Hello, Welcome to The Australian's Money Puzzle podcast.

I'm James Kirby.

Welcome aboard.

Everybody.

You know already of course that the single best investment mainstream investment last year was gold and for all we know, it could be the best investment of the decade really if some in the market have it right.

It went up around sixty percent.

That's Bulliant just went up around sixty percent in the last twelve months, and then gold miners as a group, as a category, as a sector roughly tripled.

That is, the gold price they went up about one hundred and fifty percent, judging if we take that number from a from the gold mining ETFs.

That are out there.

So I think it's a crucial to our listens.

I think that the fact that we have seen some very important people in financial advice saying that investors should have an allocation to gold.

We have said in the past this extraordinary claim from Mike Wilson, the chief investment officer at Morgan Stanley, who suggests up to twenty percent should.

Be held in gold.

I don't know about that, but you should have gold in your portfolio.

And some people conservative investors have been waiting for a pullback in this red hot rally in gold, and it's happened just this last few days.

That is, I'm speaking to you on a Tuesday, and over the weekend gold had its sharpest for for many years, and it fell roughly ten percent on the market around the world over the weekend silver fell around thirty percent, which they tend to be a ratio between those two precious metals.

So the pullback is here if you've been waiting for it.

My guest today is right across gold.

He's a specialist in gold.

He runs a gold fund since twenty twenty to the r Gonut Goal Fund.

He is a fund manager and co founder of a fund management group of part His name is David Franklin.

Hi, David, how are you bid?

James?

Thanks for having me on.

So we're all sort of led to the party.

I'm sure we're black people who turn up at the betting office on Melbourne Copte asking how it all works and which horse should we pick.

You've been, I mean in Paris first of all, and then in gold since twenty twenty two, So tell me in your own words what you think has happened in the last few months.

Where we've had a stretch of a rally in the good price that we haven't seen since the nineteen eighties.

What do you think is happening?

So the big change has been in investment demand, and in particularly demand from ETF.

So in twenty twenty four there was actually.

An outflow from ETFs of about about three tons.

In twenty twenty five there was an inflow of eight hundred and one tons, so a massive turnaround, and I think that's one where people are saying, look, the world's uncertain, I want to hold physical gold through through an ETF.

But I also think what atfs really reflect to a large extent is fear and greed.

Right.

So the last time it was a big inflows into gold was during COVID, where that was really what i'd call the fear trade, where people are trying, I'm worried what's having in the world here, I'm going to hold some gold.

I think there's still a bit of that just given the geopolitical situations, but I think more recently it's been driven by greed, right, as people saying gold is where I want to be, Gold is where everyone else is making money, and I'm piling in and ETFs are an easy way to do it, and I think the issue with that ETF market is it can be pretty fickle.

So after COVID, the money then flowed out for the next few years and it's only really in the last six months and it started to.

Flow back in and it's flowed in a big way.

And I think that's all well and good, but it can change, and it can change quickly.

And I think that's what we've seen over the last month is there's been a turning point and people have said, Okay, I'm going to cash in now, and a bit of fear kicked in and they're out.

So this value, at least this is a selloff that's happening might disturb people who are new to the game.

Can you tell us what you think of the setoff?

Just tell me what you think about it.

Do you think it's serious?

Do you think it is a change in direction for the gold price?

Do you think it will recover?

Well?

I think the tailwinds for gold are still in place, right, So you look at what's happening globally, you go there's really a changing world order, and in particular the US's role in that.

I think they've taken a view that we're a superpower and we're now going.

To act like one.

Right, We're not necessarily going to be the protector of the planet.

We're going to be putting the US first.

As part of that.

Not Eeron now wants to hold US assets and so they're looking for alternative.

So gold really is a store of value, which has been for thousands of years, is really coming back to the foe.

You've got groups like Russia.

You know, when Russia invade Ukraine and the US froze a lot of their assets are really highlighted that holding US assets is.

A risk.

And since then you've seen a lot of central bank buying from China, etc.

So I think the tailwinds for gold are there and will continue.

What I saw is it just got a bit overinflated at overhead and you've seen a pullback.

But I think you'd expect that gold will continue to be sought and it should be part of people's portfolios.

I know this is difficult, but from terms of bullion, so the big number was five thousand, that would it get to five thousands, and of course it got to five thousand frizte easily and it loaded above that number.

A lot of the big banks of global investment banks are pitching that it will get to five five five six this year.

It's currently has dropped fair bit.

That pullback is real and stand around four to seven, that is four thousand and seven of the US for gold bullion.

What is the point that you think would be a floor as such?

Is?

Do you have a number in mind?

Yeah?

Look, it's always difficult.

