Graham Birch: Gold, India &
a Private Education

Issue 101, October 2014

Continued from Page 2

“The wheat price, the oil seed rape price, they've all dropped by 40 per cent or more in the last 12 to 18 months, so it's a very bleak pricing environment.” The milk price has dropped as rapidly as the silver price in recent months, adds Birch, who sits on the board of silver group Hochschild Mining. “That's nasty if you're a producer.”

Market View

Immersed in farming and as one of the mining industry's most successful investors, Birch is ideally placed to give a long term view of the market. “If I was an investment manager today,” he says, “I'd be dialling up the diversification."

“There's a lot of risk in today's market,” he warns, citing fresh military intervention in the Middle East, Russia's annex of Crimea and hostility to Ukraine, plus pro-democracy protests in China. “You've got a government in China that doesn't respond very well to being challenged.”

“Very few investors are paying any attention to the traditional five-year view. They're all looking at next quarter. I think that explains why stock markets are pretty much brushing everything off."

"The teenagers managing money in hedge funds, they'll probably get a private education in a minute. It's the way that markets work. One thing that all private educations have in common is they're all very expensive.”

Gold & India

Despite his scepticism as to overall equity levels, Birch says gold and silver prices are unsustainably close to their cost of production and is impressed by the extent of infrastructure investment underway in India.

“I know everyone's bored with the story of China and India, but I don't think India has really happened yet, the way it could.”

The redemption driven decline of mining equity funds he says is a purely cyclical phenomenon. “The mining industry's dead as a dodo,” he observes. “Short term investors will say the iron ore price is dropping, the gold price is dropping, why would I want to be investing in mining. But once you start to see a more favourable underlying commodity price, you'll get people pouring money back into equity funds.”

He says the same short term sentiment is trampling agricultural prices, with news sources constantly warning that grain will continue to fall. “At some point you know that won't be true,” Birch concludes. “I think there's already more upside than downside in most commodities.”

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