August 3, 2020 BARRON’S 25
Gold(GOLD) are the top gold miners,
with market values above $50 billion,
mines on several continents, solid bal-
ance sheets, strong management, am-
ple free cash flow, and all-in produc-
tion costs around $1,000 an ounce.
Mutual funds include the $1 billion
VanEck International Investors Gold,
Fidelity Select Gold(FSAGX), and
ASA Gold and Precious Metals
(ASA), a 62-year-old closed-end fund
that trades around $23, a 10% dis-
count to its net asset value.
Foster views gold as a financial
asset that acts as an alternative to the
dollar, which fell 4% in July, as mea-
sured by the U.S. Dollar Index.
“We have long maintained that gold
is the currency of last resort, particu-
larly in an environment like the current
one, where governments are debasing
their fiat currencies and pushing real
interest rates to all-time lows,” write
Goldman Sachs commodity analyst
Jeffrey Currie and his colleagues. The
firm has lifted its 12-month gold price
target to $2,300 an ounce and warns
about the durability of the dollar as the
world’s reserve currency.
Gold yields nothing, but tends to do
well when inflation-adjusted rates are
low or negative, as they are now. Long
a haven, it also offers portfolio diversi-
fication, although many investors have
little or no exposure. A UBS survey of
family offices last year found an aver-
age gold and precious metal exposure
of just 3%.
Barron’shas been bullish on gold,
including a cover story in 2018, when
the metal traded around $1,200.
Demand from exchange-traded
funds has been a big driver for gold
this year. Bloomberg calculated total
gold ETF holdings at nearly 108 mil-
lion ounces late last week, up 4% in
July and 30% above the 83 million
ounces at year-end 2019. The SPDR
Gold Shares ETF hit nearly 40 million
ounces recently.
The mining stocks offer leverage to
gold’s price, with profit rising faster
than the metal in bull markets. New-
mont estimates that its free cash flow
rises by $400 million annually for
each $100 gain in gold off a base of $1
billion at $1,200 an ounce This im-
plies yearly free cash flow of about $4
billion at current prices, or a 7% free
cash flow yield. Both Newmont and
Barrick are highly profitable at today’s
prices.
Neither is a growth story, however.
Both forecast little change in produc-
tion in the current decade, with New-
mont at roughly six million ounces a
year, and Barrick, five million.
“You don’t buy Newmont and Bar-
rick for growth,” Foster says. “You
buy them for controlling costs, ex-
panding margins, and increasingly
their dividends significantly.”
Newmont, at a recent $69, was
yielding 1.5%; Barrick, at $29, 1%.
Foster holds both and likesB2Gold
(BTG), a midtier Canadian miner trad-
ing around $7 that is more of a growth
story. It has about one million ounces
of production and is developing a Co-
lombian mine that could add 20% to
annual output. B2Gold is also expand-
ing a mine in Mali.
Investors might be reluctant to
rush into gold or mining stocks. But in
a world of persistently low interest
rates, the sector seems poised to
extend its gains.B
By ANDREW BARY
T
he “barbarous relic” is
having its revenge.
That dismissive charac-
terization of gold was made
by the economist John
Maynard Keynes. The
metal has had many skep-
tics, including Warren Buffett, who
once said that gold produces nothing
and merely “looks back at you.”
But gold’s surge is refuting its
critics. The metal gained 4% in the
past week, to a record $1,971 an
ounce—topping the 2011 peak of
$1,900. Gold’s rally reflects the dol-
lar’s weakness, ultralow interest
rates globally, and record demand
from exchange-traded funds like the
SPDR Gold Shares(ticker: GLD),
the leading gold ETF. Gold is now up
30% this year, making it one of the
strongest major asset classes.
There could be more room for
gold—and gold-mining stocks—to
advance, with inflation-adjusted U.S.
rates negative and the U.S. govern-
ment running enormous deficits.
One of gold’s major attractions is
that it’s hard to make more of it, un-
like the dollar and other paper curren-
cies. Newly mined metal adds less
than 2% each year to the roughly six
billion ounces currently in the world.
“Gold is in a secular bull market
and still has a long way to run,” says
Joe Foster, a manager of theVan Eck
International Investors Goldfund
(INIVX). “Sooner or later, gold will
break above $2,000 an ounce and
move to higher levels.”
The many ways to play gold include
ETFs like the SPDR Gold Shares and
the lower-feeiShares Gold Trust
(IAU), as well as mining-stock ETFs
led by theVanEck Vectors Gold
MinersETF (GDX) and the more-
speculativeVanEck Vectors Junior
Gold MinersETF (GDXJ).
Courtesy of NewmontNewmont(NEM) andBarrick
A New Gold Rush Stakes a Claim for More Gains
Ultralow interest rates, a weak
dollar, and uncertain times make
the precious metal glitter for
investors. It’s time to dig in.
Bullion Bulls
HereareETFS,mutualfunds,andminingstockstoplaytherallythegold
Recent YTD Market
Gold Investment / Ticker Price Change Value (bil)
Gold ETFs
SPDR Gold Shares/ GLD $185.13 29% $78.7
iShares Gold Trust/ IAU 18.81 29 30.9
Mining ETFS
VanEckVectorsGoldMiners/GDX $43.13 49% $18.5
VanEck Vectors Junior Gold Miners/ GDXJ 61.60 46 6.7
Mining Stocks 2020 P/E
Newmont/ NEM $67.89 56% 30.1
Barrick Gold/ GOLD 28.78 55 34.1
Funds Assets (bil)
VanEck Intl Investors Gold/ INIVX $15.95 57% $1.2
Fidelity Select Gold/ FSAGX 35.83 48 2.3
ASA Gold and Precious Metals/ ASA 23.34 73 0.5
Data as of 7/29/20 Source: Bloomberg
Big Drivers
The rise of
gold ETFs has
boosted demand.
30%
Gold’s price is
up by this much in
2020.
$2,300
Goldman Sachs’
12-month price
target for gold
2%