Joe Foster: Gold Miners Offer Rally Leverage

August 13, 2012

Gold analyst for Van Eck says global monetary easing will fuel gold rally last half of this year.

[This interview originally appeared on HardAssetsInvestor.com and is republished here 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 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. He’s also a frequent guest on CNBC and Bloomberg TV. Hard Assets Investor Managing Editor Drew Voros spoke recently with Foster about the gold market as well as the gold mining sector.

HardAssetsInvestor: In your opinion, what is the biggest influence on gold prices right now?

Joe Foster: The biggest would be expectation towards more monetary easing, either out of Europe or the U.S. That’s the No. 1 driver.



HAI: Because of that, do you expect to see central banks continuing to be long-term buyers of gold in this environment?

Foster: Yes; I think so. Central banks are buying gold for the same reasons a lot of investors are. The level of financial risk is very high. We’re seeing governments debase their currencies, and they’re seeing it as sound money. As long as we’re looking forward to more of that type of activity and these risks, then I think central banks will continue to buy.



HAI: Of course, they have the inside information in some way, too, don’t they? They know where they’re going.

Foster: Exactly. The other thing about central banks’ activity is that China might be a big driver of it as well. China is very secretive, so we don’t know really if they’re buying or not. But our view is that they probably are in the market and maybe substantially.

HAI: Speaking of China, do you consider them the leading gold-producer country now, or is that still difficult to ascertain?

Foster: They’ve become the No. 1 producer the last couple of years. They’re sort of neck-and-neck with South Africa, but I think they produce a little more.



HAI: What does China do with its gold? Do they use to store value? Do you have any idea what it actually goes toward?

Foster: It all goes to three areas. Some of it is probably going into their central bank. Second would be jewelry demand. With growing affluence of the Chinese, we’re seeing more jewelry demand out of China. And then we’re also seeing more investment in bars and coins, physical gold. Gold is one of the few investments that the Chinese can access. They don’t have a mature stock market or functioning bond market—or the investment alternatives that we have in the West.

They can buy gold or they can buy real estate. They can invest in the stock market now, but it’s very volatile and risky. Gold is many times an investment of choice there.



HAI: For central banks to stop buying gold, wouldn’t that require a sea change on their part? They would have to say “We’re not going to debase our currency; therefore, we’re not going to be buying gold as much,” right?

Foster: The dollar makes up something like 60-plus percent of any given central bank’s reserve assets. And the euro probably takes that up to what, 70 or 80 percent. But you have all these countries around the world looking at what the Europeans and the U.S. Fed are doing with printing money and extreme monetary policies. The focus is on what’s going on with the paper in your reserve account, and it’s being debased.

 

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