Gold Guru's Top Development-Stage Miners

07/26/2013 11:00 am EST

Focus: COMMODITIES

Brien Lundin

President, Jefferson Financial, Inc.

Brien Lundin, editor of the Gold Newsletter offers a long-term bullish case for investing in gold and highlights his favorite development-stage gold and silver miners.

Steven Halpern: We are here today with Brien Lundin of the Gold Newsletter. Brian, you've been the editor of the Gold Newsletter since 1993. Could you tell us a little about your newsletter?

Brien Lundin: Well, Gold Newsletter was actually begun in 1971 by Jim Blanchard who was an iconic figure in the gold industry. He actually started Gold Newsletter when he heard that Nixon closed the Gold Window or the last vestige of dollar convertibility into gold.

He knew that that was going to create, or unleash unlimited government spending, depreciation of the dollar, and really change the nature of investing the world over. He started Gold Newsletter initially as an advocacy medium to try and lobby for the return of the right of gold ownership in American citizens. What a lot of people don't realize is it was actually illegal to own gold back then. It was akin to the drug wars.

It was illegal to have cocaine and it was illegal to own gold bullion. Jim thought that was obviously not right and inequitable, so he worked to return the right of gold ownership and was successful in 1974 when it was signed into law, and then he started a series of conferences. Now it's called the New Orleans Investment Conference to educate people in gold investing and issues revolving around financial freedom and free markets.

Steven Halpern: You frequently refer to seasonal patterns that impact gold prices and I know earlier in the year, you had forecast a seasonal low to occur in July. Do you think that bottom is in place now?

Brien Lundin: Yes I do, and it's actually seemed to have occurred a bit earlier this year. Typically, it happens around sometime-to back up a bit, during the about 12-year run of this bull market which I think is the most relevant period to study, all but a couple of times gold has bottomed-the gold price has bottomed sometime between the second week of July and the second week of August.

Typically, that's the time period where I look to tell investors to pick up some bargains that are at the mining stocks, and metal at the bottom end of a range, and try and get ahead of the time for the typical fall upturn. This year, the gold price seems to have bottomed, and the jury is still out, but it seems like we hit an important bottom, around June 27.

It looks like right now that we're on the upswing. Now, we've been fooled before a bit over the past few months and actually the past year with other kind of false bottoms, but there are a number of things going on in the market right now that seem to indicate a fundamental change in the gold and silver markets, and that we have, in fact, reached a bottom and are on the way up.

Steven Halpern: Among the longer term factors impacting gold, you often discuss Asian physical demand for metals. Is this a bullish factor looking long term?

Brien Lundin: Extremely bullish. One of the reasons why we typically have a slowdown in the summer is because the very strong physical market in India for gold bottoms out or reaches a lull period, as India kind of temporarily runs out of gold-oriented festivals, before the wedding season kind of kicks up again in the fall.

This year, that fact was actually exacerbated a bit by the Indian government hiking tariffs to try and prevent gold imports from coming into the country because of the huge demand we saw this spring in India, and as well in China, and other areas of Asia. This brought, I think, that earlier-than-usual bottom in the market, and in fact, China has more than made up for any slack in Indian demand.

It's just a raging bull market for gold in China right now. They're buying it hand over fist. The Shanghai Gold Exchange, which is really a way to trade physical metals, has posted over 1,000 tons of metal for delivery this year through June 1.

In 2012, which was a record year in itself, they did 1,000 tons during the entire year, so less than half of the year, they've already matched what they did last year.

That demand has completely absorbed, and even more so, exceeded the selling that we've seen in the West through the gold ETFs, etc. The net result of low prices this spring has been that gold demand worldwide has actually increased.

Steven Halpern: Now, you've likened the government's easy money policies to putting a frog in cold water and slowly increasing the temperature. Could you explain your concerns about inflation and how this would impact gold over the long term?

Brien Lundin: Absolutely. I think that a lot of the issues around inflation and retail price inflation are really misinterpreted and misunderstood by most factors in the market today. The reason why gold has been rising over the past five years and even ten years, has been the anticipation of very rapid increases in global fiat money supplies and that, in fact, has happened, and in fact, will continue to happen.

Now, we haven't seen that yet translate into retail price increases for a number of reasons. It has not been reflected into the CPI and in everyday life, except in the realm of commodities and in financial assets. There are huge pools of money shifting from assets to assets and we haven't seen that monetary velocity actually start to raise the prices on the retail level, where consumers tend to see it.

Still, in all, it is having the effect of raising commodity prices, particularly gold, because every new dollar, and every new element, or unit of fiat currency that's created, conversely raises the value-the ultimate value of things-particularly gold, which is a true monetary asset. What's happened is people don't feel it in their everyday life; they don't feel the inflation, and that water's gradually getting warmer and warmer.

They don't appreciate how their buying power is being impaired on a very regular basis, and a very real basis, with the increase in commodity prices, and sooner or later, they will start to see the impact on retail prices as well.

Steven Halpern: Now, in stock selection, your expertise is in uncovering junior miners often during the development stage. Could you tell us about some of the stocks that are on your buy list right now?

Brien Lundin: Yes, absolutely. There are a number of companies that have identified deposits. They're not in production, but a confident, and prudent, and experienced investor can look at them and say yes, at these prices, that's a viable project. They even have economic numbers, typically, for some of these projects where they know that it's going to be viable, and sooner or later, it's going to be a mine.

What happens is, at the early stage of development, a company is trading for a mere fraction of its market value once that project gets into development. If you buy it early in the process, you kind of ride that valuation increase that curves up. In a large way, that's somewhat immune to a lot of day-to-day or the volatility in the metals market.

It's a good way to bet on both the underlying commodities and the development process. Some of the companies I like in gold right now are Almaden Minerals; the symbol is (AMM) on the Toronto Exchange.

I like Eurasian Minerals; (EMXX) on the Toronto Exchange. I like kind of a hybrid play that's gold and copper of a very large deposit, or large resource at this stage, and that's NovaCopper; (NCQ) on the Toronto Exchange.

A producer I like is New Gold; symbol (NGD).Another thing that investors can do to get some leverage on gold is to invest in silver and silver companies, because silver typically moves in the same direction as gold, but much more quickly.

The equities tend to provide further leverage to the underlying metal. In that category, two companies I like are SilverCrest, symbol (SVL) on the Venture Exchange; and Endeavour Silver, symbol (EXK) on the Toronto Exchange.

Steven Halpern: Well, we really appreciate your insights. Thank you for taking the time today.

Brien Lundin: Glad to help.

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