BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Peak Supply Won't Really Help Gold Price - Gabelli

This article is more than 8 years old.

(Kitco News) - With more talks of peak production being reached in the gold mining sector, the consensus seems to be that declined supply should support gold prices; but, one manager of a major gold fund says that might not be the case.

“Unlike oil and corn, most of the gold that’s made is kept. So small changes in mine production don’t really impact the total stock of gold that’s out there,” Caesar Bryan, portfolio manager for the Gabelli Gold Fund, told Kitco News in a phone interview Friday.

Thomson Reuters GFMS, recognized as a leading precious metals markets research firm, said it expects global gold production to decline by 3% in 2016 from 3,155 tonnes in 2015. This decline would put an end to seven years of rising output. This is one of the reasons the firm is “cautiously optimistic” on gold’s price this year.

According to Bryan, however, it is not really the mine supply decrease that would help the price, but rather how people perceive it to.

“Certainly it would help sentiment if people felt that mines were closing,” he explained.

The main issue miners need to tackle is the high debt levels currently seen at some companies. “Anytime you have a company with the top line so volatile, to have a lot of debt is just silly [but] I think we’ll go back to the old days, I’m sure these companies have learned their lessons now,” he said.

One company that has really caught the Gabelli fund’s attention is South African miner Randgold, which Bryan said is currently the largest position in the company’s portfolio.

Bryan also commented on declining currency values and the benefits it has had on miners operating costs. “With the lower gold price, more mines would have gone out of business, in my mind, had there not been a massive decline in currencies where these mines are located relative to the dollar,” he said. “That’s helped prolonged the agony.”

Although the mining sector has been a “disaster,” investors can still make money, Bryan said.

“Nobody’s made anything here in the sector unless you’ve been very short-run oriented,” he said. “There’s a place for gold and gold stocks in a portfolio. I’ve just been so wrong on the timing,” he admitted.

Looking ahead, Bryan said that he expects market conditions to improve gold’s price.

“I think that there are stresses appearing in the credit market…Some of the narrative in the general market has been that the debt crisis in Europe has been fixed; I’m not sure that’s the case,” he said. “I think these stresses will be bullish for gold.”

The Gabelli Gold Fund’s returns have been declining every year since 2011, having dropped by 17.8% last year. As of December 31, the fund’s net assets stood at $141 million.

By Sarah Benali of Kitco News; sbenali@kitco.com

Follow me on Twitter @SdBenali