Outlook for Remainder of 2013
JOE FOSTER: We think gold strength will continue through the end of the year. Normally, we get seasonal strength at this time of the year and we expect that again this year. What’s lacking in the market is a catalyst and we're not quite sure what that could be. There are some possibilities and the strongest one that we see is what's going on at the Fed [Federal Reserve]. The Fed is trying to unwind the stimulus it's been applying to the economy over the last five years. We think that this presents a tremendous amount of risk to the financial system. Fed policies and Fed easing has supported the stock market, the mortgage-backed securities, treasuries markets, and the economy to a large extent. As the Fed unwinds these policies, this brings in a lot of financial risk that could support gold prices going forward.
Portfolio Management and Production Costs
FOSTER: We've adjusted the portfolio [Van Eck International Investors Gold Fund, INIVX] over the course of the year to lower gold price environments. Across the portfolio, our average all-in operating costs for our companies is around $900 an ounce. This compares to an industry average of well over $1000 an ounce. We're focused more on lower-cost producers and we're seeing companies being very proactive in attempting to control their costs in this low gold-price environment. Companies are reining in their capital spending, looking to renegotiate contracts with suppliers and engineering firms, and we think as we go through the year, we'll find companies meeting their cost guidance or even beating it as we move into the third and fourth quarters. This may bode well for the stock price of these companies.
Silver Allocation in Portfolio
FOSTER: We've ramped up our silver stock allocation to about 15% of the Fund and there are a couple of reasons for that. One, silver is a monetary metal. Silver stocks have correlated very well with gold stocks and often move in tandem with gold stocks. We get the same exposure to gold with silver stocks. Second, we acknowledge that there are some forces in the economy that could be very positive for economic growth. Cheap energy in the U.S., and it looks like we will have cheap energy for many years to come, is one major force. In that scenario, silver stocks may outperform gold stocks because there is a very large industrial component to silver. A lot of silver demand -- over 50% -- is to electronics and industrial purposes. In an improving economy environment, we think silver stocks could possibly outperform gold stocks.
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