Joe Foster: Gold Miners Offer Rally Leverage
August 13, 2012
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HAI: Is gold always going to move in reverse of the U.S. dollar in general? Is that something that gold investors should really key in on?
Foster: As long as the dollar remains the dominant reserve currency, in the longer term, the dollar and gold will have a negative correlation. That said, we have gone through—and we can easily go through more—periods where there’s a positive correlation between both. There have been periods where both have gone up in tandem, and usually that happens when people are more worried about the U.S. currency.
HAI: Gold is still up 2-3 percent year-to-date. How do you think it will play out for the rest of the year?
Foster: I think gold will end up on the year. In fact, I think it will be up significantly from where it is right now. This gold market has been consolidating since September of last year. This consolidation is almost a year old, and it’s forming a base from which I see it trending higher. We’re still in a deflationary environment and we’re going to see central banks continue to try to stimulate the economy. That’s going to drive gold in the second half.
In addition to that, we have the election coming up and the fiscal cliff and all these sorts of risks going forward. We know about all the problems in Europe. I think at some point following this long consolidation, we’ll see a nice trend higher in the second half.
HAI: Do you think we’ll push close to the high of last year?
Foster: We could. The high this year has been right around $1,800; I think we can make yearly highs between now and year-end, and maybe even test the all-time high [$1921/oz.]. We’ll see.
HAI: If you were to buy gold today, what vehicle would you use to do that?
Foster: I would buy gold stocks. The valuations look really attractive. If we do get the rally that we’re expecting, then these stocks will give us some really nice leverage.
HAI: Are you speaking in general, or majors or juniors or a mix of both?
Foster: The best valuations across the group are in the juniors, but I think we’ll see good performance from the juniors to the majors. They’re all trading at bear market valuations right now.
HAI: When we’re talking about gold, does silver make a logical addition to a portfolio? Or is there really nothing much to be gained from holding both?
Foster: No, silver to me is kind of like a leveraged bet on gold. It’s more volatile, but it’s a monetary metal, so it reacts to some of the same factors as gold. Then again, if we get more stimulus coming out of central banks, silver has a big industrial component. So anything that stimulates the economy is going to drive silver as well.
HAI: Is that industrial component partly why it seems to increase a little faster—and fall a little faster—than gold?
Foster: No; I think silver is just a much thinner market than gold. I think that’s the volatility.
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