We pay close attention to the macro drivers moving the yellow metal, like government policy and cultural affinity spurring demand globally. We also monitor the micro drivers, like company management and quant factors that make one gold stock superior to the next, Frank Holmes, CEO of US Global Investors and editor of Frank Talk.
Gold’s qualities make it one of the most coveted metals in the world and a popular gift in the form of jewelry – this is what I call the Love Trade. From the beginning of the Indian wedding season in September until Chinese New Year in February, the price of gold tends to rise due to higher demand from the two biggest consumers of gold, China and India.
On the other hand is the Fear Trade, driven by negative real interest rates and the fear of poor government or central bank policies that could result in currency devaluation or inflation. This fear triggers people to buy gold as a hedge against possible negative returns in other asset classes, which in turn, pushes the gold price higher.
We believe gold is an essential part of a portfolio due to its history as a protector against inflation. I’ve always recommended a 10 percent weighting in the metal, 5 percent in gold bullion or jewelry, and 5 percent in gold stocks, mutual funds and ETFs.
In fact, current economic conditions make an even greater case for gold. The stock market is still on a historic bull run, and the tax reform bill is helping ratchet up share prices. It’s important to remember that the precious metal has historically shared a low-to-negative correlation with equities.
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Gold has also performed competitively against many asset classes over the past few decades. This makes the metal, we believe, an appealing diversifier in the event of a correction in the capital markets or an end to the bull market.
U.S. Global has owned Klondex Mines (KLDX) for nearly nine years and have seen this team put together an attractive package of assets in Nevada, transforming the company into a 200,000 ounce producer. The stock came under pressure last year as the company expanded operations and bought the True North Mine out of receivership as well as the Hollister Mine from private interest.
It ended up stretched too thin with the challenges of changing the work culture at True North and Klondex has held off processing most of the Hollister ore due to gold recoveries only in the 80 percent range, where metallurgical testing indicated it should be closer to 85 percent.
We believe they will get there. The stock has really been punished for missing 2017 guidance, but at this price level, with the street now taking a “show me” attitude before rerating it, now is the time to buy.
Wesdome Gold Mines (Toronto: WDO) is at an exciting point right now. In August of 2016, Wesdome released the first set of really game changing results, such as 223 g over 14.3 meters, from the Kiena Deep Exploration program, which has the potential to allow the mine to restart. Wesdome has now ramped down to have better access in executing a new drill program at Kiena.
The company has largely been undercapitalized, but with Charlie Page coming on the board a few years ago, a lot of credibility has been added to the Wesdome story. Wesdome is one of the few remaining Canadian junior miners that could be a takeover target, particularly if Kiena can be brought back into production.
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