Gold: Jaime Carrasco, Director, Investment Advisor - Market Outlook BNN.ca Market Call tonite Friday June 27 at 1800ET
The global geopolitical picture continues to be dramatically redefined away from a U.S. dollars power base into a more Euro-Asian based. Not many analyst fully understand the importance of the 35 years and $400 billion energy deal just signed between Russia and China. However, from my perspective, it’s a very important move as it will force two very important global players to redefine their allegiances; Germany and Saudi Arabia. Saudi Arabia, as their biggest client China, has just told them that they would prefer to pay for energy in a currency other than the U.S. dollars. Germany, because their biggest source of energy and trading partner has just said that they will sell their energy to a partner who better represent their geopolitical interest. Furthermore, ongoing difficulties in Iraq, Libya, Afghanistan and the Middle East are forcing many to question the rational of US foreign policy. From my perspective, all these changes are part and parcel of the global monetary shift currently underway as we shift away from the U.S. dollar as the currency reserve.
This new shifting reality is of great benefit for our energy and precious metals holdings. Precious metals because the need to pay for assets in a currency other than the U.S. dollar and will once again re-evaluate the inherent long term trust that the precious metals have historically offered. Energy because growing global demand is not being met with growing global production due to various factors; declining Middle Eastern production due to geopolitical instability and declining discoveries, and an inability to get North American reserves to global markets.
Inflation in food and energy continue to lower the purchasing power of the non-one percent of the population, while at the same time the global economy continues at an anemic pace. This economic reality continues to require our practice to follow a non-traditional investment stance, and recommend portfolios structured to benefit from stagflation; inflation with no growth. Over the last few years, this strategy has benefited our clients with good quality dividend income and equity growth from our Energy, Pipelines, Utilities, and REITS. However, we continue to wait for a turnaround in our precious metals holdings, which have benefited from Central Bank manipulation since 2011. We have benefited because the manipulation has allowed us to continue to acquire this sector at very low prices, as we rotate profits from profitable sectors, as well as when we position portfolios for new clients entering the practice. Patience will be very well rewarded from this sector as history has proven the markets ability to return to the mean and the fact that manipulations are never successful. On a positive note, it looks highly likely that the precious metals sector has finished the correction of the first leg up, which took gold from the $1,100 bottom last December to the $1400 high in March, and the second leg up might have started. |
