Midas Fund Touches on Lagging Mining Shares
Source: Kitco, Debbie Carlson (6/14/11)
"Is this a new normal, or is the market discounting the future price of gold?
Mining shares have been lagging precious metals prices for some time now, even when the stock market was strong. Tom Winmill, portfolio manager of the Midas Fund (MIDSX), said there are a number of possible reasons.
"The valuation of mining shares is low. It's 10 times cash now versus the historical average of 20 times cash. The real question is, is this a new normal or is the market discounting the future price of gold?" he said.
There are worries that rising energy and labor costs will put even more weight on miners. But as long as gold prices can stay strong, it could keep these concerns at bay, Winmill said.
Winmill sees the U.S. economic health as the biggest reason to be bullish on gold. "The biggest [government] spending is on Medicare. . .it's tied to a level of service, so you can't even inflation your way out of it. . .This is a classic environment for hard assets," he said.
Winmill expects gold prices to rise $100 every six months, so that by the end of 2012, gold prices could be at $1,800. For silver, he sees prices between $28–$33/oz. by the end of the year, with platinum at $2,000/oz. and palladium at $800/oz.
There has been interest in the mining community in Latin America as a region of untapped resources, but Winmill said risks remain. He pointed to the election of Ollanta Humala as Peru's president, who said on June 6 that he will raise mining royalties and increase government control over natural resources. Meanwhile, in Africa, the government of Namibia is mulling over a mining windfall tax.
With that in mind, Winmill said looking ahead he would put a premium on Canadian companies. "They have a history of honoring contractual agreements," he said.