I was invited to a Waratah Capital Advisors event this past Wednesday, where I was part of a panel (along with co-founder and former Gluskin Sheff colleague Brad Dunkley), and the topic was all about gold (silver too) and the Canadian mining stocks. It was a terrific event, and the ballroom was filled. But unlike today’s AI conferences (whipped up affairs reminiscent of the late 1990s internet frenzy), there was no shortage of skepticism at this one. Which is healthy and tells me that the gold market is far from a bubble because at a manic peak, the enthusiasm shows no bounds, and everyone is all in.
The folks at Waratah are rapidly building a huge position in the Miners. We are aligned on the view, and what makes me even more emboldened is that Brad (and his team) is the crème–de-la-crème of portfolio managers in Canada and one of the most unique, out-of-the-box investors I have met in my forty years in the business.
In any event, Brad left Gluskin Sheff in 2010, and this year, he is celebrating the 15th anniversary of the firm he created. Over time, some of the best talent at Gluskin Sheff left the firm to join Brad in building something that has turned into an enormous success. I told Brad at the event that I forgave him a long time ago for not putting an offer in front of me!
In my remarks, I also told the crowd what happened back in 2010 when I was at Gluskin Sheff. This happened not long after Brad left for greener pastures, but I was asked by somebody very senior at the firm: “Dave, you’re so bearish! Can’t you write about something you like?” I said, “Sure.” So, I did. I wrote an opus on the outlook for gold and the mining group. He comes back to my office after proofing it (everything I did at Gluskin Sheff was double or triple proofed before going out – just ask Tony Solomon – which is why establishing my own firm has been such an empowering experience) and says, “You can’t publish this!” I said, “Why not?”The response was this: “Because we don’t own any gold stocks.” I muttered under my breath: “Well, why not?”
The gold price was around $1,000 per ounce at the time of that report, which went nowhere. But the day I started Rosenberg Research in early 2020, this has been a core strategy of ours. The gold price has more than doubled since then, but what makes all of this even more interesting, humorous in fact, is that the gold price has more than tripled since I penned that report back in 2010. I should have kept it for old time’s sake. The thing is, maybe there is a chance that Gluskin Sheff (R.I.P.) would still be around today had it actually done what Waratah is doing right now, which is aggressively building a position in an asset class that is in a bona fide secular bull market.
And the answer is no, it’s not too late at all. More like the third inning. The real play is in the gold mining stocks (I have to say, silver too) as they do not need the current bullion price of nearly $3,700 per ounce or even our peak forecast of $6,000 per ounce to make money in this equity sector because it is discounting a price level of $2,700 per ounce. Unlike investors in the AI space, the folks involved in the gold trade have no expectation that the current gold price can be maintained and are de facto pricing in an underlying commodity level that is more than -25% below where it is today. The surprise will not be in the realm of disappointment, but the overriding message is that the gold equity sector is undervalued even after the recent run (around a 40% P/E discount to the overall market and a 0.6x PEG ratio versus around 2.0x for both the S&P 500 and TSX!) and also remainsan under-owned asset class.
We get criticized all the time for not having been bulled up on the S&P 500 or the high-flying Tech sector. All true. Instead, we have been long the gold sector and are happy to report that the TSX subindex has risen by nearly +90% over the past year and added some serious alpha to the market performance. What has the S&P 500 done in the past year? Try up +17%, and the S&P 500 Tech sector up by +28%. Did I already say that the Canadian gold stocks are up by nearly +90%? It’s not as if we moved to cash – in fact, gold/silver and the mining stocks make up well over 20% of the Rosie Macro Fund. So put that in your pipe and smoke it! Brad Dunkley doesn’t smoke at all, but I know that he sees smoking returns in this sector, and to the benefit of his client base.
As for me, all I can say is that we have published several reports on the gold and gold miners outlook over these past few years, and it feels good to only have the research proofed for facts or typos, as opposed to being worried about whether or not we actually own the sector.
