golden-egg-out-of-nest

Investors should be enthusiastic about gold and gold-mining equities, says Doug Groh, portfolio manager and senior research analyst at Tocqueville Asset Management in New York.

He revealed his predictions for the sector at the IMCA New York Consultants Conference, while also discussing how to help clients approach gold investing.

He says, “[Investors] recognize the sector has merit since monetary policies are debasing currencies. Gold provides a nice alternative to these policies’ [effects].”

However, gold mining stocks that are leveraged to gold prices haven’t performed very well over the last couple years; this is one reason why investors have been stalling this year.

Read: Market volatility slows mining deals

But Groh says to gain perspective by “stepping back and realizing that gold stocks have performed well in the last four years.” While they were down 50% or more in the last two years, he reminds us they were up at least 75%-to-100% in 2009 and 2010.

Thus, “If you look at net value, there’s still a positive trend, though the last two years haven’t reflected this. In fact, gold prices—which drive mining equities—have also done well.”

The sector performed well because there were high expectations for gold based on positive price outlooks. Not to mention, mining companies represented growth potential through the expansion of their projects.

Read: Gold miners look to promising 2013

Due to this, gold bugs assigned high values to the stocks. But production growth hasn’t come through as quickly and profitably as expected.

“That’s been a function of higher operating costs, which have been caused by a global mining boom,” says Groh. “Demand for labour, inputs, and equipment have been higher than expected.”

He adds, “Capital expenditures for these growth projects have also risen significantly. Investors have been dissatisfied with the lack of cash-flow generation of the mining companies and their growth plans.”

A change in how companies are operating could remedy this problem, says Groh. Lately, he finds, a number of management teams are being replaced—the top five companies’ teams have recently stepped down.

Read: Mining firms focus on cost control, execution in 2013

Additionally, companies need to improve cost management and capital allocation and spending.

Read on to discover how companies can profit, as well as how you can talk to clients about gold investing.

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