March 15, 2013 | By Tekoa Da Silva
This afternoon I had the chance to speak with a NYC precious metals and mining equity fund manager, whose total firm assets exceed $10 billion. While he cannot be referenced at this time, it was a fascinating conversation that’s worthy of sharing.
When asked how he’s been able to maintain such a calm composure during this bear market, he said, “If anything I’m rather gleeful about the investment opportunities here. Other people’s anxiety is our opportunity. I guess I’m a little more gleeful than others who may be despondent about their long positions, but we have a much longer view…Our approach to gold is investing for the long term.”
With respect to growing levels of quantitative easing amid short-term market disinterest in gold, he commented that, “Monetary policy is faulty here, so it supports having gold exposure…If you take money supply and support that with the gold price I think you’d need a $10,000 oz. gold price. If you took 1/8 of the money supply and supported it with the gold price you’d need $2,500-$3,000 an oz. If you went back to the [CPI] inflation-adjusted high, you’d come to $2,300 oz…[but] in the end, gold is supported by market participants—it’s a sentiment valuation more than anything. It’s an emotional valuation as opposed to any kind of mathematical calculation.”
When asked what might serve as a catalyst to reignite gold, he said, “Will it be North Korea throwing off a nuclear bomb? Or Iran? That could be a tipping point. Will it be a change of Federal Reserve bank leadership from Bernanke to Yellen? I don’t know…but systems go to an extreme. Markets go crazy, crowds create chaos—that’s the bet [with gold]. At some point human nature will do what it does—act irrationally.”
In regards to valuations in the gold mining sector, he said that, “These are some of the lowest valuations we’ve seen over the last twenty-five or so years, in terms of gold mining equities…I think we’re [finally] going through a bottoming process…The despondency is a good thing, but unfortunately you have to track through it for a period before the opportunity shows itself. It’s a better time to invest now than two years ago when things were irrational.”
Bottom Line: While the market waits for a catalyst to reignite the price of gold, strong hands are using “other people’s anxiety” to create their opportunity.
Watch this group and make sure that you’re a part of it.
Tekoa Da Silva
Bull Market Thinking