Why Gold Isn’t in a Bubble

11/18/2011 2:52 pm EST


John Stephenson

President and CEO, Stephenson & Company

Commodity expert John Stephenson from First Asset Investment Management explains why he does not think gold is in a bubble, and how high he thinks gold can climb, in this exclusive interview with MoneyShow.com.

We're talking precious metals today with John Stevenson. John, is gold in a bubble?

Absolutely not. In fact, I think what you're going to see is gold hitting $3,000 an ounce way before you ever see it dipping below $1,500 an ounce. So I think the best days are yet to come for gold investors.

Give us a little context for that. Why you view that as not being in a bubble, and why you see so much potential ahead?

Sure. Well, gold, as well as silver for that matter, have been historical currencies for thousands of years. In fact, we were on the gold standard in the US for many years, and the world was, the Western world was.

What we're seeing around the world is really a follow through from the 2008-2009 crash, where we saw consumers and businesses heavily indebted,. All that happened in the intermediating years is the government stood in and they were the spenders of last resort, and so the risk was transferred from the household sector to the corporate sector to the government sector.

We know these governments are broke because Greece is on the front page of the newspaper every day. Europe is on the front page. Is the European Union going to hold together?

What about the debt ceiling in the US? What about Obama and his speeches? Will we get some physical stimulus from the US government? Will it get through Congress? This has got people spooked. People are worried about political gridlock on both sides of the Atlantic.

And they're saying, I think, the only way out of this mess is for governments to print money. Because after all, it's a lot easier to pay off your debts in inflated dollars than it is to go the root of austerity, as the Greeks have shown us. This has made people flock to these precious metals. Not only gold, but silver and diamonds as well are up over 30% year to date.

So there are several ways to play these. Either in ETFs, or the commodity itself, or stocks of some of the miners. What are your ideas for what investors should do?

Yeah, I think there are several ways. The other way you didn't mention was holding the physical bullion itself. It's probably the worst way in my view, simply because of the charges and the insurance required and the storage fees.

I personally think right now in this point in the cycle, you're better off to hold the actual equities. Why? Because they've relatively underperformed in metals. So on the gold side, I'd recommend names like Goldcorp (GG) and Barrick (ABX) would be the symbol on that. These are all companies with significant growth. They are large caps, so your risk is lower.

On the silver side, I'd use Silver Wheaton (SLW). The beauty of this is it's a royalty streaming company. It doesn't take any production risk. Silver Standard (SSO) would be another name you could look at as well.

And gold and silver tend to trade in lockstep. If you're heading to $3,000 an ounce for gold, it means that silver's going to punch through $50 or maybe $100 or more. Considerable upside for investors.

And do you own any of these?

I own every single name I mentioned, and so do our funds.

What about some of these ETFs in the precious metals areas? Those have been very popular. What are your feelings on those?

They are very popular. I like them actually. I think you definitely get correct gearing with it. I would just recommend the simplest way, which is the SPDR Gold Trust (GLD). It's the largest ETF in the space.

The beauty of it is that it really shows and emphasizes what's transpired in the last few years, that gold is not trading as a jewelry raw material. It's trading as a currency, and that's what investors want. They want something that cannot be inflated away, where supply is limited, and that's gold. 

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