TOM HUDSON : As we mentioned in “Market Focus,” gold saw a sharp rally off the Federal Reserve promise to keep interest rates at historic lows. I recently spoke to gold exchange-traded fund investor Stephen Cucchiaro of Windhaven Investments. I began by asking him why he thinks that promise could be a threat to higher gold prices.
STEPHEN CUCCHIARO, CHIEF INVEST. OFFICER, WINDHAVEN INVEST. MGMT.: I would turn more bearish if the European situation turned into a disorderly default. It would be a short-term bearish, because there would be this great contraction. Cash would be king. People would be selling everything including gold. And then the next step would be how do the central banks react? And if after that, if that causes Europe to go into a more serious recession that drags the whole world down, do they enact a global quantitative easing or printing of money in a big way and if they do, that could be the next big leg up on gold.
HUDSON: All this talk about Europe and the Federal Reserve, that`s about the psychology of gold to some degree. What about the fundamental, supply, production and demand?
CUCCHIARO: The supply of gold is relatively fixed. And it`s really more of a demand issue. We think it`s much more helpful to think of gold as an alternate form of money. We think it`s helpful to think of the price of gold as not reflecting on the value of gold itself going up or down, but that gold is really stable, sits on a shelf. It doesn`t change.
HUDSON: You invest in gold through exchange-traded funds and some critics have pointed to exchange traded funds with commodities like gold and the demand that they have for the physical metal for pushing prices around. How do you respond?
CUCCHIARO: We need to make sure for our clients to the extent possible that yes the gold really is there. We`ve seen the audit reports. We`ve seen the processes that go through to value the gold. And we are also aware that as the gold ETFs have done better and better, there are other ways that people used to invest in gold, for instance through gold mining shares and mutual funds, where they`ve lost market share and there`s some talk that perhaps rumors were started by these other firms to try to talk negatively about the gold ETF`s to try to build back their market share. So we think that has to be treated with some suspicion. So we feel very good about our relationships with the providers of the gold ETF`s that yes, that gold really there`s in those vaults.
HUDSON: In the ETF universe with so many funds to choose from, especially with precious metals, is gold the best precious metal ETF?
CUCCHIARO: We think the gold is the purest form of an alternate form of money and one reason why we like gold is in that scenario that happens in the future where everything goes down, the economies goes down, money gets printed more and more, gold might be the only investment that goes up as an alternate form of money, whereas the other precious metals might go down with the real economy.
HUDSON: One of the trends for stock investors lately has been looking for stock dividends. Gold clearly has no dividend. Does that hurt?
CUCCHIARO: If you compare to it cash, cash has such a low interest rate, at least with gold that zero percent interest rate, coupled with the fact that over long periods of time gold tracks inflation, you could argue it`s actually more favorable.
HUDSON: Steve, thank you. Steve Cucchiaro, Windhaven Investments.
CUCCHIARO: Thank you, I really enjoyed speaking with you.
HUDSON: When talking about gold, you also have to think about the dollar. On our website, nbr.com, go to “featured videos” to see a bonus interview about the outlook for the U.S. dollar.