Reply #34: Is the Commodities Bull Over? (The flip side) [View All]

[54anickel]

http://www.kitcocasey.com/displayArticle.php?id=54

This is the second of a three-part interview with Paul van Eeden (www.paulvaneeden.com) conducted on March 8, 2005 during the PDAC Conference. Paul, formerly Managing Editor for Doug Casey’s International Speculator and now the publisher of his own weekly stock alert service for high net worth investors, is one of the most original thinkers and analysts working in the resource business today. In the final installment, he discusses finding a good uranium investment and more... look for it.

Given the prospect, as you’ve mentioned, of a global economic slowdown resulting from economic problems in the U.S., is gold going to be the best buy in the coming years? Obviously such a situation isn’t good for, say, base metals.

PVE: That’s why I am bearish on base metals. A lot of people are bullish on base metals because they look at current inventories and current supplies. But you know what? Prices peak when inventories are low and things look very bullish. But then something changes. What I think is going to change is demand. And when demand changes, inventories start rising and prices start falling. So, I actually think that the commodities bull market is behind us. I think we’ve been through a cyclical bull market in commodities, which is over, and now we’re in a secular bear market in the dollar, which implies that gold is still going to rise in dollar terms. But listen, that doesn’t mean the gold price is going up in any other currency. Take a look at the gold price in Canadian dollars – that hasn’t gone up in the last 12 months. Look at the gold price in yen, in euros, in South African rand. The rise in the gold price from, say, $400 to $800 is a U.S. dollar phenomenon. It has nothing to do with the gold market.

How do you see factors like the rising rand affecting gold production?

PVE: It hurts the South African gold producers. And it will continue to hurt them. Now, at some point I believe they’ll get some margin expansion. I believe the rand eventually will soften up, but I can’t predict when that’s going to be. But because such a large portion of South Africa’s exports are metals and other commodities, the rand is being buoyed by the dollar weakness in commodity prices. So, the rand is gaining on the dollar’s weakness.


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