Gold stocks "to blow the roof off this year" - Embry
Gold prices are going to rise significantly this year and gold stocks are likely to be a major beneficiary of the rise, says, Sprott Asset Management's John Embry
Author: Geoff Candy
Posted: Wednesday , 19 Jan 2011
mineweb.com
GRONINGEN -
Despite its relatively lack-lustre performance for the year to date, John Embry, chief investment strategist at Sprott Asset Management, believes the yellow metal's price will continue its assault on new highs and hit at least $2,000 during the course of the year.
Speaking on Mineweb.com's Gold Weekly Podcast, he said, "I couldn't be more bullish actually, despite the rather slow start we've had to the year. This is now the third year in a row that gold has been leaned on at the beginning of the year and gold shares have done very poorly at the outset only to recover smartly as the year has gone on. I see exactly the same thing unfolding this year - the fundamentals are impeccable."
He adds that while market sentiment seems to be at low ebb at the moment, demand for the physical metal is "on fire, particularly in the East where you see huge premiums opening up on the quoted prices."
Part of the reason for Embry's conviction that gold prices are likely to climb higher is his belief that we have yet to see the end of quantitative easing.
"I don't think that they can really put an end to it [quantitative easing] for the simple reason that the financial system is so fragile. If you really analyse the US banking system which I know to some degree, and you look inside the numbers - they're marking a lot of their stuff to what I call ‘fantasy' not the market, and then they have, superimposed on that, massive quantities of derivatives and it seems to be that they just need more and more liquidity to make sure that the thing doesn't bust.
He adds that given the current situation he cannot see an alternative to gold, he considers bonds to be "certificates of confiscation" and adds that while there are some stocks he likes there are just as many that he doesn't and "real estate stinks in most markets".
Gold's rise over the last 10 years has been a very measured one, he adds, "There have been no big blow offs and there has never been a bull market particularly one of this ilk, that hasn't ended in a massive blow off and this one will be one for the ages when the price explodes," he adds.
Embry's enthusiasm is not confined to physical gold, however, as he believes that gold stocks are "going to blow the roof off before this year is over".
He says while the big gold majors won't see massive growth, they are important to have in one's portfolio for stability's sake. He says the midcaps too are likely to do well because they are "way behind the big stocks in terms of pure valuation and then, without question, you're going to get some major home runs in the exploration space."
Asked about the cost increases that have taken the shine off some of the gold stocks' performances, Embry does agree that costs have gone up significantly but, he adds, "I believe though that in the next move up in the gold price - and I'm not looking for a small move - I'm looking for at least $2,000 in this year - I don't think the costs will run anywhere near that rate and that finally we're going to see some major bottom line numbers for these guys.
"More importantly," he adds, "they will probably start paying fairly reasonable dividends in a world that's really short of good income - that will be a major incentive to buy them." |
