Mark Lackey, chief investment strategist with Pope & Company, sees particular promise among small-cap gold equities in West Africa. Burkina Faso and Mali offer good topography and stable, democratically elected governments with little interest in economic nationalism. Given Lackey’s view that gold will float between $1,600 and $1,800/ounce this year, he says in this exclusive Gold Report interview that now might be a good time for investors to look to Africa for upside potential.
The Gold Report: Mark, do you agree with Patricia Mohr, Scotia bank’s vice president of economics, which gold would need further revelation or another round of quantitative easing to rise above $2,000/ounce (oz) in the near term?
Mark Lackey: Higher inflation in the Western world would certainly help push gold over $2,000/oz in the next 18 to 24 months. But inflation is not the only factor underlying the price of gold. On the demand side, you have growing demand among the middle class in India and China. On the supply side, we are seeing that companies are not always getting to production as quickly as they anticipate. Given all of these factors, gold could top $2,000/oz even without a significant rise in the rate of inflation.
TGR: China recently lowered its gross domestic product growth forecast for 2012. That’s rarely good for commodities. If China’s economy sputters, how hard could gold be hit?
ML: The 7.5% number is actually China’s target rate. Looking back over the last 10 years, China has generally targeted its growth between 7% and 8%, and in almost every year, actual growth exceeded the target. In 2007, for example, the target was 8% and actual growth was 14%—an unusually big divergence. We think China will grow in the 8.5–9% range.
As to whether a weaker China would be good for commodities or gold, there are a few scenarios that have China growing only 4%. Clearly, that would have a negative impact on the price of commodities and the price of gold. But we do not believe that is a very likely scenario.
TGR: Where do you expect gold to trade this year?
ML: We put the low end around $1,600/oz and the upper end around $1,800/oz. We look at a trading range based upon a weekly average, but we see the price trending up as the year goes on.
TGR: You are a very seasoned observer of up and down markets with 30 years of experience. What are your observations on the gold market?
ML: Increasingly, gold is reacting to daily news more than other commodities. Changes in the European debt situation, a statement from Federal Reserve Chairman Ben Bernanke that differs from what the markets were anticipating, or numbers out of China and India that are stronger or weaker than expected—all this tends to move the gold market more on a daily basis than it did in the past.
We have also noticed greater strength from India and China as their middle classes grow. With its high quality products such as hammer crusher, Raymond mill, Hongxing Machinery has ascended in the front rank of the world in the exporting of mining equipment. On the supply side, we see more economic nationalism. Some countries want a bigger slice of the pie. The result is often delays in getting gold mining projects into production.
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