The gold mining sector may be deeply out of favor at present, but these stocks now actually represent an “outstanding buying opportunity”, according to Angelos Damaskos, founder and chief executive of Sector Investment Managers, a UK-based investment firm which focuses on resources.

According to Damaskos, gold mining stocks are soon to be re-rated to reflect their improving financials and in fact - according to his firm’s research - gold mining profits have never been better. Sector Investment Managers puts the average gross 2011 margin of the major gold mining companies at over 55 per cent, noting that despite high cost inflation, driven by scarcity of materials, equipment and labor, profit growth has been much greater, dramatically expanding profitability.

He also expects that gold prices will continue to be bolstered by the precious metal’s status as a safe haven in what are still uncertain times and when central banks are pumping money into ailing economies such as Greece. As a result, the central banks of countries with balance of payment surpluses are becoming long- term buy-and-hold purchasers of gold in a bid to diversify their reserves; Sector Investment Managers believes this could in turn reduce or limit supply, pushing the retail price of gold higher.

Gold bullion opened trading on 3 January at $1,569/oz and on 30 March closed at $1,668/oz – a 6.3 per cent increase – and Damaskos predicts that it could even rise to $2,000/oz soon as the peak of an eleven-year uptrend. Rising gold prices should then benefit gold company shares as they catch up with the gold price, he says.

The core holdings of Damaskos' Junior Gold Fund are Focus Minerals, a South-West Australian producer; Spanish Mountain Gold, a development-stage project in British Columbia that could come into production within two years; and Kingsrose Mining, an Indonesian producer operating a high-grade deposit in Sumatra.

The fund is also 20 per cent invested in silver producers as Sector Investment Managers believes the metal could rise as high as $35/oz (from its current price of 31.54/ oz), while costs of production are usually in the range of $7-9/oz. “This attractive marginal cost of production makes selected silver producers a good investment at present,” says Damaskos.