Puerto Rico–based Adrian Day says retail investors are avoiding gold miner stocks even as the companies generate cash quicker than any other United States sector.
Day, whose firm Adrian Day Asset Management manages about $490 million (C$670 million) in resource-equity assets, sees challenges for gold-equity inflows. He points to the paused U.S. rate cycle, low inflation, a strong dollar and the draw of other industries as key factors.
“The gold sector is the industry group in the U.S. with the most rapidly growing cash flow of any sector,” Day said early this month in Quebec City. “[But] even a 40% rise in gold-stock indices over the past year isn’t enough to keep up with the increasing valuations elsewhere.”
Gold miners on average report all-in sustaining costs at about $1,300–1,400 per oz. while spot gold closed at $3,384 an oz. in New York on Tuesday, creating a pool of free cash on their balance sheets.
Day argues that a pullback among tech leaders or a turn in Federal Reserve policy to lower interest rates will draw money into gold equities and close the valuation gap. Falling rates typically lift bullion prices and improve the earnings outlook for producers. The prospect of higher gold prices can in turn boost valuations for mining stocks, while easier financing conditions make it cheaper for companies to fund exploration and development.
Watch below the full interview with The Northern Miner’s western editor, Henry Lazenby.
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