the Gold Mining Stock Report list has had a +25% uptick since we noted it as such in last month's Dispatch. Now that most Q3 reporting is now out, it's time to update it and some others. It's also important to keep in mind that a portfolio winnowing process can and often should also get underway in a rising market.
(Famous in the sector, the Gold Mining Stock Report ("GMSR") was published by Robert Bishop until 2007. When Bob decided to retire from newsletter publishing he honoured us by passing his subscribers on to HRA with the agreement that we would continue to follow his active company list and update his former readers for at least a year. We added GMSR subscribers to the HRA list at the SD Alert level and continue to send them periodic updates on GMSR companies, along with the full compliment of HRA news services. – Editors)
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