LIVE Gold Prices $  | E-Mail Subscriptions | Update GoldSeek | GoldSeek Radio 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

GoldSeek.com to Launch New Website
By: GoldSeek.com

Is Gold Price Action Warning Of Imminent Monetary Collapse Part 2?
By: Hubert Moolman

Gold and Silver Are Just Getting Started
By: Frank Holmes, US Funds

Silver Makes High Wave Candle at Target – Here’s What to Expect…
By: Clive Maund

Gold Blows Through Upside Resistance - The Chase Is On
By: Avi Gilburt

U.S. Mint To Reduce Gold & Silver Eagle Production Over The Next 12-18 Months
By: Steve St. Angelo, SRSrocco Report

Gold's sharp rise throws Financial Times into an erroneous sulk
By: Chris Powell, GATA

Precious Metals Update Video: Gold's unusual strength
By: Ira Epstein

Asian Metals Market Update: July-29-2020
By: Chintan Karnani, Insignia Consultants

Gold's rise is a 'mystery' because journalism always fails to pursue it
By: Chris Powell, GATA

 
Search

GoldSeek Web

 
Sprott's Charles Oliver Sees Momentum Building for Gold and Silver



-- Posted Wednesday, 24 October 2012 | | Disqus

Source: JT Long of The Gold Report   

 

Sprott's Charles Oliver says it's a great time to be heading up a precious metals fund. Gold and silver companies are trading at spectacular valuations, quantitative easings by the governments of the world are poised to strengthen the metals' prices even further, and more bargains could be had soon if investors dump stocks to avoid taxes. In this interview with The Gold Report, Oliver, manager of the Sprott Gold and Precious Minerals Fund, talks about the momentum building for gold and silver.

 

The Gold Report: Charles, at the beginning of the summer, you forecast that gold and silver prices would go up based on quantitative easing (QE) in the U.S. and Europe. Since then gold did take a leg up and has stayed above $1,700+/ounce (oz) and silver has stayed over $30/oz. QE3 was recently announced in the U.S., but some say pumping liquidity into the system is having diminishing returns. Have precious metals reached a ceiling or is there still room to go up?

 

Charles Oliver: I expect precious metals prices to rise significantly over the next decade. A large part of it as a result of QE and other money printing programs. The U.S. did announce QE3 recently. Having said that, it hasn't started running up the printing press. A good rise in precious metals is yet to come.

 

TGR: Will the November election impact that?

 

CO: I definitely believe the election is impacting it. The election could delay the implementation of QE3 because the Federal Reserve doesn't want to do any tampering that would be seen as influencing the election. I believe that QE3 will take place after the election this fall or early next year—and I expect to see significant programs embarked upon.

 

In terms of the gold price, I have forecast that it would hit $2,000/oz this year. There's still a very good chance of that, but it's more likely that it will go through $2,000/oz next year. Some of the trend lines on the chart indicate a $2,200/oz gold price sometime next year.

 

TGR: Have the higher metal prices been figured into the equity prices yet?

 

CO: Equities have underperformed the gold price for the last couple of years and are trading at some of the cheapest valuations of this decade based on price to earnings and price to cash flow. I expect over the next year and a half that equities will play catch-up and get back to a more normal level. One of the things we've been trying to figure out is what some of the potential tipping points are for that. We've come up with several of them.

 

First and foremost would be the valuations. They are just incredibly cheap. Second is dividend increases. For most of the decade, gold companies didn't pay dividends. In the last few years, many gold companies initiated dividends and increased those dividends several times. Generally speaking, dividends were 1% or less for the industry seniors and mid caps. Today, we're seeing many of them reach 2% and could be at 3–4% in the not-so-distant future.

 

Investors in this climate are starved for yield and are looking for anything that will provide it. At some point investors will look at gold stocks as a way to receive dividends, which would be very positive for the valuations.

 

TGR: Those would be the two main tipping points—valuations and increases in dividends?

 

CO: There are other things out there, including mergers and acquisitions (M&A). A number of M&A transactions have occurred during the last couple of months. There has been a lot of commentary and interest by some of the senior folks at gold companies about the attractive valuations of gold and precious metals companies. There also seems to be buying coming out of Asia.

 

TGR: What's behind the Asian buying? Do you think we will see more of that?

 

CO: There have been a number of transactions recently. In talking with a number of gold companies, it appears that the Asian groups have been showing a significant, increasing interest in taking stakes or complete ownership in materials and precious metal companies.

 

It almost makes me wonder if there has been a call from the top for people to start redeploying fiat paper currency into hard assets. That would run into my thesis that a lot of countries are shunning paper assets because they're being debased by all this printing and, hence, moving into hard assets is a very logical thing to do. It would not be at all surprising to hear that Asian groups, and other countries for that matter, are trying to move away from paper assets and into hard assets.

 

TGR: How does Asian buying play into your gold price forecast?

