Putting money in the junior Gold Mining sector takes 3 things...
EQUITIES AND ECONOMICS analyst Victor Gonçalves is enthusiastic about some "undervalued" junior Gold Mining stocks, as he tells The Gold Report here.
Alongside his Equities and Economics Report, Victor Gonçalves now produces the Green Dollar Report and writes for a number of leading print and electronic finance publications, including CIM Magazine (Canadian Institute of Mining), Western Standard, Barron's and Kitco.
Here he says that Gold Bullion as simply met its typical summer lull, and will generally see more strength than weakness this year...
The Gold Report: The price of gold has dipped to below $1,175 this morning [late July]; do you see this as a sign that the general economy is improving and that inflation is not on the horizon? Or perhaps it's just a summer lull?
Victor Gonçalves: This is basically the traditional summer lull, so I'm not overly concerned. In fact, I talked about this very thing in one of our previous interviews. There are certainly other factors involved. Typically when we have mid-term elections with a democratic president and what could be a republican house, this will be good for gold and the markets, but until that happens, the markets and the price of gold will be at a standstill.
TGR: In terms of Gold Investing, do you advise your readers to have a certain percentage of gold bullion along with gold equities?
Victor Gonçalves: In terms of Gold Bullion, I always say to have some, but the definition of "some" is a little ambiguous.
I like gold, but I also like the moves that occur in the junior Gold Mining sector. One of the issues with gold bullion is the spread between the buy and sell side; the built-in "lose" in the spread between the buy and sell prices. That is to say, for those who want to trade gold, I don't recommend trading it frequently. For somebody who wants to buy it now, in the summer, I think they will strongly benefit as the price is probably at one of lowest points we will see going forward. So to answer the question, for conservative investors I recommend 10-20%, and for aggressive traders, 0%, as they would have more opportunities with gold equities.
TGR: If an investor were building a gold portfolio today, would you recommend they start with a base of seniors, juniors and ETFs?
Victor Gonçalves: Juniors and emerging producers hands down. This is probably the best piece of advice that anybody can take from this article. If there is one asset class that will outperform, it is the emerging Gold Mining producers. Basically, these companies trade with the price-earnings multiple of a junior, which is basically none, but will more than likely have a producer's asset base and earnings in a reasonably short period of time. That, in my opinion, is a very sweet deal.
Having said that, however, I believe having one or two solid senior Gold Mining stocks in your portfolio is not a terrible thing. They will hold their value and perform according to the price of gold. Right now, with most equities prices being depressed, the best "bang for your buck" will be in the emerging mid-tier producers. There are some juniors that will be a great value eventually, but as a solid base, I don't recommend them as they carry much higher risk when compared to a company that has a mine, mill and production.
TGR: In terms of gold miner equities, I know you're partial to select juniors. What are the most important criteria to you? Management, project, jurisdiction, drill results or other factors?
Victor Gonçalves: There are several factors, but I can never stress the most important one enough – management. Management is the root of all that is good for any company. Good management will know (or have a reasonably good idea) where to drill and get the good results. Good management will do the right deals to acquire the right projects; proper management will know which jurisdiction to be in, and if the jurisdiction is poor, then they will know how to mitigate the risks. All the good news we hope to see on the newswires stems from the management team's calculated decisions. This is why this is the quintessential element of a company; the rest will follow naturally.
TGR: Victor, thanks for your latest insights. Much appreciated.
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