If you follow the gold market, then you probably already know that 2013 hasn’t been rosy for this commodity. The price of gold is down over 28% – as of the time of writing – since the start of the year.
However, even though the commodity gold has had a rough year, some gold stocks and ETFs have had a fairly good year. And even if the unpleasant trend continues in 2014, some stocks and ETFs would still have a good year, since a number of other factors such as management effectiveness and value of underlying portfolio contribute to how stocks and ETFs perform. So I’ll be discussing four gold stocks/ETFs that should have a good 2014, in no particular order.
To keep things simple, my selection in this piece is not related to how the macro-economy influences the price of gold – something for another piece.
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#1. Low production cost king, Alamos
Alamos Gold (NYSE: AGI) is one of the most effective gold miners, especially when talking about cash cost per ounce of production, which is one of the first things to consider when considering a gold stock. In 2012, Alamos said its cash operating cost per ounce was $355 per ounce, one of lowest in the industry.
This year, the company is on course to announce impressive cash cost per ounce again, relative to industry leaders as shown in the chart below, having announced in its Q3 report that year-to-date all-in cost per ounce is $900 and $970 for the quarter. Alamos could beat its outlook of $500-$520 cash cost per ounce of gold if it’s remained as effective as before in this last quarter.
Just as a reminder, low cash cost per ounce helps miners keep more of their revenue as profit, which reflects in how gross profit grows. Alamos recently received final signatures approving the Environmental Impact Assessment (“EIA”) for its Kirazli gold project, which the company projects should be ready for production in early 2015.
Finally, on Alamos, the company boasts of a solid balance sheet, with zero debt and about $475 million in cash. You’d appreciate this when you compare it to industry leaders, as shown in the table below.
|Sept. 30, 2013||1.133||0.9936||0.00|
|June 30, 2013||1.168||0.9936||0.6025||0.00|
|March 31, 2013||0.6563||0.6025||0.6195||0.00|
|Dec. 31, 2012||0.6383||0.6195||0.9936||0.00|
2. Hecla Mining – reaching for gold
Hecla Mining (NYSE: HL) is sort of a surprise inclusion considering that the company is best known for silver production. However, the company’s recent acquisition of gold producer Aurizon coupled with its history of being able to lower cost of production is what instigated its inclusion. For the third quarter, it reported a cash cost per ounce of silver produced, after by-product credits, of $7.40.
That’s not the lowest, but it’s certainly lower than the preceding quarter. And that trend is expected to continue into subsequent quarter. With the company’s effectiveness at lowering cost, it’s going to be easy to be profitable at producing gold, even if the price of the commodity is falling.
In addition, the impact of producing gold is already evident in its topline. In the third quarter, gold was responsible for 35% of its total revenue, while silver contributed 38%. This is what’s called diversification.
3. Sprott Physical Gold Trust
Since the price of Gold ETFs reflects the price of Gold, most Gold ETFs, if not all, have fallen since the start of the year. So my choice of Sprott Physical Gold Trust (PHYS) isn’t based on performance. Here is why it’s making my list.
A good long-term option
For the records, I’m long-term oriented. That’s the first reason this ETF is here. The security of underlying assets makes this ETF good for the long-term. In the case of top ETFs like SPDR Gold Trust (GLD), gold may be held with sub-custodians who could employ other sub-custodians, and the trustee has no say about this. Sprott Gold Trust, however, has a definite custodian – Royal Canadian Mint. So the risk of a custodian making away with the gold is low here compared to SPDR.
Attractive taxation is a second thing that makes this ETF good for the long-term. PHYS holdings are usually treated as if you own shares of a company and not gold itself. Therefore, if you hold PHYS for more than a year, capital gain tax rate is set between 18% and 20%, as compared with SPDR that’s taxable at 28% no matter the time frame. In addition, there is an unusual advantage of able to redeem your units for real gold.
#4. ETFS Physical Swiss Gold Shares
As the chart above shows (returns of three of the biggest gold ETFs, asset-wise), the fall of gold has absolutely reflected in the performance of gold ETFs, so it’s difficult to pick a best gold ETF for now. Taking a long-term view however, ETFS Physical Swiss Gold Shares (SGOL) seems to have more to offer. This ETF doesn’t offer the taxation luxury that PHYS offers; it’s taxed as collectibles. So the 28% tax rate applies.
However, when compared with PHYS, which is a sort of close-end fund, SGOL is easily accessible to investors. Since the fund places no minimum purchase requirements, volumes are naturally high. This singular fact would play to its advantage when gold recovers. However, just like PHYS, SWOL seems to offer more secure than leader, SPDR, as its gold is stored in Swiss vault.