The metal itself has fallen 35% from its peak of $1,900 in September 2011 to $1,235 as at 8 July, and both of these declines compare with a rise of 35% for the MSCI World Index from August 2011 to June this year.
Funds investing in gold miners made up a large part of the Ten funds that lost you 25%+ in the first half of 2013, find the full list here…
“Trying to call the bottom of the gold market is a bit like trying to catch a falling knife. However, all investments have a price at which point they become very attractive to investors. Momentum remains very much against gold mining shares and as Sir John Templeton once said ‘if a particular industry or type of security becomes popular with investors the popularity will always prove temporary and, when lost, may not return for many years’.
“There may be further to fall before we reach the bottom, however, investors who are willing to accept the risks might find some attractive long-term opportunities by investing in gold mining shares,” said Lowcock.
Undervalued?
He explained that analysis of the World Datastream Gold Mining Index showed the price to book of gold miners is 0.95 having been at 1.61 a year ago.
This implies that gold mining companies’ current market price is lower than the value of their assets.
Many of the miners have appointed new management, which Lowcock said could lead to further write downs of the valuations of many projects.
“They are likely to write down the valuations to the lowest possible level as they can attribute the overvaluation to the previous management – throw out everything including the kitchen sink.
“Book values are likely to fall further still, however, with gold shares having fallen 64% they are already pricing significant further falls in the book values of gold mining companies,” Lowcock concluded.
Would you invest in gold mining companies now, or do you think they have further to fall? Let us know in the comments box below…