Gold Fund Managers, Mining Analysts Upbeat About Gold In Long Term

Denver (Kitco News) – Gold mutual fund managers and mining analysts attending the 2013 Denver Gold Forum say they remain upbeat about the metal’s prospects for the longer term despite the slide in prices in 2013.

For one thing, they suspect that monetary accommodation will be here for a while, despite all of the fretting about when the Federal Open Market Committee might start tapering the bond-buying program meant to push down long-term interest rates, known as quantitative easing. Further, there are expectations for inflation, uneasiness with rising U.S. debt and continuing debasement of currencies.

Several outlined their views on the sidelines of the annual gathering that allows investors, analysts, mining executives and others to hold a series of one-on-one meetings.

“We think generally gold is going to continue to deserve to be a good portion of investors’ portfolios and probably an increasing percentage as we go down this current road with U.S. government fiscal and monetary policy,” said Thomas Winmill, president of Midas Management Corp.

Gold slid since the start of the year largely due to expectations of Fed tapering.

“It will come at some point,” said Ralph Aldis, a portfolio manager for gold and natural resources with U.S. Global Investors. “But a lot of that has been factored into the market.”

Therefore, he doubts gold will fall to the $900 to $1,000 area whenever the Fed does act, as some bearish analysts have suggested. He said the U.S. economy still does not appear to be overly strong and the country is not solving its debt problems.

“I do think gold will trend higher,” he said of the longer term.

Others cited a view that monetary accommodation isn’t going away, even if there is some Fed tapering. Even if the Fed does pare quantitative easing, there may well be a continued need for some kind of monetary stimulus, whether it be another bond-buying program or something else, said Christos Doulis, mining analyst with Stonecap Securities

Brian Hicks, co-manager of U.S. Global Investors’ Global Resources Fund, offered similar sentiments, especially after policymakers last week opted to not start tapering when financial market had already factored this into prices. In fact, after seemingly going to great lengths to be transparent and signal a scaling back of bond purchases to the markets, policymakers seemed like they were retracting at the last moment, Hicks pointed out.

“With the Fed delaying their tapering, it’s a signal that it will be difficult to break away from the liquidity that the Fed is providing,” Hicks said. “It will be difficult for them to stop printing money.”

Winmill said his firm anticipates that gross-domestic-product growth in the U.S. will be limited, inflation moderate in the near to medium term and unemployment perhaps leveling off at current levels.

“This environment…is going to continue to foster a negative real interest rate environment, which is typically good for hard assets,” he said. Otherwise, if investors hold short-term Treasury notes with a yield below inflation, they will lose purchasing power.

Meanwhile, the U.S. continues to spend more than it collects in taxes, meaning rising deficits, Winmill continued. He cited July data showing government expenditures of some $300 billion but revenues of only $200 billion.

“So one of every three dollars the government spends is borrowed money,” Winmill said. “In fact, the current fiscal imbalance is accelerating the moment of some kind of very difficult event for the United States government.”

He listed three potential ways for the government to deal with the debt. One is to hike taxes, although the debt is so large that “you cannot tax your way into solvency.” Another is to renege, which would be a “political time bomb, particularly as the United States population ages.” The most politically acceptable way to deal with the debt is through “reflation,” he continued.

Read the full story at FORBES.

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