July 17, 2024

Insights From One Of The World’s Lengendary Gold Experts

The Standard & Poors 500 stock index is still below the level it reached more than 10 years ago in early 2000.  Interest rates on traditional bank savings have barely exceeded zero percent since the Fed instituted its zero interest rate policies in 2008.  Meanwhile, incomes are stagnant and the cost of items we use everyday have been inexorably increasing.

Investors who expected to achieve financial independence by investing in actively managed stock mutual funds have seen their dreams turn to nightmares.  The brutal truth is that the vast majority of mutual fund managers do not beat the market over the long run.   Investors who did not diversity out of traditional investments have seen the value of their savings diminished by inflation and stagnant stock prices.

By contrast, one legendary gold investor who has consistently made great calls in the precious metals markets has achieved average annual returns over the past ten years of over 29%.  Money doubles in about 2.5 years at 29%.  Investors who had the patience and conviction to ride out inevitable corrections have seen fabulous returns.

The man who achieved this stunningly successful investment record is Harvard educated John Hathaway, who has been with the Tocqueville Gold Fund (TGLDX) since its inception in 1998.  Hathaway’s success has been based on his ability to chose smaller mining companies that have the potential for explosive growth and then patiently wait for results.  The average gold mutual fund has an annual holdings turnover of 104% compared to 9% at TGLDX.  While other fund managers frenetically trade mining stocks, Hathaway’s deep knowledge of the companies he invests in has resulted in superior investment returns.  Also benefiting shareholders is the fact that the TGLDX does not charge  front end or deferred sales loads which reduce investor returns.

The TGLDX has soundly beaten the investment performance of both gold bullion and the widely followed PHLX Gold/Silver Sector (XAU) which holds a broad basket of gold and silver stocks.  Since 2000, the TGLDX has returned approximately 810% compared to 500% for gold bullion and 325% for the XAU.


When John Hathaway speaks, serious gold and silver investors pay attention.  In the Tocqueville Gold First Quarter 2011 Observations, Mr. Hathaway explained why he remains positioned for further gains in the precious metals and related equities.

Mr. Hathaway noted that his current position on gold is based on interrelated macro economic issues which make the “current landscape especially tricky”.   Hathaway noted that “the Fed seems predisposed to maintain extremely lax monetary conditions” and that “a credible fiscal plan seems like a long shot”.   Conditions in the Middle East could worsen considerably, energy prices are likely to remain at levels that seemed “unthinkable” a year ago and if there is political resistance to the Fed reducing its balance sheet, “the conditions are ripe for an inflationary spiral”.

The dollar appears to be deeply oversold and a near term rally could slow gold’s uptrend, according to Hathaway.

Mr. Hathaway feels that by mid year, the outlook will be more clear but in the meantime, “we remain positioned for further advances in precious metals”.

The top 8 stock holdings of TGLDX at March 31, 2011 were Goldcorp (GG), Newmont Mining (NEM), IAMGold (IAG), Ivanhoe (IVN),  Silver Wheaton (SLW), Gold Resource Corp (GORO), Osisko Mining (OSK) and Randgold Resources (GOLD).

Are Gold Stocks Really Underforming Gold Bullion?

Depending on which gold stock investor you talk to, gold stocks have either been under performing or outperforming gold bullion.

Theoretically, given the earnings leverage associated with gold miners, a big move up in gold bullion should translate into handsome gains for shareholders of gold mining companies as earnings per share increase.  In the real world, however, the cost of exploration and development, mine depletion and the energy intensive process of gold mining and refining can result in costs that exceed the increased revenue from higher gold prices.  Gold mining companies with operations in less developed countries with weak property rights can also wake up one morning and discover that the government has expropriated their mines.

So which is it?  Would it have been better to own gold stocks or simply buy a gold ETF or take physical possession of gold bullion?  Like many things in life, it all depends, and the result reinforces the argument to maintain a well diversified portfolio.

