Are stocks still suspect, and what is the outlook for gold?
"Are you concerned that this recent rally in the stock market could be a head-fake?
Absolutely. There is clearly a risk of that, and we are very aware that you need a healthy banking system globally to have strong, sustainable global growth. There is no doubt in our minds that the banking system still has holes that need to be filled. The banking sector needs -- depending on which estimate you use -- $200 billion to almost $1 trillion of additional capital. Some of these programs sponsored by the U.S. Treasury, the FDIC [Federal Deposit Insurance Corp.] and others have to work. If they don't, you don't have sustainable growth in the OECD countries, and there would still be risk in the commodity markets.
Moving on, what's your outlook for gold?
Gold is off roughly 10% from its high, which was about $1,000 per ounce about a year ago. Now, gold is caught in a vise. The U.S. banking system is still in pretty poor health, and the consumer is probably overleveraged. So you have a deflationary, deleveraging story, which is probably acting as an overhang on gold. Offsetting that is quantitative easing virtually everywhere in the world. So there is free money being printed in the U.S. and the U.K.
Which is the better scenario for gold?
The upside case for gold is more of an inflationary environment. I don't think anyone thinks inflation is a problem today, but a growing number of people think inflation is going to be a problem two to three years down the road. We are in that camp.
Gold typically trades in long cycles, up or down. Are we still in a secular up-cycle?
Yes, we think that's the case. Gold is taking a healthy pause right now; it needs to consolidate. There was a lot of fast money in gold when it came to the sovereign concerns [a few months ago]. Some of that fast money is now out of gold, which is a healthy phenomenon. But gold is increasingly accepted as its own asset class and as a separate currency. We [see gold hitting] new highs, over the next year or two, of around $1,500 an ounce."