Investors were shaken by the market's death-defying drop and recovery in a matter of minutes recently. But the "tweet retreat" hasn't changed the reasons why investors need gold companies in their portfolio. Ryan Walker, a mining analyst with Casimir Capital in Toronto, tells investors to look past the headlines to what underpins the market. In this interview with The Gold Report, Walker says that all that cash pumped into the economy at some point has to start driving inflation.
The Gold Report: Casimir Capital adjusted its metal price forecasts after the recent drop in metals prices. What are your near-term numbers for gold and silver?
Ryan Walker: For the remainder of this year, we're forecasting $1,600/ounce ($1,600/oz) gold, then $1,700/oz next year and $1,800/oz for the subsequent two years. Long term, our price assumption is $1,400/oz.
For silver, we forecast $28/oz for this year, $30/oz next year and $33/oz for the subsequent two years. Our long-term price is $26/oz. Unfortunately, we put these out before the big crash in gold and silver. We missed that event in our forecast.
TGR: What's underpinning that bullishness?
RW: According to some reports, there's been some $6 trillion in quantitative easing over the past few years. At some point, inflation is in a real way going to kick in. It's been kept at bay so far, but inflation has got to send gold higher. While mechanisms exist to fight that, it is hard to see inflation not happening at some point. The big question is when, not if. We're bullish on gold, but we've tempered our expectations to reflect the current market.
TGR: Many precious metals investors are still reeling after that dramatic drop in the price of gold in mid-April. What happened there?
RW: It was a confluence of events. There were reports Cyprus would be required to sell gold as part of its bailout package. Some members of the Federal Reserve were hinting that it might be time to end or slow down the pace of quantitative easing. A couple of the major banks in the U.S. recommended going short gold. It all came together to spook an already jittery market. Exchange-traded funds are so easily traded that things start to trade through stop losses and cascade and feed on themselves and become a self-fulfilling prophecy.
As an example of how quickly things can move nowadays, the Dow Jones Industrial Average recently dropped 130 points in the span of about a minute on a false Twitter headline from the Associated Press that there were explosions at the White House. Then it popped right back up to where it was—all in less than five minutes. That's the kind of world we're in.
TGR: Should investors expect similar price shocks in the near and medium term?
RW: The potential is out there for it. Can you call the kind of thing that happened to the Dow recently? I don't think so. Have the fundamentals for gold changed? I don't think so.
TGR: Did what happened make you more of a conspiracy theorist about gold price manipulation?
RW: No, but you can definitely see where conspiracy theorists are coming from. Maybe it does make you wonder a little bit longer about some of those theories. But I think it was just the confluence of a number of factors that got things rolling, and then electronic trading just created a cascade effect.