Adrian Day likes to think long term, and historical trends persuade him that the bull market in gold should continue for years to come. In this interview with The Gold Report, the founder of Adrian Day Asset Management explains why he expects a significant gold price recovery in the near future. In the short term, he counsels investors to choose companies that minimize risk through royalty agreements, joint ventures and robust balance sheets. In other words, companies with the means to seize profit-making opportunities, and Day shares the names of a handful that fit the bill.
The Gold Report: John Makin of the American Enterprise Institute noted on Dec. 20, "In 2013, the Federal Reserve's actual monthly purchase of bonds—the size of quantitative easing (QE)—has averaged $94 billion ($94B), or $9B above the advertised pace of $85B/month." So is all this talk of tapering a shell game?
Adrian Day: Even if the Fed had stuck to the $85B/month as advertised, tapering is a sham. The Fed reduced QE to $75B/month in January and now has announced a further $10B/month reduction. But $65B/month is still an enormous amount of stimulus. Very shortly, the Fed's balance sheet will exceed $4 trillion. We're focused on the wrong thing here.
TGR: Considering all this talk of recovery, the Jan. 10 jobs report was dismal, was it not?
AD: Absolutely. The employment situation in the U.S. is a long way from what one would expect from a decent recovery, let alone a robust recovery.
TGR: U.S. job creation since 2008 has been mostly part-time jobs, temporary jobs and low-paying jobs. How does this lead to increased consumer spending, which is, we are told, the basis of a robust recovery?
AD: Consumer spending is being fuelled by debt. Since 2007, it has increased 23% for the lower 40% of earners. The Fed reports that net household income and net household wealth have now exceeded the 2007 highs. If we break down the numbers, however, we see that net worth is actually down for 90% of U.S. households. For the bottom 50% of households, net worth is down an astonishing 44%.
TGR: We can't have a recovery based on the purchase of yachts and multimillion-dollar New York City condos, can we?
AD: Of course not. We can't have a strong economy based on just 10% of the population getting richer. Frankly, I don't mind whether there's a gap between the rich and the poor—so long as the rich are getting their wealth honestly and not from government handouts. And so long as the middle class is getting richer also.