Evaluating Safe Haven Assets

Criteria For Evaluating Safe Haven Assets

February 22, 2025

Gold Mining Stocks Evaluation

Mining companies differ from physical gold in that they have operational risks, costs, and management factors that influence their profitability.

Key Metrics to Evaluate:

  1. Gold Reserves & Production Growth

    • Look at the company's proven and probable gold reserves. Higher reserves indicate sustainability.

    • Example: Barrick Gold (GOLD) has a strong reserve base and a history of stable production.

  2. All-In Sustaining Costs (AISC)

    • This measures the total cost to mine one ounce of gold, including extraction, exploration, and maintenance costs.

    • Lower AISC = Higher profitability when gold prices rise.

    • Benchmark: AISC under $1,200 per ounce is considered strong.

    • Example: Newmont Corporation (NEM) has a competitive AISC around $1,100/oz.

  3. Debt-to-Equity (D/E) Ratio

    • A low debt ratio (<1) indicates a strong balance sheet, reducing financial risk during market downturns.

    • Example: Franco-Nevada (FNV), a royalty company, has very low debt, making it a stable investment.

  4. Profitability & Cash Flow

    • Look for: Strong EBITDA margins (30%+), positive free cash flow (FCF), and dividend payouts.

    • Example: Barrick Gold (GOLD) has maintained positive FCF, ensuring dividend sustainability.

  5. Dividend Yield & Payout Ratio

    • A sustainable dividend yield (2-4%) with a payout ratio below 60% is preferable.

    • Example: Newmont (NEM) offers a strong dividend yield of ~3.5%.

  6. Stock Valuation: P/E Ratio & Price-to-Book (P/B) Ratio

    • P/E ratio under 20 = Good value for gold stocks

    • P/B ratio < 1.5 = Stock may be undervalued

    • Example: Newmont (NEM) has a P/E ratio of ~15, making it an attractive buy.

🔹 Best Picks Based on Fundamentals:

  • Newmont (NEM) → Strong reserves, low AISC, solid dividends

  • Franco-Nevada (FNV) → No mining risk, royalty-based revenue, low debt

Gold ETFs Evaluation

Gold ETFs provide exposure to gold prices without the risks associated with mining operations.

Key Metrics to Evaluate:

  1. Expense Ratio (Annual cost to hold the ETF)

    • Lower is better. <0.50% is ideal.

    • SPDR Gold Shares (GLD) = 0.40% (most liquid, large institutional backing)

    • iShares Gold Trust (IAU) = 0.25% (cheaper alternative)

  2. Liquidity & Trading Volume

    • Higher volume means better price execution and lower bid-ask spreads.

    • GLD > IAU in liquidity, making it better for short-term trades.

  3. Tracking Accuracy (How well the ETF follows gold prices)

    • GLD and IAU both closely track spot gold prices.

  4. Tax Efficiency

    • Some gold ETFs are structured as grantor trusts, which means gains are taxed as collectibles (28%) instead of regular capital gains (15-20%).

    • GLD and IAU both fall under this rule.

🔹 Best Picks Based on Liquidity & Cost:

  • Long-Term Investors: IAU (lower fees, better cost efficiency)

  • Traders & Institutions: GLD (higher liquidity, better for quick trades)

Gold prices are heavily influenced by interest rates, inflation, and economic uncertainty.

  • Bullish Case for Gold in 2025:

    • U.S. debt levels & fiscal uncertainty pushing investors toward gold.

    • Rate cuts by the Federal Reserve may weaken the USD, supporting higher gold prices.

    • Geopolitical tensions (China-Taiwan, Middle East) are increasing demand for safe-haven assets.

    • Gold is currently near record highs ($2,100/oz) but still has room to run if uncertainty persists.

  • Bearish Case for Gold:

    • If the Fed keeps rates higher for longer, bond yields remain attractive, reducing demand for gold.

    • Economic recovery and strong stock market performance could shift capital away from gold.