Terra 2020 LP Focuses on Gold and Resources
This year’s LP will invest in a portfolio of primarily Super Flow-Through shares of public mining firms. The majority of investments are expected to be in the gold sector followed by uranium, diamonds, zinc and energy.
At current bullion prices, junior gold companies offer substantial potential performance. Currently, a decline in production output is the biggest problem for major gold producers and the need to replenish reserves will lead to growing interest in, and takeovers of, junior gold miners.
Gold juniors will subsequently outperform both bullion and senior gold firms because higher gold prices will provide major gold producers larger cashflows and a new ability to invest in and acquire junior explorers to replenish their reserves.
The Dow/Gold ratio shows how many ounces of gold it takes to buy the Dow Jones Industrial Average. The ratio currently sits at approximately 14:1, down from 22:1 in November 2019.
In January 1980 the ratio reached 1:1 when gold was $800 per ounce and the Dow at 800. On at least three other occasions the ratio peaked at 6:1 in 1974, 1989 and more recently in 2011.
We expect the Dow/Gold ratio will retest 6:1 or approach 1:1 because of a number of factors favourable to gold, including the growth in money supply (M2). Currently, M2 growth is running over 12% on a year-on-year basis, which is the fastest in two decades and is likely headed higher with the economic fallout from Covid-19.
In times when money supply has surged, gold prices have followed. The last time M2 soared above 10 percent year-over-year was in 2011 when gold reached its all-time high of $1,900 and the ratio peaked at 6:1.