Roy Friedman is executive vice-president of Dillon Gage Metals, one of the world’s largest precious metals wholesale trading firms. The company is an authorized purchaser for all major world mints and maintains inventory in over 20 countries around the world. Dillon Gage Metals also owns International Depository Services (IDS) Group, which operates two secure precious metals depositories in Delaware, and Ontario, Canada. The company also services dealers and individuals through FizTrade.com, which offers users a real-time bid/ask trading platform for gold, silver, platinum and palladium.
I began working on the COMEX, the trading floor where futures contracts are traded upon graduating from college in 1980. This later led to a stint as a trader at the French investment bank Credit Lyonnais. From there, I helped establish a precious metals division in the New York office of Rudolf Wolff, a founding member of the London Metals Exchange. I’ve been with Dillon Gage Metals for several years now and enjoy what I do for a living. I’ve always worked in some facet of the precious metals industry. What makes it interesting is that each day brings something new to disseminate, which always keeps the market very interesting to follow.
The short answer is that precious metals for many years were looked upon as an “alternate investment” by the traditionalists on Wall Street. In addition, many investors didn’t have the right access or even the understanding of how to go about investing in precious metals. All of this began to change in the late 1990’s. The rally in spot prices from 2005 through 2012 saw a sharp increase in precious metals dealers, all of which made it easier for people to invest in physical metal. The last 10 years have seen a large increase in the number of participants trading in some form of precious metals as part of their overall portfolio.
First would be Central Bank Policy (FOMC) and Currencies – While the current state of the U.S. and global economy can be debated, as economic data continues to be mixed, the policy as set forth by our decision makers in the U.S. is to begin nudging up interest rates this year. At the same time, the other major economies (Eurozone and China) appear to be faltering, and their policy makers are again engaged in economic stimulus programs. The debt crisis in Europe could be a game changer, but for now, the result is likely a strengthening of the USD in the short term, which will continue to be a negative factor for gold.
Next, Inflation – Gold has always been viewed as a hedge against inflation. As history has shown us, economies and markets are cyclical. We are currently in a period of low inflation and weak growth. As this cycle begins to change, the price of oil and most components within the Thomson Reuters Commodities Research Bureau Index will begin to rise, and this should have a positive impact on gold prices. These would be followed by:
China – As the massive Chinese economy continues to grow and individuals have greater access to Western culture and investments, it is expected that Chinese imports of gold will continue increasing in the years to come, which should be a positive for gold’s performance.
Geopolitical events – We live in a world with many so-called hot spots, where tensions run high. As we have seen many times in the past and will undoubtedly see in the future, these events highlight gold’s allure as a hedge against uncertainty and the volatility of paper currencies and other capital markets.
Central Bank purchases – Central Bank decision makers have been purchasing gold steadily since 2010. If governments feel it necessary to diversify a bit from USD and EUD denominated assets, and it is expected this trend will continue for the foreseeable future, it could be a real positive for gold’s longer term upside potential.
I expect the market to increase sharply in both the short and long term, as investors discover the need to further diversify their assets. Future economic forecasts and geopolitical events should make gold and silver valuable assets to own. The hope is that more and more investors will become educated about the benefits of adding precious metals as part of a truly balanced financial portfolio.
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