What Happens After The Storm Hit Stock Markets, According To Experts
(Kitco News)- The Mines & Money Conference in Toronto happened duringa tumultuous time for the markets. The theme of discussion inevitably revolvedaround the nosedive that equities took the week before the conference, when theS&P 500 plummeted 7% between October 3rd and 11th andgold reacted by rallying 4% from October 9th to the 16th.
Gold has since stayed near the $1,220 to $1,230 an ounce rangeand is now trading at 3-month highs, having closed above its 100-day movingaverage on Wednesday for the first time since April.
Despite gold’s strong response to fear and volatility thismonth, sentiment from the experts at the conference was a mixed bag, with somesaying that gold’s price movement of late was only reactionary to the stockmarkets’ temporary setback. Others, remained more constructive on gold.
The consensus, however, was that regardless of whereequities are headed, gold has already seen the bottom earlier this year.
Here is a selection of the most vocal commentators weinterviewed.
There Won’t Be A Better Buying Opportunity For 10 Years
This mining CEO had a strong buy conviction for miningstocks, owing to the relatively low valuations.
“The opportunity in gold exploration, or gold companies ingeneral, to buy them or invest in them in this low point, will never be seenfor another decade,” said Ivan Bebek, executive chairman of Auryn Resources.
He added that mining stocks are at a point of the cycle thatshould see prices return to the upside over the next six to 12 months.
$1,200 Gold Was The Bottom; Now We’re Looking At MoreUpside
Alain Corbani hates being asked to give price forecasts. “Ihate this question,” the head of commodities at Finance SA said to Kitco’s DanielaCambone when she asked him for gold’s next price target.
Not to leave us hanging, Cobani did drop “hints” at gold’sfuture levels.
“At $1,200, gold mines are breaking even, so $1,200 is thebottom. That’s the first answer I can give you. The second one is that usuallythe cycle peaks when the net margins of the industry exceed 25%,” he said.
Corbani said that real interest rates in the U.S. willremain low and the dollar will weaken, and these two forces should providetailwinds for gold.
We Could Be Seeing Another “2008”
The next equities correction could be on the scale of thelast recession, said David Stein, managing partner of Aerecura Capital.
The good news for now is that we are not yet in bear marketterritory. “If you look at the longer term U.S. equities charts, they haven’tquite broken down yet, but they’re getting close,” Stein said.
Stein added that valuations in equities are overstretchedand this problem is compounded by an overcrowding of passively managed funds thatwhen managed by a computer algorithm, could cause “quite a panic” when theirmodels turn negative.
An Ounce Of Gold Has Always Cost The Same As A Suit
Investors should still heed the age-old investment practiceof holding gold long-term to preserve wealth, according to Ani Markova, vice-presidentand portfolio manager of AGF Investments.
Markova proved this point by comparing the historical pricegrowth of gold and its equivalence in one ounce terms to the price growth ofmen’s suits.
“If you wanted to buy a men’s suit back in the 1930s, youprobably would have paid about $16.95 for a good quality suit and you throw inpair of shoes for $3.25, which is about $20, and that was roughly the cost ofone ounce of gold in the beginning of the ‘30s,” Markova said. “If I looktoday, at U.S. dollar terms, we are at about $1,200 U.S. and if you walk intoHarren Rosen suit for about that.”
She said that practically speaking, gold is an asset classthat investors need to diversify their portfolios with, especially whenvolatility hits equities markets.
Gold’s Breakout Performance Isn’t “Real”
The rally we’ve seen in gold is only temporary, andequities, along with the U.S. dollar, are expected to climb higher still, saidAndrew Cosgrove, global head of metals and mining research at BloombergIntelligence.
“I don’t think this is the real breakout. I don’t think thisis 'the' [equity] selloff. I do think the dollar has more upside. Because ofthose two main reasons, I don’t think this is the real breakout, but I do thinkit’s definitely carving out a good base,” he said.
On consolidation in the mining sector, Cosgrove said that heexpects more mergers and acquisitions to take place.
“People need to replenish their production profiles, theirasset bases are certainly depleting in some cases, and the production trendeven for gold companies is negative over the next 3 to 4 years, the bit capminers’ is flat, maybe slightly higher. So, if investors want a little bit ofgrowth, they’re definitely going to have to look to M&A to fund it,” hesaid.
Gold Is Facing A Serious Supply Crunch
Long-term gold’s demand-supply fundamentals could pushprices to the upside, said Warren Irwin, president and CIO of Rosseau AssetManagement“We are not finding the gold we’re mining,” Irwin told Kitco News.
“We are not finding gold. We’re mining it faster than wecould ever find it, so on a supply and demand fundamentals basis, things arelooking good,” he said.
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dlin@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.  |