Labor unrest may have intensified the selloff. AngloGold is primarily a South African company, and the country has seen a recent wave of labor strikes, which remain unresolved. Last week, South Africa’s gold mining companies offered a 4% wage increase — far below what labor had been demanding.
To its credit, AngloGold remains a remarkably low-cost producer. Last quarter, it cost the miner only $894 to produce an ounce of gold — below the industry average of $1,100-1,300.
But as long as labor issues remain unresolved, AngloGold investors could continue to suffer.
NovaGold Resources Inc. (USA) (NYSEMKT:NG) lacks geopolitical risk
As for NovaGold Resources Inc. (USA) (NYSEMKT:NG), it’s a relatively small miner (its market cap is under $1 billion), but it doesn’t carry the geopolitical risks of a company like AngloGold, as its mines are in the US and Canada. Yet, that hasn’t saved the stock; NovaGold Resources Inc. (USA) (NYSEMKT:NG) has actually performed worse than AngloGold over the last year, falling a bit more than 60%.
Although it might not have the geopolitical risk, it doesn’t have the earnings — AngloGold is profitable, NovaGold Resources Inc. (USA) (NYSEMKT:NG) isn’t. Last quarter, the company lost over $10 million.
NovaGold Resources Inc. (USA) (NYSEMKT:NG) has two main assets — its property at Galore Creek, and its “flagship” Donlin Gold project. Management admits that it’s shopping Galore Creek, though it has said it’s in no hurry to dump the asset. Meanwhile, Donlin Gold remains undeveloped, still in the permitting stage.
Overall, NovaGold is a speculative bet on gold prices going higher.
The case for owning gold
Nuances of Paulson’s individual gold holdings aside, the fund manager believes the case for owning the yellow metal is still as strong as ever. He remains unsure of the timing, but believes that gold still carries the potential for outsized returns.
As Paulson explained last Wednesday, the amount of money printing undertaken by the world’s central banks has been unprecedented in recent years. In particular, the US Federal Reserve has tripled base money through its quantitative easing programs.
Paulson believes that — eventually — inflation will pick up, and when it does, it will be very good for gold. He thinks that gold’s recent selloff is largely attributable to investor restlessness.
Some investors, having seen consistently low inflation readings, may have abandoned the precious metal believing inflation isn’t coming. Paulson disagrees, believing instead that investors ought to remain patient.
Investing in gold
Gold has not been the best investment in recent years. Since August 2011, spot gold prices are down more than 30%.
Paulson’s investments in gold have likewise lagged, though the legendary hedge fund manager thinks investors ought to remain patient. There’s no question that central banks have printed a lot of money in recent years, and eventually that will trigger inflation — though it’s anyone’s guess as to when.
Joe Kurtz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Despite Losing Big, John Paulson Still Loves Gold originally appeared on Fool.com is written by Salvatore “Sam” Mattera.
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