So, I mean I spent a lot of time looking at commodities and markets and looking at forecasts, and the one thing I'm sure about is most of the forecast that you read about are wrong, right, So the view I try to take is rather than predict, I kind of observe and then sort of react.

So, you know, I would have thought gold could pull back a little bit, but as I said, the catalysts there for gold remain in place.

So I think what we'll probably see is some kind of stabilization.

You so could see come back a little bit more.

But in general, I think.

In twelve months time it's going to be higher.

Ideally it's going to be around sort of the five thousand dollars announce you wes, but you know they're not lifetime guarantees, right, So.

No, of course understand and then bank most forecasts are hired the much you've said out there at this point from credible banks, I mean, from our own CBA and from gpmorgan et cetera.

Okay, no one knows where it's going to go, but you're you'd obviously be confident that it's going to go higher running a fond.

Now I want to ask you the points you made about gold and the reasons why it has strong structural drivers and there is a consensus that it will move higher from here.

We don't know if it will be as good next to this twenty six is twenty five, but it has a lot going forward as an investment option.

So let's assume the listener says, Okay, I am convinced of that, and in fact, I missed the first part of the gold rally, and I'm interested in getting in.

Now you are in the business of actually choosing gold miners, so you're another step down the road if you like it.

It's not a gold fund per se that it's not a bulliant fund.

It is a gold miner's fund, and it's an active fund, so you are actively choosing the ones you think are best.

So in the last year, gold went up about fifty six percent, And as I said in Bulliant ETFs, did you beat the ETFs?

Did your fund as an active managed fund beat the ETFs that were buying gold miners.

So we're about in line with the junior gold index at GDXJ we were beaten the producer gold index.

But you know the fund was up approximately.

One hundred and fifty percent in the last twelve months.

Right, Okay, just tell us what your proposal is to the investor who says, look, I'm just going to buy an ETF, I'm just going to buy it.

I'm going to buy gold bullion and I'm also going to buy gold miners ETF and I'm going to take the gamble basically that I might miss some spectacular returns.

So what do you offer to the listener who's thinking like that.

Yeah, Look, the problem with atfs is they're not the portfolio is not value driven.

So you can have a very strongly year like you've had in the past year, and money is flowing in based on the market cap of companies rather than on the value proposition of those companies.

So what we would like to suggest is that you know, active management over time will deliver better returns if you're you know, if you're a quality manager, because sift through the value.

You're not just buying a stock based on its market cap, you're buying it on its value.

So that's really the proposition for a golfer.

So typically we'll own between fifteen and twenty stocks, so we're very selective in sort of the quality.

So digen or twenty stocks is tight, right, So I buy anity F it's got hundreds and hundreds of it.

It's got your highs of rubbish and it's obviously pis of good stocks, and you're helping that.

Basically the rubbish gets drowned and the overall momentum.

But in a more selective active operation like yours, you are picking gold miners ten to twenty.

You said, that's fairly high conviction.

That's a fairly small pond.

Why do you keep it so tight?

Well, we just you know, we focus on quality.

So what we're looking for is companies that have good production growth, low op X, low cap X, generally high grade, a real focus on free cash generation is long mind life.

So you know the thing about resource.

And gold companies is it's an asset that is in decline from the moment you start to produce.

So what you want is to start with a big old body so that you can you.

Have a mind life.

And then it comes down to the more general factors, so you want to make sure the strong balance sheet, good management, and location is also really important.

So what we're.

Looking for is, at its core is really like any investment, we want to see the free cash flow than those companies generate.

And what you're seeing with the gold price around five thousand all an ounce is gold companies aren't generating very good.

Cash because it's very profitable because their costs are more or less set, but the price of the commodity is rising.

Tell me.

The theory, of course, is that when you.

Have a gold rally or a gold rush as we're having now, bullion moves first and then there's the miners come after.

So on that basis, the miner should have a better year than the bullion itself, which was the case last year.

I'm assuming you backed that because you've got a gold fund, but could you explain that particular contention to listeners.

Yeah, well, it's actually very true if you look at what's so Obviously, we track sort of the goal price versus gold equities, and if you look at the last two years, for most of that two year period, the gold price actually outperformed old equity and it takes a bit of time for the investment markets to kind of catch up.

And then what you've seen in the last six months, in particular, gold equities dramatically outperformed, which is expected because, as you're saying, you know, costs of producing gold are relatively fixed.

They do tend to go up as gold price goes up, and they don't go up at the same rate as gold.

So your margins are expanding and therefore your profitability is increasing at a faster rate than the price of goals.

And what you're saying is that actually only happened but last year.

Yeah, yeah, it's really in the last six months.

Okay, this is just starting to happen.

Keep that in mind, folks.

We'll take a break.

We'll be back in a month.

