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Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everybody, and welcome back to HardAssetsInvestor.com. I’m Mike Norman, your host. We’re here for the second part of my interview with Donald Selkin, who is the chief market strategist at National Securities.
So in the last interview, we talked about your price outlook, we also talked a lot about how a new class of participants – basically the investor class now – is having a very profound impact on not just copper prices but commodity prices in general.
Now there’s been some talk recently about regulation, about a tighter crackdown on this sort of speculation, maybe this sort of investor activity. First of all, do you think anything is going to come of that?
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Donald Selkin, chief market strategist, National Securities (Selkin): Well, politically there is a big push for it. I think something is going to come on it pretty soon; yes I do.
Norman: You do? In what form?
Selkin: Well, what they’re talking about in general are these position limits.
Norman: But there have always been position limits.
Selkin: Yes, I know, but I think they might try to restrict them a little bit; they might try to … the old question: Are you a legitimate hedger or are you just a speculator? They might try to tighten up the speculative position limits, and that’s always a difficult question because there are certain large brokerage houses …
Norman: Right, like Goldman Sachs, like Morgan Stanley.
Selkin: …which hedge for themselves but they also speculate for themselves; so that’s going to be I think the main issue. The burden of proof is going to be on the regulators to show, well, is this is a speculative position, and how they’re going to limit that.
Norman: Some people say that if they do impose these restrictions that it won’t make any difference because the business will just flow to markets overseas, and these markets are fungible, the price is fungible. If it’s $2.50 in London, that’s the global price basically.
Selkin: I agree with that; that’s always been the argument – that the participants used to say no: If you regulate, the business will go someplace else. But I know the Obama administration … this whole crackdown after what happened last year when all the commodity prices and the stock prices and the equity and the mortgage prices went down the drain … I think there’s a lot of political pressure to get something done.
Norman: They tried to do it last year, last July I remember, at least for oil. Nothing came of it, but there were several bills in Congress that were floated anyway; but maybe this time you’re right. And if it happens, do you think that’s it for maybe not so much the price, but how is it going to affect? Volatility goes away, prices just go down, I mean, what?
Selkin: Well, if you go back to other examples in history … we were talking about that with silver back in the days of the Hunts [the Hunt brothers], where it was priced up to $50, where the exchange said liquidation only. It did drop the price from what were obviously unrealistic levels of $50. So you could argue that the prices might come down again this time because there will be fewer participants that will have to unload their positions, but I think eventually the supply and demand fundamentals would win out.
Norman: You mentioned silver. If we could segue a little bit into the so-called precious metals, silver – I guess more of an industrial metal as well. What’s your outlook for gold and silver? A lot of people are very … especially when it comes to gold, they’re saying that’s the real money and we’re looking at inflation down the road; what do you feel?
Selkin: That’s been the argument lately because of all these economic stimulus packages and so many dollars and the increase in the Fed balance sheet, that the dollar is going to weaken, and it has been weakening. The euro is I think at a seven-week high.
Gold, as we all know, tends to react when the dollar weakens because it’s priced in dollars. But if you look at gold, for the longest time now, it really hasn’t made that much progress. It hit $1,000 last year a couple of times, last March I believe of ’08, not this year, and it’s been in that $900-1,000 range.
I personally believe that as we approach $1,000, there’s going to be a tremendous amount of selling, particularly from India, which is the largest gold importer. And I know the speculators like to say, oh, gold is at $1,030, $1,200, $1,300. I wouldn’t take that to the bank.
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