Ubika Research Senior Gold Analyst Vikas Ranjan offers some insight into why the precious metal’s value has risen more than 7% during the past month, and whether investors will ‘Sell in May and go away’ this year. He also describes what he looks for in a gold company and mentions three stocks he likes at this time, including a past pick that surged 30% in a little over a month.
Smallcappower spoke with Ubika Research senior gold analyst Vikas Ranjan regarding the recent rise in the gold price as well as his outlook for the precious metal for the remainder of 2014. Since we last interviewed him on June 2, 2014, the price of gold has jumped more than 7%. Mr. Ranjan also shared his views on gold related equities and talked about some stocks to watch, including one of his past picks that recently surged 30% in a little over a month.
Video transcription
Vikas Ranjan: Yes, gold has done really well in the last one month. It has gone up about 7-8% and it still continues to hold firm around 1,300 levels which is not surprising, considering that inflation has been creeping up. As you know, gold does well when prices go up. And also, if you look at what is happening globally, there is still risks in the global markets and people are probably hedging their bets against any such meltdowns or any such threats, and gold is generally a good safe haven when something like that happens.
Mark Thorburn: There’s been a noticeable increase in inflation in both Canada and the U.S. recently, what effect do you think this will have on gold?
Vikas Ranjan: As I mentioned before, gold generally does well when inflation is there, gold is a good hedge against inflation. It’s a good store of value. And normally, when economies start to pick up on a sustained basis, you would start to see pressure on wages, cost of labor, which generally leads to sustained inflation. And if you look at the trends, both in the U.S. and Canada, especially in the U.S., it has started to show up. The inflation numbers are going up over 2%, which is out of the comfort zone of the central banks and ultimately, it will lead to higher interest rates and higher inflation will cause gold to do better in those circumstances. So yes, the trend seems to be in favor.
Mark Thorburn: “Sell in May and go away” seems to have been a popular strategy with some speculators in years past, especially with junior resource stocks. Do you expect this summer to be any different?
Vikas Ranjan: Well, it seems to be the case for the last couple of years. If you see, in case of juniors actually, it’s not even sell in May, it’s “sell in March and go away.” So, if you look at what happens after the major mining conference (PDAC) in Toronto, typically, junior stocks go down after that, and this year has not been any different. There was actually a good run from Jan until, you know, late March and then, things started to go downhill. So, unfortunately it looks like that way, there’s been slowdown in momentum for junior stocks, especially resource stocks and I do not expect this summer to be any different than, say, the last few years. So yes, hold onto your positions if you want and wait for the Fall.
Mark Thorburn: What factors do you consider when choosing a gold stock?
Vikas Ranjan: As I had mentioned before in some of my interviews, when you’re looking at gold producers, the maximum value an investor could create is by identifying those companies which are at fairly advanced stages of exploration or mid stages of exploration, and try to find those companies which will have a realistic chance of developing a mine. So obviously, not all companies will lead to production but some of them will. And, if you can find those companies at earlier stages of exploration or a bit later stages of exploration then, you could do well. So, in terms of, you know, finding those companies, you have to find good assets in good jurisdictions where geopolitical risk is low. The companies which have low debt or no debt would definitely be preferable. And, low cost producers or expected producers because as gold prices fluctuate, if your cost is high, then your marginal profitability is very, very risky. So, finding those companies which have reasonable cost of structure is really the key along with low debt, and good assets, and a good jurisdiction.
Mark Thorburn: When we last spoke to you, a little over a month ago, you recommended a gold stock called Treasury Metals, symbol TML on the Toronto Stock Exchange. Since then, its share price has surged nearly 30%. Do you see further upside for this stock in 2014?
Vikas Ranjan: Yes, Treasury Metals, we have been talking about that for some time. Treasury Metals happens to be one of the client companies of Ubika Research, which also has the Ubika gold index, which you can check out as well – Ubika Gold 20. Now, Treasury Metals is an exploration-stage company. It has resources in the ground and it’s working to develop those resources towards production. It’s one of those gold resource companies, exploration companies, which tick mark all the good boxes, check marks all the good boxes for me; for example, in a very safe jurisdiction, Ontario, one of the best mining camps, very close to infrastructure, has a decent gold deposit with good grades and looks like it will have a manageable cost structure. So, this is a company which still has a lot of upside to it, if it executes on its plan properly and if it continues to develop its project.
Mark Thorburn: Are there any other stocks that you like at this time that you can share with our viewers?
Vikas Ranjan: Again, as I had mentioned in the past, companies which have low cost structure, which have no to low debt would be favorable companies and I would mention Argonaut Gold, which has been one of gold companies which I have liked in the past. Also, Rio Alto Mining out of Peru, recently, they did a deal with Sulliden Gold, which is basically combining these two companies and they’re both in Peru, and I think it’s a good synergy, and if they do that, they could, it could result in a mid-tier gold producer in Rio Alto. So those two companies are again good companies with low cost structure and low debt, and low to no debt, and they should be watched.
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