Gabelli’s Bryan; mining stocks lag gold based on history, leaving potential upside

Kitco News

(Kitco News) — Equities of gold-mining companies still appear undervalued based on a historical comparison of where they were trading relative to the price of gold during the last bull-market cycle, said Caesar Bryan, portfolio manager of the Gabelli Gold Fund (symbol GOLDX for AAA shares and GLDIX for institutional class of shares).

Meanwhile, gold itself is likely to hit fresh record highs in the aftermath of massive monetary accommodation and fiscal stimulus in response to the COVID-19 pandemic, he told Kitco News in an interview this week. And as gold prices climb, that means more revenue for producers.

Gold and mining stocks alike fell sharply in mid-March when investors were selling a broad array of assets to generate liquidity when the broader stock market went into a free fall. However, spot gold rebounded from mid-March lows near $1,450 an ounce to a seven-high year near $1,780 on Wednesday.

But while gold-mining stocks have also risen, Bryan commented that “they really haven’t done anything yet” compared to the last bull-market cycle, thus leaving potential for further upside in share prices.

“They [share prices] have had a very nice recovery, but the performance does not reflect the gold being at this level, let alone appreciating,” Bryan said.

Higher gold prices mean increased cash flow and earnings for producers, although in some instances companies’ second-quarter results will be adversely affected by government-mandated temporary shutdowns in response to the pandemic.

In fact, Bryan pointed out, the Philadelphia Gold and Silver Index of mining stocks (XAU) is still nearly half of where it was at the peak in 2010. It was around 117 as Bryan spoke to Kitco News, compared to a record high of 232.72 nearly a decade ago. Meanwhile, gold just above $1,760 is much closer to its 2011 record high of $1,921.

“The gold price is down about 8% or 10% [from its record],” Bryan said. “So gold equities are very cheap and should do very well.”

The fund manager said he looks for the XAU to eventually move to a fresh record high.

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Source: Allen Sykora | Kitco News

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