Gold News

Three Gold Price Themes Rolling in 2014

How China, India and US monetary stimulus all count for gold prices bottoming here...
 
GOLD ANALYST Joe Foster is the investment team leader for Van Eck's flagship gold fund, the Van Eck International Investors Gold Fund.
 
He also serves on the investment teams for the Van Eck Global Hard Assets Fund and the Van Eck VIP Global Hard Assets Fund, and is an advisor to the Market Vectors ETF Trust – Gold Miners ETF (GDX) and Junior Gold Miners ETF (GDXJ).
 
Foster has been in the mining and investment business for more than 25 years and is frequently quoted in the Wall Street Journal and Barron's as well as being a frequent guest on CNBC and Bloomberg TV. Here he speaks to Hard Assets Investor's managing editor Sumit Roy about the current outlook for gold...
 
HardAssetsInvestor: How would you characterize the gold market right now?
 
Joe Foster: I'd characterize it as it's forming a base. I think we've established the lows around $1200 an ounce and it's in a bottoming process. We'll spend most of the year in a range, but the likelihood is for prices to go higher, not lower.
 
HAI: Inflation hasn't been a notable factor for many years now. Do you see that changing any time in the not-too-distant future?
 
Joe Foster: Possibly, yes. The unemployment rate is coming down. The main driver of inflation is labor and wages. As the economy continues to pick up and more people find work, there is a shortage of qualified people out there. We could see some wage inflation sometime in the next couple of years that may concern people.
 
HAI: Will that inflation drive gold prices higher?
 
Joe Foster: Gold's driven by financial stress. The source of the stress doesn't matter. You could have bad levels of inflation or deflation. You could have banking problems or geopolitical problems. Anything that adversely affects the financial system drives gold.
 
HAI: The crisis in Eastern Europe boosted gold temporarily, but over the longer term, can geopolitical factors sustainably boost gold?
 
Joe Foster: Historically, it's been a short-term thing when you have wars breaking out or invasions or things of that nature. It could turn into a longer-term thing if it were to affect the global financial system in some way. That's kind of the bottom line. Geopolitical problems only drive gold so far as they affect the financial system. That's why when you have unrest in a place like Libya or Syria, that causes problems locally, but it doesn't really affect the global financial system, and thus doesn't really affect gold.
 
HAI: And this whole Russia/Ukraine situation, it's somewhat more serious because of the impact that Russia could have on the financial system?
 
Joe Foster: Definitely. If it comes to the point where they're shutting off the gas supply to Europe, then that certainly has a huge effect on the global financial system.
 
HAI: Do you see any supply response to gold's decline from a record $1921 down to where we are? Will mine production be impacted eventually?
 
Joe Foster: Not significantly at current levels. Although one of the reasons that I say $1200 is a pretty firm base is if it were to drop below that level, we would start to see a significant supply response from the gold miners.
 
HAI: We've seen gold miners and gold miner ETFs, such as the Market Vectors Gold Miners ETF (GDX) and the Market Vectors Junior Gold Miners ETF (GDXJ) bounce back this year. Is it too late to get into these names?
 
Joe Foster: No. Gold prices have cooled off and the stocks have come back just in the last couple of weeks. As I said, we're forming a bottom. To me, any weakness you might see as we're forming this base is a great entry point.
 
HAI: What themes should gold and silver investors pay close attention to as we go throughout the rest of the year?
 
Joe Foster: One is demand out of China. It's been strong; we think it will stay strong. But that's something to keep an eye on. Second is India. Conditions are improving in India, so we may find in the second half of the year that India starts to relax some of the restrictions and taxes they've imposed on gold.
 
The third thing is what the Fed's doing. The Fed is slowly withdrawing its stimulus, and if that creates some sort of disruption in the economy or the financial system, then that could be something that gets gold going again.

Hardassetsinvestor.com is a research-oriented website devoted to sharing ideas about investing in the natural resources sector. Published by Van Eck Associates Corporation, the site offers an educational resource for both individual and institutional investors interested in learning more about commodity equities, commodity futures, and gold – the three major components of the hard assets marketplace.

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