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Vancouver mining mogul Frank Giustra. (Michael Falco for The Globe and Mail)
Vancouver mining mogul Frank Giustra. (Michael Falco for The Globe and Mail)

Where eight renowned investors think commodity prices are going Add to ...

But it’s not all doom and gloom from the Toronto-based billionaire, who made his fortune with gold royalty investments. An abiding fixture of the North American investment and business scene for more than four decades, Mr. Schulich believes natural gas is headed for a revival, and not surprisingly, still counts gold as a rock-solid investment.

Even though gold prices have plunged and gold companies are struggling, “the beauty of gold is it can’t be printed by governments.” Cautious, conservative investors should still invest in “gold, gold and more gold.”

Mr Schulich said he still likes New Gold Inc. and Franco-Nevada Corp. He also advises that “every investor should have 10 to 15 per cent of their money in gold. And I mean gold, not gold companies.”

With signs of a natural gas rebound, Mr. Schulich also takes a measure of pride in the fact he held on to his stock in the sector even as others fled the market. He has a controlling share in Birchcliff Energy Ltd., a Calgary company that he describes as having “a humungous amount of gas in the Montney.”

While new oil pipelines face tough resistance from landowners and environmental groups, Mr. Schulich said he doesn’t see the same opposition to natural gas transport. Canadian gas is closer to Asian markets than other sellers, and reserves are onshore. He predicts natural gas could be up in the range of $5 to $6 per million British thermal units a year from now.

“I’m very bullish on gas. Primary because I think if we’re smart enough, I think the LNG [liquefied natural gas] export opportunities are tremendous.”

Mr. Schulich said the commodities supercycle is far from over, but a “pause” in China’s ferocious consumption of materials such as coal, steel, copper and aluminum means there’s going to be a longer slowdown than he first thought. News reports on the size and scale of the Chinese overbuild have surprised him.

“The duration is hard to read. But there is a pause, and it could be a little longer than we all thought.”

In a period of uncertainty such as this, Mr. Schulich added one other piece of advice.

“You want to have cash around to a reasonably large degree. That’s a personal preference, but that’s my preference.”

Kelly Cryderman


A time to buy investments at a discount

Rob Arnott has been telling his clients for a long time to diversify beyond stocks, bonds and cash. Commodities have been one of his preferred alternatives, and despite the beating markets delivered over the past week, he continues to favour them.

“It’s a move in the direction of a new buying opportunity,” the chairman of Research Affiliates says of the tumbling prices. Consumers are always delighted when they can buy products on the shelves at a discount, Mr. Arnott says – so why shouldn’t they adopt the same outlook with commodities?

The renowned U.S. money manager, who oversees Pacific Investment Management Co.’s All Asset Fund, advises buying commodities over repeated intervals in an effort to average costs, rather than trying to time the market. Commodities are notoriously volatile, but Mr. Arnott estimates the downside risk to be a maximum of 20 per cent from this point. On the other hand, in the next market cycle, which could begin as early as the end of the year in some regions, we could see prices double off their lows, he adds.

Mr. Arnott is not discounting the fact that China has reported weakening growth. He agrees that the world’s second-largest economy has likely entered the early stages of a long, protracted period of slowing growth. Within three to five years, it’s quite possible that the country’s gross domestic product expansion will have slowed to 5 per cent, he says. While this rate would be alarming to the Chinese, it would still represent sufficient growth to support rising prices for commodities for a long time.

Commodity prices will also get a lift from the “reckless money printing in the corridors of power around the world,” Mr. Arnott says. Overspending by governments will help drive noteworthy increases in inflation, one to three years from now, and that will lead to rising prices of hard assets, he says.

Beyond commodities, Mr. Arnott thinks that emerging-market bonds remain a good deal and emerging-market stocks are becoming attractive again after selling off this year.

And despite fears by many investors that high-yield bonds have entered the bubble zone, he says interest rate spreads are within historical norms and default risks are lower than average, thanks in part to governments’ reluctance to see businesses fail.

Simon Avery

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