If we have seen a bottom in 10-year benchmark yields, and are in the midst of a new secular bull-tre...
Mining Guru’s Guide to Gold
03/18/2016 10:00 am EST
Gold sector expert Brien Lundin explains the fundamentals underlying the recent strength in gold and the factors to watch to determine if this is just a bounce or the start of a long-term bullish move. Meanwhile, the editor of Gold Newsletter also highlights a trio of his favorite junior mining stocks.
Steve Halpern: Our special guest today is Brien Lundin, a leading gold and resource sector expert and the editor of Gold Newsletter. How are you doing today, Brien?
Brien Lundin: Doing great, Steven.
Steve Halpern: Now gold has been particularly strong since the start of the year. You highlight some of the factors that have been supporting this rise in prices, particularly against a rather lackluster general market environment.
Brien Lundin: Absolutely. The issue has been the fact that the US has been the only major economy out there that’s actually been in a tightening mode as far as monetary policy and has been trying to stand strong against that rising tide of monetary liquidity around the world and the slackening tide of global economic growth. The US has been eeking out around sub-2% GDP growth but still growth and a very good performance compared to the rest of the world.
Now when the Fed finally decided to raise interest rates back in December by the quarter point, I noticed that you had some people, like Ben Bernanke talking about how negative interest rates could actually be a tool in the Fed’s toolbox,
And it seemed to me that with the signs of an actual slowdown in economic growth in the US and the rest of the world slowing down that the next big thing was likely going to be is the US going to slip into recession?
And if it is, will the Fed be forced to resort to negative interest rates like much of the rest of the world?
That’s the fear that kind of erupted at the beginning of the year and over the first couple of months, and as the economic data started to come in and started to look fairly negative for the US economy, and I think that really drove the big rally in gold that we saw through the first little more than two months of the year.
Steve Halpern: Now you recently did an online webinar for MoneyShow with three other leading gold experts, Peter Schiff, Brent Cook and Mike Larson. Could you give us a brief overview of where you and these other experts felt gold would be heading over the coming months? And did you sense a general consensus among the experts regarding the outlook?
Brien Lundin: That was a really interesting webinar because you had a range of opinions and expertise on that call. We had Mike Larson who focuses a lot on the credit markets, and looking at the credit markets saw a potential serious correction in equities and a concomitant rise in gold and precious metals.
Then with had Brent Cook who is a geologist and who analyzes resource companies, primarily exploration and development companies, but who has also been looking at the long-term trends for gold supply and demand and noted that we’ve actually reached peak gold.
The amount of large-scale gold discoveries in the world has dropped off precipitously, and as a result we’ve reached peak gold, and gold production is actually falling and forecast to fall for the foreseeable future.
Then we had Peter Schiff, who noted that in his bullion business, that investors had yet to really sign on. The retail investors had yet to really get excited about gold, and many were even unaware that gold prices had been rising, so this was a contrarian side that we were early in this move and that this move could really be something very significant.
In contrast, we had me — as the editor and publisher of Gold Newsletter — who watches the market. You know I watch it very closely and from a number of different angles.
And I’ve seen these rallies in the early part of the year kind of peter out over and over again, and I still was a bit skeptical about this move and really needed to see it go a little bit further before I was really convinced that it was truly different this time.
Steve Halpern: As you pointed out, there have tended to be January rises and in the past that have turned out to be temporary. Are there any specific time and price points that you would look for to confirm that this rise is indeed the real deal?
Brien Lundin: You know over the last 15 years or so, the gold market has usually had an early year rally; and in fact, only in about three or four of those years has it failed to do so.
Over the last few years we’ve had, for example, in 2014 gold surged throughout the first couple months, two-and-a-half months of the year into early March or mid-March, and it reached $1385.
Last year, in 2015, the rally lasted only through January, and it added about nearly a couple hundred dollars to the gold price, but it quickly petered out.
What I’m looking is if this gold rally can make it into next month, into mid-April in terms of duration or if it can get up to the 1350 to the 1385 level in terms of degree, then I think that would be a sign that this is truly more of a secular move in metal, something that’s going to last beyond just the first few months.
Steve Halpern: Now, interestingly, you’ll be one of the featured experts on the upcoming MoneyShow cruise that’s focused on the metals and mining sector; and not surprisingly that will be in Alaska from Anchorage to Vancouver, covering really an area that’s been very important to the gold industry for over 100 years. Can you tell our listeners a little about the cruise and what they might expect if they joined you on it?
Brien Lundin: Yes, we’ll have Mike Larson of Weiss Research, who I just mentioned, on the cruise. We’ll also have Brent Cook, who’s acknowledged as really one of the top analysts for junior exploration and development companies. We’ll have Rick Rule, who’s widely recognized as one of the smartest guys in the industry as far as metals and mining. And we’ll have myself on the cruise.
I think what’s important is that for those seven days you’ll get the chance to socialize and mingle with these top experts and not just get what they’re telling everybody but really get to know them and get to know their secrets for success in addition to their very specific picks, their top companies that they’re recommending to investors.
The timing is very important because by then we’ll know if this rally was the real deal or if we have a bit longer to go during this corrective phase; but regardless, we know that gold has been in a bottoming process after a long and in deep fair market correction, and we know that we’re coming out of this at some point.
The profit opportunities coming off of a long-term bottom in precious metals are really spectacular, have been proven to be spectacular. The average gold stock will have to multiply four or five times over just for the indices to get back to their previous levels.
Now the winners in the sector will be going up much more, maybe 10 or 20 times over; so we’ve seen this happen over and over. I’ve gone through a few cycles in my time in the industry, and I can tell you that the profit opportunities in such a circumstance are really like nothing else.
Steve Halpern: Now in addition to assessing the general outlook for gold, you specialize on finding long-term value in the junior mining sector. Before I let you go, would you be kind enough to share a few names that longer term gold investors who understand the speculative risks might consider?
Brien Lundin: Sure, sure, and you bring up risk, and I think that’s important. One of the opportunities that this long bear market has afforded us is the opportunity to buy companies that have already discovered something.
And in many cases these are world-class, multi-million ounce gold deposits and are selling at such low levels that they really have the same market value as exploration companies used to be in a typical market. You can get these things -- these world-class assets -- without taking on the risk of exploration.
Some of the companies that I really like and that fit that criteria are Kaminak Gold (KAM) on the Toronto Venture Exchange. It’s got a multi-million ounce deposit in the Yukon with a very positive feasibility study.
I also like First Mining Finance, (FF) on the Venture Exchange as well. This is a company that’s being run by some seasoned professionals who have a long history of success in the industry.
What they’re doing is buying up these very resources that are out there sitting very cheaply in the market right now, and they’re accumulating these, becoming kind of a resource bank for when the market turns around; so that company’s going to be highly leveraged to move higher in gold and silver.
I also like Newmarket Gold (NMI) on the Toronto Exchange. Newmarket is also run by some heavy hitters in the industry, people who have already made their mark and had a lot of successes.
It’s a turnaround junior gold producer. It has already turned around a gold deposit, the Crocodile gold deposit in Australia, and it’s seeking to acquire other producing projects and will be immediately leveraged to higher gold prices.
Those are three that I think have a better-than-most risk/reward dynamic for investors trying to get positioned in the sector.
Steve Halpern: Again, our guest is Brien Lundin of Gold Newsletter. Thank you so much for your time today.
Brien Lundin: You’re welcome, Steve.
Editor's note: For a more in-depth discussion of gold featuring Brien Lundin, Peter Schiff, Brent Cook and Mike Larson, listen to their online panel by clicking here.
By Brien Lundin, Editor, Gold Newsletter
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