Amanda Van Dyke of Palisade Capital is confident that China’s reforms will ensure that the commodity supercycle will continue for some time to come. In this interview with The Mining Report, Van Dyke argues that investors should worry less about the right balance of specific commodities and more about the right mix of early-stage, development-stage and producing companies. She expands on a dozen she believes have the right stuff to succeed.
The Mining Report: In December Federal Reserve Chairman Ben Bernanke announced a $10 million ($10M) cut in monthly quantitative easing (QE). He also said that interest rates would remain at zero for the foreseeable future. What effects will these decisions have on the economy and on precious metals?
Amanda Van Dyke: Precious metals have been trending down for a number of reasons. One was the perception, starting about March 2013, that the Federal Reserve was going to taper QE and an end to QE was in sight.
The Fed is shutting down the printing presses because they were never intended to be a permanent crutch to the economy, and because there are green shoots in the economy that would suggest the time has come to begin tapering. Car sales and home sales are up, which are very good indicators. Gold prices react to money supply only in relation to the velocity of money. When the economy as a whole picks up, the stalled velocity of money within the economy picks up as well. But all the money the Fed has printed in the last five years is still out there. And as the velocity of that money begins compounding via the money multiplier, gold prices will change. The real question is when and how much the gold price will go up in relation to the money that’s been printed.
TMR: Previous hints of tapering have panicked the markets. Do you think the Fed is really committed to this new policy?
AVD: I don’t think it has an option. The market has gotten addicted to cheap money, but governments must pay this money back, so there is a limit to the amount of debt that can be issued.
TMR: If interest rates remain at zero, how can private capital be saved for lending?
AVD: Zero rates are good for the banks, but they’re just not tenable. In the past, there was a 1% or 2% premium on money re-lent in mortgages or in loans by general commercial banks. We’re not seeing that anymore; we’re seeing 4% and 5% for major corporate loans and mortgages, and for corporate bonds we’re seeing anywhere from 6% to 12%. The government is trying to stimulate the economy with low rates, but the people who need stimulating aren’t benefitting because they’re still paying higher rates.
TMR: Your presentation at the New Orleans Investor Conference stressed that gold is not a commodity like any other. What are the drivers of its worth?
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