Robert Cohen - Putting Gold Prices In Perspective
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Dierdre McMurty talks to Robert Cohen, Dynamic Funds - Putting Gold Prices in Perspective
Dierdre McMurty: Gold is the most talked about investment right now, but how long has it really been around as a viable investment?
Robert Cohen: Well, it's been around as an investment option for around 5,000 years - We've been in a bull market for around 10 years and counting, so far. So for example if you had put $100,000 into the fund 10 years ago, it would be worth over a million dollars today.
DM: Rob, There've been periods throughout the last 40 years or so, where gold prices have spiked and jumped around a bit, but what's really driving, pushing gold forward over the last 10 years?
RC: Everything we've seen in recent history has driven up for different reasons, gold can be a barometer for a number of different things, like geo-political risk or inflation. Right now, for example, we're seeing massive monetary reflation going on in the world, while the former two aren't at play at this point in time, it is really monetary reflation and fiscal deficits in the world that will in turn lead to further monetary reflation.
DM: Okay, well maybe you could break it down a little for us. In the case of inflation, how does gold offer protection, specifically?
RC: In the case of price inflation, and monetary reflation, which are different items, and I'd like to contrast it, we are not in a period of inflation right now by any means. It does protect your purchasing power as gold is the only physical commodity out there that is accepted as a monetary asset in the world.
DM: What about on the currency side?
RC: On the currency side, well basically, fiat money around the world has had a massive expansion of supply, and basically as you expand the money supply and global liquidity, we see a very strong correlation. So basically, it takes more paper money to buy more hard assets, like gold.
DM: Now obviously gold has got a lot of attention, on all sorts of media platforms; people like my mom are all keen to buy gold. What about institutional investors, pension funds, the pros?
RC: A lot of pension funds have historically been shut out of the asset class by their mandates. Recently, with the advent of the ETFs, pension funds have started moving more into gold because they're allowed to buy, not physical gold, but they can have the ETF, the paper form of gold. So that has been a positive. Also pension funds slowly have been buying more and more gold equities. So that has improved the liquidity in the sector.
DM: Now you also manage two funds for investors in the United States, and Europe. Do they have a different relationship with gold.
RC: They do. Europeans for example are very particularly worried about the future of the euro, and as a flight to safe haven they are moving more into gold.
DM: I guess supply and demand tend to kick in. Whenever you see a run-up in a commodity price, you usually see supply start to increase, to buy into that to chase that. Is that something that people need to think about again, when it comes to gold?
RC: Certainly not from the mine supply-side. Mine supply is currently about 2,500 tons per year of the 4,000 ton per year market. Mine supply is very slow to react, and even with the dearth of new discoveries we've seen, it takes typically 7 years from discovery to put a mine into production if it is an economic ore body. Its nothing that can be responded to very quickly at all, even over a long time frame with the industry, notwithstanding that it was cash staved for nearly a decade in the 1990s.
DM: Now Rob, we've obviously seen this increase in the price of gold which we've been discussing, but do you see the kind of concerns that have been underneath that price continuing?
RC: Until we resolve global trade imbalances, and currency imbalances, global market issues, its really what's good for gold is what central banks do to get economies back on track. So its not a recession or a depression that's good for gold, its what governments do to get out of them.
DM: Rob Cohen, thank you very much.
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