The price of gold will double to more than $2,500 an ounce over the next 10 years. But for now, investing in gold mining stocks make more sense, according to Thomas Winmill, president of Midas Management Corp. and manager of the $120 million Midas Fund [Ticker:(IDSX)].
Mr. Winmill, whose fund gained more than 82% last year, has an 80% allocation to the gold-mining sector, and the fund owns just 10 ounces of physical gold.
“Our view right now is that the place to be in gold is invested in the largest, most senior companies that are generating cash, because that's where the margin expansion will be,” he said. “Last year we saw a lot of outperformance by small and midsize companies, and some of the explorers came back strong as well, but most of the seniors didn't even have positive years.”
Currently, Mr. Winmill is investing in mining outfits like Newmont Mining Corp. (NEM), Barrick Gold Corp. (ABX), and Kinross Gold Corp. (KGC).
Despite the portfolio weighting and the forecast for the price of gold, Mr. Winmill insists, “we're not gold bugs, we're capital appreciation bugs.”
The fund, which holds just 35 positions, has a lot of flexibility to be aggressive and tactical.
The prospectus allows management to use leverage and short-selling strategies, as well as allocate to any type of natural resource, although it tends to concentrate in precious metals.
Mr. Winmill's current allocation ties into an outlook that is gloomy for fixed income over the next three to five years as he anticipates interest rates will rise.
The environment won't be much better for most equities, he said, as rising taxes lead to a kind of “credit deflation” scenario that cripples profits.
In that scenario, large, cash-rich mining companies make for solid investments. Such companies, Mr. Winmill said, will be able to maintain strong balance sheets because their revenues will be based on the sale of gold.
“At some point near the last leg of the bull market, when things start to get crazy, that will be the time to own the gold,” Mr. Winmill said. “Near the peak of the market we'll start reducing our exposure to mining companies and increase our allocations to actual gold.”
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 .
