As gold and silver struggle, Franklin Templeton sees value in mining stocks
Gold and silver prices continue to struggle to find their footing, as they have been unable to hold initial support levels; however, according to one fund manager, there is still plenty of value in the precious metals space, particularly within the mining sector
In his latest precious metals note, Steve Land, Lead Portfolio Manager of Franklin Templeton’s Franklin Gold and Precious Metals Fund, said that despite the recent market volatility, gold and silver remain well supported by robust long-term fundamentals.
However, while gold and silver may be settling into a broader consolidation phase, Land said that investors should look for value in the mining sector, as it has underperformed the raw commodity. He explained that, according to his models, valuations have been trailing gold spot prices by roughly 20% for the last couple of years
Central banks and bullion-backed ETFs have fueled gold's rally, allowing bullion prices to rise materially faster than flows into mining equities,he said. “The disconnect reflects investor perception rather than fundamentals. Investors still remember past cycles of cost inflation, capital misallocation, and dilution, but in our view, the industry has changed. Today, miners have stronger balance sheets, better capital discipline, and higher shareholder returns. At recent elevated gold prices, miners offer real operational leverage, with earnings and free cash flow climbing faster than the bullion price
Although mining equities have also seen significant volatility in line with the gold market, Land said that companies will continue to generate significant free cash flow at current prices.
We estimate gold prices would need to fall below ~US$3,500/oz before sector economics would start to resemble prior down cycles he said
“Gold has historically performed well during periods of financial and geopolitical stress, and recent trade tensions$XRP
$CYS
