Gold 2013 Forecast: Industry Leaders Cautiously Optimistic

Toronto’s business community is full of networking associations but two hold “not-to-be-missed” annual events early in the New Year, as Toronto’s bankers, investors, business leaders and their followers gather for two key January luncheons offering speakers and their insights on what 2013 will bring.

The first this year was held by the Empire Club of Canada earlier this week, and the second will be held early next week by the Toronto Branch of the Canadian Club.

The Empire Club of Canada was founded in 1903 and has served as a venue for world leaders in politics, business, culture and religion and all 3,500 speeches and addresses can be found on their website. On Thursday, January 3, 2013, they held their 19th Annual Investment Outlook featuring tips, predictions and comments on the Canadian, U.S. and global economy into 2013 and into early 2014.

First to the podium was Thomas Caldwell, Chairman & CEO of Caldwell Securities, and a past Governor of the Toronto Stock Exchange. He provided his comments with a healthy dose of humor — considering he largely ranted against the “strangulation” of innovation and investment by our financial industry’s regulatory sector. While acknowledging the need for — and importance of — clear, concise regulations, Thomas argued that the Ontario Securities Commission is killing independent brokers and unduly hampering risk takers. Rules and red tape are creating barriers to the financial industry and are written and approved by “optic driven” politicians who react to the” Bre-X’s of the world” (Bre-X was a famous Canadian gold mining company that fraudulently duped investors in the 1990s). Instead of creating new regulations, greater transparency and stronger accounting principles would suffice, pointing out that there are more words in the Dodd-Frank Act than in both the New and Old Testament and the Koran combined!  He noted that while the U.S. may be able to absorb such regulation, Canadian regulatory agencies are trying to implement rules that appear even tougher, causing companies to put valuable resources into administration and paper work, rather than focus on risk, innovation and client relations.

Next to speak was David Harquail, CEO, Franco-Nevada Corporation, a huge Canadian gold company with some of the largest new gold development and exploration projects in the world. David provided a brief overview of gold prices back to 1903 (the year the Empire Club was founded) but used the cost of an Ontario Prospectors Association lunch in 1935 as a backdrop to show that gold has a huge value maintenance capability. Back then, a formal luncheon with the OPA cost $1.25 versus $35/oz for gold. Noting that our current lunch cost members $60, and that gold had recently closed at $1,681/oz, his point was clearly illustrated.

As Franco-Nevada is a gold royalty and stream company, he discussed some benefits of revenue based royalties (they have no operating cost exposure) and offered a rather interesting ratio of how much gold it would take to buy the Dow over the years. While the amount has varied throughout the years, he noted that we are currently in the middle area and with 50% of the global demand for gold in China and India, gold should not be considered overvalued. He did, however, caution that as countries come out of their own individual economic downturns over 2013, this should be a year to focus on more senior, dividend producing gold companies. Franco-Nevada’s most recent annual report can be found here, and it contains the Dow/gold comparison chart on page seven.

The third and final speaker was Avery Shenfeld, Managing Director and Chief Economist, CIBC, one of Canada’s top five chartered banks. Beginning his talk by noting that Canada has clearly outperformed the US during the recession, we are now trailing the U.S. as we take steps to control growth (most notably regarding real estate lending terms). Avery claimed that there is a visible recovery underway in the United States and that he remains to be optimistic that the U.S. could move to 3 to 3.5% growth in 2014. Noting that with real estate purchases comes consumer spending (furniture, home renovations, etc) and these extra purchases will power the economy to better growth.

Avery spent most of his speech glossing over 2013, which will likely be a year in which countries slowly emerge from their respective economic troubles. China will have re-engineered their recovery by 2014 and many countries in the EU, while likely to remain troubled for this year, should be more stable as we move into mid-2014. Canada will have to look to exports and our energy sector to off-set the slump in real estate and housing markets, but all in all, Avery assured the audience that if we can be patient this year, 2014 will prove to be much more promising.

And that concluded the investment outlook lunch. Key tips: Look to crowd sourcing for innovative funding alternatives as small investors get buried in red tape; buy and hold gold companies that offer a strong record of dividends, and sit tight until 2014. There will be better days, but the worst is over. And I’ll report next week on what the Canadian Club has to say at their upcoming outlook luncheon.