Junior Gold Fund – poised to benefit from gold’s long term...

Junior Gold Fund – poised to benefit from gold’s long term uptrend

Posted on: 22 Feb 2012 by James Cholmondley Farmer


24% rise in demand for gold bars and coins
Gold’s appreciation is supported by the bleak economic picture

Small cap gold mining shares offer good value and are likely to outperform their larger peers

The World Gold Council last week published statistics for gold supply and demand for 2011: in value terms, demand was a record $205.5 billion, 29% above the 2010 value as the gold price continued its 11-year uptrend.

This indicates that the rise in price was primarily caused by the continued appeal of gold as a safe-haven asset.

Global demand by volume was marginally up due to declines in the jewellery (-3%) and technology (-10%) sectors, counterbalanced by a 24% rise in demand for bars and coins.

Demand for ETFs and similar investment products declined by 58% as investors took profits and in some cases switched from paper to physical ownership. Physical investment growth was driven by the Official Sector (mainly central banks), a net purchaser of 92.7 tonnes in Q4 2011 compared with sales of 17.6 tonnes in Q4 2010.

Gold’s appreciation is supported by the bleak economic picture. Europe remains the worst-affected region in the developed world, with increasing social unrest and fears of instability as a result of the sovereign and bank debt problems.

Tough austerity measures could cause a further rise in unemployment and stifle economic growth while printing of money to finance bailout programmes could cause a rise in inflation and the devaluation of key reserve currencies.

In the face of these problems, it is not surprising that gold has resumed its uptrend in the year to date.

We believe that small cap gold mining shares offer particularly good value in this environment and are likely to outperform their larger peers. Our focus is on companies with the potential for strong growth in production.

Companies we favour include Focus Minerals, an Australian miner, which recently acquired Crescent Gold.

The combined entity is set to produce 180,000 ounces of gold next year, a very attractive level for a company of this size (market capitalisation stands at AUD 220 million).

The company is debt free and unhedged, therefore ideally placed to grow its profitability as the gold price continues its long-term uptrend.