U.S. Global's Ralph Aldis On The Life-Changing Magic Of An Asset Allocation Plan

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You have to have a plan and stick to it. This wisdom from U.S. Global Investors Fund Manager Ralph Aldis is true for investors and mining companies. And it may be even more true when the market seems to be careening from one disaster to the next. In this interview with The Gold Report, Aldis shares seven companies he is sticking with come low gold prices or a high Purchasing Managers Index.

Gold v Non-Dollar Currencies

The Gold Report: This year started with a bang as China's machinations rocked markets all over the world and set off a gold rally. Is that sustainable? What did we learn?

Ralph Aldis: China was the main driver of the volatility that started out the year. The economy is not collapsing. Growth will just be a little bit slower than expected.

I also think people are losing faith that the Federal Reserve will be able to maneuver the markets this year. What's really been disturbing to me is how much central banks all around the world are intervening in stock markets. To me, that's a recipe for disaster.

Gold was the beneficiary of these dark notes. Investors need to understand that, regardless of what the pundits are saying. All investors need an asset plan designed around individual timelines. Then they have to stick to it and rebalance.

TGR: Frank Holmes pointed out in his Frank Talk that gold actually performed well in 2015 in some currencies. Where are you looking for gold to do best this year? What does that mean for North American investors?

RA: The Canadian dollar was a standout last year. We are looking at $1,600/ounce gold prices in Canada right now. The same is true for Australia. In other countries—Russia and Brazil for instance—it has been even more pronounced because of the ruble and the real, but there just aren't that many names to invest in there right now.

I think the Canadian dollar is still going to weaken a little bit more this year. We saw the Bank of Canada hold off on cutting rates at its last meeting. I still think the bank is going to end up having to cut rates at some point in the not too distant future. The Canadian dollar will get weaker and that will be very positive for the metals prices. On the Aussie side, I see the same trends happening. Gold companies operating in those regions have an advantage over some of the other miners out there.

TGR: And do you believe the U.S. dollar will continue to be strong?

RA: Yes, but I don't think we're going to see a runaway U.S. dollar. Cornerstone Research has shown that historically the dollar rallies up into the first rate hike and then generally tends to fade after that. With the emerging markets' currencies down so much, that's probably going to trigger some growth in those regions, too.

TGR: One of the things that you and Frank follow is the Purchasing Managers Index to measure economic health. What is the cross-above trend telling you about global growth?

RA: The most recent global manufacturing chart showed cooling in December, which resulted in the one-month reading falling below the three-month moving average. The average had been rising slightly since September, but the last two data points from November and December were kind of trending down. The recent market turmoil indicates we are probably still looking at some weakness this year.

Global Manufacturing Cools in December

TGR: The other thing that you've written about is the strategy of royalty companies to buy when the streams are on sale. What companies have been the most active? What does that tell you about where we are in the cycle?

RA: That's an interesting dilemma right now. The royalty companies have traditionally been one of the best places to be long term, and I think that still probably holds because they have a very diversified risk portfolio. The big challenge now is they don't have the capital available to do more. They could borrow. Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) has done that, but historically one of Franco's strengths is that it doesn't like to have any debt on the balance sheet.

Another one that's been pretty active is Osisko Gold Royalties Ltd. (OR:TSX) (OKSKF). It is taking a completely different approach by working in the junior gold space to line up future royalties. That could be a very successful strategy long term.

Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) is facing a situation similar to Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) when it wrote off $200 million ($200M) on Goldex, and the market took $2 billion out of the market cap. A year later, Agnico was a great entry point and subsequently turned into one of the best performers. Royal Gold's share price has been hit because of fears over Thompson Creek, the Phoenix royalty and so on, but that may be oversold.

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