Speaking at the Global Mining Finance conference in London yesterday, Dutch precious metals fund manager, writer, analyst and former TV business pundit, Willem Middelkoop, painted a more positive picture for precious metals, following a perhaps downbeat presentation on the prospects for most metals – base, precious and ferrous, by Investec’s Jeremy Wrathall. Middelkoop, has always in any case tended to be strong on the bullish elements with regard to precious metals – and focuses his Commodity Discovery Fund accordingly. It is largely invested in gold stocks which are at the discovery and development stages. These are the times in a prospective miner’s life which tend to see value growth and consequently the fund has seen a number of stocks it is invested in having been acquisition targets for bigger miners, which has helped it do better than many other precious metals funds and indices in what has been a dismal market for precious metals stocks. While the fund is broad based in terms of the companies in which it invests, around 60% is in discovery stage gold development companies and 24% in silver stocks, with the balance in other metals and minerals and despite the poor performance of precious metals over the past three years the fund has continued to see investor growth.

While Middelkoop is very positive on gold for many of the same reasons as are gold bulls everywhere – 90% of world seeing zero interest rates, the largest bond bubble in history, massive global debt etc. – he does draw strongly on Chinese policy, and statements from various Chinese bankers and officials over the past few years to help make his case given China’s huge relevance to gold supply and demand. From these statements he gleans that China has a policy to build its reserves of gold, both directly through so-far under the radar purchases by the Central Bank (or perhaps by other government bodies under whose auspices it can store the gold without feeling it has to report it to the IMF) and also by persuading its citizens to buy the precious metals and thereby build up total Chinese gold volumes.

Talking to Mineweb after his presentation, Middelkoop predicted that China will likely make an announcement on an increase in its gold reserves some time this year at substantially more than the 1,054 tonnes it currently claims to hold – but even then no-one will really know if that is a true statement of  its central bank holdings or not. He sees China, Russia and some other like-thinking nations targeting a de-Americanised world and we are already seeing considerable evidence of this in the beginnings of the internationalisation of the yuan as a trading currency and also in the setting up of alternatives to the SWIFT global financial interbank trading network.

Middelkoop also says he likes drawing on statements from former central bankers like Alan Greenspan who, he says can now tell the truth! Greenspan has made some remarkably positive statements on gold in recent months including that ‘gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments’, noted Middelkoop.

But although he feels that gold has to be an excellent investment at current price levels and has to move sharply higher in the medium to long term, Middelkoop sees silver as probably being an even better investment in terms of growth potential in US dollar terms.  New mined silver production, he avers, is substantially below demand, while over the years above ground stocks have been run down, and unlike gold there are no huge central bank holdings which can be drawn on to hold the price down.

The only real surface silver stocks nowadays are held in the silver ETFs and although these can be a little volatile, much of these remains in strong hands and he feels these overlying volumes will not counter what he sees, perhaps controversially, as the overall supply deficit now prevailing.  With its comparatively strong industrial demand – a demand which is seen as growing along with the electronics and solar power sectors – supply/demand fundamentals are probably more relevant to silver than to gold where so much more depends on investment sentiment and perception. Middelkoop feels that these silver fundamentals will lead to a supply crunch sooner rather than later as, like gold, silver too is flowing East in massive quantities – and he said as an aside that he has taken bets that silver will be over $100 an ounce by 2020. Silver investors will be hoping he is correct.

Every day I feel so grateful for my life. In South Africa it’s hard not to be. We often lose sight though, of what’s really important. Reading this reminds me that there isn’t a need to feel pressured into creating a surrounding that is filled by material things, my life is a sheer privilege and I am so thankful for it. Thank you to those who share what they have been blessed with, for sharing their ‘wealth’ with others who have not been so lucky.