Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How to Own Physical and Paper Gold as Trend Continues Towards $1500

Commodities / Gold and Silver 2010 Aug 27, 2010 - 01:07 PM GMT

By: The_Gold_Report


Diamond Rated - Best Financial Markets Analysis ArticleCasey Research Senior Editor Louis James is very familiar with the gold market and with junior gold companies that have projects all over the world. In fact, he's visited many of the most promising ones. In this exclusive interview with The Gold Report, Louis offers tips on how to own physical gold and "paper" gold, and even picks some junior gold and silver plays with significant potential.

The Gold Report: Louis, earlier this month the U.S. government sold its new 10-Year Notes at about 2.7%. That's the lowest yield ever for a refunding, yet the sale was over three times subscribed. What's that telling us?

Louis James: Any particular event may or may not be a watershed; I try not to ascribe too much significance to one thing. Sometimes it's a straw in the wind and sometimes it's the straw that breaks the camel's back; you can't really tell until afterwards. But this one is interesting. It seems to me what this is telling us is that people are more worried elsewhere than they are in the United States. I was reading about declining numbers from China for about nine months running, and, of course, there's been all the excitement in the eurozone this year that's caused a lot of turmoil.

TGR: What numbers are those from China?

LJ: It was industrial output. This situation is not necessarily evidence of how great and trustworthy U.S. debt is. It's evidence of how much worse everybody else's debt is. In the race to the bottom, the U.S. is firmly in the rear—this month. That doesn't mean the U.S. is not headed down; it just means it's not leading the pack charging downwards.

TGR: The Fed sale came while the Dow was falling and gold was rising. Do you think this is the beginning of a trend or just more volatility?

LJ: Just more volatility. Even veteran Doug Casey won't look at the daily price of gold. He will look at the weekly and monthly movements. And if there's a big price jog in a day, we might discuss it— but again, we try not to ascribe too much meaning to the daily fluctuations. Gold is a volatile commodity, and the gold stocks, of course, are the most volatile stocks on Earth. One single buyer can move these markets. You have to, just for your own sanity, pull back and have a bigger picture view.

TGR: If you had $100,000 to invest right now in 10-year T-bills or the equivalent in gold, where would you put your money and why?

LJ: Absolutely, no question: if those were my only two choices, I would put 100% of that in gold. I have very little confidence in the loser in the race to the bottom. Just because the United States is seen as the "least bad" place to invest and people have to put their money somewhere, that doesn't actually make U.S. Treasuries a safe investment. When there is as much doubt about the solvency of the backer of any security as there is about the U.S. and the other world powers, it just makes no sense. But that's actually only half the equation; the other half of the equation is that I am very bullish on gold.

TGR: All right, but banks and foreign investors are buying these T-bills. If it's plain to you that buying gold is a much better investment, why aren't these banks and these other institutions doing the same?

LJ: In spite of the news that gold has made, it's not seen as an important instrument of investment by most people. If you're a gold bug or you're somebody who is already interested in the sector, you see advertisements on the Super Bowl and say, "Oh, wow, this is really catching on! This is going to be like the '70s and the wave is coming." Perhaps the wave is coming; I believe there will be a wave. But I am not sure we're even in the beginning stages of that crest yet. There has been some effort to get the word out, but if you go to a family dinner and you ask your family and friends how many of them actually own gold, unless yours is a family of gold bugs, you're not going to get a lot of people holding up their hands.

The average person is still not involved in this market, and the average central banker and the average Wall Street type still doesn't think about gold anywhere near as much as he or she will when the mania phase kicks in. I have a friend who is a financial manager for some very wealthy families in Europe. He's based in Switzerland, and he, alone among his peers that I know of, placed a lot of his clients in gold before the crash of 2008. He's now very popular with his clients.

But that's uncommon. Most people wouldn't even talk about it. My sister is a mainstream U.S. banker. She called me a couple of weeks ago and asked me how to go about buying physical gold. I was shocked. There is awareness percolating out there, but it's just barely getting started.

TGR: Maybe your sister read your piece on, where you talked about picking up American Buffalo gold coins. Tell us about your penchant for hoarding gold coins.

LJ: Well, I like gold coins.

TGR: But why Buffaloes?

LJ: I like the Buffaloes because they're unalloyed. It's as much gold as you're going to get in a bullion coin. You look at it and it's just gold, whereas as the Eagles are alloyed with a little bit of copper that makes them harder and more durable. The Eagles are the most recognized coin in the world and most easily exchangeable anywhere you go—but the Buffalos are prettier, and well recognized among those in the business.

I like having physical gold—the fact that it's portable and, in many cases, untraceable. The government has passed new regulations whereby U.S. gold coin dealers will have to fill out 1099s on anybody who buys or sells $600 worth of gold. Which means, of course, that the tax man is going to be looking at these things all the way down to a single-ounce coin transaction (unless gold really crashes from here).