Hello, Welcome back to the Australian's Money Positive podcast.

James can't be here talking to David Franklin of the Argornaut Gold Fund.

It's a fund which specializes an active managed fund which buy is ghost stocks, and obviously the contention is that they will pick the best ones and they will beat the index in the long term.

David, these ghostocks you buy.

One of the things comparing and contrasting we're talking about the ETF.

Does ETF tend to be global that you can buy here rather than so I'm guessing that your concentration is on funded on gold miners that you actually know, you know the numbers, you actually know the people behind those companies.

Is that part of what you do that you actually Yeah, the industry would have lots of characters that have been through a few cycles, and there's people to avoid and there's people to join.

Is that part of your rationale and picking stocks?

Yeah, exactly.

The fund can invest globally, so typically we have a mix of international stocks and also domestic stocks, but the portfolio is weighted towards Australian based gold producers.

And the positive, as you're kind of.

Alluding to, is Australia has has a big goal sector.

It's a big global gold producer and there's a big universe of gold stocks and it makes it easier and you know, often when you're investing in resources and gold in particular, where that project is located is really important.

And the positive is Australia is a very good place to invest.

Equally, Western Australia are very pro mining, the approvals processes that are relatively good, the infrastructure is very good.

So you know, when you're investing in gold, you want to mitigate risk as much as you can.

And by investing in a project based in Western Australia, for example, you're eliminating a lot of potential risks that you might get if you go to West Africa or parts of South America.

Eliminating the regulatory risk as you see.

Okay, one of the things I thought we were talking earlier was fascinating.

I assumed two things that the gold sector they would all run off and start raising money, and that'd be a lot of leverage through that sector.

And you were saying not quite, maybe not yet.

But what you were telling me, which I didn't know, was there are many of them doing so well.

They have a lot of cash, which that sounds good at best value, but there's a point where you don't want to have too much cash because it'll drag back your return.

That's a real danger, now, is it.

With many of the best jocks.

Well, I think you're right.

I mean, you know, we sort of just if you look at a peer group of say the thirteen or so, you know, leading Australian based producers and probably ignoring the bigger ones Evolution and all the star but the group below that thirteen companies net cash is about seven and a half billion dollars and most of that has been generated in the last couple of years, so it's it's enormous.

It just shows the benefit of high goal prices, realtive fixed costs.

And you're generating a lot of cash.

Now that's good and bad, right, because the question is what do you do with all that cash?

And certainly the companies that we would focus on and really like are companies like Genesis and Capricorn and great Land and Romilius where they've got substantial amounts of cash, but they've got very clear growth program and they're developing projects and building out their operations, so you can kind of see, well, they're growing cash.

But they've got a good place spend it.

Then there's companies which have a lot of cash, and Regis is probably a good example.

They've got a lot of cash, good core business their mind life is starting to run out and they need to do something.

So the question is are they going to buy something?

And in this kind of environment, it's a realty difficult time to buy something at values.

So I wait and see.

They do have development project that's held up by some regulatory approvals in New South Wales.

It might come through, but that would be a concern.

And so then you've got the bulk of other companies.

What are they going to do with their cash if they don't have a meaningful project to spend the money on.

And so you'd like to think maybe dividends or share buybacks.

But I think what you'd suggest is that we're probably going to enter a period of increased mergers and acquisitions where people are using their balance sheets to grow.

Rather than giving us special dividends.

Yeah, hopefully it's a bit of a mix.

I think some will do it, But the gold sector and the resources sector in particular, doesn't have a great record of returning capital.

It's funny because we were saying, I was going to say one of the advantages of having a gold stock over billion is that bullion pays no income, and the gold stocks can.

But dividend is not important really in your fond is it.

We don't see it as a key driver.

I mean, we would like to see become more of a more of an issue in that it's an issue that often doesn't face the gold producers, right.

I think you know, to put it in context, that the margins of gold producers are making now is unusually high, and so the cash builder is unusually high, and so it's a challenge that they probably haven't had to deal with in having served with cash and what do we do with it?

A nice problem to have.

We're going to talk in a moment about actual stocks and a couple of stocks in particular.

I'd like to just drow David on.

We'll do that after the break.

I want to ask you one question before the break, which I think is I haven't got an answer yet from anyone.

The whole gold rally, right is premised on the basis that gold is an asset that investors seek times of uncertainty, and the theory being that gold goes up when stocks go down.

But this there's a distinction in this gold rally to other rallies of great rallies off sa the eighties to prior to.

Two o seven there's a distinction.

It's that we're seeing gold go up and global staff prices go up at the same time.

And what does that mean if we had a share market for what do you think would happen to gold sector?

Yeah, look, so my experience is what tends to happen.

