Kitco.com: Miners and silver may be undervalued, but gold is still more attractive – Rockefeller’s Michael Bapis

(Kitco News) – Gold investors were back in a buying mood after gold set another all-time high yesterday, but the underperformance of the gold miners amidst this multi-month rally has puzzled market experts. Now, with gold mining stocks finally seeing a sustained move higher in March, investors are wondering if the tide has finally turned or if this will be another in a long string of disappointments.

Michael Bapis, Managing Director of Vios Advisors at Rockefeller Capital Management, went on CNBC yesterday to discuss the disconnect between miners’ stock prices and the metal they produce, and their chances of finally catching up to historical ratios.

Bapis was asked at the outset whether he’d rather hold gold itself or the mining stocks right now, a difficult question as many worry that despite gold’s strong performance, it may be overbought at $2,200 per ounce, while mining stocks, notwithstanding the relative lack of interest, could have more upside.

“It’s an interesting time right now,” he said. “Markets that are all-time highs right now and it doesn’t even feel like that. I think that’s part of the reason why a lot of these hedge assets haven’t moved very much.”

Bapis said that everyone appears to be focused on “the small subset of companies” that are driving equity markets to new all-time highs, and they’re ignoring most everything else.

“If you look at an equal weighted versus a cap- weighted rate of return, it’s about 50% equal weighted on the S&P 500 in ’23, and so far in ’24,” he said, adding that the hedged assets are “always a good part of the portfolio and important to the allocation, but at the same time no one’s paying attention” to them. “That’s probably why you’re seeing them struggle as they have,” he said.

When pressed on which he would choose, Bapis, like most of the market, sided with the metal.

“I think gold is more of a hedge, gold miners is more of an investment,” he said. “We add gold as a hedge to many portfolios and I think I would pick that one over the miners, just because it fits into more of an allocation model rather than just picking individual securities and individual drillers who mine the gold.”

When asked whether the better-performing sectors of the equity markets such as airlines, banks and industrials may have run too far, Bapis said he doesn’t believe they have.

“Earnings are strong right now, and if you look at inflation, it has slowly started to come down, we’re most likely going to see rates come down sometime soon, so at this point you want to be in anything but cash,” he said. “As rates come down, as these consumer and all these other real-life names continue to grow, you’re going to want dividends from them. They’re the ones that are growing their earnings, they’re the ones that continue to grow cash flow.”

“It’s just such a tech-heavy, NASDAQ-focused move,” he said. “These other companies that no one’s paying attention to, they have more room to grow.”

Returning to the precious metal space, the host pointed out that while gold is setting new highs on a weekly basis, silver prices remain at 50% of their all-time highs and have failed to break $25 per ounce. “Do you think there’s a catch-up trade there?” he was asked.

“I know a lot of people believe that there possibly may be,” Bapis said. “But I again, I like to just get a basket of these securities, get a basket of these hedges, where instead of just picking one trade and possibly being right, possibly being wrong, diversify the hedged assets and the alternative Investments to where they become a part of the portfolio, and you’re in this for three, five, seven years.”

Bapis did issue a vote of confidence in the metals once the Federal Reserve begins its long-awaited easing of monetary policy.

“A lot of times the metals outperform, especially in that kind of a rate environment, and we’re most likely going to see it coming soon, whether it’s mid-year or end of year,” he said.