That's a significant change. Right now the anonymity is a strong pull for U.S. consumers. But I think everybody should have some physical gold, because gold is the only financial instrument that is not simultaneously somebody else's obligation. Silver too, of course. If you've got paper gold, even good quality paper gold like Perth Mint Certificates, it's still a piece of paper. You should have some physical gold in hand. Obviously you can't carry around millions of dollars with you, but a couple of months' living expenses is a good rule of thumb.

TGR: But let's say gold goes up significantly from where it is now. Unless you're buying something substantial, I don't see how it's going to work as a currency because if you want to buy a loaf of bread, how are you going to do that with a gold coin? That gold coin could be worth $4,000.

LJ: That's true, but there are half-ounces, one-tenth ounces; there's silver, too. I saw a YouTube video featuring a convenience store in Los Angeles that has a guy in the back with an assay test and scales for gold and silver. At that place you can buy a loaf of bread with your ex-wife's wedding ring if you want.

But will gold become a currency again? I think there's a good chance that it might if the financial catastrophe unfolds the way we think it will, and paper currencies, as a whole, come to be regarded with the suspicion that they so justly deserve. But whether or not that happens, it is good to have some form of concentrated portable wealth in times of financial chaos.

I was in the Republic of Georgia, just a couple of weeks before the bombs started falling two years ago, and I was interested to see that there are gold dealers on street corners there. It is part of their culture, and it's part of Middle Eastern culture. In Mexico, many towns have basically pawnshops where they will buy scrap gold and silver. I've used such places to liquidate bullion and buy groceries. On a larger scale, a couple tubes of gold coins that would fit in any briefcase or purse could easily be turned into, say, a house in Argentina. You will find a facilitator in Argentina who would make the exchange happen.

TGR: But how do you protect yourself when you're carrying around a briefcase full of gold bullion? I mean if you're buying Buffalo coins fairly consistently, you probably have a reasonable store of wealth at this point, and to me that seems dangerous.

LJ: Well, first and foremost, you don't tell anyone. [Laughs] So here I am telling people in this interview!

TGR: You stated it on your website long before this.

LJ: Yes, but, seriously, this is the first rule: security through obscurity. You don't tell your neighbors; you don't bring out that bar of gold at Thanksgiving and show everybody how proud you are of it.

For small amounts, if nobody knows about it, you're not likely to have any trouble. If you're a serious player, a segregated account in a facility that's set up specifically for gold storage is a good idea. Some of the near-gold substitutes are also a good idea. I mentioned Perth Mint Certificates before; we like those. The Australian government runs a mint that's an audited facility; they will store gold and silver for individuals. These certificates are transferable and they're deliverable. If you get nervous about your gold, you can have them send you your gold via FedEx Corp. (NYSE:FDX). Or you can sign your Perth Mint Certificate over to someone else for paper currency, or whatever you want in exchange.

TGR: In the same article where you mentioned your coins, you said: "The strategy called for is a more cash-focused version of our 'buy only the best of the best' (BOTBOTB) program. Buy nothing new unless you're offered a great bargain in a solid company that can deliver significant new or expanding production." Give us a quick overview of your more cash-focused BOTBOTB program.

LJ: What we're saying is that we're not in any hurry to have our portfolio fully invested at this point. We see a significant risk of correction in the very near term; yet we are very bullish on gold going forward. We see the second dip in the W-shaped economic slump coming, perhaps by the end of this year. We have already had some of the typical summer weakness. With these possibilities in mind, we don't want to tell people, "Buy, buy, buy!"—not when there's a very good chance they will be able to buy at better prices soon.

You want to buy right now only if you can look at something and say, "These guys have all their ducks in a row. Even if there is a correction, they have enough cash, they have the right property and they have the right people that they will proceed anyway." If you see that in a company you want to own but don't, then buying some of those shares may not be a bad idea. We could be wrong about the correction, so you don't want to be completely out of the market.

There are good companies out there that I think will go higher from where they are now. But I already have shares in most of those, so I don't want to buy more now. What we say to new subscribers in the newsletter is "Here are the ones to focus on."

TGR: All right, what are some of the companies in your newsletter?

LJ: We like emerging producers or companies with discoveries in hand. An emerging producer that I like a lot is Medusa Mining Ltd. (ASX:MML; AIM:MML; TSX.V:MLL). It's an Australian company that has quite a large portfolio of properties in the Philippines along a very prospective belt where there have been a number of discoveries. They keep finding new gold veins with great potential in the same property as their very high-grade producing Co-O Mine. Co-O is cranking out about 100,000 ounces a year, a significant producer, but they're finding more gold at about the same rate as they're mining it, so the asset is not depleting—a strong plus in an extractive business. They're able to make money, and they have great discovery potential. I like that a lot. There's underpinning value there. And I should say it would be safe for anybody reading this to assume that I own shares in these companies, because I do eat my own cooking.

TGR: Hopefully, our readers will consider you a gourmet. What are some other companies you are following?

