Joe Foster from Van Eck mentioned two highly recommended shares in the Fin Review yesterday. BGL and WAF.
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Gold is set to test its recordhighs over the coming year as the spectre of deflation, too much debt, the prospect of resurgentinflation and currency debasement propels the precious metal towards $US2000 anounce.
That's the bullish call fromVanEck's Joe Foster who, as portfolio manager of the world's largest goldexchange-traded fund, is wary of the consequences of the $US9 trillion ($14trillion) unleashed by central banks and governments tosupport growth amid a sharp contraction in the global economy.
US dollar gold has rallied 38per cent over the past 12 months and is trading at an eight-year high around$US1750 an ounce. Bloomberg
"Over the next 12 monthswe expect to see gold test the $US2000 an ounce level," he said.
"If we do have aninflationary cycle further down the road or if we have a worst-case scenario,then all of us can imagine right now, gold could be trading higher than $US2000an ounce in the next several years."
Gold has rallied hard thisyear amid the economic and financial market chaos unleashed by the coronaviruspandemic.
US dollar gold has rallied 38per cent over the past 12 months and is trading at an eight-year high around$US1750 an ounce. It hit an intraday record high of $US1921 an ounce inSeptember 2011.
The Australiandollar-denominated gold price has advanced 44 per cent to $2670 an ounce. Ithit a record closing high of $2768 on March 24.
Mr Foster is concerned themassive expansion of central bank balance sheets – the US Federal Reserve's isapproaching $US7 trillion – and yawning government deficits will only magnifythe gathering systemic risks from growing debt.
Debt-to-GDP is trendingtowards 300 per cent among the Group of Seven nations.
He said the global financialsystem was being "overwhelmed" by liquidity and that the level ofdebt was "overwhelming".
"Remember, this is justto get us through the crisis. We haven't even started the recovery phaseyet," Mr Foster said.
"We expect to see thestimulus continue for quite some period to get the economy back on track."
Apart from rising levels ofsovereign debt, he sees three other sources of systemic risk that will bolsterthe appeal of gold as a safe-haven asset.
First, gold offers protectionagainst the short-term deflationary shock unleashed by COVID-19 and thelockdowns of the world's largest economies.
Second, exposure to theprecious metal provides a hedge against the threat of inflation "somewheredown the line" given the potential for the unprecedented levels ofstimulus to deliver a 1970s-style cycle of double-digit inflation.
Another risk is a loss ofconfidence in the fiat currency system.
"In my opinion,governments are trashing the fiat currency system that's been in place since1971. If foreigners and investors lose confidence in this [US] dollar-basedfiat currency system, then we could see a systemic collapse and gold trendingmuch higher," Mr Foster said.
He has around 20 per cent ofhis portfolio allocated to Australian gold miners and development stagecompanies.
Mr Foster said the drop in theAustralian dollar about five years ago had rejuvenated the industry and broughton more exploration.
"Australia is really onpar now with the rest of the world in terms of the range of companies that areoperating there. It's a much bigger part of our portfolio today than it wouldhave been 10 years ago," he said.
He said Australian companieswere no longer trading at a discount to North American gold miners and many –such as Newcrest Mining, Northern Star Resources and Evolution Mining – hadstarted to invest in North America.
He said mid-tier producerslike Evolution, Northern Star and Saracen Mineral Holdings were "all greatcompanies".
VanEck also likes Australiancompanies that are developing projects and moving into production.
"We were early supportersof Gold Road and that stock had a really nice re-rating last year as they wentto production," Mr Foster said.
"We're seeing a similarthing happen this year with West African Resources. They've developed aproperty in Burkina Faso in West Africa and they've done a great job ofdeveloping it. "The first gold pour wasin the first quarter and we're seeing a re-rating of that stock.". West African Resources' sharesare up 155 per cent over the past 12 months.
He also likes Bellevue Gold,which raised $26.5 million in March to develop its namesake project in WesternAustralia. "It has an exciting new discovery that we expect to go toproduction over the next several years."
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