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Gissen and Berol's Gold Stock Tricks and Treats

Update:2013-11-01 01:41:19  Source:  Author:zhao Return

No matter how elaborate an investor\'s Halloween costume is, the gold space isn\'t handing out much in the way of treats this year. While Encompass Fund Managers Malcolm Gissen and Marshall Berol don\'t agree on the timeline for gold\'s recovery, they have faith that it will come. In the meantime, they explain in this interview with The Gold Report, their focus is on players that are in production, generate cash flow and have top-notch management teams.


The Gold Report: It\'s almost Halloween and we remain in the clutches of a tricky market for junior resource equities. What are your perspectives on how long it\'s going to take before investors see another treat-filled year like 2010?


Malcolm Gissen: The last couple of years have been frightening for investors, in both gold commodities and gold stocks. Gold prices have been rising the last few weeks, allowing some people hope, but I don\'t expect an appreciable change in the gold price and the appeal of gold mining companies until 2015.


Marshall Berol: I\'m more optimistic than Malcolm. I think the market will change, possibly in as little as five months. The underlying fundamentals that have driven gold up over the last dozen years are still in place: the money printing presses, supply and demand for bullion, bars and coins. Costs are going up, so is the need for higher prices.


I would like to see the market refocus on fundamentals and get away from tracking the hour-to-hour and day-to-day activities of the financial players. What they are doing in the futures markets is driving the price of gold and other commodities up and down incessantly. The dollar is up; the dollar is down. Oil is up, oil is down. Stock prices react to whatever news is coming out of Washington, Europe or Japan. At some point, investors will realize that gold\'s underlying fundamentals have not changed and that there are reasons to buy it.


MG: We started investing heavily in gold in the accounts of clients of our RIA firm, Malcolm H. Gissen & Associates, in 2002, when gold was under $300 per ounce ($330/oz). We built allocations to precious metals of 15C18% by 2004. When Marshall and I launched the Encompass Fund in mid-2006, gold companies was the largest asset class. We believed that gold was deeply undervalued and with India and China, cultures that value gold and use it as a currency substitute, developing a middle and upper class, demand for gold would increase exponentially. We also knew that many investors would come to realize that the gold price would go up because of inflation and currency devaluationthe historical reasons people buy gold.


That attitude has changed over the last two-and-a-half years. Fundamentals no longer seem to play a role in attracting investors to buy gold or gold stocks. Marshall thinks it would be nice for people to go back to looking at fundamentals; I\'m not sure that will happen. The information explosiongossip, rumors and trying to guess what hedge funds and private equity investors are doingplays an increasingly larger role in decision-making.


One factor that would cause gold to rise would be the realization that the U.S. government is printing money to deal with its tremendous debt. This is not sound policy. This should scare people, but it doesn\'t seem to at this time.


The Federal Reserve is doing everything it can to keep interest rates low, which is good for corporations and good for the economy, but it is doing that by buying bonds and mortgages. Eventually, we will have to pay the piper. At that point, hard assets like gold and silver will look a lot more attractive. Until we get to that point, I\'m concerned that gold will not break out of the range it has been trading in for the last couple of years.

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