“Within 20 years, China will surpass the US Gold Reserves”

Gold had a decline of $200 recently, which is about 15% decrease of the price. The metal could not withstand the fluctuating market conditions. Fears about potential recession and uncertain global growth are creating indecisive markets.                

Gold is always a part of the diversified portfolio. “I think anywhere from 5 to 15% of a portfolio is the reasonable weighting for gold, depending on the investors.” says Robert Cohen, vice-president and portfolio manager at Dynamic Funds.

There are lots of worries now happening in the gold markets. But the price drivers are still in place. And they might create another price variation in the graph.

These are the factors influencing the gold price according to Robert Cohen:

•  The US dollar weakening
• Trade wars
• Real interest rates being negative
• Global yields and negative yielding bonds around the world.

Should we wait for the gold price to increase?

Gold had a peak time for its price in the mid 2020. But the price has been falling for the past few weeks. Cohen says that he would never fault anyone for waiting for a pullback. He also says that gold prices might increase for the next 6 to 12 months.

“I think so, I mean as a Canadian, I should be looking at Canadian dollar gold price. So now we are actually at an all time high of over CAD 2,000 an ounce, on top of what is going on globally. Canadian dollar could potentially weaken more, if there is a global slowdown.”

Historically, when the US dollar is weakening, gold prices rise high. But for the past few months, this ratio is varying.

Even though the gold price is correlated to the US dollar, other influencing factors should also be taken into account such as real rates.

“The real is still negative, which makes gold stronger. But if you look back at 2009 and 2010, that was driven by monetary reflation. That factor is dormant right now, but other factors have come alive such as real rates.”

Gold supply and demand

The demand and supply is rising, but the amount of gold produced is not correlating to that. But Cohen says that the whole metal mined till now still exists in the hands of the owners.

Approximately 190,000 tons of the yellow metal are still there. Mined gold amounts to be around 33,500 tons range per annum.

Cohen says to assume gold like a currency. “That’s why investors like gold in terms of a currency. It is not like a paper currency where the central bank can just print money.”

Another reason for the demand is that the central banks are buying this metal. But modernised central banks and old banks have a different attitude towards gold according to Cohen.

“The central banks in China, that have say $3 trillion in foreign exchanges reserves, they want it diversified, promised to get your hands on physical gold is difficult. But China has got the 100 year plan, so they might buy a couple of hundreds of tons of gold a year. They add it significantly to their reserves for years. And I think within 20 years or so, they will surpass the US reserves.”

Bullion or stocks?

Comparatively, holding bullion has much less risk than holding stocks as per Cohen’s views.

“If the risk tolerance is very low, you might just want to have bullion. Because at the end of the day, you have that ounce of gold you purchased. If you have high risk tolerance, you can buy the equities.” He says.

In case of stocks, normally when gold has a $200 run over two months, banks get companies to issue equities. But that situation is not happening now.

Barrick or Newmont?

“I think we have a lot of balance sheets that are in fairly good shapes. So a lot of companies don’t need to strengthen their balance sheets. But we had mergers which resulted in big companies.”

Cohen says that he prefers Barrick over Newmont .

“Right now I prefer Barrick over Newmont. I think there are a few skeletons on the close with Goldcorp that Newmont has to choose through. I think that the Barrick-Randgold merger was on a relative basis, much cleaner. And Randgold provided much stable assets for barrack. Where Goldcorp has a few assets that Newmont doesn’t want. We might likely see that shut off.” He says.

Mining companies

Cohen’s company chose Australian mining companies recently. He says mining is much easier in Australia than other African or American companies.

“My portfolio is about 60% Canadian based miners and 40% Australian based miners. I like both, but I think when you are looking at exploration companies, particularly the ones in Western Australia, the weather is good and they have good technical people there.”  Cohen explains.

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