Gold miners that have been able to translate higher gold prices into higher profits have done very well while other gold miners with poor results have significantly lagged the gains seen in gold bullion.   The results have been company specific.  A gold stock investor who was correct in predicting higher gold prices but picked the “wrong” gold stocks fared poorly.

Here’s a sample of the relative performance of some of the largest gold miners compared to the price of gold, using the SPDR Gold Trust (GLD) as a proxy for bullion prices.  Two major gold miners, Newmont Mining Corporation (NEM) and Kinross gold Corporation (KGC), dramatically under performed the GLD, while Goldcorp (GG) tracked the GLD performance.  If you were lucky enough to own Randgold Resources (GOLD), your profits would have been twice the gains on the GLD.


The bottom line is that unless an investor has considerable expertise in assessing the gold mining industry and specific company prospects, the better choice was to go with a gold ETF or stash gold bullion in a safe deposit box.  If the biggest gains in gold prices are yet to come, as I believe, an investor with a 100% allocation to individual gold stocks should consider reassessing his portfolio allocation.

The last option that should be mentioned for those seeking higher returns from the leverage of owning gold stocks instead of a gold ETF, would be to invest in a gold mutual fund with a solid track record of investment success.

Tocqueville Gold Fund Performance vs. GLD

The Tocqueville Gold Fund(TGLDX) is a highly regarded mutual fund with solid portfolio managers who have had a very successful track record in picking the right gold stocks.  Over the past two years, the TGLDX has outperformed the GLD and with far less volatility.

GLD and SLV Holdings Decline as Investors Ponder Next Move in Gold and Silver

Both the SPDR Gold Share Trust (GLD) and the iShares Silver Trust (SLV) registered minor declines over the past week.

Holdings in the GLD declined by 2.43 tonnes compared to a decline of 21.85 tonnes in the previous week.  Since the start of the year, total holdings have declined by 4.2% or 53.57 tonnes.  The GLD currently holds 39.5 million ounces of gold.

The holdings of the GLD currently have a market value of $52.7 billion, making the GDL a very significant presence in the gold market.   The market cap of the GLD  far exceeds that of major gold producers such as Goldcorp (GG) at $30 billion, Newmont Mining (NEM) at $27.4 billion and Randgold (GOLD) at $7.1 billion.

Gold has now made three failed attempts to decisively pierce the $1400 level since last November, forming a triple top in the process.  The failure to breakout to new highs and the large price gain of $250 per ounce since last July has motivated some nervous selling by gold investors.  A look at the one year chart shows that gold’s short term momentum has faltered as prices breached the 14 day moving average.  The next important test will be at the 200 day moving average which gold has traded above for the past two years.


Despite the recent minor setback in gold prices, the long term trend of gold remains intact technically and fundamentally.

GLD and SLV Holdings (metric tonnes)


Weekly Change

YTD Change









Silver holdings in the iShares Silver Trust (SLV) declined by 47.1 tonnes over the past week compared to a decline in the previous week of 127.6 tonnes.  The year to date decline of 520.97 tonnes represents a 4.7% drop in silver holdings which trails the 7.8% year to date decline in the price of silver.  The SLV has declined by 9% from its high of $30.40 at the beginning of the year.  After a huge gain of 67% in the price of silver since late last year, it is normal to see price consolidation before another advance.

In this writer’s opinion we have not seen a parabolic blow off type price move, nor have we seen the excited entry of first time silver buyers lured by stories of rising prices.  One of the sentiment gauges that I use involve noting how many of my friends and clients ask or offer unsolicited advice on a specific investment category.  Thus far, not even one person has mentioned silver.  Despite the huge advance in silver prices, public awareness seems minimal, implying long term bullishness.

SLV - courtesy yahoo finance

Gold and Silver News & Headlines for October 27

More linkworthy gold and silver news and headlines from various places around the internet.

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