Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20
AMD is KILLING Intel as Ryzen Zen 3 Takes Gaming Crown, AMD Set to Achieve CPU Market Dominance - 13th Oct 20
Amazon Prime Day Real or Fake Sales to Get Rid of Dead Stock? - 13th Oct 20
Stock Market Short-term Top Expected - 13th Oct 20
Fun Stuff to Do with a Budgie or Parakeet, a Child's Best Pet Bird Friend - 13th Oct 20
Who Will Win the Race to Open a Casino in Japan? - 13th Oct 20
Fear Grips Stock Market Short-Sellers -- What to Make of It - 12th Oct 20
For Some Remote Workers, It Pays to Stay Home… If Home Stays Local - 12th Oct 20
A Big Move In Silver: Watch The Currency Markets - 12th Oct 20
Precious Metals and Commodities Comprehensive - 11th Oct 20
The Election Does Not Matter, Stick With Stock Winners Like Clean Energy - 11th Oct 20
Gold Stocks Are Cheap, But Not for Long - 11th Oct 20
Gold Miners Ready to Fall Further - 10th Oct 29
What Happens When the Stumble-Through Economy Stalls - 10th Oct 29
This Is What The Stock Market Is Saying About Trump’s Re-Election - 10th Oct 29
Here Is Everything You Must Know About Insolvency - 10th Oct 29
Sheffield Coronavirus Warning - UK Heading for Higher Covid-19 Infections than April Peak! - 10th Oct 29
Q2 Was Disastrous. But What’s Next for the US Economy – and Gold? - 9th Oct 20
Q4 Market Forecast: How to Invest in a World Awash in Debt - 9th Oct 20
A complete paradigm shift will make gold the generational trade - 9th Oct 20
Why You Should Look for Stocks Climbing Out of a “Big Base” - 9th Oct 20
UK Coronavirus Pandemic Wave 2 - Daily Covid-19 Positive Test Cases Forecast - 9th Oct 20
Ryzen ZEN 3: The Final Nail in Intel's Coffin! Cinebench Scores 5300x, 5600x, 5800x, 5900x 5950x - 9th Oct 20
How Soon Will We See Stock Market SPX 4000? - 8th Oct 20
Stock Market Spy ETF Testing March Price Peak – What Do the Charts Say? - 8th Oct 20
5 Consequences of US Debt at $50 Trillion - 8th Oct 20
Long Term Cycles Suggest Stock Price Reversion Pending & Gold Price About To Explode High - 8th Oct 20
AMD Zen 3 Ryzen 5000 Launch - Performance, Prices Skews, Cinebench r20 Scores, 5800x, 5900x, 5950x - 8th Oct 20
Gold vs. Silver – Absolutely No Comparison - 8th Oct 20
Gold: Why You Should Be Wary of the "Consensus" - 8th Oct 20
UK Covid-19 Hospital Admissions and Deaths Since Testing Positive in 28 days Analysis - 7th Oct 20
Amazon Prime Day 2020 Sales Top Tips of How To Get Big Savings! - 7th Oct 20
Want To Win Big In Forex Trading? Leverage Is Your Friend - 7th Oct 20
Why I am Voting for Donald J. Hitler - 6th Oct 20
Markets Chop & Grind: Gold, Stocks & Commodities - 6th Oct 20
Silver Price Great Buy Spot Ahead of Second Big Upleg - 6th Oct 20
Forget RTX 3080 Get Zen 3 Ryzen 5900x / 5950x - GPU vs CPU - PC Bottlenecking - 6th Oct 20
How to Get Budgies / Parakeets to Eat Vegetables for the First Time - 6th Oct 20
How to Pick a Reputable Double Glazing Window Company - 6th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Gold is Money and Insurance Not an Investment, Tougher Year for PM Stocks

Commodities / Gold and Silver 2010 Jan 23, 2010 - 01:42 AM GMT

By: The_Gold_Report

Commodities

Best Financial Markets Analysis ArticleItchy money made 2009 one of the best years on record for the junior resource sector, according to Mickey Fulp, the Mercenary Geologist. In sector terms, it won't be so easy to prosper in 2010, but nevertheless he's confident about the prospects ahead for specific companies that remain undervalued with respect to their peers. Further, he tells The Gold Report in this exclusive interview, by careful consideration of three key criteria—share structure, people and projects—investors have a strong chance of picking up equities that could double within 12 months.


The Gold Report: 2009 turned out to be quite a successful year for equities even though a lot of the economic trends showed only mild improvement, if any. How would you summarize what happened in 2009?

Mickey Fulp: The markets were so beat up in 2008 that equities became a place of safe haven. A lot of cash—itchy money, if you will—sitting on the sidelines poured into equities. In times of financial duress equities can become the preferred investment vehicles. It surprised everybody, I think, but 2009 turned out—especially in our junior resource sector—to be one of the best years on record.

TGR: And what do you think 2009's performance means for 2010?

