Premier Miton Investors Q&A: US expenditure, inflation, gold mining and cryptocurrencies (LON:PMI)

Premier Miton Investors plc (LON:PMI) Head of Equities and Fund Manager Gervais Williams caught up with DirectorsTalk to discuss US expenditure, inflation, gold mining and cryptocurrencies.

Q1: Gervais, with the new President now in office, what’s the stock market impact of the extra US expenditure that’s planned?

A1: It’s kind of interesting isn’t it because there’s going to be quite a lot of extra expenditure in the US and it’ll scale up US demand and clearly, that’ll accelerate the speed of the earnings recovery in the US.

I think we need to remember it’s coming on top of a lot of expenditure last year and that could lead to inflationary pressures and if that does start to drive up the consumer price index then I think that might lead to a decline in valuations of bonds and equities later in the year.

Q2: So, if inflationary pressures are starting to build, do you expect gold mining companies to outperform?

A2: Yes, because the problem is actually when such share prices are falling it’s quite hard to buy many that are bucking the trend. If you look back to what happened to gold price in March of last year, it fell initially but actually it recovered by the end of the month, already it was going up and it performed very strongly thereafter.

So, often, as you say, gold mining companies do benefit from this trend, for example we had a holding in Petropavlovsk last year and its share price went up from 15p to 40p last year. So, if the CPI inflation were to rise and share prices were to peak out then I think gold mining prices might well rise again and companies like Petropavlovsk might be well placed to participate.

Q3: It’s interesting to see that cryptocurrency prices have been strong over recent weeks, do you think they are displacing gold?

A3: I think gold is good store of value, the question is whether cryptocurrency is a good store of value as well and I think they differ from gold in three major ways.

The first is that whilst the actual impact of individual number of cryptocurrency units is limited, the number of cryptocurrencies themselves is unlimited. So, actually you’ve got an unlimited supply of cryptocurrencies as opposed to gold which is limited.

The second features is that actually the share prices of cryptocurrencies, or the unit prices of cryptocurrencies, tend to fluctuate with the market. As you know, they’re moving up to new highs as things like Tesla are at the moment whereas gold is actually very uncorrelated, gold price isn’t moving at all and people think that’s because it’s rubbish, well no it’s just less correlated.

The third area is of course that gold has a long history of being a store of value, it has that heritage and cryptocurrencies, they’re just novel at the moment, it’s just too early to know if they’ll be a port in the storm.

I think in a way, at this stage, I think it’s safer to assume that gold will be a good store of value, it may be that cryptocurrencies turn out to be that way but I’m just not sure at the moment.

Premier Miton Investors manage a range of funds and investment trusts. Its investment teams pursue an enlightened, collaborative approach that prioritises communication and discussion over bureaucracy and box-ticking. They don’t have a “house” view, which means your investments are managed by talented investment managers who are given the relevant freedom to think independently, because they believe this approach produces better investment outcomes for clients. This flexible approach encourages looking further and digging deeper for good investment ideas and to think smarter.

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