Junior Gold chief executive officer Angelos Damaskos says gold will ”soon resume its long-term uptrend”, while the recent price drop could be the “capitulation some investors have been waiting for.”
Many investors believe that the bull market in gold is over as the global economy shows signs of growth again along with quantitative easing and liquidity measures brought in by central banks, while inflation remains low, says Damaskos.
He also highlights that the news of the latest figures showing a slowing in the Chinese economy coincided with the gold sell-off, when it should have produced the opposite effect.
However Damaskos expects that gold will “soon resume its long-term uptrend”, believing that there is still plenty of uncertainty across economies to warrant investing in gold as an insurance policy.
He points to the general issues of deleveraging and government policy measures is still affecting the global economy and “raises risks on the downside.” He also notes that any deterioration in the geopolitical instability of Africa, the Middle-East and Asia “could raise further, much larger risks.”
He adds: “In times like these, some insurance against the unexpected is necessary – this has been the function of gold since antiquity.”
Damaskos also says that the majority of the portfolio of the Junior Gold fund features “ well capitalised, producing companies with operating cost structures well below the current gold price.”
He adds: “These companies can continue operations for prolonged periods of lower prices due to their low debt and fully funded activities.”
The fund is also invested in a number of near-term production companies poised to begin production in the next 12 months, according to Damaskos, as well as development stage companies looking into “potentially large mines.”
Elsewhere, Damaskos argues that loss of value in small and mid cap producers is “due to lack of investor interest in smaller gold mining shares, and concerns that they cannot prosper in the current environment.” However he believes that this sentiment ignores the ability ”generate profits with gold prices at current levels.”
He says: “Selling has been indiscriminate, ignoring companies’ ability to generate profits with gold prices at current levels. While it is true that many undercapitalised explorers and promoters of marginal assets may disappear in the current malaise, we remain confident in the fundamental strength of Junior Gold’s investments and, therefore, in their recovery potential.”