EQUITIES VERSUS BULLION IN 2012
The under-performance of gold stocks relative to gold started mid-last year, and continued through 2012. In 2012, gold stocks were down almost 12%, while gold bullion was up almost 7%. The market simply punished gold stocks, gold companies, for delivering very poor operating performance. Many companies in this sector repeatedly missed their production and operating cost guidance. In addition, rising industry cost to develop and build new mines have impacted returns on capital, and this in turn has caused many projects to get shelved or delayed, and of course this negatively impacts the growth of these companies. We believe these reasons are behind the period of under-performance that we have seen.
EQUITY VALUATIONS FOR 2013
Gold stocks, in our opinion, are under-held and under-valued, and we think this presents an opportunity going into 2013. That being said, gold companies really need to meet expectations in order to drive those aggressive sellers out of the market. Positively, we have seen some recent changes that indicate that the sector is now re-focused on profitability. This, combined with a relief from cost pressures, may enable gold companies to deliver better performance in 2013.
MACRO FACTORS FOR 2013
A rising gold price is always the main catalyst for higher stock prices. We think that the continuing of easing monetary policies around the globe will provide support for gold as an investment, for gold as a currency alternative and a safe haven. The levels of rising debt in Europe, the U.S. and Japan have also created a lot of financial instability. In addition, we expect that central banks will continue to be strong net buyers of gold bullion. And we think all of this will drive prices higher in 2013. Gold stocks are leveraged to the gold price, and because they are at such depressed valuation levels at present, we think this sets them up to out-perform the metal in 2013.
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