As government spending continues to increase and rock-bottom interest rates create inflationary bubbles for assets such as real estate, investors looking to gold for safety have not been rewarded.
With the first quarter of 2021 in the history books, gold, which usually shines in times of uncertainty, is down more than 6 per cent year-to-date, as measured by the TSX Global Gold Index TTGD-I. That’s something few would have expected.
There are plenty of pundits speculating on where gold will go next, but Robert Cohen, vice-president and portfolio manager at 1832 Asset Management LP in Toronto, says a better question is: How much gold do you want as a long-term portfolio anchor?
“We’re going through a period of massive monetary easing to get through the pandemic,” says Mr. Cohen, who manages Dynamic Precious Metals Fund DYN046.CF. “Investors are nervous, so they’re buying anything to protect their purchasing power – real estate, sports collectibles, art, you name it. Everything except gold. Why is that? I don’t know. But if you look at gold’s ability to maintain purchasing power through time, it’s always alive, well and intact.”
Mr. Cohen has a history of 20-plus years managing precious metals and resources funds. He studied mining process engineering at the University of British Columbia and worked in Latin America and Australia before making the switch to the investment side.
His flagship Dynamic Precious Metals Fund won the best for 3-year and 5-year performance in the Lipper Fund Awards’ Precious Metals Equity category in 2020. Scotia Resource Fund BNS362.CF, which he co-manages with Jennifer Stevenson, won for performance in all time periods (3 years, 5 years and 10 years) in the Natural Resources Equity category.
In a recent interview with Globe Advisor, Mr. Cohen discussed his investing philosophy, some favourite stocks and why investors should take a longer-term view with gold.
Why has gold been a surprising underperformer this year?
I can tell you a few of us are scratching our heads. The year has been a bit of a surprise.
People may be seeing an end to the pandemic and thinking the world is going to move on to stronger and stronger highs. So, there will be a need to raise interest rates. But I’m not sure if we are through the pandemic.
What’s the difference in your investment philosophy?
When you’re buying our [precious metal] fund, you’re not buying mainstream names. We have four or five stocks that might overlap with the TSX Global Gold Index. Otherwise, we’re buying things that are a little smaller-market cap or in the development phase, but where we see a number of catalysts. More than 40 per cent is invested in Australia.
What’s your view of inflation?
It doesn’t matter, at the end of the day, whether inflation is generated from the economy running at full steam or the devaluation of paper money.
People are bidding up real estate and buying things like bitcoin because they’re worried about the purchasing power of money. They’re trying to figure out ways to protect themselves against what they think is coming.
Do you see gold as a hedge against that?
Yes. People jump in and chase performance and they invariably mistime it. So, I own it at all times.
How big a weighting toward gold is reasonable?
For the average investor, between 5 per cent and 15 per cent. Less than 5 per cent and you’re not going to get much diversification.
What are some of your favourite stocks?
K92 Mining Inc. KNT-T in Papua New Guinea is in its early stages. We see production going from about 125,000 ounces a year to 350,000 ounces a year over the next five years. Only 25 per cent of the target area has been drilled, so you have high-grade ore and a long life [for the mine]. It’s one of those names that’s probably off the radar and the type of thing we like to tag on to.
Great Bear Resources Inc. GBR-X looks like one of the best discoveries in recent years in this part of the world. It’s within driving distance from Red Lake, Ont., which made Goldcorp. Inc. famous with its Red Lake mine. It’s going to be an open-pit mine and an underground mine. Again, it’s not a household name, but we are the cornerstone investor there.
Precious metal funds are a hard sell, correct?
A horrible sell. Gold has a stigma of being volatile. But what is the long-term annual volatility of gold prices? It’s around 16 per cent. What’s the long-term volatility of oil prices? It’s double that, but investors look at oil as less volatile than gold.
Why do you think that is?
Well, you see a US$10 move in the price of gold, and people think gold’s up or down a lot. But US$10 divided by US$1,700 [an ounce] is minuscule. When you talk about oil, people aren’t fazed by a US$5 move on US$60 a barrel although that percentage is a lot bigger.
So, what do you say to potential investors?
The volatility is higher than things you find elsewhere, but don’t panic. [Turn to] somebody who lives, eats and breathes it all day. That lets you relax. We’ll do the worrying for you.
Adam Mayers is a contributing editor to the Internet Wealth Builder investment newsletter.