Global Gold Stocks May Beat Bullion, Baker Steel Says

Investors should buy gold stocks such as Kinross Gold Corp. because mining companies may rise faster in the next two years than the precious metal they sell, said London-based Baker Steel Capital Managers LLP.

The supply of gold is falling as mining companies struggle to make discoveries even as rising global wealth spurs demand for jewelry, Trevor Steel, co-founder of Baker Steel, which has $900 million in assets, said in an interview on Nov. 16.

Gold approached the $850 an ounce peak on Nov. 7, buoyed by a weaker dollar and record energy prices. JPMorgan Chase & Co., investor Marc Faber and London-based researcher GFMS Ltd. are predicting prices to top $1,000 next year. The gains still aren't reflected in many analysts' profit estimates, said Steel, suggesting gold-mining companies could climb higher.

``These companies will grow though it may take a while for people to discover them,'' said Steel, before speaking at a two- day conference starting today in Mumbai. ``Gold shares give more leverage than gold alone as you are participating in the company's growth.'' Kinross, Gold Reserves Inc., Golden Star Resources Corp. and Iamgold Corp. are among his favorite picks.

Gold has climbed 24 percent this year to the highest since 1980, outpacing the 21 percent gain in the Philadelphia Gold & Silver Index of companies, including Barrick Gold Corp. and Newmont Mining Corp., the biggest miners. The metal has tripled from a 20-year low in July 1999, while Barrick and Newmont have more than doubled in value.

Falling Output

Baker Steel's Genus Dynamic Gold Fund, which has about $300 million in mining companies' shares, has risen 28 percent this year, exceeding the 21 percent gain in the FTSE Gold Mines Index, according to Bloomberg data. The fund has surged fourfold since its launch in April 2003.

Kinross Gold, Canada's third-biggest gold producer, was the fund's top holding on Oct. 31, making up 5 percent of its value, Steel said. The stock climbed 1 percent to C$16.94 on Nov. 16 in Toronto, the third-biggest gainer on the 16-member Philadelphia index, according to Bloomberg data.

Mine output, which last year dropped to a 10-year low, will fall a further 1.6 percent in the second half to 1,284 tons as it gets harder to extract the precious metal from deeper and older mines, according to GFMS.

``The supply of other metals like aluminum and copper is rising, while gold-mining companies have not been able to keep pace'' with demand, fund manager Steel said.

Gold demand rose 19 percent in the third quarter to 947 tons, led by a sevenfold increase in investment in exchange- traded funds backed by bullion, the producer-funded World Gold Council said last week.
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