Portfolio Manager Perspectives

Jeff Benjamin

How to invest in gold without investing in gold

Companies that mine and produce the precious metal can offer a bigger upside than bullion, says Goodman and Company's Robert Cohen

May 17, 2010 @ 11:45 am

By Jeff Benjamin

Getting the most out of the rally in gold requires looking beyond the precious metal to the miners, explorers and production companies, according to portfolio manager Robert Cohen.

“We still see gold as not being in a bubble,” said Mr. Cohen, who manages nearly $1 billion worth of gold portfolios with Goodman and Company Investment Counsel Ltd. “The price of gold has been adding about $100 an ounce per year, and next year, in light of the crisis in Greece, I see gold at $1,425 an ounce.” That's about 19% above the metal's current $1,200 range.

Mr. Cohen said the best way to benefit from the rising price of gold is through the companies that are mining and producing it at a relatively fixed cost.

“If you own a brick of gold and the price goes up by 10%, you've made 10%,” he said. “But for the production companies, a rising price translates to increased profit margins.”

The parlay can pay off handsomely for investors. Mr. Cohen estimates that, for every 1% increase in the price of gold, gold producers will see a corresponding increase of up to 3%.

“If you own the right stocks, there's a lot of alpha potential,” he said.

Of course, that extra return from the swelling profit margins cuts both ways. If the price of gold goes down, the profit margin gets smaller.

“By owning the miners instead of the physical gold you're taking on a little more risk,” Mr. Cohen said. “But you're also getting more reward.”

The Toronto-based money manager offers U.S. investors access to his strategy through the Dynamic Gold & Precious Metals Fund Ticker:(DWGOX).

The fund, which currently has just $3 million under management, typically holds around 40 stocks.

A couple of the largest holdings include Oshkosh Corp. Ticker:(OSK) and San Gold Corp. Ticker:(SGR).

Some of the attributes Mr. Cohen likes most about gold right now are many of the things most people don't like about the global economy.

“Over the past 10 years gold has been probably one of the best places to park your money,” he said. “The financial crisis was bad for gold, but what the governments are doing to try and get out of the crisis is good for gold.”

Mr. Cohen expects gold to continue to rally as more government spending is needed to ease the debt crisis threatening many European Union states.

“Gold is tied to the global money supply with a very high correlation,” he said. “Fiscal budget deficits and further printing of euros and dollars to fund obligations are all things from which gold benefits.”

Given the connection, Mr. Cohen doesn't see a whole lot of near-term risk for the precious metal. “The only downward pressure on gold would be a strong global economy where all the financial problems in Europe are solved,” he said. “And I don't see that right now.”

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.

0
Comments

What do you think?

View comments

Most watched

INTV

Schwab's Jeff Kleintop: Prep for volatility given China trade uncertainties

China could be considered a developed market in five to seven years , according to Jeff Kleintop, chief global investment strategist, Charles Schwab.

INTV

Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

Latest news & opinion

Funding for Reg BI, other SEC advice reform efforts denied in Waters amendment

House likely to approve measure that effectively kills rule package, but it faces uphill battle in Senate

Wall Street lashes out at Sanders' plan to pay off student debt with a securities trading tax

Financial pros argue that a transaction levy will hurt mom-and-pop investors along with investment houses.

GPB paid B-Ds and reps steep commissions to sell troubled private placements

GPB paid commissions of 9.3%, or $167 million altogether, on the firm's private placements.

Give us a break, active managers say

Seven portfolio managers share their outlooks for the rest of the year, generally agreeing that it's been hard for active managers to stand out.

GPB Capital reports decline in value of two biggest funds

One has dropped by 25.4% and the other by 39%, according to the company.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print