Durrett sees two more legs in gold prices as miners lag

Gold’s two-year climb from $2,000 to a record $5,600 an ounce largely bypassed the companies that mine it, leaving mining shares near their lows even after bullion retreated to about $4,000, Gold Stock Data founder Don Durrett says.Durrett, who ranks hundreds of precious metals companies through the research service he founded, argues the disconnect means the mining equity bull market is only beginning. He traces the investment case to US fiscal policy, saying a national debt of about $40 trillion that is growing by roughly $2 trillion annually leaves policymakers unable to fight inflation and support economic growth at the same time.“That’s why the Fed is completely trapped,” Durrett said on MINING.COM’s Top of Mine. “Can you really print money to generate prosperity? Can you really do that? No, you can’t.”‘Durrett believes Washington will ultimately prioritize economic growth by expanding the money supply, supporting a prolonged rally in gold. He argues bullion’s rise reflects global concerns over US fiscal policy rather than jewellery demand or mine supply. Durrett views gold’s move to $5,600 as only the first leg of a broader bull market and expects a second leg to begin in the third or fourth quarter, lifting gold to about $5,500 and silver to between $80 and $100 by year-end. He also expects the Federal Reserve to cut interest rates twice this year and twice more in the first half of next year after an equity market correction.Mining upsideDurrett said the gold-to-S&P 500 ratio is the most important measure for mining investors because it tracks capital rotating from equities into bullion. The ratio currently sits near 0.55, well below the roughly 3 to 3.5 reached in 2011 and about 6 in 1980. He believes it could climb to 2, implying both higher gold prices and a weaker equity market. His forecast assumes the S&P 500 falls to between 4,000 and 4,500 while gold rises to between $8,000 and $9,000 an ounce.Durrett points to the 2000-2011 cycle, when gold climbed from about $250 to $1,900 while the S&P 500 went a decade without making a new high. He also cited strong physical demand from Asia, noting China imported 173 tonnes of gold in the latest month against roughly 3,700 tonnes mined globally last year, with India purchasing comparable volumes.Skip the explorersDurrett is broadly negative on exploration companies, arguing about 95% are not worth owning because very few discoveries become economic mines.“The only way that an exploration company makes money is they find a mine,” he said.He makes two exceptions: companies with economic deposits trading well below the value of their contained metal, such as Southern Silver Exploration (TSX-V: SSV) and Freegold Ventures (TSX: FVL), and explorers with genuine discovery holes early on the Lassonde curve. He measures discoveries using gram-metres, favouring intercepts above 200 gram-metres and preferably more than 300.Instead, Durrett prefers producers and developers, which he says offer greater leverage to rising gold prices. At a modelled gold price of $7,000 an ounce, he estimates Agnico Eagle Mines (TSX: AEM; NYSE: AEM) could deliver fourfold returns, while Barrick and Newmont (NYSE: NEM; TSX: NGT) could rise fivefold. He buys producers only when he sees five- to eightfold upside and developers when he sees potential returns of at least 10 times.The forecasts depend on a second leg in the gold market beginning within months and on a sharp equity market correction. Durrett also acknowledges that most companies screened by his methodology never succeed and says he is prepared to hold positions for two to three years if he believes they still offer fivefold upside.“If you look at the miners, they’re still bouncing on the bottom. They’re like all-time lows. They’re not even close to frothy,” Durrett said. “So we still have two more stages to go and we have two more legs to go in miners.”Weiter zum vollständigen Artikel bei Mining.com Weiter zum vollständigen Artikel bei Mining.com