Paul Moore is a seasoned Australian fund manager with decades of experience.
One of his funds, the PM Capital Global possibilities Fund (ASX:PGF), is raising $175 million this week to capitalize on market possibilities.
The business anticipates potential upside in gold stocks.
Moore outlines his rationale in a recent letter to his shareholders. PM Capital emphasizes that the world is currently experiencing inflation.
Part of this is the current decoupling between the United States and China. Then there are geopolitical issues, such as the conflict between Ukraine and Russia, and now Iran is blocking the Strait of Hormuz.
This is exacerbated by increased fiscal spending as governments issue new debt.
There is also a severe limit to new mineral supply. None of these difficulties are expected to be resolved anytime soon.
PM Capital targeted copper equities in the previous fiscal year, but now believes the sector is overvalued, at least for now.
Not so for gold stocks.
Moore wrote:
“Our longstanding investment thesis is that gold stocks’ valuations do not adequately reflect the underlying improvements in the gold price over the last few years. After two decades of underperformance, gold equities may have a lot of ground to make up.”
Newmont (ASX:NEM) was one of the firms PM Capital highlighted in its recent capital raise.
Even so, it trades at a price-to-earnings ratio of about 15 times in 2027. That ratio might decline if gold prices continue to rise, increasing Newmont’s earnings.
Back on July 2, Mining.com.au highlighted this Porter & Co analyst quote:
“According to SentimenTrader data, mood among gold traders has fallen to levels observed nine times in the last 18 years. And in each case, gold was higher one month later, with average returns of 4.1%.
“The next year’s returns were likewise positive in all prior situations, with an average gain of 16.6%. If history repeats itself, gold prices may have bottomed after a 30% slump.
Since then, the US gold price has grown by approximately $275 ($390) per ounce, or 6.5%. This has boosted gold stocks and, in the case of Newmont, aided its recovery from last quarter’s washout.
Past performance does not predict future results.
According to Paul Moore’s perspective, gold equities can serve two purposes for investors. One is as cash-generating businesses that monetize the gold price.
The second is to protect against growing bond market risks as inflation raises yields and geopolitical threats rise.
