Gold money and the North American view

New York (Sept 23)  There is a general lack of interest in gold and gold stocks right now," VanEck gold fund and portfolio manager Joe Foster said. Foster joined Sprott US Holdings senior executive Steve Todoruk and Resource Capital Funds' Josh Parrill on a panel moderated by Joe Mazumdar.

"It's frankly not a good environment for our sector.

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"The [US] economy is doing well - you could say it is booming. Unemployment is low, there is not much of an inflationary threat right now, and in that environment you don't need a safe haven, you don't need a hedge against systemic risk [and] people aren't thinking about gold and gold stocks right now.

"Gold has been range-bound for about five years, so the volatility has been low.

"We're not seeing as much trading activity as we have in the past and when I talk to our clients and investors a lot of them think gold stocks are a value trap. They get it when I explain that these stocks are undervalued and there are opportunities there, but their impression of the sector is that they are going to stay undervalued for the foreseeable future.

"They don't see a catalyst for closing that valuation gap."

Foster said gold reacted meaningfully to global systemic financial stress, not local events and even regional crises: "Until it has a broader impact it's not going to move the gold price much."

But he doesn't rule out such systemic calamity.

Foster said his view was of continuing North American gold market malaise through this year and possibly 2019, too.

"I think eventually we get out of this … we're very late in the cycle, and the Fed is raising rates, and every time we've gone through a rate-increasing cycle it's brought on a weak economy, usually a recession, and I don't think this cycle is going to be any different.

"I think over the next 12-18 months we'll start to see a downturn in the economy. If and when that happens that's going to bring out all sorts of problems in the financial system, and it might even bring the next financial crisis.

"So give gold a little more time - maybe a year or two - and I think conditions will change very dramatically in favour of gold and I think people will see more risk and start to see a haven to protect themselves against that risk."

Foster said VanEck's International Investors Gold Fund and its passive ETFs were positioned according to the major investment group's long-term outlook, "which is for a better gold market than we have today".

"So we're fully invested in gold stocks.

"When I look at where we are in the cycle it takes me back to 2001. It feels like the sector is capitulating and it feels like it did back in 2001 when gold fell to $250/oz and it felt like we were hitting rock bottom. Back then I was investing in emerging companies like Glamis [Gold] and Meridian [Gold], Minefinders, TVX, those types of companies that did really well for us.

"This time around our top positions are with companies like Continental [Gold], Sabina [Gold], Corvus [Gold], Cardinal [Resources] - companies like that that I think will do very well when this market turns around."

Exploration Insights principal Mazumdar asked RCF's Parrill about the private equity group's broader investment strategy and Parrill said the firm's global chief commodity strategist had RCF's investment focus on four of the 30 or so commodities it has put money in since 1998. Gold was there with nickel, copper and zinc.

"What I would say generally is that the market has been bad for many years.

"We think that we're coming out of that … [and] it's a good time to be deploying capital; maybe not a great time to be harvesting capital.

"We are prioritising gold as an investment space." 
Broadly, though, private equity had exited the mining investment arena. Parrill said in 2017, when a record $750 billion of private equity capital was raised globally, only $3 billion went into mining. General PE deployed was on an eight-year uptrend. Mining was in a 4-5-year decline. Its peak years over the past two decades saw $10 billion raised for mining transactions.

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