Since you can’t get enough gold talk, here’s an excellent interview on Bloomberg Television with Passport Capital’s John Burbank all about the subject.
While he’s a little worried about the short term prospects for gold, he’s a long-term bull, and he he shares the top reason to own gold:
“The biggest reason to stay in gold is because central banks around the world can see the writing on the wall long term, which is that the dollar will be devalued one way or another and that Congress has no appetite for hard decisions which would be deflationary in nature, and therefore, make the dollar higher than gold and not as much of a necessary holding. You also have the Chinese consumer, who has become a very large buyer, matching almost the Indian consumer and I think quite clearly, will exceed the Indian consumer. I think ultimately, physical gold is the story. It is a scarcity story. The more the U.S. dithers and the more the Fed is willing to print money, as opposed to dealing with inflation properly, the more this trend will happen. That is the biggest reason to stay in gold right now. Otherwise, most of the beneficiaries of quantitative easing will be backing off as most investors get back to neutral.”
Central banks — such as Mexico, which we mentioned earlier — provide a huge, ongoing bit for the yellow metal.
As for how he wants to play gold:
“Our preference is in two areas. Physical gold and smaller cap common junior minors. We two geologists based in Vancouver, and we think we have a good edge on which explorers are the right ones to own. We are buying, even now, and will continue to be to accumulate stakes there. Barrick and Newmont have come off at least 10% in the past couple of weeks. I think the gold stocks are discounting a further fall in gold and we don’t know if it was going to happen. If there was another government intervention that provided a lot of liquidity in the world, then we would be quicker to come back in.”
“After the earthquake, Japan put a lot of liquidity into the market, which held up risk assets longer than they would have. Europe dealing with its issues with Portugal, Greece, etc. We do not know how they may change their posture. Europe has the belief that there will be some change in stance by the central bank as well as potentially by the euro community. We don’t know. Also, the end of QE2, is so heavily understood, that will happen, but not understood what will happen after that. It is possible the Fed has something up its sleeve. It knows risk assets will be selling off at the end of this. At least I hope it knows that.”
Here’s the whole video