$3,400 gold price target still intact but ‘nothing goes straight up forever’ – VanEck

by birtanpublished on August 24, 2020

Gold prices have taken a hit tuesday but can this downward trajectory continue uh here to talk about this correction and his long-term forecast for gold is joe foster portfolio manager of the vanek international investors gold fund joe welcome back to the show it's always

A pleasure to have you thanks good to be here uh gold as we speak has fallen about 90 dollars on tuesday what do you make of this correction did this come as a surprise to you given

The immense rally that we've seen in the last two weeks we've been looking for a pullback in the gold market i mean nothing goes straight up forever and we had a very strong run to

Well over two thousand dollars an ounce so we were expecting expecting to see some consolidation in the market and i think that's what we're seeing today was there an external macro uh

Catalyst that pushed gold down or was this just a technical correction that needed to happen well interest rates are up today uh we had a strong uh producer price index number come out today

Uh and that other than that there's no fundamental driver so you know just that alone i don't think justifies a uh you know such a large drop in the gold price so i think

There is a bit of profit taking and mark was right for a correction and just took this little catalyst to to get that going so you wouldn't say that gold investors

Are seeing a period of fear right now based on today's price actions oh i think they're seeing lots of fear i mean to today's price action i don't think changes anybody's outlook when you look

At what's going on around the world in the economy socially geopolitically there's a lot of risks around the world that are driving gold and i don't think this move today changes any of that joe let's

Talk about your long-term forecast you're offline you're telling me that venek has a projection of thirty four hundred dollars for gold uh walk us through some of the macro drivers behind this projection

And how you're able to model out thirty four hundred dollars as your price target well we start with the drivers you begin with interest rates so real real interest rates are negative they

Turned negative last year when the feds started cutting rates if you look historically that doesn't happen very often real rates were negative after the financial crisis

And you have to go all the way back to the 1970s in that inflationary cycle to find negative real interest rates and the fed has told us that it's not interested in raising rates anytime soon so i think we're going to be in a

Negative real rate environment for the foreseeable future and that's a very good backdrop for gold and then you layer on that the the risk that we see around the world the the geopolitical the financial uh risks

And on top of that we have a tremendous amount of debt piling up amongst sovereigns and businesses corporations around the world you just can't keep piling on more and more debt

Eventually the system collapses or you have to inflate your way out of it so those are our drivers that should that will drive gold for quite some time and then the last thing i'll mention on that front is the um

Color dollar's been very weak over the last month or so we could be seeing the beginnings of a bear market for the for the dollar and that's another very bullish development for gold

So get getting back if if i can just finish too with with our outlook calling for that 3 400 price target we come up with that by looking at deflationary

Uh uh market cycles and there aren't very many to draw on you can go back to the the depression in the face but more recently we look at the uh the financial crisis in 2008.

That was a deflationary shock to the economy just like the pandemic has been a deflationary shock to the economy if if you look at where gold went after the financial crisis

And you apply those same metrics to gold uh in the current environment you can get to over 3 000 an ounce okay would there be a timeline an estimated timeline before uh for your projection joe well we

We got to 2000 a lot sooner than i thought we would i mean i had been telling people you know since the pandemic started that our target was 2 000 uh in the next six to 12 months and and

If and when it gets there we'll we'll uh you know we'll reappraise the situation so um you know i would say it will probably take a couple of years to move through the three thousand dollar level but

This has been an incred incredibly strong market so we could see that level before that would you say that uh the accelerated pace at which gold hit your two thousand dollar uh price

Target was due primarily to the coronavirus or was it uh something else that we've seen it was i guess what drove it to to new high

New all-time highs of over 1900 or over 1921 dollars an ounce was primarily uh the the spread of the coronavirus in the u.s and globally um a resurgence of the virus um but then what got it through the 2

000 level was a pretty sharp fall in the us dollar so those two catalysts are what got it to new all-time highs and then through two thousand dollars an ounce uh the federal reserve in the united

States has printed trillions of dollars more than we've ever seen in recent history now can you expect the stimulus to continue and continue driving the dollar down in the near-term

Future i think the stimulus will continue i mean i think we're in a low growth economy even if once we find a vaccine and get into a recovery phase um we have a a an economy that's that's

Weighed down by debt and and i think we're into a slow growth economy for the foreseeable future in that scenario i think we will see continue to see easy policies out of the fed um continued quantitative

Easings and and and maybe more we'll see but um i i think that's a factor that can drive gold yes okay so then uh where do you see inflation headed

What we see in an inflationary or a deflationary environment as a result of fed stimulus in the next 12 to 18 months uh in the next 12 to 18 months i expect to remain in more of a deflationary environment

I i see if if we get inflation i would see that coming further you know two or three years down the road um you know when maybe when the economy starts to get back on its feet and you get the

