silberinfo Interview with
Peter Zihlmann
silberinfo
www.silberinfo.de
21 Jul, 2006
Peter Zihlmann
looks back on thirty years' experience in the field of finance.
In 1994, after working for various banks in Switzerland, he founded
the P. Zihlmann Investment Management Company. [PZIM] One of his specialized
areas is the domain of precious metals and mining shares, about
which he has written several well-founded articles that have
earned him an international reputation.
silberinfo:
Mr. Zihlmann
- the precious metals markets are currently in revision,
hence the predominant question forthwith - what do you
expect to happen to the price of gold and silver in the coming
weeks and months? How far will the revision go?
Peter Zihlmann:
On June 14,
I wrote a report entitled: "Why
buy Gold?"
Gold was quoted at $ 552.50 and silver at $ 9.60 and the long-
and short-term recommendations were: BUY! We are still of this
opinion.
silberinfo:
Is this just
a market shake-out in the sense of a reduction of speculative
positions following the past strong rally, or are there more
fundamental reasons for the price drop?
Peter Zihlmann:
In the second
week of May, gold reached an all-time high of $ 720. On that
same day, a newscaster on the Swiss TV news (Schweizer Tagesschau)
said: "Gold is rising and rising and rising and rising!"
and I thought to myself: "it cannot carry on at this pace."
Let us not forget that a year ago gold was quoted at under $
450. A price hike of 60% in such a short period is remarkable
and thus the revision that we are currently experiencing is indeed
a market shake-out, a reduction of speculative positions.
silberinfo:
At the same
time, the stock market is also in revision - what do you
forecast here? Will the current correlation precious metals-resources-stock
market soon be reversed?
Peter Zihlmann:
We follow the
DJIA/gold ratio, - which since 1990 fluctuated between 1 and
40, and since the year 2000, when it reached 40 points, slid
back to 20 points. We assume that it will continue to fall, as
no solution has been found for these considerable problems. If
the DJIA drops to 6,000 points and if an ounce of gold rises
to $ 1,000, we would have a DJIA/gold ration of 6 - by
all means a possibility in our opinion. But it could be worse,
as last century we often recorded a ratio of less than 2.
silberinfo:
How do you
see mineral shares in this environment?
Peter Zihlmann:
The price of
gold has risen 130% since its 2000 low. The HUI Index (Gold Bugs
Index -Amex) rose by more than 700% in the same period.
In future, mining shares will rise much higher than the rising
price of gold. However, one must bear in mind that the prices
of the market leaders on balance will not rise as high as will
those of middle and small businesses. Gold mining shares currently
offer an interesting access possibility.
silberinfo:
In addition
to the precious metals and the entire resources sector, base
metals recently registered great price hikes. In particular,
the price of copper almost exploded. How do you see the development
of this?
Peter Zihlmann:
Jim Rogers,
author of the book "Hot Commodities," is of the opinion
that the demand, especially from China and India, will far exceed
the supply in the future and that this boom will continue for
several more years. We concur with this view. There will naturally
be fluctuations in the bull market. But this is normal.
silberinfo:
Do you see
danger, because of the high metal prices, that larger amounts
of silver will be claimed as a by-product, thereby seriously
worsening the situation for silver? Or even that the current
production deficit could change into a surplus?
Peter Zihlmann:
It is not the
case, that mining production can be extended arbitrarily because
of higher prices. It takes years to bring a mine to production.
We therefore do not assume that the demand for silver will strongly
increase. On the other hand, increasing amounts of silver will
be required for industry.
silberinfo:
Whenever gold
and silver prices are adjusted, suspicion of manipulation by
is expressed by "Goldbugs.". What do you think of this
manipulation theory?
Peter Zihlmann:
The fact is
that the price of gold has risen steadily since 2000 and in a
realitively "normal" upward trend. If the manipulation
theory had been sound, then the price of gold would hardly have
doubled since then. A not unknown thinker once said: "Nothing
is too absurd for people to believe."
silberinfo:
What significance
do the weekly COT figures have for you for the Comex futures
contracts? Could it be that these would lose their importance
when the price of silver rises?
Peter Zihlmann:
I do not pay
much attention to weekly figures. Furthermore, ETFs might reduce
the importance of the futures contracts.
silberinfo:
What significance
does the factor China have for you?
Peter Zihlmann:
China is of
immense significance. One could almost say today: "Eastward
China, everything depends upon China!" One must hope indeed
that the fast-paced growth of the Chinese economy will not have
a dramatic end, whatever the catalyst may be. The fact is that
people do not particularly tend to live together in peace. And
that is exactly why we need gold as a safe reserve.
silberinfo:
What do you
say to the theory that the silver market, on account of the unclear
information concerning possible exisisting stock in China and
India, is (too) intransparent for the investor?
