Mines and Money caught up with Michael Belkin, Author of The Belkin Report to find out why as of July, his forecasts for gold, gold ETFs and gold mining stocks have been added to his outperform list.
Previous to July, Michael Belkin was no ‘gold bug’ but his data now shows signs that the significant bottom in gold has passed and by the end of the year, the previous highs could again be reached.
Ahead of his keynote presentation at Mines and Money London, we asked Michael about his forecasting model, what factors have caused this rebound and why his forecasts suggest there will be enormous percentage gains for investors.
M&M: Could you please begin by providing some background information about how your forecasting model works?
MB: My business is based on a forecasting model which I developed back when I was employed at Solomon Brothers in the 1980s, early 90’s. My training was in statistics, econometrics at Berkeley, UC Berkeley Business School and in the [statistics] department. I developed a forecasting technique that is unique and it’s a form of time series analysis and we used it in proprietary training with pretty good success at Solomon Brothers.
When I left Solomon Brothers at the end of 1991, I started my business, which is called The Belkin Report, which is an independent forecasting service, a weekly report for portfolio managers around the globe. So my clients run the gamut from hedge funds to big insurance companies, investment banks, private family offices, sovereign wealth funds, all big institutions.
So, I have a forecast. I’m always looking at a forecast of everything. So, that’s why people subscribe to my report. I’m looking how the world is going to change and so I was not really bullish on gold until towards the middle of this year, and I will get into that later on but my model looks for turning points.
My report covers everything from soup to nuts. Global macro, many of the big global macro hedge funds are my clients, so I’m looking at stock indexes, bonds, and foreign exchange, emerging markets, industry groups, sectors, etcetera, and commodities as well as frontier markets.
M&M: Could you define the factors that are causing your positive outlook for gold and gold miner ETFs?
MB: I put out two reports on gold July 22nd. It’s my initial buy signal on that report which I believe is on your website. It’s called ‘Upgrade on Gold & Gold Equities’. That was when my forecast changed.
So my forecast gets three things, direction, position, and intensity. So direction, up, down, or neutral. Positioning, beginning, middle, end. And intensity: is it a strong or weak signal?
So starting towards the middle end of July, my forecast turned strongly positive for the fiscal gold price and gold equities. I think it’s a unique asset class at the moment.
If you think of the environment that we’ve just come through, we’ve been in a period where federal banks have been printing a whole heck of a lot of money for a long time. So in the last year, for instance, the Feds balance sheet has gone from [USD]2.3 trillion last September to 3.7 to 3.6 trillion. It’s up almost 900 billion dollars in the space of a little bit less than a year.
What that has done to financial markets, now if you take a step back and think about gold as one asset that’s available to outside allocators and big funds that they could invest in bonds or stock indexes or emerging markets and things like that, now what we have is, you know, we’ve had stock indexes rally somewhat, not massively, but there’s been this underlying bid within the stock indexes that is kind of, I think, anesthetised. Portfolio managers, they kind of feel invulnerable, you know?
They invest money in stocks every month. Meanwhile, the gold and gold prices have been going down. It’s kind of been a despised asset and you’ve had hedge funds liquidating a lot of gold positions. So we’ve really had a negatively correlated gold price and gold stock price to what’s been happening in this equity market, which is actually what you want. Instead of gold being a risk-on, risk-off outset with everything else, it’s really kind of resumed its role as a non-correlated asset.
So, what I think my forecast says that everything else is popping out, basically, and we’ve seen, emerging markets have been a big call for me this year. I’ve been saying to sell in short immersion markets since the beginning of January. I think that’s really, the decline that we’re seeing in emerging markets, which is really extraordinary. Some of these markets are down 40% in a matter of weeks or just a couple of months. Indonesia, Thailand, things that were all time highs are just collapsing. The currencies are collapsing.
So I think my basic scenario says that the central banks have inflated an enormous bubble that has gone out globally and they more or less admitted that in the Fed Jackson Hole meeting this last weekend. There is a lot of talk about how the Fed’s ZERP (zero interest rate policy) and QE (quantitative easing), have gone out and inflated bubbles in emerging markets and now they are deflating in a hurry.
So what I think, basically, we’re going to go into a risk-off environment. This is what I’m telling my clients in terms of stock indexes. Emerging markets are already declining and I think that will begin to in fact work its way back from the periphery towards the centre of major markets. I think then gold and gold equities will come back into favour as they’ve been out of favour for almost two years.
So that’s my scenario in a nutshell right there.
M&M: What could be the potential impact on the gold price if we do see Western intervention in Syria and how does instability in the wider Middle East region that we have seen recently, how do those sort of global issues affect your forecast?
MB: Good question. Now my model is agnostic. So I’m working off of a form of time series analysis forecasting and it really doesn’t incorporate any non-quantitative variables such as wars. I can’t really add value on that subject.
However, what over time I have seen is that the model forecast will give an idea of what markets are looking for an excuse to do before they do it. So that’s why I have a lot of clients. They’ll see something change in my model and then a month or two later some fundamental development will come out of the woodwork that wasn’t really visible before.
So, it’s been about a month or more than a month, about six weeks, since my work turned positive on gold. The high in gold was back around [USD]1900. Now we peaked in August, 2011. Just below 1900 in gold. We’re currently around [USD1400-USD1500]. So, to get back to 1900, I think that’s pretty much, that would be a reasonable target for this move and that’s right about 34% at the current levels. Of course, the gold stocks went down a lot more than that. So I think there is probably more upside in the gold stocks which are more depressed then there is in gold, so I guess my answer to your question is back to the previous highs is an achievable goal for the gold price for starters. Not next week or tomorrow or two days or something but over the course of this intermediate term move.
Where are we now? We’re in late August so maybe year end, early next year, I think is a reasonable target back to the previous highs.
Hear updated forecasting reports on global markets from Michael Belkin at Mines and Money London 2013. Joining Michael Belkin in the programme will be Rick Rule from Sprott Global, John Hathaway from Toqueville Investment Management, Randy Smallwood from Silver Wheaton, Frank Holmes from US Global Investors and Jim Rickards, investment banker, risk expert and bestselling author of “Currency Wars”.
As well as hearing advice and insight from a global investment heavyweights, attending investors will have the opportunity to scrutinise 250 mining companies and assess their investment potential by speaking directly to their senior management teams.
Download the programme here to see a list of exhibiting mining companies, confirmed investors and details about the full 3-day conference agenda, including discussion topics and new interactive formats designed to boost delegates’ networking experience.
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