Adrian Day: From a Historical Perspective, Today’s Bull Market in Gold is Far From Over!
Adrian Day: From a Historical Perspective, Today’s Bull Market in Gold is Far From Over! — 7/20/14
This week, Adrian Day, from Adrian Day Asset Management, speaks with Palisade Radio about many interesting facets of today’s gold market, along with the fundamentals that are in place which he believes will move gold higher in the coming years.
Adrian’s opinion is that the monetary situation looks very favorable for gold. One of the reasons that gold has fallen over the last couple of years, is the concern of the end of QE (quantitative easing) by the Fed. Although they have had tapering, he thinks investors have over-reacted to any reality of tightening.
Adrian emphasizes that the Fed’s tapering needs to be put in context. The fed increased bond buying every month by 85 billion, and now it has cut that back, but that doesn’t change a very stimulative policy and it doesn’t change very low interest rates. Adrian believes that any meaningful tightening in the United States is a long way in the future.
Adrian talks about the 1970’s gold bull market, and the correction which lasted about two years, and sent the yellow metal down roughly 45%, during that period. He points out that in any bull market, it’s common to have a meaningful correction during the cycle. In an historic aspect, commodity cycles tend to be long, and gold cycles have lasted 35, 39, and 17 years in the past.
It’s ironic that the bull market everybody remembers in the 70’s was actually the shortest bull market on record. To put today’s situation in context, Adrian says that with this gold bull market, which was provoked by the development of China, at the same time as the central banks are acting like “drunken sailors” on a Saturday night, why would we imagine that this bull market would be one of the shortest on record?
Next, Adrian discusses the mining companies. As a group, the big mining companies have been pretty badly managed, in his opinion. “If you look at the acquisitions that took place at 2011 at the top, and compare them to the acquisitions that took place last year at the bottom, they always buy when they shouldn’t be buying and don’t buy when they should be buying.”
Adrian likes the gold royalty companies a lot, since they tend to be run with high margins, low costs and good balance sheets. “A company like Franco Nevada, for example, which is the largest gold royalty company in the world, with $800M in cash, no debt, about 340 royalties and only about 35 of those are producing right now, so it’s got a very good pipeline of future growth opportunities. That’s a low risk business, in a very high risk sector.”
Looking at the junior mining companies, Adrian states that he always look at the people who run the business, and their balance sheet, before he look at their properties.
Finally, Adrian touches on the correlation between the stock market in general and the price of gold, along with the gold stocks. “Sometimes gold goes down when the stock market down, sometimes they go up in contradiction to the stock market.” He explains further that, “It depends if the gold stocks participated in the prior boom, such as in 1986-87, when the gold stocks were among the leading stocks, so they crashed when the stock market crashed. Or, whether gold and gold stocks are in fact depressed. And if gold and gold stocks are depressed as they are today, they have had two years of declines, I think a stock market correction downwards could be a trigger for a rally in gold.”
Adrian Day is considered a pioneer in promoting the benefits of global investing in this country. A native of London, after graduating with honors from the London School of Economics, Mr. Day spent many years as a financial investment writer, where he gained a large following for his expertise in searching out unusual investment opportunities around the world. He has also authored two books on the subject of global investing: International Investment Opportunities: How and Where to Invest Overseas Successfully and Investing Without Borders.
His latest book, widely praised by readers, is Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks (Wiley, 2010).