EDITOR NOTE: Over-exuberance in assets that have no real value is a problem when a majority of mainstream investors pile into them. Yet that’s what we’re seeing here as investors drive the stock market and the bitcoin market toward valuations to which the word “inflation” may be a mere understatement. If you remember the financial crisis of 2008, people felt the same way about real estate. Once the public caught wind of their properties’ true valuations, many figured it was time to “flip” them. Everyone had the same idea, and the market nearly brought down the world’s financial system. We may soon see a similar fate. In 2008, gold, which already had begun trending upward eight years prior, really took off, peaking in 2011. Right now, gold is taking a breather from the uptrend that began in 2016. Its price had already breached its 2011 highs. Given our current economic crisis, one that’s setting investors up for a smashing of illusory exuberance, we could be set to see another spike in gold soon. As we’ve said many times since 2016, use pullbacks as a strategic opportunity to buy non-CUSIP gold. We said it then, and look where gold is now.
There is an "over-exuberance" in the financial markets right now with investors piling into assets that don't have any real value, said Barrick Gold CEO Mark Bristow, adding that gold price will see another spike higher.
During the COVID-19 pandemic, all the additional liquidity ended up going into the market, Bristow said during the Prospectors & Developers Association of Canada's (PDAC) 'Profits with a purpose' conversation with BlackRock's active equity group managing director Evy Hambro that Glencore's Aline Cote hosted.
"It is similar to post-2008, where the market wished everything would go back to normal but didn't know the full damage yet. The liquidity that was provided between 2009-11 was caught in the banks. This time around, it arrived at the market," Bristow said.
One particular asset Bristow pointed to was cryptocurrencies and their quick ascent this year. "Everyone is so desperate. They are not sure how things are going to work. They are buying things that have no real inherent value in the market. We saw this over-exuberance been 2009-10 and then a major crash," Bristow said.
These developments benefitted gold and will support the precious metal once again, he added. "We saw a first spike in the gold price; there is another one coming," Bristow said.
When asked about the silver squeeze trending on social media back in February, BlackRock's Hambro said that with lots of liquidity and great communication tools, people are searching for a better return.
"It is not surprising. When a crowd gets behind a theme, it tends to have an impact. We saw it play out in silver," he said.
Bristow also commented, stating that: "There is some logic for the commodity movement but not all commodities. When you look at the messaging, it is very confusing."
The rest of the conversation was largely focused on mining and the environmental, social, and governance (ESG).
Hambro pointed out that capital flows are changing dramatically towards more ESG-compliant companies. "It is not just a function of liquidity, but it's a fundamental shift in capital markets. This is about investing from a more evolved perspective into companies that are compliant through the ESG lens."
Being a good steward of the environment is core to the mining companies, Bristow said, noting that there needs to be a standardized format and investors could have access to. "One of the critical issues is trying to get equivalency. To get one version of the truth that is trusted. That is a challenge to the industry. We need to embrace our critics and work with our institutions," he said. "What we haven't done a good job of is make it uniform."
The ESG standardization is like the early days of safety culture and reporting of incidents, Hambro said. "There were lots of metrics that people were using. It took a while to become standardized. But now that it is, the industry has become much safer."
When it comes to mergers and acquisitions, Bristow said the asset's quality is the number one thing he looks at, adding that any ESG shortcoming could be fixed with a good management team.
"For me, quality always overruled everything else, including jurisdiction," he said. "If this market is genuine in its drive to lead responsible mining. Then people who disregard that should trade at a discount. Which will create opportunities for others who are committed to the new modern way of doing business."
Hambro said an asset with historical liabilities could provide a fantastic investment opportunity, but it all depends on the new management team in charge of it.
"If we were able to find a company that has the fundamental base to it, but it is trading at a discount because of facts, events, or perception attached to ESG, that could be a fantastic investment opportunity. We'll need to know what policies are being put in place and how the business will run better in the future," he said.
Both Bristow and Hambro added that the pandemic had accelerated the demise of businesses that were already in decline.
"The pandemic fast-forwarded the things already in place. For example, the demise of the mall in terms of retail. That has been happening already. Industries and sectors that were already declining, declined faster and those growing, grew faster. Shift to online retailers accelerated," Hambro pointed out.
Originally posted on Kitco