China to add ‘several thousand tons' of gold to reserves over next 5 years: Opel
With the view that the ECB is successfully buying time which will resolve the Eurozone crisis, Sascha Opel sees gold consolidating and the Chinese central bank buying.
Posted: Thursday , 16 Feb 2012
TORONTO (The Gold Report) -
The Gold Report: It's been four years since you told The Gold Report that gold was beginning the process of re-establishing itself as money. Where are we in that process now?
Sascha Opel: We are in the middle of this process. Many people and even central banks have added gold to their portfolios or balance sheets as they realized that no paper currency is 100% safe anymore. The Greek haircut has made it clear to investors that even European government bonds are not safe havens. The money went into German and U.S. bonds. But what happens in the next few years with growing debt in these countries?
For me, what is still most important is unlike bank, corporate or government bonds, gold has no risk of failure. Bonds have to pay interest to the investors who take the risk to lend the money. If you own gold you are completely independent from any government or any other institution in the world. You are out of the modern financial system. You don't owe anyone anything. Since 2008 it has been clear: gold is the only safe haven.
TGR: Do you continue to buy and hold gold or has it become too expensive?
SO: If an investor bought gold at US$300/ounce (oz), it is hard to buy more at US$1,700/oz. But if an investor still has no gold and his whole portfolio is only based on "paper assets"-cash, bonds-then it makes sense to convert some paper into hard assets like gold and silver.
TGR: Do you believe gold will push above the US$2,000/oz threshold in 2012?
SO: I do not know. In our interviews in 2008 and 2009, I was very lucky with my gold forecast. As I am convinced that the so-called "Euro Crises" will be solved soon-the European Central Bank (ECB) is buying time until 2015 with its three-year 1% tender for the banks-I think the big buying from European and even U.S. investors that we saw in the last few years will take a break this year.
But central banks in Asia used the last correction to add gold to their balance sheets. I am convinced that China is still on the buying side as well. It has not announced its gold holdings since 2009 when it was 1,050 tons. But one thing is obvious: China wants to establish the yuan as a global trade currency in the future. And the Chinese know that if the Chinese Central Bank has large gold holdings, confidence in a free trading currency might be much higher. The U.S. has more than 8,000 tons of gold, Germany has 3,400 tons, the central banks of the entire Eurozone own more than 11,000 tons of gold. My conclusion: China will add several thousand tons to its holdings in the next five years or so.
And that is one of the main reasons why I think gold will not move much over US$2,000/oz this year. Perhaps we see US$2,000/oz shortly. But most of the central banks that want to buy gold are not interested in such a high gold price and even the Federal Reserve and ECB are not interested in the strong rise of the gold price over a short period. I think we will see another 10-15% climb by the end of 2012, which means something around US$1,800-1,850/oz by year-end. In a few years-or perhaps next year-gold will rise above US$2,000/oz if the devaluation of all major paper currencies continues.
TGR: Your company, Germany-based Orsus Consult, publishes one of the most popular German newsletters on commodities and junior mining and exploration. Most of the companies you write about are Canada-based companies with additional listings on the Frankfurt Stock Exchange. But the decline of the junior sector in the second half of 2011 took a heavy toll on the junior mining sector and the German market suffered, too. What is the current appetite among German retail investors for junior mining plays?
SO: There is still an appetite for good exploration stories over here. But the 2008-09 collapse in the juniors wiped out many investors. The investors who are still in the business are much more careful. There is no more euphoria; it has been replaced by realism. Another problem pre-2008 was a large number of unserious "pump-and-dump" promotions. We always tried to help investors identify such bad promotions. But many retail shareholders at that time lost money with these highly promoted stocks as well as with good-quality stocks. In the end they saw no difference between the good ones and the bad ones: they all lost money. Many investors sold their stocks and were not involved anymore when many of the good stocks we followed came back or were later taken out.
TGR: Why are there not more Germany-based companies operating in this sector given the potential for lucrative returns?
SO: That is a good question that I have been asking myself for years now! We have a huge industrial base in Germany with big carmakers and we are the second largest export nation in the world. We have almost no mines in Germany, so we are very dependent on importing commodities. The big steelmakers and other companies sold their "boring and unproductive" mining assets in the '90s to concentrate on core businesses. A few weeks ago some big German companies founded the so-called "Allianz zur Rohstoffsicherung" (Alliance for Resource Security). They want to invest in mining and exploration projects, especially in tungsten, rare earth and coal to start. In my opinion, this company comes a little bit late. But better late than never.
TGR: Some of the companies you follow are developing projects in Nevada. Why do you believe Nevada is seeing an unprecedented resurgence in mineral exploration?
SO: As we saw in the past, Nevada is one of the best places in the world to find new gold mines. There are still big discoveries on the different trends, like Carlin Trend, the Battle Mountain/ Eureka Trend and the Cortez Trend. The Nevada jurisdiction and infrastructure is very favorable for mining as well. I was in South Africa for Mining INDABA last week and after hearing the ongoing discussions about nationalization of the mining industry in many countries, you know Nevada is a paradise.
TGR: The DAX has climbed more than 500 points in the last month. Is this a sign of things to come? What kind of year are you expecting?
SO: I am very optimistic for 2012. The Eurozone is in much better shape than what you read, especially what you read in the U.S. press. OK, Greece and Portugal are problems, but problems that can be solved. Italy, for me, is not a problem at all. It is a very rich country with a strong industrial base. In Germany the economy is doing very well; we have the lowest unemployment rate in 20 years and the highest employment rate ever. Car sales and exports to China and elsewhere in Asia are at record levels and the growth rates are phenomenal. Some of the German DAX companies are trading on very low valuations and high dividend levels (many yielding between 3.5% and 6%). For the next three years, the ECB has bought time to solve the problems in the Eurozone, which is a reason to be optimistic.
But the main reason to be optimistic is Asia. To give you just one example: China will build new buildings totaling two times the amount of U.S. living space between now and 2030. You only have to read the 5-Year Plan of the Chinese Communist Party to understand why it is investing all over the world in commodities. In 10 years nobody will talk about the euro crisis or U.S. debt anymore. Everyone will watch how the new Chinese and Asian middle class is developing and what they are consuming.
TGR: Thanks for your optimistic assessment.
Sascha Opel, former chief editor of the first newsletter about the German "Neuer Markt" (New Market), brings a distinctive outlook to the precious metals market. He was also the co-chief editor of Der Aktionaer (The Shareholder), one of the biggest German stock market magazines, and adviser to an investment fund that achieved an outstanding return of 700% in three years. Today his company, Orsus Consult GmbH, publishes one of the most popular German newsletters on commodities and junior mining and exploration.
Article published courtesy of The Gold Report - www.theaureport.com