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What Happens After The Storm Hit Stock Markets, According To Experts

Kitco News

(Kitco News) - The Mines & Money Conference in Toronto happened during a tumultuous time for the markets. The theme of discussion inevitably revolved around the nosedive that equities took the week before the conference, when the S&P 500 plummeted 7% between October 3rd and 11th and gold reacted by rallying 4% from October 9th to the 16th.

Gold has since stayed near the $1,220 to $1,230 an ounce range and is now trading at 3-month highs, having closed above its 100-day moving average on Wednesday for the first time since April.

Despite gold’s strong response to fear and volatility this month, sentiment from the experts at the conference was a mixed bag, with some saying that gold’s price movement of late was only reactionary to the stock markets’ temporary setback. Others, remained more constructive on gold.

The consensus, however, was that regardless of where equities are headed, gold has already seen the bottom earlier this year.

Here is a selection of the most vocal commentators we interviewed.

There Won’t Be A Better Buying Opportunity For 10 Years

This mining CEO had a strong buy conviction for mining stocks, owing to the relatively low valuations.

“The opportunity in gold exploration, or gold companies in general, to buy them or invest in them in this low point, will never be seen for another decade,” said Ivan Bebek, executive chairman of Auryn Resources.

He added that mining stocks are at a point of the cycle that should see prices return to the upside over the next six to 12 months.

$1,200 Gold Was The Bottom; Now We’re Looking At More Upside

Alain Corbani hates being asked to give price forecasts. “I hate this question,” the head of commodities at Finance SA said to Kitco’s Daniela Cambone when she asked him for gold’s next price target.

Not to leave us hanging, Cobani did drop “hints” at gold’s future levels.

“At $1,200, gold mines are breaking even, so $1,200 is the bottom. That’s the first answer I can give you. The second one is that usually the cycle peaks when the net margins of the industry exceed 25%,” he said.

Corbani said that real interest rates in the U.S. will remain low and the dollar will weaken, and these two forces should provide tailwinds for gold.

We Could Be Seeing Another “2008”

The next equities correction could be on the scale of the last recession, said David Stein, managing partner of Aerecura Capital.

The good news for now is that we are not yet in bear market territory. “If you look at the longer term U.S. equities charts, they haven’t quite broken down yet, but they’re getting close,” Stein said.

Stein added that valuations in equities are overstretched and this problem is compounded by an overcrowding of passively managed funds that when managed by a computer algorithm, could cause “quite a panic” when their models turn negative.

An Ounce Of Gold Has Always Cost The Same As A Suit

Investors should still heed the age-old investment practice of holding gold long-term to preserve wealth, according to Ani Markova, vice-president and portfolio manager of AGF Investments.

Markova proved this point by comparing the historical price growth of gold and its equivalence in one ounce terms to the price growth of men’s suits.

“If you wanted to buy a men’s suit back in the 1930s, you probably would have paid about $16.95 for a good quality suit and you throw in pair of shoes for $3.25, which is about $20, and that was roughly the cost of one ounce of gold in the beginning of the ‘30s,” Markova said. “If I look today, at U.S. dollar terms, we are at about $1,200 U.S. and if you walk into Harren Rosen suit for about that.”

She said that practically speaking, gold is an asset class that investors need to diversify their portfolios with, especially when volatility hits equities markets.

Gold’s Breakout Performance Isn’t “Real”

The rally we’ve seen in gold is only temporary, and equities, along with the U.S. dollar, are expected to climb higher still, said Andrew Cosgrove, global head of metals and mining research at Bloomberg Intelligence.

“I don’t think this is the real breakout. I don’t think this is 'the' [equity] selloff. I do think the dollar has more upside. Because of those two main reasons, I don’t think this is the real breakout, but I do think it’s definitely carving out a good base,” he said.

On consolidation in the mining sector, Cosgrove said that he expects more mergers and acquisitions to take place.

“People need to replenish their production profiles, their asset bases are certainly depleting in some cases, and the production trend even for gold companies is negative over the next 3 to 4 years, the bit cap miners’ is flat, maybe slightly higher. So, if investors want a little bit of growth, they’re definitely going to have to look to M&A to fund it,” he said.

Gold Is Facing A Serious Supply Crunch

Long-term gold’s demand-supply fundamentals could push prices to the upside, said Warren Irwin, president and CIO of Rosseau Asset Management“We are not finding the gold we’re mining,” Irwin told Kitco News.

“We are not finding gold. We’re mining it faster than we could ever find it, so on a supply and demand fundamentals basis, things are looking good,” he said.

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