Christos Doulis, Mining Analyst from PI Financial on why there is Pessimism in Precious Metals
Why is there so much pessimism regarding the precious metals complex today? It’s largely a factor of receding fear. Precious metals are often looked at as a safe-haven in dangerous times, and certainly in the ’08 crisis there was a great sense of insecurity and fear amongst the investing public. That seems to have largely receded now that we have seen several quarters of strong economic data out of the United States. So certainly with the reduction in fear, we see a reduction in interest in precious metals. The other corollary of that is we’ve seen a tremendous rise in the broad markets, the S&P and the DOW over the last couple of years. And when capital is flowing into those markets and they’re generating stellar returns, it’s challenging sometimes for capital to flow to other markets that aren’t generating the same returns. So you get kind of a vicious circle in that markets which aren’t performing well, don’t generate interest, and because they don’t generate interest they tend not to perform well. So the broad market rally, the lack of fear in the marketplace today, the seeming return to normal in terms of unemployment and economic activity. All of these are detractors from interest in the gold price. However, I believe that we have undergone a massive transition in the economy in terms of the amount of money that has been pumped into it. I think that the new normal in the North American economy is going to be quite different from the old normal. We’re going to see higher levels of unemployment, it’s going to be persistent. We’re going to see lower aggregate demand from the consumer sector and ultimately I expect inflation to return to the system. When inflation returns, I think you will see a resurgence of in interest in the precious metals complex. Until that time though, it’s not going to be a lot of fun.