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Hello, My name is Caesar Bryan and I’m the portfolio manager of the Gabelli Gold Fund.
I’d like to bring you up-to-date with a couple of market moves since year end. For starters, the 10-year U.S. government bond is now yielding a little under 1.3% relative to 1.92% at year end – a 60 basis point move downwards in yields.
As this has happened, the gold price has appreciated by ~$130 since year end from $1,517/per ounce to $1,650/per ounce. Generally, as real interest rates decline or go negative, that is positive for gold, which of course produces no income. This has been a big boon for the cash flow of gold mining equities. So as gold prices appreciated by about 8%% since year end, gold equities are essentially unchanged. We think this provides an opportunity to get involved in the gold equity sector.
To put this in context, I’d like to talk about one of the large holdings in the Gabelli Gold Fund, which is Newmont Mining [NEM]. Newmont Mining is about $48/per share with about 800 million shares outstanding. The company says that for every $100 move in gold results in about $400 million in extra free cash flow.
The company just announced an increase in their quarterly dividend to $0.25/per share or $1.00/share which is about a 2% current return on a $48 stock. At 800 million shares at $1.00 that’s $800 million cost for the dividend, so you can see that $130 million run in gold this year has massively increased potential for Newmont to further increase the dividend should the board of directors so decide.
We think that gold equities will increasingly provide income in a low interest rate world.
