Gold producers that lost almost half their market value are tempting back investors from Julius Baer Group Ltd. to Invesco Ltd. who are getting set for a rebound as Chinese demand for the metal soars.
“We expect a major turn in gold equities in the next two years,” said Herisau, Switzerland-based Erich Meier, who manages about $500 million in the Julius Baer Multipartner Gold Equity Fund and other funds. “Lower production costs and much less capital expenditure spending bode very well for the industry in the near future.”
The Julius Baer fund holds Newcrest Mining Ltd., Barrick Gold Corp. and Kinross Gold Corp., according to Bloomberg data. It’s raising holdings in Lake Shore Gold Corp., Meier said in an e-mailed response to questions.
Producers including Barrick, the world’s biggest, say they’re poised to benefit from rising prices after cutting staff, selling marginal assets and lowering production costs. Gold, which posted the biggest annual slump in three decades last year after hitting a low of $1,180 an ounce, may rise to $1,500 an ounce in 2015 aided by demand from China, according to Australia & New Zealand Banking Group Ltd.
“I’ve been selectively adding to core names in the fourth quarter of 2013 and early in 2014.” Toronto-based Norman MacDonald, who manages about $1.5 billion in funds including Invesco Ltd.’s Gold and Precious Metals Fund, said in an e-mailed response to questions. “I currently see more upside in the equities in the short and medium term.”
The fund has raised its holdings in Torex Gold Resources Inc., according to MacDonald.
Chinese consumers bought a record 1,065.8 metric tons of gold last year, 32 percent more than a year earlier, as the country overtook India as the biggest user, the World Gold Council said Feb. 18. UBS AG last month boosted forecasts for gold in 2014, citing a change in U.S. investors’ attitudes toward the precious metal that’s rallied this year on increased haven demand and buying from Asian consumers.
“The path of least resistance for the gold price is up at the moment,” said David Baker, Sydney-based managing partner at Baker Steel Capital Managers LLP, who manages about $500 million and holds gold producers including AngloGold Ashanti Ltd. “It seems to me that gold equity investors are starting to think that maybe the worst is behind us.”
The metal traded at $1,326.50 an ounce at 9:30 a.m. in Sydney. The Philadelphia Stock Exchange Gold and Silver Index has advanced 18 percent this year, after sliding 49 percent last year. The S&P/TSX Global Gold Sector Index jumped 27 percent this year, outperforming the metal, which has risen 10 percent.
Eight major gold producers that reported net losses of $23 billion in the 12 months to Dec. 30 may have full-year net income of $3 billion this year and $4.1 billion in 2015, according to analysts’ estimates compiled by Bloomberg.
Still, gold’s volatility last year showed investors should exercise caution, Ed Bowie, who manages about 35 million pounds ($59 million) at Altus Resource Capital Ltd., said in a Jan. 30 interview. “It’s something every gold investor in the world must be struggling with right now,” Didcot, England-based Bowie said. Altus is raising holdings in producers including Melbourne-based OceanaGold Corp.
Concern over asset bubbles and slowing economic growth in China, where analysts forecast the slowest pace of expansion this year since 1990, will probably help increase gold’s appeal as a safe haven asset, said Angelos Damaskos, London-based Chief Executive Officer of Sector Investment Managers Ltd., who manages about 10 million pounds in the MFM Junior Gold Fund. GoldCorp Inc., the second biggest producer, also sees rising demand for the metal as a hedge against inflation.
“There’s a view that we are starting to run the businesses better as an industry and that we’re more focused on returns and cash flow,” Barrick Chief Executive Officer Jamie Sokalsky said in a Feb. 24 interview. “Some of the generalists as well are taking a look to assess whether the stocks are cheap.”