Bloomberg: Gold Is Doing Exactly What It Should Be Doing: Taylor

David Taylor, corporate director at PI Financial, joins BNN Bloomberg to discuss the commodity markets. He takes a look at gold, which he says is right now doing its job inversely correlated to the market. He also shares some of the key and optimistic takeaways he gained from the CAPP conference. This was on April 4.

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Transcript

There are some serious things to talk about okay right now let’s get serious the commodity sector which is your wheelhouse gold really perking up today and I’m struggling for a major reason as to why yeah other than I haven’t seen why but maybe the US dollar down

Um I think there was uh I don’t know there was there was a it was a light day on the manufacturer on the uh on the economic side today but the one thing fascinating with gold is is that it’s really doing its job as inversely correlated to the market and and you

Know for years you’ve always heard advisors or investors say have a portion of gold in your portfolio you know 10 or 15 and gold never did well like it didn’t perform the capacity that was supposed to perform but recently whenever the market is down gold has

Done very very well and so as investors we’re always trying to find some some vehicle some some investment product that’s inversely correlated to the market so on days like today where everything else is typically is down then you’re getting some uh stability and I want to clarify your views on gold

Sometimes it can be pejorative to call someone a gold are you somebody kind of perennially in favor no they’re horrible Investments are you kidding me I’ve never seen they’re the worst destroyer of capital the mining company oh the mining companies I mean they’re brutal and and I I wish they found religion

Like the oil and gas companies did that when we’ll talk about that but oh my God I mean collectively they’ve written down tens of billions of dollars in in Acquisitions they the the CEOs make exorbitant amount of money the shareholders don’t make any money they pay paltry dividends and and they

Destroy Capital so no but I but gold is I mean gold itself has outperformed the gold mining subsequence ETF no I own a stupid goal I own I own a gold star I do own a Gold stock because there’s there are opportunities you

Don’t want to name it now no I do I own Oceana I talked about when I was on the first time I came back onto the show I talked about ocean and and uh no it’s actually a large position of mine but you know there’s a price that you’re

Willing to pay for almost any asset and and that stock is you know the boards change the CEOs changed they had some serious issues with uh regulatory approval for for a mine in the Philippines it’s all behind them but I’m not looking I’m not saying all gold stocks are created equal like Nico’s

Done a great job there’d be some really there have been some but they’re few and far between my point being that that that once in a while gold does exactly what it’s supposed to do and that is act as an inverse correlator to the markets and and the US dollar and it’s doing

That right now and so Oceanic gold is one of the picks and it’s interesting to use that word found religion because um actors certainly defines that right now it’s giving back a little bit but certainly has perked out um you know from the lows in March Francisco was making the point though

That as we get into earnings season you could maybe see a little bit of a fade it’s not the numbers this quarter are not going to look favorably for which sector for the energy sector compared to a year ago just because things were a lot better yes do you think though

That’s going to matter because even at these levels they’re still you know cash flow machines and I don’t think it’s going to matter that much in fact I just this morning I was at the Capcom oil and gas conference right and so I you know I listened into a panel enter Plus

In baytex and and uh and a few others and seeing Canadian natural we’re we’re speaking and uh and it’s remarkable like we talk about the oil and gas sector and the oil and gas versus there’s the gold sector like 10 years ago these guys were willing to grow at any cost it didn’t

Matter it was all about showing growth and they did the same thing that the gold companies did they just destroyed capital and you never got to return on your investment you may have gotten return of your investment get your money back but you never got a return on

Investment and it’s just so different so refreshing to see these guys in fact there’s one company up there that talked about growing it at uh at Whitecap uh which I own and and they talk about growing at eight percent and and the moderator says whoa he says not a little

Hot it’s not a little high I mean in fact if you grow too much the street punishes you and so it’s it’s not about growth anymore it’s all about margins and return of capital at return on Capital I should say and free cash flow and buying back stock and paying special

Dividends but make sure you have a strong resource base to do that and and it’s really um kind of a made in Canada situation because even with those obvious fundamentals that anybody looking at the results could look at you have no foreign interest well you don’t have foreign interests and which is

Fascinating because you know the Canadian if you take a look at the strength in the US dollar that’s that’s and the weakness Canadian dollar that’s a benefit to the Canadian Oil patch so I you know if I were a U.S investor and I wanted exposure to the oil and gas

Sector I would definitely look at Canada for sure but you probably have an ESG mandate now oh you probably have an ESG manager mandate and and I guess maybe so one of my questions so after the panel they talked about the generation of free cash flow and how how incredible these

Stocks have you know how much money they’re making and it’s obscene and then they get like they can take themselves private in two to three years so I asked the question then why is it you’re doing everything right versus 10 years ago why are the multiples still terrible like

Why do they still trade it three times even and I think they you know I don’t think the answer was it’s going to take time and in the past we’ve made terrible Acquisitions we did bad things and we’re not doing that anymore and investors have to recognize that and that leads me

To my next question there’s always when you’ve got these cheap multiples and really cashed up businesses that is a recipe and a commodity price that’s working for you that is a recipe for consolidation yes it doesn’t sound like we’re gonna get it though the appetite

Is very low not yet not yet but it’s definitely been a recipe for Acquisitions right I mean uh Crescent Point did it just did a big one baytex did a huge one white cap did a large one they took out XTO and and in the past

What I loved what in the past any company doing an acquisition in this space the stocks got killed but but notice there you know like I said it’s going to take time and people are going to have to be converted into trusting management and what I’ve noticed in the

Last round of major Acquisitions like the bay text deal the stocks have gone up and in the past a deal like that markets would have crushed it so I think it’s going to take some time for people to get back to the space and realize that the management of these companies

And the board are recognizing that it’s not all about growth and it’s about profitable growth and and to me I just think it’s a great space to be I really do and so you own it through White Cap what else and can a natural I own very

Large I like oil weighted like I I’m not obviously not your gas prices no but but and White Cap specifically said for example he’s got um you know he’s got a third of his of his production is natural gas a third but it only represents 11 of his Revenue it’s

Because it’s because natural gas can is about two bucks yeah so so light sweet recruit is the place to go that has by far the heart the highest margin has the highest return and these companies talking about drilling and getting their money back in six to eight months at

These oil prices so those are like 30 irrs yeah you know you know five percent on a GIC or if you get you know the long-term return on the stock market 100 years is eight percent or I’ll let ten percent but these guys have an asset that at today’s commodity price they can

Get a return on on their investment of 30 I mean that’s I can’t where else what other industry can you find that the problem is do they in the past they always had those sometimes they have those High returns but you never got it as a shareholder right you’d wait to get

It back and they’d reinvest it and blow their brains up make bad Acquisitions but it’s different this time

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