MF: I don't want to venture there right now. I am still digesting things that happened in 2009 and trying to make up my mind where I see things going. Maybe we can talk about that the next time.

TGR: Certainly. Your specialty is to find undervalued junior resource companies and clearly there were a lot of them at the end of '08. How does that picture shape up going into 2010?

MF: I don't see a lot of undervalue in the precious metals sector, but there are specific companies that haven't reacted yet or have catalysts pending. So there are a few of those that I'm looking at.

TGR: Would you say the market's overvalued at this point?

MF: The market is valued at what the market says it is. It's oftentimes driven simply by psychology and those are touchy-feely things that are hard to get a handle on. The junior resource sector is certainly valued a lot higher than it was last year. Will it go higher or lower or will we see a correction? I think a lot of that depends on the price of gold.

TGR: We'll come back to gold prices specifically in a moment. In your last Mercenary Musing, you wrote about how we are led to believe things from trusted sources such as Santa Claus and the Easter Bunny. More relevant, you discuss the government talking about organizations that are too big to fail that we have to bail out, and—in terms of gold price—pundits telling us that gold prices will climb to multi-thousands of dollars per ounce. As an investor yourself, what are you hearing that really can't be trusted?

MF: I mitigate the risk of undeserved promotion with very detailed due diligence and research. You too need to do your own due diligence and your own research on anything you consider, looking at the three key criteria—share structure, people and projects. If you follow my investment philosophy, you're looking for stocks that have a strong chance to double within 12 months. Everything gets promoted. Reduce your risk by doing your own research and figuring out what's real and what isn't.

TGR: Adrian Ash of BullionVault recently wrote that holding or buying gold today is a "bet on things staying all too much the same." This is interesting because most people who urge buying gold now expect inflation, hyperinflation, value devaluation and all of that. What's your viewpoint?

MF: My view on gold hasn't changed. It's been the same since I bought my first gold nuggets in 1979; that's more than 30 years now. It is simply a safe haven. It's an insurance policy. You can speculate in gold if you so choose, but it is a horrible investment. It should not be bought as an investment.

Except for the "Decade of the Aughts," the decade that just ended, it has provided no return on investment. You would have made more money if you'd put your hard-earned dollars in a savings account in your local hometown bank in 1979. The idea that gold is going to thousands of dollars—which we've heard continually since the early '80s when newsletter writers were talking about $1,000 to$4,000 gold…in my opinion, these gold bugs are promoting their own publications.

Gold is money. It goes up and down based on speculation, but there is a fair market value of gold that basically has to do with the money supply and the gold supply, and the inflation of the money supply and the gold supply—which is basically annual mine production.

TGR: So if it's based on money supply and we are increasing money supply, will gold escalate in synch with the money supply? Or at a different rate?

MF: That's just up to the speculators. I haven't seen Paul van Eeden's latest charts, but if memory serves, he last calculated the fair market value of gold based on the money supply at about $850 an ounce. I'm comfortable with that. I'm comfortable with $1,100 gold. Gold miners that do not make money at $900 or $1,000gold don't belong in the business. There are good mines; there are bad mines. My holdings of gold at any time are at least 10% of my net assets and always will be. I buy gold and sock it away for a rainy day. If the world goes into financial crisis again, I will be a well-to-do man because I own real money.

TGR: And many are saying that we are heading into a financial crisis. Our increasing money supply is going to cause inflation. Why wouldn't you buy more insurance when you believe the impending risk is even greater?

MF: Number one, I don't think that, and number two, I don't buy the hyperinflation scenario that the gold bugs promulgate. They will latch on to anything that will give them some fire power to convince the general populace that gold's going to the moon. I've been in this game for 30 years. I haven't seen gold go to the moon once. Have you?

TGR: Not at all.

MF: I'm not a gold bug. I never have been one. Gold closed at $1,096 at the end of 2009. I know one guy who guaranteed it was going to be $1,500, and another who guaranteed $1,260. And some people are way out in left field. Show me the beef. I'll stand behind my record of being bullish on gold, but not a gold bug. One of these years perhaps those of us who aren't gold bugs will be proven wrong. But so far we have a track record and the gold bugs don't.

TGR: Let's talk a bit about gold equities. A lot of the companies that couldn't make money at $900 gold have seen amazing increases in their stock prices this year. Granted the market was beaten down in '08. Considering where the gold price is now, do you think gold equity companies are generally valued correctly?

MF: Of course, it has to do with market psychology. And certainly the sector as a whole is valued much higher than a year ago. We all knew some good gold companies were undervalued a year ago. Whether they're going higher or lower or are due for a correction is tough to say. I think, again, it depends on the price of gold.

Suppose the price of gold goes up $100. I don't think it will, but if it goes back up to $1,220, the gold companies will go up. If it drops to $1,040 or even below $1,000, those companies are going to go down. It's difficult for me to get a sense of whether the gold sector as a whole is going higher or going lower. In times like these I would look for specific companies that are grossly undervalued with respect to their peers.

