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(Wallace Refiners) – The gold market continues to struggle below $1,900 an ounce as investor sentiment is weight down by further news of potential vaccines for the COVID-19 pandemic; however, one fund manager doesn’t think this will keep gold prices down for very long.
In a recent telephone interview with Wallace Refiners, Steve Land, vice-president and portfolio manager for Franklin Templeton’s Franklin Gold and Precious Metals Fund, said that although the vaccine is good for economic growth, governments and central banks still have to deal with the economic devastation that the COVID-19 pandemic has already created.
“We can now see a path forward, but there are still a lot of questions unanswered,” he said. “There’s still … a lot of work to be done and that probably is going to require a lot of stimulus. As we look forward, there’s certainly potential for inflation. There’s potential for currency devaluation. That will be positive for gold.”
Although it could take a little longer than first expected, Land said that he does see several scenarios where gold prices can push back to all-time highs above $2,000 an ounce.
Even as the U.S. and global economies improve, Land said that he expects investors to continue to hold on to their hold as a continued insurance policy against unexpected volatility and uncertainty. He added that over the last decade, gold continues to solidify its role among investors as an essential portfolio diversifier.
Along with the precious metal, Land said that he is bullish on the mining equity sector and think that it is only a matter of time before investors jump back into the market, especially after the stellar results in the current third-quarter earnings season.
“It is certainly a very interesting time from gold equity standpoint. For the first time — and I’ve been doing this over 20 years — is the first time I can actually say these stocks look cheap at current spot prices,” he said. “We are seeing incredible low valuations compared to spot price.”
Land said that one of the reasons why investors have been hesitant to jump into the mining sector is because they want to see more sustainability when it comes to maintaining profits margins and free cash flow.
Looking back at the last bull market, Land said that investors were disappointed that mining companies didn’t provide the margins they were expecting. That sentiment can still be felt in the marketplace, he said.
“When you’re looking back over the last 20 years, you can sort of say that one quarter is bit of an outlier. The industry needs to show that it can maintain good cost control. When we put up four-quarter numbers, even if the gold price is a little bit lower, if companies can deliver on, continued large cash generation and show they are disciplined then investors will start coming back.”
Land said that he expects gold mining companies will continue to look attractive even in a lower gold price environment.
“There’s plenty of room for gold prices to pull back and the industry can still say that they have a healthy market. Companies have made a lot of progress from where we were two years ago,” he said. “Even if gold prices were to pull back to 1600 companies can still say: ‘Hey, we have a great business.'”
Land said that as more investors start to look at the sector, he would expect merger and acquisition activity to pick up.
“A lot of companies are starting to realize that if they want to attract more investors, then they need to be bigger and more liquid,” he said.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Wallace Precious Metals The author has made every effort to ensure accuracy of information provided; however, neither Wallace Precious Metals nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Wallace Precious Metals and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.