For all the talk of gold sinking remorselessly to $1,000 an ounce, the metal has risen to $1,200 per ounce and has held its ground. Have we seen the bottom? money managers Doug Loud and Jeff Mosseri of Greystone Asset Management say that if we haven't seen the bottom, we will soon. In this interview with The Gold Report, they predict that the next bull market will result in patient investors realizing gains in the multiples and suggest several companies poised to break out.
The Gold Report: David Stockman noted Nov. 13 that after an 8% correction in October, equities came roaring back, gaining 12% in less than a month. How long can this last?
Jeffrey Mosseri: It's really a question of interest rates. As long as they remain close to zero, equities can continue to run with periodic 5–10% corrections.
Douglass Loud: And I don't think the Federal Reserve wants to raise interest rates. If it does, the U.S. government will have to pay more interest on its debt, and that would be difficult, given all the money it's been printing.
TGR: Sure, but stocks can't have an infinite value. There must be some correlation between actual worth and share prices.
DL: That's the theory. Look at 1929!
JM: What we don't know is what happens in a period of extended zero-interest rates. In the 1980s and 1990s, we had low interest rates for a short period of time, and the price-to-earnings (P/E) ratios reacted accordingly. Those P/E levels we have today do not seem as out of whack as what we had then.
“Alexco Resource Corp.Alexco Resource Corp.“
DL: And these high P/E ratios are not yet manifested in a lot of stocks. A few hot stocks with large P/E ratios greatly influence the entire S&P 500.
TGR: Tech stocks in particular are characterized by high P/E ratios. Are they vulnerable?
JM: They're always vulnerable. But the hedge funds are piling on so as to have better results by the end of the year.
DL: When the end of the year comes, if they are not in apple Inc. (AAPL:NASDAQ), Alibaba Group (BABA:NYSE), Ambarella (AMBA:NASDAQ), those kind of companies, their clients are going to wonder why not. So the hedge funds are buying them, but who knows what will happen after Jan. 1.
“Exeter Resource Corp.Exeter Resource Corp.“
JM: Will we be in a bubble then? There's a very strong case to be made that we will.
TGR: Why aren't gold stocks benefiting from this equities blowout?
JM: They should. I use the metaphor of the U.S. dollar being the cleanest dirty shirt in the laundry basket. Most people have forgotten, however, that there is a clean shirt in the laundry basket, and that's gold.
DL: Gold is denominated in U.S. dollars, so when the dollar goes up, gold goes down.
TGR: Doug, when we last spoke in July, when gold was around $1,300 per ounce ($1,300/oz), you said, “There are games going on. Institutions can profit by shorting gold and then buying it back before it rises in price or so the conspiracy theorist in me thinks.” Some conspiracy theorists are now saying that these institutions are determined to bust gold down to $1,000/oz. What do you think?
“Klondex Mines Ltd.Klondex Mines Ltd.“
DL: These institutions short gold and write reports saying that gold is terrible and investors better get out. Then, after the price falls they can buy and cover their shorts. The price turns around, and the institutions can say it's time to for the investors to get back in. I'm not sure that the trader knocking the price down ever talks to the institutional adviser. He's not supposed to, but you never know.
JM: I'm not sure that the shorts can get gold down to $1,000/oz. There is tremendous physical buying, particularly in Asia, and central banks are buying as well. The U.S. and Canadian Mints have stopped making silver coins because they've run out of silver. Demand for gold and silver bullion is quite high, but the paper market is about 50 times the size of the physical market. So games can be played in the paper market.
TGR: Something interesting happened Nov. 7 and 14. On Nov. 7, gold went up 3.15%, and on Nov. 14, it went up 2.3%. And these gains have not been reversed. Have we reached a bottom?
