Gold analyst for Van Eck sees favorable conditions for gold stocks after year of CEO changes.
[This interview originally appeared on HardAssetsInvestor.com and is republished with permission.]
Gold analyst Joe Foster is the investment team leader for Van Eck’s flagship gold fund, the Van Eck International Investors Gold Fund. He also serves on the investment teams for the Van Eck Global Hard Assets Fund and the Van Eck VIP Global Hard Assets Fund, and is an advisor to the Market Vectors ETF Trust – Gold Miners ETF (GDX) and Junior Gold Miners ETF (GDXJ). Foster has been in the mining and investment business for more than 25 years and is frequently quoted in the Wall Street Journal and Barron’s as well as being a frequent guest on CNBC and Bloomberg TV. Hard Assets Investor Managing Editor Drew Voros recently spoke with Foster about the gold market as well as the gold mining sector.
HardAssetsInvestor: Why has gold been sliding during the last month of the year? The fundamentals remain strong, right?
Joe Foster: I have to think it’s some sort of year-end positioning or squaring or some sort of year-end trading that’s holding it down. It could be capital gains taxes are probably going to rise next year, so there could be some profit-chasing ahead of that. We know there are some very large [hedge] funds that have had poor performance and may be facing redemption. These funds are holding large gold positions. So they may be using gold as a source of cash.
And then, it could be the markets are thin at this time of year. So it just could be there are some bears out there that are driving it lower.
HAI: We saw some of this last year at this time, didn’t we?
Foster: Yes we did. In fact, it was a more dramatic sell-off at the end of 2011 than it has been this year.
HAI: The general feeling is that the U.S. economy is recovering, albeit slowly. What does an economic recovery in the United States do for gold prices? Is that a bearish fundamental?
Foster: I don’t think there's really that much of a correlation between what’s going on in the economy and what gold is doing. Prior to the crisis, we had a very strong economy and gold was in a bull market. And since the crash, gold has been in a bull market. So I don’t think it’s a function of the U.S. economy. It’s more a function of the financial risk that’s out there. There have been a lot of risks to the financial system that have been driving gold. I see that as a driver more than the economy.
HAI: Will the Fed’s loose monetary policy, at some point, translate into actual inflation?
Foster: I think so, ultimately. Once the economy starts functioning normally, and once the credit market starts functioning normally, I think there's a huge risk of an inflationary cycle that could drive gold much higher.