So if you think about some of the big market events, you know, GFC, COVID and Trump in April when he announced the tariffs, market fell, and typically what will happen is gold price will fall with the market, but it doesn't stay down long and then it rebound and then our performs.

The dot com boom of around two thousand was a bit different, where the tech stocks fell, but gold went up and immediately.

So I think it's very situational.

A lot of reasons to suggest that, you know, like gold went up recently in the last few years when interest rates were going up, right, which is also very unusual.

So I think with gold there's always very situational effect.

And you know, as we alluded to it before, I think that the amount of investment demand in gold at the moment, and even the central bank buying, which has been a cornerstone over recent times, just means that you know the situation is.

A little different.

Very good.

We'll take a break, folks and we'll talk about a couple of individual gold stops.

Back in a moment.

Hello, Welcome back to the Australian's Money Puzzitive podcast.

James can't be here talking to David Franklin of the arg Ornaut Gold Fund.

Thank you for coming on the show.

And that's quite clear that you do.

The first thing I want to ask you is the sale of New Crest.

It would seem to me that was an absolute steal.

A few years ago.

Yeah, I think it's inarguable it was a steel It's interesting, right, so when the transaction happened, you probably thought this is a solid transaction.

You know, they're paying a fair price.

But what's happened is the gold price has.

Risen significantly since then and now it looks like a bargain.

And so I think you're right.

I think Newmont did really well buying New Crest.

That was Australia's I should have said, folks, that was Australia's biggest called Yeah minor at the time listed what's the biggest one now.

David, Well, new Monk's listed here, so it's still a major contributor to the index, and then it comes down to Northern and Evolution are sort of the big two, and then it drops down a bit.

But the point I would make on Newmont and New Crest is if there's a winner out of that transaction.

It was actually Greatlan Gold which picked up the tel for Gold asset and have her On which was sold by Newmont once they got control of that.

And it just shows that when those transactions happen, it can create other opportunities.

So to put that in context, Greatland had a market value of about a billion dollars at the time it brought those assets for seven hundred and fifty mili and so say one point seventy five billion in total.

Today that company is market cap of about nine billion dollars with another billion.

Dollars in cash.

So it's generated more cash from the assets that are bought than the pay price that paid within sort of.

An eighteen month period.

So incredible, beautifully don So somebody did win out of the New Crest situation.

So what about today?

Tell me who stocks you mentioned?

Service stocks by name for our listeners, are the stocks you could point to and say that this stock would seem to be very well situated for the point we're out in the gold cycle now.

Yeah.

Look, I think if there's a standout producer, it's Genesis.

So Genesis western Australian based producer run by Raley Finlerson, who is probably recognized one of the leaders in the gold sector.

I've been in the industry for a long period of time.

The company has has been through a bit of a consolidation building up its production from two sort of production hubs in Western Australia.

It's due to come out with a new five year production plan within the next couple of months and I think that'll give the market a bit of a kick.

So that's one we really like.

Another one is Capricorn.

Again.

You know, the consistency here is strong management, strong balance sheet, very identifiable growth projects, focus on keeping costs low and located in T one location.

So you know Capricorn.

It's got a relebly small mine in Western Australia at the moment called Color Window, producing about one hundred and twenty five thousand ounces.

That'll go to one hundred and seventy five thousand ounces.

But the hidden asset is really Mount Gibson, which will be one hundred and fifty to turn one thousand hours producer.

We should come on in the next couple of years.

So again, good growth and really what you're looking for is production growth, having a good handle on costs, and ultimately generating really good free cash flow without ideally without hedging, which can can be a bit of a burden in this kind of market.

Yes, it's amazing how they can get it wrong.

Gold miners, you say, oh, how could.

They get it wrong?

You know they can get it wrong, can't they They have they can get the hedging appallingly low, or if you've watched this for a long time, hedging can go terribly wrong.

Operations can go terribly wrong, the weather can go wrong.

All sorts of things can hit.

But that's the risk you take, and if you get it right, you get it very right.

Interestingly, I would say one thing about David.

The two stocks mentioned by David there the first two Genesis and Capricorn.

They were both mentioned by June Bailu when she did a handful of picks stock picks right across the sector in our opening show of the year, where we were looking at individual stock opportunities.

For the year.

Very good David Franklin, Argonaut, Goldfund.

Lovely to talk to you.

Thanks very much for coming on the show.

Thanks James, it was a pleasure and all the best.

Thank you David, and thank you folks for the correspondence.

We will pick them up on Thursday and we will do some batch of questions that have come in and we did cover questions in Thursday's show as well.

Keep the correspondence Rolling.

Money Puzzle at the Australian dot com dot au Talk.

Today's show was produced by Leah Samma Glue Talk you soon.