Gold shares could be re-rated

Gold fund adviser Damaskos sees oversold gold shares.

Angelos Damaskos (pictured), chief executive of Sector Investment Managers and fund advisor in the UK for the Junior Gold Fund believes that equity in listed gold related companies could be oversold as investors look to reduce risk. However, this could present a buying opportunity.

“Investors are increasingly looking to gold as a safe haven as the US dollar, pound sterling and the euro continue to devalue against stronger currencies such as those of Canada, Australia, Norway and Switzerland. Sovereign debt problems in the developed world persist and continue to hamper economic growth. Quantitative easing is the easy solution but rising inflation creates a headache for central bankers.”

“Gold has now reached a new all-time high. Shares in gold mining companies are equities first and proxies for gold second. As such, in times of risk aversion and weak equity markets they can become oversold, offering an attractive buying opportunity to those investors who believe the gold price will trend higher.

“The supply of gold is relatively small. A report by the Society of Economic Geologists which reviewed 3,730 international deposits drew some important conclusions. The main findings included that the number of deposits and total ounces found have been steadily declining ever since the 1980s; the average grade of gold mined declined from a peak of 10 grams per tonne between 1965-1975 to less than 1 gram per tonne in 2008, and that the cost of discovery has increased from $10/oz in the eighties to over $47 per ounce in 2009.

“These findings confirm our belief that the supply of new gold is likely to remain constrained well into the future. Continued rise in investment demand will result in the gold price rising to higher levels. Gold mining companies should therefore see growth in cash flow and profitability that should re-rate their share prices. The companies with efficient, growing operations, strong balance sheets and active exploration programmes should outperform both the sector and the gold price. These are the companies that Junior Gold focuses on.”


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