Gavin Graham is president of Graham Investment Strategy, Ltd. His second talk was called. "Why Gold Stocks are Ridiculously Cheap at Present".
Gold stocks are very cheap. Over the past 5 years the SPDR Gold E.T.F. (NYSE-GDL) is up 100%, while the Mrk Vectr Gold Miners E.T.F. (TSX-GDX) and iShares S&P/TSX Global Gold (TSX-XGD) are up 12% and 15%, respectively.
Earnings for gold companies have gone up with bumps over the past 3 years. Gold is up 55% and gold stocks are up 2 to 3% over this period. Mining stocks leverage your buy on gold. A problem for mining gold is that costs are increasing faster than the price of gold. Also, some gold mines are in politically unstable areas and in these areas you never know when the rules might change. However, profits can also go up fast than the price of gold because when costs are fixed, then any increase in the price of gold goes right to the bottom line.
Gavin says he does not know why the gold stocks are down. Gold has not risen yet past the past gold high which was $850, but would be $2,500 in today's prices. The last rise occurred over 14 to 15 years. Gold is the only class of investment that has risen every year for the last 10 years. Currencies are being printed so gold should go up.
You can buy gold via Sprott's Gold Billion fund. See their website. You can also use SPDR Gold E.T.F. (NYSE-GLD), but this ETF has a slight premium to the price of gold, so be careful.
Kinross Gold (TSX-K, NYSE-KGN) is down because they bought a gold mine in South Africa. Yamana Gold Inc. (TSX-YRI) is up 42% over past 5 years. Allied Nevada Gold (TSX-ANV) is up 170% over the past 5 years. Problem is that stuff happens with gold mines.
Franco-Nevada Corp. (TSX-FNV, NYSE-FNV) is a good stock to have. It is a royalties company and it is up 85% over past year. (With this company there are less problems and less stuff can happen). Also buy major companies, like Barrick Gold Corp (TSX-ABX, NYSE-ABX) as they are no more expensive than minor companies.
To get a copy of Gavin's paper on gold, email him at firstname.lastname@example.org. Here is a list of all the gold stocks on the TSX.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.