Gold to prosper in less US-centric world, says Junior Gold manager Damaskos
Angelos Damaskos, CEO Sector Investment Managers and fund adviser to the Junior Gold fund, believes movements on FX markets herald further advances by gold.
The US dollar index, based on a broad basket of international currencies, has recently reached a two-year high. Given gold’s historical inverse relationship to the dollar, the latter’s recent relative strength is likely to have held gold’s price back. Changes in market opinion on the continuation of a loose monetary policy in the US have also led to increased gold price volatility – however this situation is set to change.
In a less US-centric world, the significance of US real rates may be different. Chinese and Indian economic progress for example, is likely to become much more important. The troubles of the Eurozone and potential risks of instability are also anticipated to support gold as a hedge against asset devaluation and potential inflation, both likely to occur under the economic circumstances.
The fact remains that gold mining companies are significantly undervalued to the current price of the commodity they produce. We prefer to own shares in companies that appear cheap in relation to their high operating margins and have considerable prospects of further margin expansion, such as gold miners, rather than in general industrial and other operations that are struggling to maintain sales volumes and margins in a recessionary economic environment.