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Gold 2014: Investment Demand, Geopolitical Risks, and Corporate Discipline


ETF Inflows and Emerging Markets Demand


JOE FOSTER: There have been some interesting shifts in the supply-demand dynamics for the gold market this year. First of all, gold bullion ETFs have seen inflows this year. This comes after some relentless outflows during 2013 that helped drive the price of gold down last year. These inflows show us that investment demand is returning to gold. We also saw tremendous demand in China last year, and that Chinese demand was taking a lot of that ETF money. It's still early in the year but we're starting to see demand still strong in China. Perhaps there isn’t as much demand as last year but it’s still strong, which is a positive sign for gold. The third thing I'll point to is India. In the second half of 2013, demand out of India dropped off significantly because of exchange controls and import restrictions that were placed on the Indian gold market. There are still talks this year about the Indians reversing or relaxing many of those controls. That could be another catalyst that moves gold prices higher later in the year.


Geopolitical Risks


IMA CASANOVA: Geopolitical risks across emerging markets seem to also have been supportive of gold so far this year.


FOSTER: Yes, in fact emerging markets geopolitical risks have probably been the main driver of gold this year. People are worried about financial stability with headlines coming from Thailand, Venezuela, Ukraine, and Turkey. People are also concerned about the growth in China and the Chinese banking system. When people sense these types of risks, they sometimes turn to gold as a hedge against geopolitical risk. That's been a driver this year, and with resolution nowhere in sight for many of these countries, we think it will continue to drive gold throughout the year.


Gold Miners and M&A


CASANOVA: With gold rising we have seen gold equities significantly outperform gold. We think a lot of it is driven by the companies doing what investors have been requesting: focusing on profitability, being more disciplined with their capital allocations, higher returns on capital. We see a more disciplined and conservative approach, and companies are focusing on meeting expectations, which is critical for how the market reacts. Going forward this year, if we have a rising gold environment, we might see gold equities continue to outperform gold and show that leverage to gold.


FOSTER: I think you're right there. Another thing we've seen this year that we haven't seen in the recent past is some significant M&A activity. We saw a hostile takeover attempt in January, and that got the sector going. I think we could see more of that as we've seen a lot of reserve write-downs. These companies are going to have to replace those reserves somehow in order to sustain themselves going forward. I believe M&A activity could be another thing that drives gold shares moving forward.


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IMPORTANT DISCLOSURE


The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results. For more information about Van Eck Funds, Market Vectors ETFs or fund performance, visit vaneck.com. Any discussion of specific securities mentioned in the video commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com  


Please note that Van Eck Securities Corporation offers investment products that invest in the asset class(es) included in this video. Gold investments can be significantly affected by international economic, monetary and political developments. Gold equities may decline in value due to developments specific to the gold industry, and are subject to interest rate risk and market risk. Investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, including the takeover of property without adequate compensation or imposition of prohibitive taxation.

 


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