Three Best Buys in Gold

01/29/2014 7:00 am EST


Adrian Day

Chairman and CEO, Adrian Day Asset Management


While gold fell 28% last year, after falling steadily since September 2010, gold stocks were down even more, with the big caps down over 49%; we think this is a once-in-a-decade buying opportunity, forecasts Adrian Day, money manager and editor of Global Analyst.

Certainly, gold's correction, from its fall 2011 peak, has been severe—though there have been other declines of over 20% during this bull market, and far less than the mid-70's correction, which occurred just before gold zoomed eightfold by the end of the decade.

On the micro level, there are also positives:

  • The major selling from ETFs, the proximate cause of gold's decline earlier in the year, has slowed recently.


  • Physical demand in China, almost a mirror image of the ETF selling, remains very strong.


  • India's currency has been recovering (along with the current account balance), making gold more attractively-priced in the metal's erstwhile largest market; lower Indian demand was another reason for gold's precipitous decline this year.


  • Production could see another decline this year, after a couple of years of modest increases.


And sentiment for gold is at record lows, a positive sign for a contrarian. After a 12-year bull market, gold finally made it to the front page of The Wall Street Journal, another contrarian sign that it could be at a bottom.

Franco-Nevada (FNV), though down from last January, is trading today where it was last April, no mean feat for any gold stock in 2013!

Franco has top management and continues to undertake transactions, taking advantage of the need for funds with its strong balance sheet (almost $900 million in cash).

Franco pays 20% of spot gold on each ounce delivered. Franco remains a core holding in the sector, and we would buy here for investors who do not already own.

Among the seniors, Yamana (AUY) and Goldcorp (GG) also remain best buys at current prices.

Yamana has, in fact, already been steadily moving up, following strong financial results. Given a good gold market, we expect Yamana and Goldcorp to be early leaders among the big-cap stocks.

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