Commodity Online
Metal prices including that of Gold will tend to be higher as the demand is exceeding what the companies are able to mine from the ground, according to Lawrence Roulston of Resource Opportunities. In an interview to The Gold Report, newsletter writer and analyst Lawrence shares his thoughts on the outlook on the economy and what factors impact the gold market and all the other metals. He says, "the pattern I see continuing is gold trending higher with spikes and pullbacks."
Gold has made a pretty substantial move, but yet the juniors haven’t; in fact, some of them have gone backwards. Why do you think the juniors have not done as well as, say, a producer or the price of gold?
Earlier this year when Bear Stearns was on the brink, and then collapsed, there was a lot of concern throughout the financial community around the world that perhaps a number of other banks were going to fail, and perhaps the whole banking sector was going to come crashing down. Because of that fear, a lot of investors started buying up gold as a hard asset, a long-term store of wealth.
Gold has always had this role as a sort of safe-haven investment. So there was a huge amount of investment in gold because of that fear about the banking sector and concern over paper investments of all sorts; a huge concern over subprime mortgages. People were just plain scared, so there was a huge move into the gold market.
When the government bailed out Bear Stearns and when it became apparent that the U.S. government was going to do whatever was required to prop up the economy and the banking sector, a lot of those investors who had gone into gold realized they didn’t need their gold. At that point, gold came back on the market and the price has come back down.
That move into gold was based on fear. A junior mining company is considered pretty risky, and they didn’t participate in that rally. The ironic thing is that as the government props up Bear Stearns and the economy, it is very positive for gold in the long term. Gold came on the market in the short term, but long term it was just one more indication that the U.S. dollar will continue to trend lower, and that the gold price is going to trend higher.
So it’s just a matter of time. I think we’re seeing it in the market today, with the gold price coming back up again. People recognize that the gold price is going to trend higher, and when they get more comfortable with the long-term trend, I think we’re going to see that movement come back into the juniors.
One of your articles mentioned that part of the reason metals haven’t appreciated is because they’re all tied to the U.S. dollar. If the dollar continues to depreciate, would you still expect gold to trend higher or just a lag before anyone realizes it?
A number of factors have an impact on the gold market and all the other metals. In the Western world, we use the U.S. dollar as a measure for most commodities, and as the value of the U.S. dollar declines, the apparent value of the metals increases as measured in U.S. dollar terms. So that is one contributor to the nominal rise in metal prices.
But superimposed on that – whether we’re talking gold, silver, copper, cobalt, Zinc or any of other metals – over the last few years there’s been a very significant increase in real terms as the demand for the metal increases at a faster pace than the mining industry has been able to deliver metals.
So give us your overview on precious metals and base metals.
My view on the gold market is that the value will trend higher because of the continuing debasement of the U.S. dollar and debasement of other currencies over time, as has been the case since the beginning of time. On top of that, we have an increase in real demand for gold and precious metals because of growing concern around the world over stability of the U.S. economy, the U.S. banking sector and paper currencies – and just a growing awareness that holding some hard asset like Gold provides some stability to an investment portfolio.
So we’re seeing a huge increase in gold demand and it’s reflected in the ETFs and the other means that have made it easier for investors to own gold over the last few years.
Where do you put silver?
Silver largely mirrors the movement of the gold price, but in reality, the Silver market and the gold market are very, very different. The primary use for gold is as an investment or as an ornament. The markets for silver are different in that the primary uses for silver are industrial. So in the gold market, virtually every ounce of gold that has been produced by mankind is available at the surface and could be brought back onto the market. In silver, it’s very different.
Over the past two decades we have seen the enormous stock of silver that was built up over thousands of years being used up in industrial applications, so it is no longer available.
Isn’t there a fair amount of silver recycling going on?
The biggest component in silver recycling is in photography, and to a large extent, photography is a closed loop. The chemicals used are recovered in the developing process and go back into making new film and new other components as well. But a lot of products – mirrors, for example, and thousands of electronic products– employ very small amounts of silver in each application. And that silver is lost to the world forever.
Could it be argued that silver would appreciate more because there’s a bigger gap between supply and demand?
The demand for silver is increasing steadily as more and more applications are coming about, and a lot of these applications are in high-tech situations and high-value products where the value of the silver is insignificant compared to the value of the finished product. The flip side of it, though, is that there’s a lot more silver to be mined and silver coming out of mines is increasing. It’s coming out at a pace that moderates the upward movement in the silver price. I believe that will continue.
It is entirely possible that we could see a very substantial short-term spike in the silver market, but there is enough silver in mines that it will moderate the upward movement of the silver market in the longer-term context.
So is the larger influence of silver based on gold? When gold went over $1,000, didn’t silver get to $21 or something like that?
That’s right. And in the short term, the silver price is mirroring the gold price. But it’s not a perfect match. There are variances.
Do you see something that would cause decoupling at some point?
It’s entirely possible at some point – whether it’s a week from now, next month, or a number of years. But at some point the above-ground stocks of silver are likely to run out. For most of the last two decades, in fact fully two decades, the amount of silver consumed in industrial applications plus investment demand have exceeded the mine supply. So above-ground silver has been run down steadily over the last two decades.
There’s a lot of debate about how much silver might still remain at surface. We don’t know, but at some point we’re going to hit the wall on the amount of silver available on surface. There’s going to be a short-term spike, but there’s also a lot of activity within the mining sector, especially the junior sector, toward an increase in production. As the silver price moves up, there will be more and more activity to bring old silver mines back into production and develop new silver mines.
