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-- Posted Monday, 26 July 2010 | | Source: GoldSeek.com
Could gold hit $1,500 by year-end? Ubika Research Cofounder and Analyst Vikas Ranjan thinks so. In this exclusive with The Gold Report, Vikas tells us he's pretty bullish on the yellow metal.
The Gold Report: Vikas, in a July market overview you said: "The world economy is certainly at an interesting juncture. On one side, markets are fretting about the end to government stimulus measures and the likely impact on economic growth, while at the same time remaining concerned about rising government debt and deficits." Where does that leave us?
Vikas Ranjan: We really have a situation that is mixed. It seems to us that the world is divided into two camps. First are the Western countries that have debt fatigue. They are keen to get the deficit and debt down and are facing weak domestic demand. Second are the emerging countries like Brazil, China and India, which are growing fast and do not seem to have that problem.
Overall, we feel most of the developed nations in the Western world will look to reduce deficits and debt. However, we would say the U.S. is an exception because of its grim unemployment conditions and very sluggish economy. It still believes in expansive monetary and fiscal policies. The emerging economies will continue to grow at a relatively fast clip. So, in the end, that will leave us with a world economy that will grow but at a sluggish pace for maybe the next year or so.
TGR: So, you believe growth in Brazil, Russia, India and China (BRIC) and other emerging economies is going to be enough to overcome the debt issues related to Europe and the American economy?
VR: To a certain extent, yes. As I stated earlier, the emerging economies' growth certainly provides a cushion against the headwinds capital markets face today from the debt crisis in Europe and sluggish U.S. economy. But, at the same time, we do not believe it will be enough to contain the damage to the demand situation in these wealthy countries. Emerging countries will pull up the world economy to a certain extent, but we see the danger of sluggish demand in developed countries, including the U.S., dragging down the overall world economy. That will be felt even more so in the next 12 months; but after that, we believe growth in these developed countries will pick up and that the emerging markets will continue to grow at a faster clip. Our outlook for 2012 and beyond is much better than what we see for 2011.
TGR: In terms of growth, what sort of percentage are we looking at?
VR: In the U.S. and Canada, 3% would be a decent rate of growth; but the way things are looking right now, it will be trending just above 2% in these countries. Not a huge disaster, maybe half a percentage point lower than the trendline. For other developed countries, especially Western European nations, the growth rate could be even lower than that. Emerging economies, however, will grow at a faster rate and that will put the global economic rate in the 4%–4.5% range in 2011 and beyond.
TGR: What sectors are going to perform well in this burgeoning economy that you foresee in 2012 and beyond?
VR: The secular trend, in terms of emerging markets growth, remains intact, which means the commodity markets will consistently outperform and continue to grow. Within commodities, we are particularly optimistic about precious metals and energy. If you're looking at sectors, particularly those sectors that have been very volatile, they will probably level out and then take off again from those levels. Apart from that, the financials should also do well once consumer spending kicks back in with an improving employment situation, particularly in the U.S., and demand for credit picks up.
TGR: In another Ubika research report, you quote Aram Shishmanian, CEO of the World Gold Council, as saying, "With the global economic recovery still burdened by high and rising debt levels in Western economies, the outlook for gold as a liquid reliable asset class and store of wealth remains highly favorable." Where does Ubika stand on gold as currency?
VR: Actually, we hold similar views. We also believe many investors view gold as not just a commodity but a store of value and an asset class. We are actually surprised by gold's strength in an environment where inflation continues to be low. As you know, gold has traditionally done well in high-inflation situations, but not as well in low-inflation situations. Strong gold in these low-inflation environments suggests to us that investors will continue to seek refuge in gold as long as capital markets remain uncertain.
Our outlook on gold is pretty bullish. In the short to medium term, we believe that it is proving to be more resilient than previously thought. Actually, if you look at the correlations between the U.S. dollar and gold, typically that used to be in reverse, but of late they have been moving in tandem; when the U.S. dollar rallies, gold continues to be strong. There are very strong fundamentals that support the positive outlook for gold and that will continue to be the case for the foreseeable future.
TGR: Would you care to be more specific in terms of your gold price forecasts?
VR: Well, forecasts are always very difficult to make; but, looking at the trendline, it would not be surprising to us if gold ends up around the $1,400–$1,500 range by year-end. Beyond that, it will probably be finding similar support levels for sometime before making another move, depending upon the economic environment.
TGR: How does Ubika recommend gaining exposure to gold?
VR: There are various ways to get exposure to gold. Obviously, the easiest way is to buy some bullion, which not everybody can do, and there are investment instruments with exposure to gold. The easiest method that comes to mind is buying exchange-traded funds (ETFs) that are linked to gold. For savvy investors willing to take more risks, we believe directly buying stocks of gold producers or explorers is definitely a good way to go. In our opinion, junior gold explorers offer compelling potential because their values have not caught up with gold's gains. Various gold junior exploration companies are very undervalued and not well known, presenting very compelling opportunities.
TGR: Are there any thoughts you would like to leave us with?
VR: I would just say the markets seem choppy currently, and that is typical in the summertime. We believe the outlook is not as grim as a lot of people would want us to believe. We do not see strong potential for something like a double-dip recession or capital-market collapse as was the case in 2008. Yes, there will be volatility in the market, sluggish growth and probably lower returns than we anticipated maybe six months ago; but we still see potential in the market, and especially good potential in the junior gold sector.
Vikas Ranjan is a management and investment professional with over 15 years' experience in diverse areas of investment management, finance, customer analytics and investment research. Vikas is a principal of Ubika Research, a specialized research and analytics company with a wide range of small-cap clients and operations in Toronto and Vancouver. Vikas' previous experience includes various management positions in companies such as TAL Global Asset Management and Bank of Montreal. Vikas has a strong knowledge of financial markets and has researched and analyzed companies in diverse industry sectors and markets. He holds a B.A. in Economics (Hons.), Masters in Management Studies from University of Mumbai, India and an M.B.A. in Finance from McGill University. Prior to co-founding Ubika, Vikas co-founded P2P Systems Inc., a company acquired by Toronto-based technology company, Microforum Inc.
Ubika Research specializes in small-cap companies where market capitalization amounts to less than $500 million and offers fresh and timely market insights to end investors and market participants.
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-- Posted Monday, 26 July 2010 | Digg This Article | Source: GoldSeek.com
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