The Gold Report: A 10-year U.S. bond yields 2% currently. How is that changing the market?
Randall Abramson: We typically view the markets and our investment process through top-down and bottom-up lenses. Our top-down tools are telling us that all systems are “go,” and that there are no immediate hurdles ahead. This low-growth environment has allowed the broader markets to remain in a bull phase for longer than is typical. In fact, we’ve not had even a market correction of 10% or so for way longer than normal.
TGR: The World Gold Council (WGC) reports that central banks bought 477.2 tons of gold in 2014, which was nearly a 50-year high. What do you make of central banks buying gold at peak Cold War-era levels?
RA: Gold does not have a built-in return. When interest rates are higher, everybody is less apt to hold gold because there’s too much of an opportunity cost. When interest rates are negative, as they are in some countries today, you’d probably rather own gold than lose money on bonds.
Central banks are perhaps trying to spur inflation by buying gold, or they could be less interested at these elevated U.S. dollar prices to hold dollars in their reserves, or they could be concerned about the U.S.’s balance sheet. All of those are factors. But the key driver is that there are places like China, which is flush with cash and willing to hold more gold. China always takes a long-term approach to the way it manages things. It may even be making a run at the U.S. dollar for reserve currency status and holding more gold in its coffers will help.
TGR: The WGC report also said gold …read more