March9,2020 BARRON’S 19
argues that gold isn’t simply an infla-
tion hedge, as it was during the 1970s,
but benefits more broadly from finan-
cial, geopolitical, and economic disloca-
tions, including the impact of Covid-19.
“The flows into gold are just getting
started,” says Peter Grosskopf, chief
executive of Sprott, a Toronto asset
manager focused on precious metals.
“Gold is now being seen as mandatory
portfolio insurance and not a fringe
asset.” He says that ownership of gold
among institutional and retail inves-
tors remains low, with few even
having Sprott’s recommended asset
allocation of 5%.
Yielding nothing, gold often moves
counter to the dollar and often does
well when real, or inflation-adjusted,
interest rates are negative, as they are
now. The real rate, for instance, on the
10-year Treasury is negative 1%, with
consumer prices rising at a 2% rate.
Jeff Gundlach, the CEO of Double-
Line, a major bond manager, told
CNBC this past week that it is “almost
a certainty that gold will go to an all-
time high versus the dollar.”
Gundlach, who has been bullish on
gold since the metal stood at about
$1,200 in 2018, sees a good chance
that the Federal Reserve will cut short
rates again—perhaps as soon as two
weeks from now—following its sur-
prise half-point cut this past week.
“The Fed is cutting rates, which is
dollar-negative, and that means gold
is heading higher,” Gundlach said.
Barron’shas been bullish on gold
since a September 2018 cover story.
There are many ways to play gold.
Those who like gold, but don’t want
the hassle of owning and storing it,
can choose from many exchange-
traded funds.
The largest bullion ETF is the $
billionSPDR Gold Trust(GLD), fol-
lowed by theiShares Gold Trust
(IAU), which has a slightly lower fee
at 0.25% annually, versus 0.40% for
the SPDR Gold Trust. There is a liq-
uid options market on that ETF.
Money has steadily flowed into gold
bullion ETFs globally in the past
month, and the sector now totals
almost $150 billion.
M
ining-stock ETFs are led by
VanEck Vectors Gold Min-
ers(GDX) andVanEck Vec-
tors Junior Gold Miners
(GDXJ). Today, big mining companies
are focused on delivering rising free
cash flow, rather than increasing pro-
duction regardless of cost.
Barrick is led by one of the indus-
try’s best executives, Mark Bristow, a
swashbuckling South African who
had headed RandGold, which merged
with Barrick in early 2019. Newmont,
which merged with North America
rival Goldcorp, has the largest market
value in the sector and is the only gold
stock in the S&P 500 index.
The industry, however, faces chal-
lenges, including the difficulty of find-
ing new mines, as well as political and
environmental opposition. Mining
gold means crushing a ton of rock to
obtain just a few grams of the metal.
Even with the latest move, the Van-
Eck Vectors Gold Miners ETF is still
at only half of its 2011 peak, and many
smaller mining stocks have trailed the
largest companies.
“I don’t think the stocks have ever
been cheaper,” VanEck’s Foster says.
“They haven’t responded to the gold
prices as much as in the past.”
Barrick and Newmont may not
look cheap, with both trading at
about 25 estimated 2020 earnings.
But Foster looks at mining compa-
nies based on a different metric, an-
nual pretax cash flow. He says the
stocks trade for seven to eight times
pretax cash flow, against a historical
average of around 11.
The mining companies also offer
“optionality”—meaning that their
earnings rise at a multiple of an in-
crease in gold prices.
At a time of growing financial risks
and shrinking interest rates around
the world, it is time for gold to find a
place in investors’ portfolios.B
OnDarkDays,
GoldDazzles
A rally in bullion and mining stocks looks to have room
to run amid ultralow interest rates and market turmoil
Bullish on Bullion
Some gold ETFs, funds, and stocks for investors to weigh.
Recent 52-Week Market
Bullion ETF Price Change Value (bil)
SPDR Gold Trust / GLD
$155.90 26.8% $49.
Comment:Largest gold bullion ETF
iShares Gold Trust / IAU
15.83 27.0 20.
Comment:Lower fee than GLD ETF
Miner ETF
VanEck Vectors Gold Miners / GDX
$29.05 33.3% $12.
Top Holdings:Newmont, Barrick Gold
VanEck Vectors Junior Gold Miners / GDXJ
39.80 27.9 4.
Top Holdings:Northern Star Resources, Kinross Gold
Mutual Fund
VanEck Int’l Investors Gold / INIVX
$10.00 24.8% $0.
Top Holdings:B2Gold, Kirkland Lake Gold
Fidelity Select Gold / FSAGX
24.38 30.4 1.
Top Holdings:Newmont, Barrick Gold
Sprott Gold Equity / SGDLX
39.37 22.2 0.
Top Holdings:Detour Gold, Pan American Silver
Recent 52-Week Market 2020E 2020E Div
Mining Company Price Change Value (bil) EPS P/E Yield
Barrick Gold / GOLD $20.70 64.3% $36.8 $0.71 29.0 1.4%
Newmont / NEM 50.50 48.0 40.8 2.00 25.2 1.
E=Estimate. *Net Asset Value. Sources: Bloomberg; Morningstar
G
old is living up to its rep-
utation as a haven during
turbulent times.
The precious metal is
up 10% this year, to
$1,673 an ounce, a seven-
year high. It could be on
its way to testing its record high of
$1,900, set in 2011.
Leading mining companies, such as
Newmont(ticker: NEM) andBarrick
Gold(GOLD), have bucked the recent
slide in stocks and are each up about
15% this year. Bulls see more gains for
bullion and the stocks, as investors
around the world gravitate toward a
sector in which most have little or no
exposure.
“Gold is responding to systemic
financial risk,” says Joe Foster, a man-
ager of theVanEck International
Investors GoldFund (INIVX). Foster
By ANDREW BARY
The New
Gold Rush
The price of gold
has climbed to
seven-year highs
amid the turmoil in
the markets.
Gold Spot Price
($/troy oz.)
Source: Bloomberg
’12 ’16 ’
1000
1250
1500
1750
$2,
Neil Webb