Gold to head higher
RT: What happened to precious metals? Why did they perform so poorly?
TM: “It’s all a relative term and, I think, traders have a short term view. We’ve been in a bull market for a better part of 10 years now, and there’s a correction. Things don’t’ go up all the time, forever, because they correct, they come down, people take off their profits, the timing, of course, is always an issue. In general people don’t like to sell off the thingsbefore the end of the year, because they basically pay the performance of their funds as closing on December 31. Once they pay the performance, they reallocate their capital and this basically goes to selling off things and buying new things. Gold had a tremendous run last year, so its only natural to come off a bit. In general, the fundamental underlying factors of gold’s performance are still there.You have massive inflationary printing of money throughout the world, not only in the US, but in other countries as well, and you have a stagnant recovery in some of the major economies in the world. So, the question is, there is more money chasing the same amount of goods, which will result in inflation and, I think, you will hear more and more talk about inflation now within sort of mainstream economic circles. Whereas maybe a year ago, or two years ago the talk was deflation, deflation, deflation, and for gold maybe, it was a little bit of a head wind.And now people seem a sort of understand that the question isn’t whether there’s going to be inflation – the question is how much it would be.”
RT: How likely are the markets to revert to this gold rush? And what price of gold do you expect by the end of the year?
TM: “The thing about gold that’s really hard to put your thumb on, is that’s really not a commodity – it’s money. It’s basically a medium of transaction, a way of storing wealth in absolute terms. To give you an idea of what’s been happening – in the past 2 months China has imported over 200 tons of gold. So, take the entire production of gold in Russia – China has consumed that in two months. It’s an enormous figure, and its all private individuals – not mentioning national banks. So, China is bringing in money, India, of course, is a huge traditional buyer of gold. Basically, for the first time in many, many years Central banks have been net buyers of gold in 2010. So, it’s really all about the marginal buyer, and right now what we have is that gold production has more or less flat or declining, and has been declining for the past 15 years. So, it’s really a question of how many people are willing to hold their savings in US treasuries, for example, or other fixed-income instruments, or they want to hold an absolute store of wealth and buy gold. So, it’s really hard to put a price target on it, but I can tell you it’s very unlikely to go down rather than go up.”
RT: When times are bad, gold goes up?
TM: “More or less. The thing about gold that is interesting is that when the yields on fixed income comes down to zero, the opportunity cost of holding a non yielding instrument, like gold, goes away. So, what’s the point of me holding gold with zero percent interest, while treasuries yield is really low anyway.Well not treasuries, but lets say a deposit in a bank. So, the relative attractiveness is that gold is much safer than a promise from a government. So, I’m going to give up a half a percent on my checking account and I hold gold.”
RT: Do you think gold is becoming an asset bubble?
TM: “No, and again I get asked that question a lot, and I don’t say that lightly because obviously there is an endless history of people saying ‘the bubble is still going to go’ and it goes up and they look ridiculous.I don’t think that’s the case.I mean, the last time gold really hada run up was in early 80’s, when Paul Volker was the Fed chairman of that time.And he raised interest rates very aggressively to basically control inflation in the U.S. and you saw gold essentially spike and then come crashing down, and everyone says the same thing is going to happen again. Of course, they’ve been saying that for the past ten years and it hasn’t happened yet. It’s really all about absolute terms of value. If you look at gold in absolute terms, the relative cost of gold to other commodities, it’s basically stayed still. You can take a chart with the price of oil and the price of gold, and price oil in ounces of gold,and you’ll see it’s more or less held that relationship pretty stable over a long period of time. So, it’s hard to say there’s a discrete bubble in the gold space and only gold. I think, that’s not true to say.”
RT: What's the best way of investing in gold, particularly if you wish to hedge your debts?
TM: “Right.That’s one of the biggest problems about gold. Obviously, one of the ways of doing it is simply buying coins.And, again, there’s really no point in buying rare coins, because there’s value there, that’s really hard to get your fingers on. You know, an ounce of gold is an ounce of gold and the fact that it has got from 1972, or from1980, in 2010 it’s sort of irrelevant frankly. So, just buy gold coins from a state mint or from a very reputable producer of gold or silver, for example. You can buy those coins and have them deliveredto you. There’s something called Exchange Traded Funds, ETFs, GLD is the largest one, which buys physical gold. Although, there are some questions as to whether they’re buying gold or futures contracts. So, there may be some counterparty risk there. There are certain ETFs, where they specifically say there’s a fixed block of gold in a Swiss bank account, in a vault, and that’s it. So, they’re not very liquid, but at least you know it’s the gold behind the stock you are buying. Whereas ETFs such as GLD issue shares and they back them by buying futures. So, there might a little counterparty risk there. So, in general, that’s how you go about doing this – buying gold coins and, buying ETF’s on a stock exchange – a reputable ETF – or buying gold mining stocks.I am the general director of a gold mining company exploring for gold in Russian Far East. You really need to do your homework, though, when you buy stocks. Mining is a risky business.”
This has been the worst January for precious metals in TWO decades – but analysts say bulls are still dominant.