The Gold Report: When we talked in November, you warned that there would be downward pressure on gold this year. What are you anticipating for the balance of 2015 and into next year?
Florian Siegfried: We were being cautious in November when we published guidance that indicated gold could trade as low as $1,070 per ounce ($1,070/oz) as a support zone. And that is pretty close to where it is trading right now. But I think that we have to distinguish between the paper price of gold and the physical price, which trades at a premium. For example, the U.S. Mint currently sells gold at around $1,400/oz.
"Pretium Resources Inc.'s Brucejack is one of those mines that brings a long mine life and high grade in a safe jurisdiction."
This suggests that there is some tendency toward increasing premiums in the market for physical metal. Where we go by the end of the year is a difficult question because it's always hard to catch the bottom of the market. But a look at the last three or four years gives us some clues. Hedge funds were maximum net long in gold at the peak of 2011, and now they're maximum net short, which could be a good contrarian indicator (see chart above).
It looks as if $1,080/oz could be the bottom. It's not defined yet, but the sentiment is definitely at extremes.
The turn in gold will come from short covering, and the short covering will come when the bearishness really reaches a climax event. Probably we are there, but we will have to wait and see. It is difficult to make a call for year-end because there are so many factors influencing the gold price, and sentiment is extremely negative. The trigger for moving up could come from the bond market, which is in a difficult spot right now. Liquidity is down. Yields and credit spreads are rising. When something goes wrong there, where will the conservative money go to? I don't think it is going to go back into government funds. As investors lose confidence, that could be the trigger for gold. We are probably going to see this in the fall, by September or October. I think the bond market is about to turn around.
TGR: What are some of the other triggers you're watching? Are you monitoring the U.S. Federal Reserve and whether that rate hike happens in the fall? Continue reading "Look for Value Opportunities and Put Your Capital to Work Selectively in this Market"
The Gold Report: Rick Rule talks a lot about how much money can be made investing in things people hate, or at least don't like very much. Throughout the first quarter of this year, natural resources as a whole seemed to be in that category. How do you create a successful investing strategy out of a contrarian philosophy?
Paul Wong: First, it takes a lot of patience to be contrarian. You also need to have a lot of discipline. Probably more important than anything else, you need sticky investors. That's the hardest thing to get on the planet right now, an investor willing to stick it out.
Contrarian investors have to have the stomach to buy when the market is in the midst of a violent selloff, and they have to have the wherewithal to ride the volatility of the storm. That's the patience and the discipline part. Successful bottomfishing investors have to be able to discern the fine line between a company that could rally hard after a down leg and one that is on the verge of going bankrupt. You can throw luck into the requirements for being a contrarian investor as well, but at the end of the day it is a challenging way to approach building a portfolio so it is a good thing it sometimes pays off so dramatically.
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Mutual funds aren't traditionally built to be contrarian. I remember a joke I learned when I was a junior portfolio manager. I mentioned to someone that a stock could be a great investment in three or five years' time, and the fellow shot back to me, "Yes, my successor will look quite brilliant when that happens." That's the problem with long-term, contrarian-type investments. It may be a great idea, but you may not have a job by the time it pays off.
TGR: Does it take a lot more homework to be a contrarian investor than following an index or a blue chip stock?
Continue reading "Sticky Contrarian Investors Wanted"
The Gold Report: What's your gold price forecast for the rest of 2015?
Joe Reagor: For the full year, our average price is $1,260 per ounce ($1,260/oz). If the U.S. dollar were to remain steady and not strengthen, gold could reach $1,300/oz by year-end.
TGR: Gold was sold off heavily in the last week of April based on an anticipated interest rate hike by the Federal Reserve. Should the Fed actually raise the rate, how much of a negative effect will that have on gold and for how long? Continue reading "Five Mining Companies Joe Reagor Believes Are Ahead of the Curve"
The Gold Report: You've written that the China-led Asian Infrastructure Investment Bank (AIIB) could lead to a boom in commodities. We recently saw that South Korea is joining a number of European countries and signing on, despite U.S. reservations. Do you see this as a threat to U.S. fiscal dominance?
Chen Lin: I think this is a first step for China. The country has a huge reserve, $4 trillion, much more than it needs on the balance sheet to stabilize its currency. The rest is wasted, collecting no interest. China made some huge mistakes in the past through poor acquisition decisions because of faulty lending standards. This is a sign that it has learned from its mistakes and wants to make the most of the trillions it has to loan out right now. The bank will operate close to international standards, and because it has many nations involved already, defaulting loans will include less risk.
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This is a test. If it is successful, it can expand to Africa, South America, even Europe and North America. China has trillions of dollars sitting, doing nothing. It wants to find a way to lend money it can almost guarantee to get back and then put the money to use in the form of development. China has a huge infrastructure network capacity, requiring steel and cement. This creates jobs, which is good for the economy. That was the thinking behind the announcement.
If the AIIB is successful, it will be a big boon for base metals, energy, platinum and palladium sectors. It may even boost silver demand and prices because of its industrial use. I don't think it will have too much impact on gold, though.
TGR: Does that include copper? It has been below $3 per pound ($3/lb) all year. Continue reading "Chen Lin's Secret to Finding the Next Goldcorp"
The Gold Report: Jeff Clark, senior precious metals analyst at Casey Research, recently wrote in an article titled "Time to Admit that Gold Peaked in 2011?" that countered a chart making the rounds showing gold matching its 1980 inflation-adjusted dollars peak in 2011. The chart implies we should expect a decade or more of lower prices. Aside from the fact that John Williams of Shadow Government Statistics might have a problem with how inflation was calculated, how are gold's fundamentals different today than they were in 1984?
Louis James: The fact that things are different today than in the 1980s is a really good point. The argument over methodology almost doesn't matter. Even if it were true that the gold price of 2011 matched the inflation-adjusted gold price of 1980, that wouldn't mean that gold has to go down the way it did in 1980. There wasn't a near collapse in the banking sector back then. There wasn't the Lehman Brothers upset. The government did not triple the money supply. We're dealing not with apples and oranges, but apples and whales.
TGR: If history is not a map for the future, is John Williams correct that we are getting ready for hyperinflation? Continue reading "Louis James: Are You Ready for an Early Shopping Season?"