Spot Gold has continued a fairly orderly decline for the past 8 trading days (since Feb. 20th) and it's not clear when this sell off will end. It's noteworthy that unlike earlier in the quarter, gold and related stocks have declined regardless of the broader market performance. This behavior is putting my "Ascendancy of Gold Thesis" to the test.
My portfolio is now down 4.7% from the Feb. 5th benchmark. This is better that a 9% decline for the TTGD Toronto Global Gold Index but worse than Dynamic Precious Metals Fund which is only down 1.7%.
In the last few days I've added to my Rubicon Minerals position and replaced a 1,000 share holding of Iamgold Corp. I also think that Coeur D'alene, a U.S. based silver producer has good prospects. I like very much the just announced amalgamation of New Gold (NGD-T) with Western Goldfields (WGI-T) the combined production of 30,000 oz/month is a 67% increase and catapults NGD into an intermediate producer status.
Wednesday's Globe and Mail notes: "With its $280-million merger deal with Western Goldfields Inc., New Gold Inc. hopes its plans to be the dominant consolidator of the junior gold sector are back on track. The friendly agreement to combine Western's Mesquite gold mine in California with New Gold's operations in Mexico, Australia and Canada is the next step in a bid to become a one-million-ounce-a-year producer by 2012, says New Gold chief executive officer Robert Gallagher. "We're going to continue this consolidation of gold-producing assets. Others talk of it, but we've got the vehicle in place now with this combination that really is the full package - the go-to consolidator," Mr. Gallagher said in an interview. The deal announced yesterday could be dubbed "New Gold: Take 2." Ten months ago, the Vancouver business unveiled a three-way merger deal intended to create a $1.5-billion gold company backed by a group of mining all-stars."
I rate the NGD.WT.A-T an outstanding speculation. This warrant expires in 2017, trades at 40 cents, and is calculated to have a fair MV of over $2 by canadianwarrants.com/values/current.htm ..... I hold 30,000 of these warrants with an average cost of $0.275/each. I'm now out $27,000 on margin. Nothing quite matches the feeling of fear one gets when they borrow money only to lose more money!
I attended a fund seminar yesterday and listened to Alan Radlo explain why he doesn't like gold related companies because gold shares don't seem to ever steadily increase/hold their value and because gold is not consumed. Two good points. Alan manages the newly started (1 year old) $700M Cambridge Funds but formerly grew several Fidelity funds including the very successful Canadian Asset Allocation and Fidelity Canadian Growth Co. funds. With respect to gold not being consumed, I would note that as the global population expands, the scarcity of gold ensures that the amount of gold per capita is a steadily decreasing value. This is not the same as outright consumption but assuming a universal desire to hold gold, it is an argument supporting an increasing valuation, even in the absence of consumption.
Radlo was very keen on the long term outlook for oil and gas noting that supply is being curtailed and that crude shortages are sure to reoccur once consumption turns around.
Hopefully I'll be able to soon write about a turnaround in golds prospects. In the meantime I can only live in hope.
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