Metal or miners: How should advisers gain access to gold?

Gold 480

Gold prices are predicted to hit $2,000/oz this year from current levels of around USD1,670/oz as a number of factors combine to support the yellow metal.

Despite this – and the fact that gold prices have been elevated against historical norms over the course of the crisis – gold producers themselves remain cheap. Why is this and should investors consider exposure to the commodity or its miners?

Smith and Williamson Global Gold and Resources fund co-manager Ani Markova highlights restrained supply, demand from emerging markets and central bank policy as supportive factors for gold prices.

Today twice as much rock needs to be mined in order to extract the same amount of gold as in the 1980s and 1990s due to high grade reserves being located in politically unstable regions such as Mali.

Markova says: “It takes a lot of years to take a mine from discovery to production. A lot of permitting, a lot of dealing with social economic issues and dealing with governments, and capital is needed to build infrastructure.”

While restricted supply keeps the metal’s price high, for gold miners it reflects higher production costs and hampered revenues – neither of which is helpful for their share price.

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