Resource World Magazine

a u g u s t / s e p t e m b e r 2 0 1 6 www.resourceworld.com 29 P recious metals thrive in uncertainty and no one can argue that the times we live in aren't rife with social, political and eco- nomic anxiety. Gold rallied 24% in the first half of 2016, more than any other year since 1974. Traders are now speculating on a US interest rate cut instead of a rate hike in September. This will have the effect of pushing Treasury yields lower and boosting the appeal of gold. Add to that a US campaign and election that promises to be as volatile as the recent Brexit vote. Economic pundits believe that the recent Brexit vote has cre- ated social and economic aftershocks that promise to cascade across the globe for years to come. From an economic stand-point, no one is sure what will happen to the UK or the European Union going forward. All the Brexit vote managed to accomplish is to create more uncertainty. In addition, the negative interest rate policies implemented by central banks in Japan and Europe represent a shift to 'unconven- tional policies' which creates further trepidation. With this swirling uncertainty surrounding us, it's no surprise that gold futures prices recently closed at a 27-month high on more safe-haven demand amid risk aversion among traders and investors. "I'm extremely bullish on precious metal companies," com- mented John Newell, a Precious Metal Fund Portfolio Manager at Fieldhouse Capital Management Inc. in Vancouver, BC. "Our near- term target for gold is in the US $1,400 to US $1,500/oz range, and it could be met this year. Silver has already reached our short term target of US $21.00, and we believe it could hit US $27.00 by the end of the year." Newell pointed out that many Canadian companies have reduced operating costs in the past few years and are now profit- ing from a lower CDN/US exchange rate. According to the World Gold Council, gold demand reached 1,290 tonnes in the first quarter of 2016, a 21% increase year-on- year, making it the second largest quarter on record. This increase was driven by huge inflows into exchange traded funds (ETFs). Central banks remained strong buyers, purchasing 109 tonnes in the quarter. Since 2010, Central Banks have been net buyers of gold and their demand has expanded rapidly. "I believe the current move in the miners could mirror the 2001 to 2010 bull market, which saw precious metal indexes increase more than 400%," stated Newell. "The Philadelphia Gold and Silver Index (XAU), the oldest precious metal index, went from a low of 45 in December 2001 to a high of 225 in December of 2010. The XAU index, which started about 32 years ago at an index value of 100, currently has a value of 103. On January 19th 2016, mining companies as represented in the XAU index were never cheaper, hitting a low of generational low of 38.36." Gold and silver stocks bottomed in 2013 and built a long base over the following two years. "They broke out of that trading range in January of this year," Newell said. "From 2013 until the end of 2015 gold stocks had a long eroding low, but all of the real damage was done in 2013 and since then many precious metal companies have done very well." Newell thinks there is potential for another 10% to 15% gain in prices before the next meaningful correction but cautions that markets rarely move in a straight line, and the precious metal shares are no exception. Right now Gold ETFs are seeing a lot of money being poured into them. However, according to Newell, in this particular gold market, corrections will happen faster, they will be deeper, more volatile and shake more people out. If history is a guide, most of the money will come into this sector at the top, or mini-tops and ETFs may not perform as well since investors pull capital out dur- ing corrections and managers are forced to reduce positions. "The whole strategy of Fieldhouse Global Precious Metals Funds is that we are trying to take the volatility out of a very volatile precious metals market," said Newell. "Fieldhouse Capital Management utilizes hedging mechanisms in order to neutralize sector specific market risk." Newell manages the Fieldhouse Global Precious Metal Fund that started trading on April 8 of this year, and tries to mirror the perfor- mance of the pilot fund that he started in December 2013, when the market bottomed. So far his fund has seen a 48% gain and he believes the precious metal bull market still has a long way still to go. n A perfect storm for precious metals by Thomas Schuster miNiNg

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