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Poor Gold Sector Performance in 2013


JOE FOSTER: In 2013 the market was not as concerned with financial risks.  All the risks that came into the market in 2008 with the credit crisis that drove gold to all-time highs in 2011, I believe are still with us: sovereign debt problems, fiscal deficits continuing to rise. We're seeing geopolitical risks in the Middle East that are probably as high as they've ever been yet gold is not reacting because investors are not concerned about these risks in this market.  We're seeing heavy redemptions out of the gold bullion ETFs and we're seeing all-time highs in the stock markets.  


Outlook for Gold Bullion 2014


FOSTER: In the near-term, $1200 is an important technical level.  The gold market fell to around the $1200 level in June of 2013, and we're retesting those lows right now in the wake of the Fed announcement that they will begin tapering in 2014. There are several events in the first quarter of 2014 that will probably continue to test current levels.  One is the appointment of Janet Yellen as the new chair of the Federal Reserve Board of Governors.  We'll see what the market thinks of that, and what the market thinks of her first decisions as Fed governor.  Second, Chinese New Year is in January this year.  So, there's been very strong demand out of China.  We'll see if that continues once Chinese New Year has passed.  Third, there have been tremendous redemptions out of the gold bullion ETFs.  We believe a lot of that is due to year-end tax loss selling.  So we'll see if these redemptions stop as we continue into the New Year.  Beyond that, if we are able to hold these $1200 levels, that will establish, I think, a pretty firm base for gold and should allow it to trend higher later in the year as the financial risks that we've been talking about come back into the system.  


Outlook for Gold Equities 2014


FOSTER: Just like gold bullion, gold equities have had a tough time in 2013 and in my opinion, these stocks are not going to get back on track until gold prices do. There has historically been a very strong correlation between gold and gold shares.  We need positive momentum in gold before gold stocks can get back on track.  That being said, I believe gold mining companies are positioned very well for an improvement in the gold market.  They've been struggling with rising costs for years now, costs that have almost gone out of control. Those costs are coming under control now with new managements that are finding ways to control costs.  They are looking for better returns out of the projects they build and executing with better capital discipline.


We've seen some results that suggest that gold mining companies have really turned the corner.  We had a good second quarter in 2013.  Third quarter was fantastic in terms of meeting expectations, controlling costs, and we're expecting a good fourth quarter as well.  Once the gold market gets back on track, we believe these gold companies are positioned very well to enjoy some favorable performance on a rising gold price.


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IMPORTANT DISCLOSURE


The views and opinions expressed are those of the speaker and are current as of the video's posting date. Video commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions.   Any discussion of specific securities mentioned in the video commentaries is neither an offer to sell nor a solicitation to buy these securities. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.  All performance information is historical and is not a guarantee of future results. For more information about Van Eck Funds, Market Vectors ETFs or fund performance, visit vaneck.com.


Please note that Van Eck Securities Corporation offers investment products that invest in the asset class(es) included in this video. Gold investments can be significantly affected by international economic, monetary and political developments. Gold equities may decline in value due to developments specific to the gold industry, and are subject to interest rate risk and market risk. Investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, including the takeover of property without adequate compensation or imposition of prohibitive taxation.


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