Foster: Historically Low Gold Stocks Stall M&A Activity In Mining Sector

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January 05, 2012
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Gold analyst behind Van Eck gold ETFs remains bullish on the commodity and what he sees as undervalued miners.

 

 

Gold analyst Joe Foster currently serves as the lead investment team member for several of Van Eck’s gold exchange-traded funds, including the company’s Market Vectors ETF Trust – Gold Miners ETF (GDX) and Junior Gold Miners ETF (GDXJ). Foster has been in the mining and investment businesses for more than 25 years and is frequently quoted in the Wall Street Journal and Barron’s. He’s also a frequent guest on CNBC and Bloomberg TV. Hard Assets Investor Managing Editor Drew Voros spoke recently with Foster on the gold market in general as well as the gold-mining sector.

 

Hard Assets Investor: Do you think gold will see its 12th-straight year of positive gains in 2012?

Joe Foster: I continue to think that we’re somewhere in the middle of the bull market. We’re nowhere near the end. And having that outlook, I think we’ll trend higher in 2012.

HAI: Do you anticipate that central banks will continue to be net buyers of gold in 2012?

Foster: In 2011, central banks bought almost 500 tons of gold − at least that’s what the estimates are saying − which is a tremendous amount of gold. And central banks are buying gold for the same reason that we are, for the same reason we’re investing in gold-mining stocks. They see a tremendous amount of uncertainty. They see countries that debase their currencies. They see the debt problems we’ve been reading about in the papers. Central banks are looking for something that’s going to hold its value. The motivation for buying gold will continue to be there into the foreseeable future, so we expect another heavy year of central bank buying.

HAI: Why is gold suddenly so tied to the hip of the euro?

Foster: The trading pattern for gold over the past several months has been a little bit unusual compared to what we’ve seen in earlier phases of the cycle.

Despite all the turmoil in Europe, gold has had a high correlation with the euro. It’s not acting as a safe haven as it had earlier in 2011. It’s had a split personality lately. Some days it will trade as a safe haven; some days it will trade as a risk asset. The market can’t quite make up its mind how it wants to trade gold at the moment. I think that’s just sort of a phase that it seems to be going through.

The safe havens recently have been the U.S. dollar and U.S. Treasurys. So when the euro has been weak, gold has been selling off as well.

HAI: What would you suggest gold investors keep an eye on?

Foster: Just stay focused on the longer-term fundamentals, the longer-term macro outlook. You can’t characterize gold as a risk asset, or characterize it as a commodity. It’s a unique investment vehicle. You have to stay focused on the long-term fundamentals, and everything else is just noise. We’re within a positive trend. And what we saw in December, to me, is just noise.

It’s a thin market. It’s an environment in which the short players can have their way. But it’s temporary.

 

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