One investment class drawing little interest from investors is gold because almost none of the economic factors that tend to push up bullion’s value are present. For example, gold usually does best when inflation is rising, deflation is threatening, the U.S. dollar is falling and major economies are flirting with recession. None of these factors are in play.
Nevertheless, holding some gold can be a good insurance policy, says Stephen Lingard, senior vice president (SVP) with Franklin Templeton Investments Corp. in Toronto: “It’s cheap insurance. If the U.S. economy falters and the Federal Reserve Board has to return to quantitative easing, the gold [bullion] price could go ballistic.”
But overweighting gold is another matter. Nandu Narayanan, chief investment officer with Trident Investment Management LLC in New York and portfolio manager of several funds sponsored by Toronto-based CI Investments Inc., is pessimistic about the U.S. and global economies and doesn’t recommend overweighting gold at this time.
The only gold bug among the 17 global strategists interviewed for Investment Executive is Ross Healy, chairman of Strategic Analysis Corp. in Toronto. He is just as pessimistic as Narayanan about global economic prospects, but more confident that gold prices will rise as the fragility of the U.S. economy becomes more apparent. Healy recommends gold stocks rather than bullion because when bullion prices rise, the price of gold stocks may go up by five to six times as much. He says picking quality companies with very good balance sheets is important. Two of his picks: Agnico Eagle Mines Ltd. and Alamos Gold Inc. The latter, he notes, has “an unbelievably strong balance sheet.”
Scott Vali, vice president and resources portfolio manager with CIBC Asset Management Inc. in Toronto, is less enthusiastic about gold stocks and has some of his funds’ exposure in bullion. However, Vali is positive about two companies: Jersey, Channel Islands-based Randgold Resources Ltd., which, he says, is one of the better managed gold miners; and Toronto-based Franco-Nevada Corp., which is a royalty company (thus not as vulnerable to the ups and downs in the price of bullion) and has a very strong management team.
Benoît Gervais, senior vice president, resources portfolio team, with Mackenzie Financial Corp. in Toronto, suggests a mixture of bullion andselected stocks.
Bob Lyon, SVP with Signature Global Advisors, a unit of CI Financial Corp. in Toronto, suggests Tahoe Resources Inc., which has cash to buy good properties when they come up for sale, which should happen more frequently this year. He also likes Goldcorp Inc., noting management is smart and disciplined about acquisitions.