Volatility of gold makes major producers best bet for smaller investors
WHILE gold continues to break new ground it suffers from one fatal flaw as far as most investors are concerned -- it will not give you an income.
Over the decades, even centuries, gold has been used as a store of wealth. For the very wealthy among us this may work out fine -- they can afford to take the inevitable ups and downs of the gold market.
If things are bad they can afford to bide their time and wait until prices improve before liquidating their holding.
But for the rest of us waiting may not be an option and the volatility of the metal could cause severe problems -- in recent months gold has swung from around $700 to over $1,200 an ounce.
The answer is to look at one of the major gold producers. Companies like Barrick Gold offer investors the chance to gain exposure to the underlying commodity market as well as the potential for an annual income in the form of dividends.
Barrick is the gold industry leader, with a portfolio of 26 operating mines and a pipeline of projects across five continents, as well as large land positions on some of the most prolific mineral districts. Its shares are traded in New York and Toronto.
Last year, Barrick generated $2.2bn in operating cash flow and ended the year with $1.4bn in cash.
With the industry's largest production of 7.7 million ounces in 2008 and 5,525 million ounces in the first nine months this year -- and the world's largest reserves at 138.5 million ounces -- Barrick offers investors plenty of exposure to higher gold prices.
As a hedge the company also has 6.4 billion pounds of copper reserves and 1.09 billion ounces of contained silver.
Other major gold producers include the US company Newmont Mining Corporation and South Africa's AngloGold Ashanti.
Newmont is the second largest gold producer in the world, after Barrick, and in the first nine months this year produced 4.715 million ounces from nine mines.
Its annual output prediction for the year ranges between 5.2 million and 5.4 million ounces.
AngloGold Ashanti is the third largest gold producer in the world with mines in Australia, South Africa, west Africa and South America.
It has produced 3.417 million ounces in the first nine months this year and expects to produce up to 4.6 million ounces in total.
There are also other, smaller gold market players, including Dublin-listed Conroy Diamonds and Gold and Ovoca Gold.
Conroy is an exploration company with a large slice of acreage along the Border counties, while Ovoca is now diversifying into gold after making some cash from the sale of Russian assets.
It has set up a €10m fund to buy into a portfolio based on gold and the shares of gold mining companies.
- Pat Boyle
Irish Independent