 

CO: There should be a lot of conversion out of paper money into hard assets, including gold and gold companies. Many of the statistics out there show that over the last decade, entities, including governments and individuals, have shifted from being net sellers of real assets to playing the role of considerable buyers of hard assets and gold.

 

The governments of the world were selling about 500 tons (t) gold per year a decade ago. Mine production was around 2,800 t/year, so that was a fairly significant impact upon the market. Today, governments of the world are buying about 500 t. That's nearly a 1,000 ton (Kt) shift in a market that has mine production of 2,800 t. That's an absolutely huge number.

 

And that's just by the governments. There's a huge proliferation of coin and mint sales and exchange-traded funds for individuals. There's a huge increase in consumer demand in China. The Chinese consumer has gone from owning no precious metals about a decade ago to approaching the same levels as India, which is one of the largest consumers of gold.

 

TGR: The $438 million Sprott Gold and Precious Minerals Fund, which you manage, holds 7% silver bullion, 20% silver equities and 62% gold equities. Is that a shift to more silver than a year ago? What's the thesis behind that?

 

CO: For most of the last decade, I've had single-digit levels of silver companies within the portfolio. A couple of years ago, Eric Sprott was doing some work on the silver-to-gold ratio. Looking at the work that Eric did really opened my eyes to how attractive the valuations look for silver and silver companies going forward. The general argument is that if you look over the last 2,000 years, about 95% of the time, the silver-to-gold ratio has been at 16:1. Today, it's at 50:1, which makes silver stocks very attractive. Therefore, we have increased the weighting of silver stocks in the Sprott Gold and Precious Minerals Fund quite dramatically during the last couple of years.

 

TGR: The last time we talked, you said that all of the silver names were attractively valued and that the mid and large caps would move first. Has that happened?

 

CO: We've seen some great performance out of silver names in the last few months. Just to give you an example, a significant holding within our portfolio has gone from around $16/share to just shy of $30/share in the last four months. Also, one of the largest U.S. producers in the world has gone up from around $14/share in July to just shy of $22/share.

 

TGR: Were those increases based on increased profits due to the silver price, on the market changing its mind about silver or on individual news out of the companies?

 

CO: I think one of the most important factors was actually QE, as silly as that may sound. The market had been selling off gold and silver stocks in a fairly irrational manner. The valuations became incredibly compelling and are still incredibly compelling despite the recent lifts. In the late summer, there was a very big change in sentiment as Federal Reserve Chairman Ben Bernanke announced QE3 and European Central Bank President Mario Draghi announced that the bank would do whatever it takes to protect the European Union, which means it will print as much as it needs to.

 

As much as I'd like to say the rise in silver share prices was from great earnings and profits, it was really a shift in sentiment by investors. The valuations were incredibly attractive in June. They were incredibly attractive in July. They're still exceptionally attractive today. But the market seems fixated on how much printing will go on and whether or not it's risk-on or risk-off. The market seems to be taking on the risk-on trade as printing appears on the horizon.

 

TGR: Let's shift from silver to gold.

 

CO: Just like the silver names, the gold names are very attractively valued. I've been trying to focus on high-grade projects because they generally have lower capital expenditure requirements and potentially better internal rates of return.

 

TGR: Do you think there will be more deals out there this year than in the last few years?

 

CO: Prior to Bernanke's announcement of QE3, the market for financing had dried up and the small guys were in a very tough position. But in the last couple of months, we have started to see the market open up. Usually, it goes to the mid caps first and slowly starts to trickle down to the small caps. Barring any disasters out of Europe, I would hope to see this trend continue.

 

TGR: We're getting to tax sell-off time. How are you approaching that?

 

CO: One of my objectives is to minimize taxes. I have spent a good portion of the year making sure I was in a good position. During tax-loss selling there are some great opportunities as investors suddenly say, "Well, I have to eliminate my taxes," and they sell stocks at some ridiculous prices. I keep a bit of powder dry to take advantage of that. I'm hoping that the work I did earlier this year will put me in a fairly good position to take advantage of that.

 

TGR: Thank you for your time today.

 

CO: Thanks so much.

 

Charles Oliver joined Sprott Asset Management in 2008. He is lead portfolio manager of the Sprott Gold and Precious Minerals Fund. Previously, he was at AGF Management Limited, where his team was awarded the Canadian Investment Awards Best Precious Metals Fund in 2004, 2006 and 2007. His accolades also include Lipper Awards' best five-year return in the Precious Metals category (AGF Precious Metals Fund, 2007), and the Lipper Award for best one-year return in the Precious Metals category 2010.

 

Streetwise - The Gold Report is Copyright © 2012 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

 

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

 

From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

 

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

 

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

 

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

 

 


-- Posted Wednesday, 24 October 2012 | Digg This Article | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2019



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer


Map

The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC, is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.