The CEO of Adrian Day Asset Management also says miners are the buying opportunity of the decade.
Adrian Day is chairman and chief executive officer of Adrian Day Asset Management and the author of “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.” Last month, it was announced that Day is partnering with Peter Schiff to launch a new mutual fund, the EuroPac Gold Fund. HAI’s Managing Editor Sumit Roy recently caught up with Day to discuss the outlook for gold and miners.
HardAssetsInvestor: What’s your view on the decline in gold over the past year, and your outlook going forward?
Adrian Day: To some extent, gold was a little bit ahead of itself. If you look at the long-term chart of gold, you see that it actually moved above its trend line for really pretty much the first time in September 2011.
And it was largely because of the expectation that the European Central Bank was going to do more than it actually wound up doing in terms of monetary stimulus at that time. And what’s happened particularly over the last year is you’ve had everybody look at gold through what I like to call “a bearish prism.” In other words, if something is positive for gold, it’s ignored; if something’s negative, people pounce on it and the market goes down.
And you always see this when a market is falling; or when a market is going up, you see the opposite. People say, “It looks like stocks are a better buy than gold, so we don’t need gold anymore, let’s jump into stocks.” And then of course, more recently, we’ve had expectations that the Fed is going to cut back on its stimulus.
Frankly, in my view, the gold market’s reaction to the comments of Ben Bernanke and the Federal Reserve has been grossly overdone. All Bernanke and the Fed are talking about is possibly pulling back on the additional stimulus sometime this year if the economy continues to do well. You’ve got quite a few qualifiers there, but all they’re talking about is reducing the additional stimulus.
The market expectation is that they might reduce from $85 billion a month in bond-buying to $65 billion a month. Well, even if they do that, let’s remember that’s still an additional $65 billion a month. No one is talking about the Fed shrinking its balance sheet, let alone exiting. Remember the concept of exiting, which we talked about in 2008 and 2009? When will the Fed exit?
Thus, we’re not even talking about reducing the balance sheet; we’re talking about reducing the rates of growth. The market is now understanding that and that’s why we’ve had this good rally in gold.
In addition to that, of course, you’ve got extremely negative sentiment—particularly up until the last week or so—with very heavy shorts. You had record speculative shorts on the Comex. And not just a little bit of a record, but record by a very, very wide margin. The sentiment was negative, and that’s why I expect this rally to be quite powerful.