Gold's Luster Continues to Impress
Interview by Donna Guzik
>>Embry: Gold Fields Mineral Services works for the bullion bank, so I reject most of the stuff they say. I think it’s mostly bogus.
But I think that we are seeing investment demand coming from individuals, not necessarily in the United States and Canada or Europe to any great degree, but it is certainly all over the rest of the world, particularly in the Far East and the Middle East. So I don’t see a problem for investment demand.<<
The price of gold continues to sparkle and it's the debasement of the US dollar and the deficit of gold coming out the ground that is going to continue to push the sparkling commodity higher says Royal Bank Financial Group Vice President & Portfolio Manager John Embry
Iamgold Cp (T.IMG)
Kinross Gold Cp (T.K)
Wheaton River Minerals Ltd (T.WRM)
Transcript
IC: Welcome to InvestorCanada.com. I’m Donna Guzik.
Investors holding gold funds aren’t complaining too much these days. Geopolitical jitters have helped to push up the price of bullion to levels not seen for about five years. So how much upside is left for both the price of bullion and gold company stocks?
John Embry manages the Royal Precious Metal Fund that has returned just over 150 percent in the past year. Well, John, last time we spoke, you said that the price, if the price of gold clears the 325 to 330-dollar an ounce level that we’d see some fireworks in the price of bullion. Well, it’s cleared that level. So where are we going from here?
Embry: Well, now we’re just sort of working with a new resistance point which was in the sort of 350 to 355 area, and I was delighted to see that it just happened to clear that. And but that was more news driven. There’s talk about things going on in Iraq.
But I do believe that gold is launched in an upward plane and I don’t think it’s about Iraq or anything. I think it’s all about debasement of the U.S. dollar. I mean, statements coming out of the Fed and the U.S. have been very aggressive about monetary printing in response to threats of deflation.
I think that’s going to be the major factor taking gold higher. There’s lots of investment buying from all over the world entering the market. The market is short and on top of that, there’s a deficit between the amount of gold coming out of the ground and the amount of gold being consumed in traditional means.
So I just see a very, very positive picture unfolding here and I haven’t seen anything look as good as this since the early 70s.
IC: Well, I wanted to get you to comment on a report by Gold Fields Minerals Services based in London that said the higher price of gold we saw last year was as a result of speculators and that a stronger demand from individuals will really be needed to help keep the price up. Do you see that as valid?
Embry: Gold Fields Mineral Services works for the bullion bank, so I reject most of the stuff they say. I think it’s mostly bogus.
But I think that we are seeing investment demand coming from individuals, not necessarily in the United States and Canada or Europe to any great degree, but it is certainly all over the rest of the world, particularly in the Far East and the Middle East. So I don’t see a problem for investment demand.
I think it’s just starting to really unfold.
IC: Now, you mentioned the U.S. dollar just a little bit ago. Do you see that the U.S. dollar is going to drop further this year and that the Euro is going to rise?
Embry: I wouldn’t be very surprised if the U.S. dollar didn’t drop further. I think that just looking from a fundamental perspective, it looks overpriced, certainly when you look at a 500 billion-dollar current account deficit.
But more importantly, I look at sort of the charts on the U.S. dollar and on all the other currencies and these would suggest that the dollar is moving lower and the other currencies are moving higher, including our Canadian dollar.
IC: Now, last time we spoke, you mentioned that one company that would certainly benefit if the price of gold moves higher is Kinross. Is that at a good value these days?
Embry: I don’t know that value’s the right word, but I still think that it is a stock that will be viewed favourably in the event that the gold price were to move up say another 50 dollars, it has two million ounces, roughly, in production when they get the merger completed with TVX and Echo Bay.
And it’s got a brand name and it’s got a low enough price that I think investors will gravitate to it.
IC: What are some of the other companies that you like at this point with the price of gold where it is?
Embry: What I like the best in sort of the mid-cap is the new merger between IAM and Repadre. I think you’re going to see a revaluation in that company, so it will be valued like the other mid-caps like Glamis and Meridian and Goldcorp and what have you, and I think it’s a little behind those.
So I find that one attractive. We have an emerging giant in the industry as a result of an acquisition announced. This is Wheaton River. They’ve just bought Alumbrera, or are in the process of buying it.
And when they have that completed, they’ll have almost 500,000 ounces of production to their account and I see that as an emerging opportunity in the gold space.
So I like in the sort of mid-cap, I like IAM and as I said, Wheaton River.
IC: Now, is the deal, the Wheaton River deal, is that expected to go through?
Embry: Yes, it’s on the premise that they can obviously do an issue to fund it because it’s a big issue. It’s a 210 million-dollar U.S. acquisition. I believe given sort of the metrics that are attached to the deal, they should be… and given the demand for gold product, they should be able to get it done, yes.
IC: Do you expect to see more production overall this year or less?
Embry: I would expect to see less. I think what’s going to happen, as the gold price moves higher, is that a lot of these mines that have been worked real hard and probably high graded and abused to some extent in the low gold price environment just so these people could sort of keep alive, I think you’re going to see less gold coming out of existing mines for that reason.
I think you’re going to see going back more than life of ore or life of mine grade and what have you. And as a result, I would be very surprised if we had more gold production.
IC: Is that going to continue then from now on? Do we see less production?
Embry: I think for the next two to three years, yes, I think for sure because I think exploration has been really overlooked in the very hard gold period we went through from 1996 to 2001. And I just don’t see the new projects that are going to be able to come on stream to replace the mines that are being mined out in the next two to three years, anyways.
Message 18468860 |
