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Gold setback is just 'building a foundation'

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(Kitco News) - It's not going to take much for gold to rally again, said Randy Smallwood, CEO of Wheaton Precious Metals.

Smallwood spoke to Kitco News earlier this month at the Metal Investor Forum in Vancouver.

Despite gold's recent pullback, Smallwood notes that gold has been well supported by central bank buying.

"We haven't seen a retail push into precious metals yet. We've seen a bit, but not a lot. And when that happens, we will see a really big movement in the precious metals space," said Smallwood.

Gold was trading north of $1,500 for much of August. Spot gold is currently trading below $1,460.

While gold hasn't hit a high this year in U.S. currency, it has been hitting records in most other currencies.

"We don't see record gold prices in U.S. dollar. It just underscores how strong the U.S. dollar is. Do we really think the U.S. dollar deserves to be this strong?"

Regarding the recent setback, Smallwood calls it "building a foundation."

"It's not been much of a setback. It's not going to take much [for gold to rally]."

Strong precious metal prices helped Wheaton Precious Metals. Earlier this month the company announced a strong Q3 with adjusted net earnings at $72.7 million, up 107% from the same period a year ago. The company generated $142 million in operating cash flow in the third quarter of 2019, leading to a reduction in net debt of $146 million.

Regarding the mining sector as a whole, Smallwood divides the phases into three modes: balance-sheet repair, development and harvest.

From 2004 to 2010, the mining sector was in a development phase with money going into expansions or buying assets.

"From 2010 to 2013 we didn't do any transactions. We were out there actively looking. We call that the harvest phase where prices were very high, and there was access to capital."

The harvest phase ended with about a four-year balance sheet repair phase, which Smallwood believes ended in 2017-2018.

He said Wheaton was back in market and financing, helping companies that were too highly levered.

"It really feels to me we are back in the development phase where companies are looking at investing back into the ground," said Smallwood. "This is the 15th year of Wheaton Precious Metals. We've been through a full cycle.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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