Investors fled gold exchange-traded funds in droves last year as the price of bullion plummeted, which could improve the environment for Canadian precious metal companies.
Just over 880 tonnes of gold were dumped on the market when investors liquidated their holdings in exchange-traded funds, according to a survey by the World Gold Council, an industry group.
The gold-backed funds, which track the yellow metal and trade on exchanges like stocks, were hugely popular during the recent bull market in gold.
But they diverted money away from gold mining companies because investors could put their money in an exchange-traded fund and gain exposure to bullion without the risks associated with a producer’s portfolio.
Now the Canadian gold sector, from heavyweights Barrick Gold Corp. and Goldcorp Inc. to one-mine companies like Osisko Mining Corp. and Detour Gold Corp., stand to benefit from the flow of funds.
“If people start to get more positive on gold prices, the better way is through gold equities,” said Ian Nakamoto, research analyst at 3Macs, a brokerage firm that owns some gold equities and bullion on behalf of its clients. “They have come down much more than gold prices.”
The S&P/TSX global gold index, which tracks the stock prices of producers, lost almost 50 per cent of its value last year while the price of bullion dropped nearly 30 per cent.
The weaker commodity prices required companies like Barrick, Kinross Gold Corp. and other producers to cut costs drastically to preserve their balance sheets.
As a result, the companies are leaner and in a better position to improve their bottom line.
“This time the gold miners’ push for profitability will attract investors,” said John Ing, president of investment firm Maison Placements Canada Inc.
With gold prices up 10 per cent so far this year to about $1,320 (U.S.) an ounce, investors have started to renew their interest in the sector.
Detour Gold was able to sell 16.22 million shares at $9.25 (Canadian) a share to a syndicate of underwriters on Tuesday, raising $150-million to reduce its debt. As recently as December, its stock was trading as low as $3.60.
According to the World Gold Council, China, India and other consumers helped pick up the slack created by outflows from funds and bought 3,863.5 tonnes in gold jewellery, bars and coins.