You can see from the chart that today's level is 46% above the historical norm at 7.6 units to one ounce of gold. By this measure, one can purchase shares of gold mining companies at their second-cheapest level in nearly 30 years. The extreme was in 2008 during the depths of the financial crisis; many share values quadrupled off of those levels.
One way gold companies can lure investors is by sharing their profits through dividends. This would provide a cash incentive to hold shares of the company and allow investors to participate in rising earnings. We like the idea of investors getting "paid to wait" or reinvesting those dividends and purchasing additional shares at potentially lower prices.
Newmont Mining (NEM), a company whose share price is about 15% off of its highs, recently initiated a dividend program and has a current yield of 1.55%. Companies such as Buenaventura (BVN) (1.82%), Yamana Gold (AUY)(1.59%), Gold Fields (GFI) (1.39%) and Barrick Gold (ABX) (1.11%) also offer attractive yields.This week's events in Greece should remind everyone that global markets are still recovering from 2008's trauma. The system is not nearly as strained as it was then but we are by no means out of the woods in terms of global economic stability. This should continue to provide a catalyst for strong gold prices. With gold companies currently undervalued and offering strong cash flows and attractive yields, we think gold equities will be rewarded by the market and rise with strong gold prices. BMO Financial analyst Don Coxe echoes our sentiment: "gold and gold stocks offer a protection that is going to become more valuable in the period of months ahead. It's possible that the long-awaited period, when gold stocks outperform bullion, is coming soon." Ralph Aldis, co-manager of the U.S. Global Investors World Precious Minerals Fund (UNWPX) and Gold & Precious Metals Fund (USERX) contributed to this commentary. Want to receive commentary from Frank and analysis from the rest of the U.S. Global Investors team delivered to your inbox every Friday? Sign up to receive our weekly Investor Alert at www.usfunds.com.
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