Ralph Aldis’ Outlook on Gold and Resource Companies
Portfolio manager Ralph Aldis was recently interviewed by Patrice Fusillo at Streetwise Reports about his outlook on gold and what resource companies he recommends.
Portfolio manager Ralph Aldis was recently interviewed by Patrice Fusillo at Streetwise Reports about his outlook on gold and what resource companies he recommends. Read an excerpt from the interview below.
Streetwise Reports: Ralph, thanks for joining us today. Let’s start with gold, which has seen a steep rise in the last few months amid the global pandemic and moves by central banks to shore up the economy and the markets. What do you think is ahead for the metal?
Ralph Aldis: I think that the backdrop of government spending and monetary intervention by the Federal Reserve to keep interest rates low provides a solid foundation for gold to still move higher. You throw in a potential change in leadership in the White House in November and maybe we will see gold take out its previous high. In 2016, gold rallied pretty hard for the first nine months but lost its momentum with the election of President Trump and the focus on wealth creation and the stock market. All the uncertainty risk that tariffs and other unexpected policies have created have really raised the foundation for higher gold prices. I think that’s why we’ve seen it steadily march higher over these last three years despite the focus on the stock market.
SWR: Gold has long been outperforming silver, and the ratio is around 100 right now, after coming down a little bit. What do you see ahead for the relationship between the two metals?
RA: There has been a lot of excitement about the gold-silver ratio recently. The last time it was at 80 roughly was back in September 2019, but with this first wave of COVID coming through, the ratio blew out as far as 124:1. It’s now tightened back to about 100:1. But we know what was driving that was low industry demand for silver with the lockdown and increased investment demand for gold going up at the same time. That’s what really drove it so far out there. Perhaps a good indicator of where it could go next would be again to look back at July of 2016 when we had that last rally. The ratio at that point compressed down to 66:1, so that was quite a bit of contraction. We’re at 100:1 right now. A 60:1 move would be great. But should this gold market really get a new round of buyers as we head into 2021, I think silver will be recognized as a cheaper entry point into the precious metals trade.
SWR: Do you feel at this point people should be investing in the physical metal, mining stocks or both?
RA: We typically recommend a 10% allocation to precious metals and mining stocks as a prudent allocation. Investors now have an easier access to bullion price moves through exchange-traded proxies, but the capital gains tax rate is still 28% for collectibles versus 15% for most other investments. So that really favors the mining stocks. And the leverage to rising metal prices is best captured through owning mining stocks, which offer more upside. But holding bullion can be less volatile than owning the market. There are periods when bullion outperforms the mining stocks and vice versa. But traditionally, you typically get 3 to 1 leverage out of the mining stocks versus the bullion, and so that’s probably an attractive place to start to have exposure.
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All opinions expressed and data provided are subject to change without notice.