Gold to buy or not to buy

uih039

gozomark wrote: »

except Big Brother isn't British...... It was invented by Endemol, which is based in The Netherlands, and is owned by an Italian company (they also do Deal or no deal, Changing rooms, ready steady cook and ground force) - other than that you are right

OK, good point! Anyway, as you have said it's the principle I'm trying to establish - that the UK economy is not dead yet, contrary to quite a lot of posts on this Board!

chrisweb

Short term gold will go down according to elliot wave analysis. Also backed by Nadeem Walayat's prediction.

Generally though it looks like it will trade sideways.

Right now the gold to oil ratio gives an indicator it is NOT a good time to buy as gold is historically high against the price of oil.

However, longer term when inflation returns, which it must do to counter the massive government and personal debt in western nations, then gold price will soar, as will other commodities, but gold more so as it is a safe haven in inflation.

During deflation (what we have now) gold is less predictable and historically has not always done so well. See: http://www.elliottwave.com/freeupdates/archives/2009/02/10/In-The-Long-Term-Will-GOLD-Keep-You-Safe.aspx

However, I don't think gold will drop significantly so it is a good idea to have some money in gold as a long term security against falling currency.

sabretoothtigger

FOCUS: Gold Royalty Companies Outshine Gold Miners, Bullion


By Matthew Walls
Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--Companies that buy royalties from miners of precious metals are proving attractive to investors who are bullish on gold but find stock in mining companies too risky and bullion too staid.

Two of the biggest royalty companies, Canada-listed Franco-Nevada Corporation (FNV.T) and Utah-based Royal Gold Inc. (RGL.T), have returned 31% and 58% respectively over the last year, easily outdistancing bullion and greatly outperforming mining equities, according to Morningstar.

Record-high prices for gold, silver and platinum helped as investors turn to traditional safe havens to ride out a very uncertain outlook for the global economy. But so has the business model of the companies: Buying royalties gives them full exposure to precious metal prices without exposure to miners' operating risks and costs, which until recently have hurt miners.

Some analysts believe the miners - which were sold off heavily in last year's turmoil - should outperform royalty companies in 2009. The collapse in oil prices, stagnant wage costs and price declines in other inputs should lower miners' operating costs and fatten their margins. A U.S. index for gold miners, the New York Stock Exchange's Arca Gold Miners Index, appears to back this up. The index is up 87.93% in the past three months.

But royalty companies, despite a more conservative business model, have rallied nearly as much, with Canada-based Silver Wheaton Corp. (SLW) up 133.12% in the same period.

One attraction right now may be their extremely high margins - around 80% - versus 30% to 50% for miners. Royal Gold, a company with a market capitalization of $1.6 billion, has just 14 employees. In today's tight credit environment, these high cash flows allow them to buy new royalty purchases with little debt.

"There's a big premium for any liquidity in the market now," said Franco-Nevada Chief Executive David Harquail. "There's many more companies looking to create new royalties."

Royal Gold CEO Tony Jensen said he's seeing the most opportunities since he took the helm over 10 years ago. Jensen is looking for royalty deals "anywhere north of $50 million."

Companies like Royal Gold scoop up royalties by either buying existing ones or creating them. One way is to buy a royalty from individuals or a portfolio of royalties from other miners. Finders of mineral deposits, for example, will sometimes get royalties from mining companies when they sell their discoveries. That potentially puts the royalties up for grabs if they decide to cash out.


New Entrants Limited


A royalty typically has a claim on anywhere between 2% and 5% of a deposit's gross revenue, but sometimes can be as high as 16%. Worldwide, about 3,500 royalties exist, according to a report by Canadian Imperial Bank of Commerce. Gold royalties cover about 427 million troy ounces, equivalent to about 7.5% of the world's known deposits. Franco-Nevada, for instance, has more than 200 mining royalties: 24 on producing mines and 178 on development and exploration projects.

Most of the biggest precious metal royalties are already owned by Franco-Nevada and Royal Gold, a protective barrier that limits new entrants and competition for new royalties, CIBC said.

David Haughton, an analyst at BMO Capital Markets in Toronto, rates Franco-Nevada among his top five picks for mining equities and says their returns are bigger than a gold exchange-traded fund.

Gold ETFs deliver a return on price gains, but a royalty company does that and will benefit from any increase in production at a gold mine or an expansion of the deposit, Haughton said. "With ETFs, you buy an ounce and that's it. Royalty companies have limited exposure to operators and exponential upside potential."

New entrants have appeared in the past five years but in total they still number fewer than a dozen, making it a small investment field. Not all royalties are created equal, though. Some royalty companies, such as Canada-based International Royalty Corporation (ROY), are much more highly involved in base metals, and suffered in the collapse of their prices in the second half of 2008. Franco-Nevada, by contrast, is likely to get 67% of its earnings from gold in 2009, according to BMO's Haughton.

Production cuts and mine shutdowns are also a risk for royalty companies. For example, Xstrata PLC's (XTA.LN) decision to close its Falcondo nickel mine in the Dominican Republic in response to low prices robbed Franco-Nevada of one of its royalty streams. While a royalty reduces exposure to a mine's operating risks, the royalty company still needs a mine to perform well.

One drawback for the royalty companies that have performed well over the past year is that their valuations look a bit rich, particularly when viewed against the valuations of the mining companies. Franco-Nevada is trading at a price/earnings forward ratio of 58.48, and Royal Gold at 42.92, according to Morningstar.

James Whithall, a portfolio manager at U.K.-based precious metal investment group Baker Steel, which manages $450 million, said gold miners, especially the mid-tier ones, are trading at 10 times earnings, when historically they trade between 20 and 40 times earnings.

:money::money:

rl290

gozomark wrote: »

except Big Brother isn't British...... It was invented by Endemol, which is based in The Netherlands, and is owned by an Italian company (they also do Deal or no deal, Changing rooms, ready steady cook and ground force) - other than that you are right

Last time I checked, Big Brother was invented by George Orwell, who also invented Room 101 and others... He was English.

gozomark

I somewhat doubt his estate is getting the royalties from the TV shows though