-- Published: Wednesday, 23 July 2014 | Print | Disqus
Source: Kevin Michael Grace of The Gold Report (7/23/14)
It's hard to see the present until it's in the past. What does this mean for gold? Money managers Doug Loud and Jeff Mosseri of Greystone Asset Management say that a bull market may have already begun. All the signs are there: rising political tension, a shortage of new supply and a cull of the weakest stocks. In this interview with The Gold Report, Loud and Mosseri tell us why gold, silver and copper should have a bright future.
The Gold Report: Over two days, July 14 and 15, the price of gold fell over $40 per ounce ($40/oz), more than 3% of its value. To what do you attribute this drop?
Jeffrey Mosseri: I don't think it was a very extraordinary event. Gold has been trading around $1,300/oz. We see sharp upward and downward movements triggered by, for instance, something Federal Reserve Chair Janet Yellen said or a negative report by Goldman Sachs. It looks as if gold will stay in the $1,300/oz range for a little while. We'll see which way it breaks out. We believe it's going to break out on the upside.
Douglass Loud: Gold had been running up for a while, and every so often investors want to take some money off the table.
TGR: How high do you believe gold will go?
JM: The average sustaining cost of production for gold is about $1,500/oz. If gold continues to trade below that level, at some point no new mines will be brought on. Supply and demand indicates higher prices for gold. At the same time, we're dealing with a seasonal trading pattern. Usually the position for those commodities tightens up around September–October. We think this will happen again this year. Higher prices? Yes. How much higher? We don't know.
TGR: Given that the financing for junior gold companies collapsed years ago, shouldn't the concomitant shortage of new supply have led already to higher prices?
DL: Well, there are games going on. Every once in a while some big bank will say that gold is too high. Then it goes down. After that, some big bank will say investors should buy gold and gold goes back up again. Institutions can profit by shorting gold and then buying it back before it rises in price, or so the conspiracy theorist in me thinks.
TGR: The world is becoming a more dangerous place. We have the civilian airliner shot down over Ukraine, civil wars in Iraq and Syria, Hamas attacking Israel, and Israel striking back, as well as a burgeoning territorial dispute between China and Japan. As a result, do you expect a flight to safety by investors?
JM: Actually, we are flummoxed by the apparent disconnect between what's going on in the world and commodities prices in general. We think that the reason for this is that the U.S. dollar is the least dirty shirt in the laundry basket. Investors are fleeing to the dollar because it's easier and cheaper, but if these hot spots continue to get hotter, it will almost certainly translate into more gold buying.
DL: Then there's the issue of real gold versus paper gold. There may be much more paper gold than real gold to support that paper.
TGR: The traditional argument for gold bullion is that it is a rare, real good that cannot be multiplied endlessly. Before gold exchange-traded funds (ETFs), if investors wanted exposure to gold that wasn't in bullion they had to invest in mining stocks. Do you think ETFs have resulted in a substantially changed gold market?
JM: For many years the traditional relationship between gold and gold stocks was that the stocks predicted the direction the metal would go. This changed with the introduction of ETFs, and for the last few years, the tail has been wagging the dog.
The ETFs were an interesting introduction. They have been and will continue to be a very good way to play gold, but they did result in putting gold stocks out of favor. Now people are beginning to realize that it is the mining companies that produce the gold, and they're going to make the profits.
TGR: Historically, the end of a recession led to big increases in gross domestic product. We've yet to see this after the post-2007 recession. Why not? Are we now living in a new world of permanent low growth?
DL: We're supposedly out of a recession because a bunch of statistics say so, but tell that to the shopping malls that are one-third empty and to the people who don't know how they're going to pay for the increases in food and fuel that are no longer included in the inflation statistics.
JM: Serious economic growth has been stymied by a rash of new regulations and by the standoff between Congress and the Obama administration. This disincentivizes capital investment and capital creation. Most of the stimulus money created from 2008 went to firm up bank balance sheets and did not get into the economy proper. And so the recovery has been a lot more anemic than in the past.
Now, however, business loans are beginning to be made by the banks. Little by little this will percolate into the economy. And the $8 trillion ($8T) created by the central banks has to find a home somewhere. We believe this will be reflected in higher gold prices, and, in fact, higher prices for commodities in general.
TGR: The Financial Times reported in June that public institutions, central banks mostly, have invested $29.1T in the markets, mostly the equity markets.
JM: Well, because of continued very low interest rates, most of the stimulus has gone into improving bank balance sheets and into the equity markets but not into the economy proper.
TGR: Argentina has been troublesome for business ever since Juan Perón first came to power in 1946. Does there come a point when mining companies decide to write off a country once and for all?
JM: In the end, greed trumps grief.
DL: And don't forget the grades in those Argentine projects are extremely high, which should make them very profitable.
TGR: The current bear market in precious metals goes back to April 2011. When will it end?
JM: We think it may have already ended. The recession has cleaned out a lot of doubtful companies. The survivors with really good projects will either be bought out or get financed. We think that's going to start to happen in the very short term.
TGR: How long will the trend have to keep moving upward before we can say that we're now in a bull market?
JM: Metal stocks did extremely well from 2002 to 2010. Then there was a correction. We think that we are preparing for the next upward move, which should last for several years. There is a tightness in various metal markets, which will mean higher metal prices. This could lead to more mines going into production in the future.
TGR: When you consider your favorite companies, which qualities do they share?
JM: Good, solid management is one. Good deposits and good grades are another, and either being in production or being close to production is a third.
DL: And we're very sensitive to country risk. I mean, we're not going to touch the best mine in the world, if it's in the Congo.
TGR: Jeff and Doug, thank you for your time and your insights.
Douglass N. Loud joined Greystone Asset Management at its founding in 2005 and has been senior managing director of Axiom Capital Management Inc. since 2009. Prior to that, he was with Murphy & Durieu, where he served as executive director of the Private Clients Group. Loud has over 35 years of investment management and securities industry experience. He holds a degree from Yale University and a law degree from the University of California, Berkeley.
Jeffrey N. Mosseri established Greystone Asset Management in 2005 and became a director of Axiom Capital Management Inc. in 2009. He was a stockbroker and investment manager at Goldsmith & Harris for 20 years. Mosseri also worked as a stockbroker and investment manager for Carnegie Capital, the investment advisory division of Prescott Ball & Turben, where he ran the international arbitrage division and developed the gold mining research and investment department.
1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor.
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3) Jeffrey Mosseri: I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Douglass Loud: I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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-- Published: Wednesday, 23 July 2014 | E-Mail | Print | Source: GoldSeek.com