Sprott Asset Management LP, which offers two funds that invest directly in gold bullion, said gold producers’ shares will offer better returns than the metal itself once mining companies start reporting earnings today.
With gold futures trading at $1,338.60 an ounce yesterday and mining costs largely fixed, gold producers’ profit margins are likely to increase more than has been factored into their share price, the Toronto-based money manager said in an e-mail newsletter Oct. 26.
“You wouldn’t expect the senior gold producers to be trailing behind gold in this environment,” Sprott said. “After all, at $1,300 gold, these companies literally have a license to print money.”
Gold futures have outperformed the S&P/TSX Gold Index, 22 percent to 17 percent, this year. Since the first gold exchange-traded fund made it easier for investors to own the commodity directly in March 2003, the price of the metal has increased at a rate of 20 percent a year, compared with 15 percent a year for Canadian gold stocks.
Sprott, whose chairman, Eric S. Sprott, has lauded gold and gold stocks since at least 2001, began offering its own products for investors who want to own bullion in March 2009, when it introduced the Sprott Gold Bullion Fund. A second fund, the Sprott Physical Gold Trust, had its initial public offering in February.
In the e-mail, Sprott called for investors to buy gold-mining companies before they release third-quarter financial results. The world’s largest gold producer, Barrick Gold Corp., is scheduled to release earnings on Oct. 28, while the second-biggest producer by market value, Goldcorp Inc., is to announce results at 2:02 p.m. in Vancouver.
“Despite the buzz you’ve heard about gold and silver over the last two months, the stocks haven’t caught up,” Sprott said. “We expect that to change over the next two quarters as investors realize how much stronger gold producers’ earnings will be at $1,350 gold.”
Sprott also offers mutual funds and hedge funds that hold shares of mining companies, including gold explorers CGA Mining Ltd. and Colossus Minerals Inc. and reseller Gold Wheaton Gold Corp.
The money manager’s flagship Sprott Hedge Fund has soared 578 percent since its introduction in November 2000, according to Bloomberg data.
Eric Sprott didn’t immediately return a request for comment.
Sprott Asset Management is a subsidiary of Sprott Inc.