Peter Zihlmann:
There are hardly
any markets that are really transparent. For the individual investor
the question is how much risk one is willing to take, for every
investment depends upon a future development, which is difficult
to assess. Just look at how the major banks estimate the market
trend of the EUR/USD exchange rate twelve months in advance.
Opinions diverge mightily. After all, one must remember that
the unclear particulars concerning the stocks in China and India
have not retarded the rise of the price of silver.
silberinfo:
Which investment
strategy do you prefer in view of the still very volatile silver
price trend? To trade or buy and hold?
Peter Zihlmann:
Our strategy
is to seek out undervalued companies, which still exisit because
the market is not transparent, and where there are undiscovered
jewels to be had. The strategy is more one of "buy and hold."
He who hesitates is lost!
silberinfo:
On what criteria
do you base your analysis of analyze mining companies? What percentage
of deposit do you recommend for actual gold and silver, as well
as for mining shares?
Peter Zihlmann:
We do not keep
any actual gold or silver in our gold fund, because, in our opinion,
everyone can do this for himself, without having to pay a commission.
For mining shares, we concentrate on mid-sized and smaller companies,
which usually have quite a significant amount of ressources already
but which continue to press ahead with explorations. The market
capitalization per ounce is a useful benchmark.
silberinfo:
Do you also
recommend admixing explorers or only producers?
Peter Zihlmann:
The greatest
capital gains can be attained through the explorers. But a reasonable
diversification over at least fifteen companies is important.
A geographical diversification concentrating on politically stable
countries is recommended.
silberinfo:
You recently
published an article about Silver Wheaton, which can also be
found in silberinfo's sample portfolio. May we enquire about
your other favorites in the mining sector?
Peter Zihlmann:
We set great
store by not not investing in an individual value but rather
by compiling a portfolio. And one must find a weighting between
the producer and the explorer, and individual requirements. Anybody
can subscribe to our current recommendations, which is why we
do not wish to concentrate on individual values.
silberinfo:
In Latin America,
especially in Venezuela, Bolivia and Peru, recent political events
provided much to discuss among the mining investors. Although
Humala was not elected in Peru, there still remains a flat aftertaste.
What are your views on the political risks in Latin America?
Do similar dangers threaten long term the other important precious
metal exploitation countries, Argentina and Mexico? How do you
deal with these risks?
Peter Zihlmann:
I have not
made any investments in Venezuela. There are some marginal items.
Brazil is quite promising. At present, I have no qualms, as the
indigenous population is insignificant. In Chile, the situation
appears to be stable, although there is talk of increased taxes.
In Peru, Alan García will have to prove that he has learned
from the past, as he claims. Once bitten twice shy. Only time
will tell. In Mexico, the president has little control over parliament
, which is why, in the beginning, Vicente Fox was unable to bring
many reforms through parliament. Even were the left wing to win,
I do not believe that this would result in a disaster. Ecuador
is a particular case. We had our greatest investment successes
there. Colombia is probably a country of the future. Guyana also
offers interesting possibilities.
silberinfo:
Mr, Zihlmann,
you live in Switzerland, and we would love to hear your opinion
on the mysterious gold sales of the Swiss National Bank.
Peter Zihlmann:
The sales by
the Swiss National Bank were not mysterious but quite simply
a miscalculation. The Bank of England was much more successful
in selling during the all-time low.
silberinfo:
UBS is particularly
powerfully engaged in the derivative sector of the precious metals
market; is this a ticking time bomb?
Peter Zihlmann:
The bomb is
ticking everywhere. All you have to do is listen. It is one of
the reasons why a number of clients prefer "boutique banks,"
which are not exposed in this business.
silberinfo:
Hardly a day
goes by right now without headlines concerning the the silver
ETFs of Barclays, in the standard business conditions there is
mention, among other things, as to if the investments of actual
silver rise above 1 billion US$, the depositary is then not obliged
to accept additional silver consignments. Your opinion of this
investment vehicule?
Peter Zihlmann:
The ETF is
an ideal means for buying or selling silver/gold at the click
of a mouse. But someone really wishing to have a little put aside
if worse comes to worse, would certainly be well advised to have
some gold coins readily available. But the question of course,
is: Where? Under the mattress, in the garden or in a personal
safe? And what happens if one cannot remember where one has hidden
them?
© by silberinfo
email: team@silberinfo.de
website:
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