Serving as co-portfolio manager to over $1 billion in precious metals and natural resource funds, Jon Case, portfolio manager with Sentry Investments shared some commentary on the gold and mining share market...
TD: Jon, looking at the action over the last few weeks – anecdotally, was there anything that really shocked you guys there at Sentry?
JC: I think everyone, ourselves included, have been surprised by the magnitude of the pullback in gold, given that none of underlying drivers for gold have changed. With the benefit of hindsight some are attributing the sell-off in gold to ETF selling, a potential gold sale from Cyprus, and downgraded price forecasts from Goldman Sachs and SocGen. In our opinion, those events do not represent a fundamental change in the drivers of gold, and, therefore, they should have had [only] temporary price impacts.
Broad measures of liquidity (Federal Reserve Balance) show that the global balance sheet continues to trend upwards, with no end in sight(though recently it did decrease in size due to a reduction in the ECB balance from the return of LTRO funds – however, we expect this reduction to be an aberration in the rise of global central bank balances, with US and Japan poised to expand their balance sheets at a rate that will more than offset ECB losses). Economic data points such as GDP, non-farm payrolls, and retail sales continue to show an economy that is barely growing (despite massive government stimulus in the form of deficit spending). Lastly,speculative positioning in the gold futures market is at a relatively low level, in the context of the range of positioning over the last four years.