The Gold Report: Common wisdom says that when the U.S. Federal Reserve raises interest rates later this year, it will prove negative for gold. Do you agree?
Jeb Handwerger: I think it'll be the opposite. Money printing and easy credit has fueled the stock market rally and beaten down commodities. Investors flocked to dividend-paying stocks, and became speculative in tech, which has led to huge overvaluations similar to the late 1990s dot-com debacle. We've had a four-year parabolic rise in the Dow without a meaningful correction. Most investors who have been in this business for a while know that every four years you get a bear market with about a 3050% correction. Rising interest rates may be the catalyst that causes investors to flee the general stock market, which has proven attractive in a low rate environment. Higher interest rates concurrent with a pickup in inflation could result in a rush to a safe haven in commodities and wealth from the earth's natural resources and precious metals, which is historically a hedge against a pickup in inflation. Continue reading "Fed Interest Rate Increase Could Be Best Thing to Happen to Gold"
The Gold Report: Mike, we often hear that the current generation doesn't realize how good they have it compared to when you had to walk uphill both ways through snow to make a trade. Is it easier to invest today with all the resources online and pundits around every corner or is it harder to cut through the noise and find the best opportunities?
Michael Berry: While the Internet makes it easier to do research and make a trade, that doesn't mean it is easier to make a good trade, or better still, a smart long-term investment. I think it's challenging today. It's easy to trade, but much more difficult to create real wealth. A P/E multiple used to have real meaning. Today, the pace of the market is so fast, there are so many flash traders, so many games being played and so many nickels being minted, that it is difficult to figure out what is real. There are debt and equity bubbles out there that have been being created for the past two decades. They can be difficult to take advantage of because investors have to go against the prevailing thinking.
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Hedge funds can't make it today; only the private equity players seem to be successful and they have tremendous advantages. Almost all central bankers are in the investment game now. The Federal Reserve owns 25% of the Treasury bond market. What do they plan to do with their investment? There is US$9 trillion sloshing around the world today and a global exchange rate devaluation. These issues make central bankers powerful new players and make the market more challenging for individual investors.
TGR: Chris, did the boomers and the flash traders wreck it for the rest of us? Continue reading "What The Boomers Got Wrong And Right About Natural Resource Investing"
The Gold Report: A 10-year U.S. bond yields 2% currently. How is that changing the market?
Randall Abramson: We typically view the markets and our investment process through top-down and bottom-up lenses. Our top-down tools are telling us that all systems are "go," and that there are no immediate hurdles ahead. This low-growth environment has allowed the broader markets to remain in a bull phase for longer than is typical. In fact, we've not had even a market correction of 10% or so for way longer than normal.
TGR: The World Gold Council (WGC) reports that central banks bought 477.2 tons of gold in 2014, which was nearly a 50-year high. What do you make of central banks buying gold at peak Cold War-era levels? Continue reading "Picking Undervalued Gold Equities Is Akin to Picking Strawberries"
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: The price of gold is flirting with a five-year low. Do you attribute this solely to the strength of the U.S. dollar, or are there other factors at work?
Ralph Aldis: There are other factors. Most important is the strength of the equity markets. Looking at a six-year window, we have seen, for the third time in the last hundred years, the highest returns for such a period. This happened before in 1929 and 1999. These phenomenal returns have been fueled not by fundamentals but rather by the U.S. Federal Reserve, which is trying to jumpstart the economy.
All this has taken people's eyes off gold, but it won't go on forever.
TGR: The bear market in gold equities is now four years old. This means lower gold production and less exploration. Gold production from South Africa has collapsed. Shouldn't lower gold production result in a higher gold price? Continue reading "How the Five Principles of Capital Allocation Can Mean Gold Mining Success"