International anxiety may be good for gold prices, as gold continues to have a place as a store of value in uncertain times, says Mike Niehuser of Scarsdale Securities. Lower energy prices and a stronger dollar may provide relief for precious metal miners, especially explorers and miners working outside the United States. Management teams that have been forced to adapt to survive should do well in an upturn, and in this interview with The Gold Report, Niehuser discusses a handful of companies that fit the bill, including one in renewable energy.
The Gold Report: Gold and silver have both demonstrated explosive growth in 2015. Why has this happened, and will it continue?
Mike Niehuser: Well, I am not sure that I would categorize a higher gold price in the first part of 2015 as “explosive.” Since the beginning of 2015, gold appears to be trading within a band of $1,200 to $1,300 an ounce ($1,200–1,300/oz). While this is not “explosive” from a broader perspective, it is certainly a relief compared to declines in 2013, so let’s just say gold has done well so far in 2015.
Despite declines over the last couple of years, gold is still well above its lows prior to Sept. 11, 2001. It has held up in spite of concerns for deflation resulting from a global economic slowdown. This has not been helped by loose monetary policies.
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I think the strength is in part due to what Sen. John McCain characterized as being in “an unprecedented period of global turmoil.” Russia has reclaimed the Crimea and is in the process of annexing eastern Ukraine. The same could be said for insurgents in Iraq and eastern Syria. Concerns over the repayment of Greek debt, nuclear issues in Iran and an unsettled path for a maturing China should keep things interesting for gold.
Also, it is not clear how the recent collapse in oil prices will impact the economies or political stability of oil-producing nations, such as Russia and Iran. The conventional solution seems to be economic sanctions, but it has been said, “When goods stop flowing across borders, armies soon follow.” At least North Korea is out of the headlines.
International anxiety may be good for gold prices as gold continues to have a place as a store of value in uncertain times.
TGR: What are your metals prices forecasts for 2015?
MN: I don’t have an exact forecast for metal prices in 2015, but I have a hunch that from a U.S. perspective, gold will continue to trade mostly between $1,200 and $1,300/oz. The national perspective is an important distinction. If companies are exploring or mining for gold outside the U.S., their expenses are in the local currency, which may provide a competitive advantage for some projects and investors.
This advantage may provide an inducement for sector rotation from fully valued companies in the U.S. to oversold resource opportunities internationally. A more important boost to sector rotation might be a weakening dollar, but this would require a faltering U.S. economy or the resumption of economic growth outside the U.S. So from the U.S. perspective, 2015 could be another tough year for precious metals and mining stocks, but this could make for a target-rich environment for patient value investors.
TGR: You stress the critical importance of management to mining success. How have good managements acted to preserve their companies during a downturn that lasted almost four years?
