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Major bull rallies in gold stocks have been preceded by generalist investors rushing back into the sector, and this is exactly what is happening right now, said Frank Holmes, CEO of U.S. Global Investors.
April saw historical highs in gold-backed ETF inflows, as well, record number of new online trading accounts have been opened during the last two months.
“This past quarter has been a game changer. We now have gold rally for three years, and we have many big gold producers promoting and telling the story, like Newmont and Barrick, that they have free cash flow,” Holmes told Kitco News.
Gold stocks have outperformed the broad equities index, with the VanEck Vectors Gold Miners ETF (GDX) up 23% year-to-date, while the S&P 500 has lagged with a -10% loss over the same period.
Holmes attributes this performance disparity on gold miners’ superior cash flows.
“We’re going to see falling cash flow, and no free cash flow [for the broad stock market]. Gold equities, on the other hand, look beautiful,” he said.
Holmes added that he likes royalty streaming gold companies.
“This past quarter, Franco Nevada, Wheaton Precious Metals, and Royal Gold, [posted] $300 million in the quarter for free cash flow. That’s really significant, because the S&P, in free cash flow, collapsed,” he said.
By David Lin
For Kitco News
