January 26, 2016

Earlier this week, I had the pleasure to sit down with Malcolm Palle at the Mining Maven and talk about markets, economics and some of the opportunities that are emerging in the commodity and mining sectors.

In the first part of the interview, Malcolm and I discuss the recent volatility in global financial markets. As discussed in an article last year titled “Monetary Base Expansion: The Seven Stages of Addiction”, I believe that global financial markets have become addicted to monetary base expansion and a low interest-rate environment. As the Fed gradually withdraws this drug, the markets are going to enter a “tweaking” phase, a phase that I believe began recently. If the Fed really commits to “normalizing” monetary policy, then markets will probably experience the “crash” and “withdrawal” phases that accompany the withdrawal of any hard drug.

In the second part of the interview, we discuss the recent rise in the price of gold. The view of The Money Enigma is that the gold price is inversely related to the level of confidence in the long-term economic future of society (see “What Determines the Price of Gold?”). Presently, confidence in the long-term prospects of the US are at high. But if this confidence wanes, then the gold price is likely to climb back towards the $1,500/oz level.

In the final part of the interview, we discuss some of the opportunities in the commodities and mining space. In particular, mining equities represent a fascinating opportunity at this stage of the cycle, but the challenge is to identify those companies that can execute in this environment and take advantage of the depression-style conditions that exist across the sector.