Send this article by email

Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hi, and welcome back to HardAssetsInvestor.com. This is Mike Norman, your host. I am here today with Tom Winmill, portfolio manager at Midas Funds, for the second half of our interview. Now Tom, recently there has been some momentum, a movement growing in Congress to put a limit on speculation; specifically a proposed ban on commodity speculation or investment on pension funds and [other] large institutional investors. [Goldman Sachs and the sovereign wealth fund of Kuwait are two such large institutions that invest.] How do you feel about that? Let me just ask you this: If it happens, what sort of an impact do you think it’ll have on the commodity markets and prices?

Tom Winmill, portfolio manager for Midas Funds (Winmill): Well, I think it will probably have some impact definitely, right away. There’s no doubt that there’s financial speculation in the commodities market, which we basically think is a good long-term trend. For investors to have exposure to commodities means that they’re going to have a well-represented, diversified portfolio.

Norman: Yeah, but haven’t commodities historically not been very strong performers? Take gold for example. Adjusted for inflation, in constant dollar terms, gold right now is still probably 50% lower than where it was in the 1980s. How good of an investment was it really?

Winmill: Well, gold historically has been a way to preserve the value of your purchasing power. It has a negative cost to carry, so only in certain times do you want to own gold. Unfortunately for Congress, it’s about a dollar late and a day short. The time to have banned speculation in certain commodities probably would have been at the bottom. Here they’re now banning at the top and, if it’s going to go down from here, it’s probably too late to have banned. Typically they’ll aggravate the market cycle by forcing sales into the market.

Norman: You’re implying that Congress acts beforehand, when in fact we know it takes them a long time, those lawmakers up there on Capitol Hill, to even get what’s going on. So you think there would be an impact? How likely do you think some sort of regulatory control or an outright ban … how likely do you think that possibility is?

Winmill: Now that’s a horse race that we would not be able to handicap. We’ve looked at a lot of different types of legislations - tobacco legislation - all kinds of legislation, and the backdoor deals … I just don’t know, so I really couldn’t answer.