Paul Moore is a veteran Australian fund manager whose career spans decades.
One of his funds, the PM Capital Global Opportunities Fund (ASX:PGF), is raising $175 million in capital this week to take advantage of opportunities in the markets.
A sector where the firm sees potential upside is in gold stocks.
Moore explains his thinking in a recent letter to his investors. One major theme for PM Capital is that the world is now in an inflationary environment.
Part of this is the current decoupling happening between the US and China. Then there are geopolitical tensions like the war between Ukraine and Russia, and now Iran closing the Strait of Hormuz.
This is compounded by high fiscal spending as governments issue more debt.
There is also a significant constraint on new mineral supply. None of these issues are likely to abate anytime soon.
PM Capital targeted copper stocks in the previous financial year, but now sees the sector as fully valued, at least for now.
Not so for gold equities.
Moore writes:
“Our longstanding investment thesis is that valuations of gold equities do not sufficiently reflect underlying gains in the gold price over the past few years. After two decades of underperforming the gold price, gold equities could have much ground to make up.”
Newmont (ASX:NEM) was one of the companies PM Capital highlighted in its recent capital raising presentation.
The stock has lifted strongly in recent trade, as can be seen on the chart below.
Even so, it still only trades at a price-to-earnings ratio of around 15 times for 2027. That ratio could fall if gold prices continue to trend higher and boost Newmont’s earnings.
Back on 2 July, Mining.com.au shared this Porter & Co analyst quote:
“According to data compiled by SentimenTrader, sentiment among gold traders has dropped to levels only seen nine times in the last 18 years. And in each case, gold was higher one month later, with returns averaging 4.1%.
“The returns over the following year were also positive in 100% of prior cases, with an average gain of 16.6%. After a 30% decline, gold prices may have bottomed if the past is prologue.”
Since then, the US gold price has risen by around US$275 ($390) per ounce, or 6.5%. This has provided support for gold shares and, in cases such as Newmont, helped it rally after the washout last quarter.
Past performance is no guide to future results.
Paul Moore’s analysis suggests gold equities can play two different roles for investors. One is as cash-producing companies that monetise the gold price.
The second is as a hedge against growing risks in the bond markets, as inflation pushes yields higher and geopolitical risks increase.
PM Capital is clearly expecting both.
Write to Callum Newman at Mining.com.au
Images: Optuma & Unsplash
