Since its peak in the aftermath of the 2008-2009 financial crisis period, gold has been stuck in a pretty steady slump, spiking here and there, as it has done in recent weeks, during moments of market insecurity, over events such as the unresolved Greek debt issue and the continued tensions in Ukraine and in the Middle East.
Should geopolitical risk increase further, and if it were to have repercussions for the financial markets, then gold, as the most traditional of safe haven investments, could get the support it needs to once again sustain an upward momentum.
“Gold is driven by financial stress and the longer-term driver that will make the most difference is financial stress in the U.S. economy,” said Joe Foster, manager of Van Eck’s International Investors Gold Fund. “Things are still pretty OK in the U.S., but I feel that could change, if not this year, then next.”
Foster, like other investors in gold, is more excited by the longer-term drivers of the asset class, which, they believe, will contribute in a meaningful way to a turnaround in the direction of gold and contribute to a rise in gold prices in the next couple of years.
Here’s what some investors had to say:
Joe Foster, manager of Van Eck’s International Investors Gold Fund, is expecting gold production to decrease either this year or next and go into a “slow and permanent decline, since there haven’t been enough new discoveries in this cycle to replace what has been depleted.”
This, he said, is a favorable long-term driver for gold and will greatly help in providing necessary support to the asset class.
Other investors think production growth is a positive. Malcolm Gissen, who manages the Encompass Fund, is expecting gold production to hit its peak in the middle of this year. Add to that the new technologies that larger mining companies have been investing in, “and we’ll see a significant increase in production,” he said.
A number of emerging market countries for whom gold is an important economic asset have also been introducing more favorable policies to support the mining industry, Gissen said, and this will further support production.
2. Low Correlation to Equity