TGR: We'd like to hear about some of those companies, but first, help us understand why—with the amazing increase in gold price over the last two years—profit growth is nowhere near the increases in equity values.

MF: It's because operating costs have gone up. Mining is such an energy-intensive industry that the price of oil, and therefore fuel, tires, mining equipment, etc., all came to a head with $145 oil prices. Oil prices are high again, so operating costs have increased. Getting an ounce of gold out of the ground costs considerably more today than it did three years ago. That's really why you don't see mining companies making windfall profits.

In addition, all the major miners are scrambling to keep their production up. They're mining lower grades and less economic portions of their deposits because in a capital market environment they strive to maintain their ounces of gold production. There just aren't enough new good gold deposits being found and developed for the majors to be able to do that without mining lower grades, less economic ounces, and with higher strip ratios.

TGR: With this increased cost of production, what would you consider a fair market price for gold now?

MF: I'll go back to Paul van Eeden's concept of what gold is worth. A fair market price is probably somewhere between $800 and $900 an ounce now.

TGR: Now, could you tell us about some of those specific companies that you consider grossly undervalued vis-à-vis their peers?

MF: Sure. I have a few new ones. One company I'm looking at and haven't said boo about previously is Otis Gold Corp. (TSX:OOO), a very well-run company with a low number of shares operating in southeast Idaho with an advanced deposit. Otis did a 65-cent private placement in the late fall and is currently trading in the 55-cent range.

I also like Amarillo Gold Corporation (TSX-V:AGC), a company with two advanced gold projects in Brazil, superior management, and drill results expected soon. Sierra Minerals (SIM.TO) is another. It is a small gold producer in Mexico that is looking to grow much bigger. An explorer I follow is Canadian Shield Resources (TSX.V:EXP), which has a very tight share structure, a new leader, and a new focus on prospect generation in southern Peru.

A company that I've watched for two years and just wrote up in December, is Oremex Resources Inc. (TSX:ORM), a pure silver play in central Mexico. It was a 15-cent stock when I wrote it up and it's been trading as high as 20 cents recently. Oremex was on my radar screen because it has a very nice silver deposit, but it has had surface rights problems. It's making progress on those, and I think we can expect some positive news to come out on Oremex in the short- to mid-term.

TGR: How do you rate silver in comparison to gold as an insurance policy?

MF: Silver falls down drastically by that metric. Silver generally functions as an industrial metal. Most of the silver in the world is a byproduct of lead, zinc or copper mining, so the silver price tends to track base metal prices when the world economy is humming along. In times of financial distress it tends to operate more like gold, as a precious metal.

TGR: So you aren't big on silver?

MF: I personally hold silver. I own bags of junk silver, silver bars and silver coins. I hold silver as a hedge and as a safe haven against financial calamity, but these are holdings for the worst-case scenario. If the world goes to hell in a hand basket, it will be a lot easier to take a Mercury dime to your local baker and trade for a loaf of bread than it is to shave off a piece of a gold coin.

TGR: But you aren't seeing that worst-case scenario unfold?

MF: I'm not as concerned about financial calamity as I was 12 to 18 months ago. In the summer and fall of '08, I was very concerned.

TGR: It's interesting that you're not as worried about financial calamity when so many other people are saying we've now spent even more money than we'd ever dreamed of spending, we're inflating the M-1 and have the cost of national healthcare pending. Most people think it's worse today than it was a year ago.

MF: I would agree that those things are happening, but here are the reasons perhaps I'm less concerned than I was. I'm more financially comfortable now. 2009 was my best year ever in the stock market. I'm pretty much convinced the U.S. and the world are not going to melt down financially now as opposed to 12 to 18 months ago when that scenario looked like a possibility. And being an exploration geologist, I am by nature skeptical but an optimist at heart.

The Mercenary Geologist, Michael S. "Mickey" Fulp is a Certified Professional Geologist with a bachelor's degree in Earth Sciences with honors from the University of Tulsa (1975), and a master's degree in Geology from the University of New Mexico (1982). He has nearly 30 years' experience as an exploration geologist searching for economic deposits of base and precious metals and other resources. Mickey has worked for junior explorers, major mining companies, private firms and investors as a consulting economic geologist for the past 22 years, specializing in geological mapping, property evaluation and business development. Respected throughout the mining and exploration community due to his ongoing work as an analyst for public and private companies, investment funds, newsletter and website writers, private investors and investment brokers, Mickey launched MercenaryGeologist.com in late April 2008 and can be reached at Mickey@MercenaryGeologist.com.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:
1) Karen Roche, of The Gold Report, conducted this interview. She personally and/or her family own none of the companies mentioned in this interview.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Avalon Rare Metals; Revett Minerals, Goldcorp.
3) Michael Berry—I personally and/or my family own the following companies mentioned in this interview: Senesco Technologies, Goldcorp, Quaterra Resources, and Galway Resources.
I personally and/or my family am paid by the following companies mentioned in this interview: Revett Minerals.

The GOLD Report is Copyright © 2010 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules