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14 May, 2018 14:22

Gold ‘radically undervalued’ with price about to take off - expert

Gold ‘radically undervalued’ with price about to take off - expert

Against growing crude prices gold is significantly cheap and presents a good buying opportunity, according to Leigh Goehring, managing partner at New York-based firm Goehring & Rozencwajg Associates.

The analyst compared the current situation to the one gold and oil markets experienced 20 years ago. “Back in the first quarter of 1999 oil was $11 a barrel, gold was almost $300. So an ounce of gold bought 30 barrels of oil, which at our long-term modeling of golden oil that made gold very-very expensive,” Goehring said in an interview with Kitco News.

The expert highlighted that back then prices for crude went all the way up to $35 within 18 months, whereas the precious metal went from $300 down to $250.

“At the end of 2000 oil was at $37, gold had fallen down to 275, and at that point an ounce of gold only bought seven barrels of oil. It became radically undervalued,” he told the media. “And what had happened over the next two years? Gold stocks were up 500 percent in the next three years and oil stocks did almost nothing.”

“Oil will continue to do well. If oil were to go to $100 a barrel and gold were to stay at these levels, we’re getting down to that undervalued area of 10 to 1, where an ounce of gold only buys 10 barrels of oil. At that point I believe gold will be radically undervalued and will take off,” Goehring said.

According to the analyst, interest rate hikes shouldn’t be an issue. “If you look historically, whether it be the great gold bull market in the 1970s, or the bull market last time, both of them occurred during rising interest rates,” he said.

Goehring said he wasn’t surprised that the gold market didn’t react to Donald Trump’s hardball talk on Iran nuclear deal. “I think that the biggest effect of the whole Iranian re-imposition of sanctions is going to affect the oil market,” he said. “It will lead to further upward pressure in oil prices.”

The expert believes that the bull market in gold, which hasn’t started yet, still has a little bit of a trading characteristic about it for the next six months or so.

“I think we have not started the bull market in gold and I think that what we have to have is some sort of undervaluation of gold take place, and I think that the undervaluation is going to surround the price of oil,” he said, adding that the experience of 1998-2001 is currently repeated in the oil market and the gold market.

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