Gold stocks will outperform bullion and may be set for a multi-year rally as producers cut costs and take a more prudent approach to acquisitions, according to Chancery Asset Management Pte.
Founder Thomas Puppendahl and partners at Singapore-based Chancery are seeking to raise an initial $10 million for a gold and silver junior mining equity fund, betting that the metal’s first annual drop in 13 last year was a pause not a break from the rising price trend that saw bullion book straight gains for more than a decade.
“Any time over the last three years would have been a disaster” to invest in gold mining stocks, Chancery’s Chief Investment Officer Puppendahl said in a phone interview from Singapore. “After this wash-out, the sector in general really bottomed out end of last year. We’re at the beginning of the next cyclical bull market in the miners.”
Investors seeking exposure to the precious metal have seen the benchmark Market Vectors Gold Miners ETF climb 21 percent this year while the SPDR Gold Trust, the top exchange-traded product backed by bullion, returned 11 percent. Producers led by Barrick Gold Corp. say they’re poised to benefit from rising prices after cutting staff, selling marginal assets and working to achieve lower production costs.
“In the next bull market, I’d expect that these companies will finally deliver the leverage that you’d normally expect” from producers over buying gold itself, Puppendahl said. “The sector over the last 2-3 years has restructured, the costs have come down. They’ve put in place more decent capital deployment policies. Management has in general become more disciplined.”
Gold fell for the fifth time in six days, losing 0.2 percent to $1,331.70 an ounce by 8:51 a.m. in Tokyo.
Puppendahl forecasts gold to rise to $1,800 an ounce this year based on a technical rally and more investors switching to buying the physical metal. Gold may jump to $5,000 as soon as 2016 on physical demand, he said.
Chancery, formed in 2011 and up to now a fund that managed private accounts, is pitching its new equity offering mainly to individuals that are looking at three-to five-year investments, he said. The equity fund will focus on U.S. and Canadian gold and silver producers and some exploration companies, while avoiding the industry’s biggest names, Puppendahl said.
“The sweet spot is junior producers,” Puppendahl said, naming Vancouver-based First Majestic Silver Corp., which runs mines in Mexico, as one of his top picks.