Velocity of money picking up things start to move then i could see some inflation develop given the massive liquidity that's being pumped into the financial system

Um the the fed would like to see some inflation and it's told us that it will allow inflation to rise above its two percent truck target at that point they run the risk of

Letting the genie out of the bottle and uh and suffering some some runaway inflation at that point um also if we get uh an administration that's willing to enact uh

Money printing or modern monetary theory or something of that nature that also would be very inflationary and very good for the gold market but again i would say these develop developments coming a little bit further

Down the road a couple of years or more down the road once we get through this deflationary environment that we're in currently i've talked to some analysts who say that the velocity of money is unlikely

To pick up in the next two years to three years because we've been hit so hard by this pandemic now in such a scenario first of all would you agree with this

Uh with this analysis in a second if this were to happen is it possible that we could get stagflation where inflation goes up but we're not getting any growth yeah i mean that's what happened after the

Financial crisis um we had all this liquidity but uh the velocity never picked up and and and that could happen again this time it's just hard for me to imagine just the

The the stimulus being applied this time is an order of magnitude more than what we saw after the financial crisis and it's it's very hard for me to believe that that won't have some

Unintended consequences you know namely probably inflation so um so you know we'll have to see but i mean that scenario where we're stuck in a low velocity economy is is a viable you know outlook um okay

Let's talk about your um outlook on gold miners now because uh we've seen the gdx and the gtxj uh both do quite well this year and uh i'm wondering if you think that this

Momentum for gold miners can continue while uh while gold continues on its long-term trajectory upwards according to your projections i think the stocks will outperform gold by

By a wide margin um uh you know we're seeing that this year we saw it last year uh the gold industry is in very good shape right now it's very healthy the business it's it's

A great business to be in so i see no reason for these stocks to handily outperform gold in in a rising gold environment i've read a report you've written um a few months ago where where you

Wrote that uh gold miners that have operated in some remote regions have already experienced uh cases of ebola or other um other viruses and have been

More or less prepared uh for what we've seen here as well as some of the um miners in more remote locations have been more sheltered than other industries uh how does this play into your thesis

Of gold miners beating the gold bullion in the long term well we just had second quarter reporting across the industry and uh most companies met or beat

Expectations so you know in the midst of a pandemic these uh companies that have performed very well um because of their experience with uh you know it's not just ebola or

Or or malaria it's you know if if uh if somebody has a flu and you're in your fly-in fly-out operation that infects your works workforce it can be just as devastating um not as deadly

But but just as devastating to to to the work environment so many companies are are um you know have had to to uh you know work with with uh viruses and diseases in their

Operations and they they know the protocols it was very easy for them to adopt the corona virus protocols and going forward they've been through this they've done

Very well and i think if we have a flare-up or further uh spread of the virus um they're in a very good place to handle it and maintain their operations joe the uh the margins we've seen

Uh for gold miners uh in the last two quarters how would you how would you um how would you see this change uh in the next two quarters going forward uh hopefully it keeps growing with the gold price i mean this is one thing

That's different that we're seeing in this cycle versus historics uh many times i've said most if not all times in the past we saw their costs rising with the gold price um

Costs have been holding steady while the gold price has been rising so far in the current environment i i hope that continues we're seeing very good discipline out of these companies to um

To to to keep their costs down and to refrain from building projects with with low rates of return bill refrain from building poor

Projects in a rising gold price environment and i just i really hope that continues would you would you say that some of the gold rally was uh can be attributed to lower supply

From miners as the as they shut down operations around the world oh i see no i i don't i don't think so i think that you know there you're talking about physical supply and demand and

Although that's important it's not a primary driver of the gold price um it's uh investment demand drives the gold price gold is uh gold's not a commodity it's a financial asset and it's the financial markets that

Drive the gold price so no i i don't i don't look at that as a factor at all okay uh so we've talked about the dollar we've talked about inflation uh finally joe if you could give

Advice to gold investors on what the major risks in the economy that they should be looking for right now uh besides the second wave of the coronavirus what would that be

I think there are two major risks i have to give you two i can't just do one one and so you know i walked about earlier this debt i mean you just um sovereign debt was already at peacetime highs

Before the virus hit and now we're just piling trillions and trillions of dollars more and if you look historically the way governments have dealt with with a situation like this is

To try to inflate their way out of the debt so you know that's where an inflationary or a stagflationary cycle eventually is is uh is is very likely the the second one is the the liquidity

Just the just the massive amount of liquidity that's been pumped into the financial system um that we're not seeing the effect it's it's propping up the economy today but in the longer term

Um that liquidity again is going to create a lot of problems a lot of unintended consequences and that also might uh might lead to an inflationary cycle as well okay joe i want to thank you very much for

Coming on the show today and giving us your insights i appreciate it yup my pleasure thank you for watching kikko news i'm david lynn we'll have much more for you stay tuned you

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