Gold, like many commodities, has had a solid run, but portfolio manager Thomas Winmill contends it's a good time to bet on the precious metal climbing even higher.
Winmill, who oversees the New York-based Midas Fund, bases the assertion on his view that the Federal Reserve likely will cut interest rates before the year is out as a means of stimulating the U.S. economy.
"If it happens, gold is going to go nuts," he said.
Meanwhile, Winmill thinks fast-paced global economic growth will keep demand high, regardless, for many precious metals, including gold and copper.
The Midas Fund, rated three stars out of five overall by Morningstar Inc., invests primarily in companies that mine for precious metals, although it also can invest in stocks with exposure to other natural resources and raw materials, such as oil and natural gas.
The fund, with about $161 million in assets, is up 10% for the year through Friday, according to Lipper, compared to an average 3.8% gain for gold-oriented funds and a 5.9% gain for the Standard & Poor's 500 index in the same period. Also according to Lipper, the Midas Fund has logged a three-year return of about 35.2% as of Friday, compared to an average 25.7% return for its gold-oriented peers and 11.5% for the S&P index.
Prices for raw materials in general have been high, but "I'm fairly comfortable that this commodity (bull) market has legs," Winmill said. "It's a very simple story: The world (economy) is booming," which is fueling demand for raw materials even as supplies continue to be constrained by issues such as political unrest and environmental concerns.
Winmill views gold as "the sweet spot of the market" at the moment, partly because of its attractiveness should U.S. interest rates fall. He said investors can best take advantage of the metal's potential by buying gold-related stocks, where they also get the benefit of operating leverage.
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Stocks he likes include Freeport-McMoRan Copper & Gold Inc. (FCX). Shares of Freeport-McMoRan, trading recently around $68.38, are up about 22.5% for the year, but Winmill expects the stock to continue climbing.
Among other things, he cited the company's exploration potential, saying it should lead to higher volumes. He also contends the company's valuation is based on conservative forecasts for metals prices.
"That could leave a lot of upside," Winmill said.
Likewise, he likes Agnico-Eagle Mines Ltd. (AEM), off about 12.9% so far in 2007 and trading recently around $35.94 a share.
But Winmill said the gold miner has three new mines that will be operational by 2009, as well as a fourth that will be operational in 2010. All told, the new mines will give the company five times its current production, he said.
"The stock looks a little expensive right now," he said. "But you've got magnificent growth."
Winmill also noted that Agnico-Eagle's operations are primarily in Canada, so there's not much political risk.
He also likes diversified mining giant BHP Billiton Ltd. (BHP). The stock, trading recently around $49.39 a share, is up about 24.3% for the year.
Winmill described the company as "super-high-quality," with extremely low costs.
"When you're in commodities, you want the lowest cost of capital," he said. "The lowest cost of mines wins, no matter what."
(Bob Sechler is a Dow Jones Newswires writer based in Austin, Texas.)
-By Bob Sechler, Dow Jones Newswires; 512-236-9637; bob.sechler@dowjones.com
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Dow Jones Newswires
April 30, 2007 15:00 ET (19:00 GMT)
Copyright © 2007 Dow Jones & Company, Inc. |
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