Gold fund

clairbear_3

gold..a buy next summer..

bowlhead99

jimjames wrote: »

More importantly these type of gold funds are way off their previous highs - in the case of Smith & Williamson it is more than 60% below so I think they could be good value now. Price 12 months ago £3.42, price now £1.57. Having said that I bought some at £2 thinking they were good value then and they have now dropped another 25%! I want to top up but it isn't easy mentally to keep adding when the price keeps dropping...

I also think it is very unlikely that if the FTSE 100 fell 50% again that these would follow suit and are more likely to be resilient from this point and fall to a lower extend or even rise given the circumstances that might cause a large market fall.

The important thing to recognise when investing in gold producers rather than physical gold, is that their profits (usually) move the same direction as the price the metal, but not at the same rate.

Example, a gold miner gets it out of the ground at $1000 /oz and sells it at $1800 /oz. If gold price falls by a third, he loses $600 /oz of revenue which is not a third but three quarters of his profit. If gold price halves he doesn't lose half his profits, he loses all his profits and starts to make losses. At some point on his business plan he will close the mine and sack his staff and try not to go under before the gold price recovers.

Clearly the business may still have value at that point but the valuation is on the basis of resource in the ground and potential future income and funding, rather than a visible annual flow of profits. This can cause the valuation to suffer horribly. Of course if you hang around long enough, the gold price may go back up and support the mine going back into production. You can be waiting a long time and while you are waiting your money could be doing other things. So snapping up a "bargain" does not always make for the best profits.

As a random example, Smith and Williamson's holdings include Randgold, with operating costs now below $700 /oz. They could afford the price to go lower and still make positive profits (assuming energy and labour costs don't go up, and they still had the appetite to produce in the same volume despite lower sales price to get the same economies of scale, and they avoid local civil wars, and tax regimes don't screw them over too hard), but clearly those profits are worse with gold at $1250 than they were at one point.

Sure, operating profits will go up 10% if gold goes up 5% and other costs are constant, but the reverse is also true and that's one if the reasons you can buy them at £40 a share rather than £80 last year.

planteria

from HL last week re. the S&W fund:

"Our view on this fund
Investing in one specialised area of the market brings certain risks. Over the last few years, valuations of gold mining companies have significantly underperformed the price of gold bullion, but we believe this could change. News flow is beginning to turn positive as companies adjust their business models towards profitability and quality. Indeed companies are cutting production costs, disposing of unprofitable, high cost mines and becoming more disciplined on how they use their capital.

What makes this fund different from its peers is its small nimble size of £41 million, allowing it to take meaningful positions in smaller companies. That said we also like its flexibility to invest in larger companies, gold bullion, and companies specialising in other metals and resources. Its current bias towards smaller companies means it is well placed to benefit from a re-rating in the resources sector. This is a higher risk fund designed to appeal to adventurous investors with a long term view; we would only ever suggest allocating a small proportion of a portfolio to such a specialist area. We believe the fund merits its place on the Wealth 150 list of our favoured funds across the major sectors."

bigadaj

planteria wrote: »

from HL last week re. the S&W fund:

"Our view on this fund
Investing in one specialised area of the market brings certain risks. Over the last few years, valuations of gold mining companies have significantly underperformed the price of gold bullion, but we believe this could change. News flow is beginning to turn positive as companies adjust their business models towards profitability and quality. Indeed companies are cutting production costs, disposing of unprofitable, high cost mines and becoming more disciplined on how they use their capital.

What makes this fund different from its peers is its small nimble size of £41 million, allowing it to take meaningful positions in smaller companies. That said we also like its flexibility to invest in larger companies, gold bullion, and companies specialising in other metals and resources. Its current bias towards smaller companies means it is well placed to benefit from a re-rating in the resources sector. This is a higher risk fund designed to appeal to adventurous investors with a long term view; we would only ever suggest allocating a small proportion of a portfolio to such a specialist area. We believe the fund merits its place on the Wealth 150 list of our favoured funds across the major sectors."

I always wondered how funds qualified to be on the wealth 150 list, that explanation clarifies things......

G_M

Similar recent thread here:

https://forums.moneysavingexpert.com/discussion/comment/63841386#Comment_63841386

Jegersmart

The time to buy anything is when the prices have been hammered and no one else wants to buy. We may not be there yet, but the Gold Miners ETF price (correlated to a large degree with most of the gold mining funds discussed) is close to its low in 2008/2009. I have been buying tranches for the last few months into Investec Global Gold and have just topped up again. The paper loss is around 18% so far, but I like to take positions in unpopular sectors/stocks/markets because I prefer to do so rather than join a bandwagon where everyone wants to buy (defensive dividend paying stocks at more or less full valuation for example). Not that I would put my entire investment portfolio in one sector etc, but I am at around 20% or so now and still have some allocation left to a sector that I think will do reasonably well over the next 2-4 years.

all very imho ofc

J