LJ: One of the companies that I think we have spoken about before is AuEx Ventures, Inc. (TSX:XAU). This company is a project generator. It has multiple projects, most of them in Nevada, but also in a very prospective area of Argentina that's pro-mining, and in Spain of all places, which is a better mining jurisdiction than most people appreciate. AuEx's main asset is the Long Canyon Project in Nevada, a joint venture with a company called Fronteer Gold Inc. (TSX:FRG; NYSE.A:FRG). AuEx has 49%; Fronteer has 51%. We're talking about AuEx rather than Fronteer because AuEx is much cheaper. Fronteer is a great company with other assets I do like a lot, but that's a different play (partly a uranium speculation).

Long Canyon is just a peach of an asset; it's a potential open pit, which is your cheapest method of mining, and for an open-pit resource, it's very high-grade, more than 3 grams per ton gold. And it's oxide material, which means you can heap leach the ore instead of the more expensive milling. It has all the characteristics of a highly profitable mine. They did a preliminary economic assessment, and the internal rate of return was something like 66%.

TGR: That's well above average.

LJ: Fantastic numbers. The resource has doubled since that preliminary assessment, which will improve the project economics, and they continue to step out and discover more. They recently hit 10 grams per ton over 44.2 meters of mineralization; it's just a peach of a project. AuEx is not particularly cheap today; if there is a market correction, these shares could easily go on sale at a great discount. But at the end of the day, they have a project that looks very much like Nevada's next gold mine.

TGR: Any others?

LJ: One that I like, with a shorter fuse, is International Tower Hill Mines Ltd. (TSX:ITH; NYSE.A:THM), which is an Alaska-focused discoverer-explorer developer. Their primary asset is the Livengood Project, on land owned by the state of Alaska, intended to generate royalties to pay for the state's mental health care system—so they have an ally in the government that really wants to see the project developed. That's always a good thing for permitting and other purposes. The royalty is a cost, but it's bearable. The project is huge. Depending on the cutoff grade, it's almost 20 million ounces, but within that you've got 9 million ounces at a good open-pit grade.

There are lots of good things I could say about Livengood. But I mentioned a short fuse; the company has a portfolio of other assets that they're spinning out into a new company. Shareholders of record at a certain point will get shares in the new company that will get the other assets and some cash to advance them. That should happen over the next month or two. In other cases where we have seen this kind of spinout, it has worked out very well for shareholders.

TGR: International Tower Hill is part of the Cordero Group. When we interviewed you last time, you talked about Fortuna Silver Mines Inc. (TSX:FVI; Lima Exchange:FVI), part of the Gold Group, which specializes in mining plays.

LJ: The group you refer to here is basically centered around Simon Ridgway. The Gold Group has a number of companies—Radius Gold Inc. (TSX.V:RDU), Focus Ventures Ltd. (TSX.V:FCV), Western Pacific Resources Corp. (TSX.V:WRP) and others. There's a bunch of them, but the projects are all quite different.

In some ways, Fortuna Silver is similar to Medusa. It has a producing mine with a really big, high-grade vein that they could mine for many years, and they're continuing to discover more resources in that project area. This is the silver-zinc-lead Caylloma Mine in Peru, and it's another peach of a project—one that has 400 years of mining history and was once a cornerstone of the wealth and power of the king of Spain. It's a cash cow that is going to continue cranking out cash for years. Different zones have different mixtures or minerals, but a significant portion of the value at Caylloma comes from the base metals.

We're wary of base metals these days, but Caylloma has a very clean concentrate that's actually in great demand. Smelters want Fortuna's concentrate, because it's pure enough to use as flux to mix with the concentrate that they get from other mines that isn't so pure. They have negotiated very good terms with their smelter.

TGR: And then there is Fortuna's gold-silver San Jose Project in Mexico.

LJ: Right. There's where the big upside is. You have this cash cow with Caylloma that's funding the work, and on the other hand, you have this new gold-silver mine that's primarily silver. We like a gold lining to a silver story much better than a lead lining. It's bigger too; San Jose is basically going to quadruple Fortuna's production. And it's already being built. We expect that to come into production next year and start adding to the company's bottom line immediately.

There's always a question you have about exploration companies that become miners, because these are very different skill sets. To discover something is one thing, but bring a mine into production is something very different. Fortuna is one of those rare companies that has shown it can do it. These guys are very good.

I believe that the technical risk of developing the San Jose Project is very low. The resource is there and there's room to make it bigger, so you have cash flow, visible growth and a team that has shown it knows how to do things. I like it.

TGR: Where do you see gold finishing 2010?

LJ: Well, our company has been predicting $1,450 to $1,500 by the end of 2010. That was our call at the beginning of the year, so I want to stand by it. Right now, it may seem, "Well, gee, maybe it won't; gold's retreating." But it is common for gold and the gold stocks to retreat in the summer, and it is common for gold to have a very good fourth quarter in the average year.

There are some people who like to try to calculate the correct price of gold, given supply and demand fundamentals. I believe this is all a little bit silly because the supply of gold is essentially infinite, as gold is not really consumed—most of the gold ever mined is sitting around in refined form in one vault or another. At the right price, it comes into the market. It's just not a commodity that is bought and sold and consumed the way other commodities are, even silver.

The price of gold is really a barometer of fear. Given what we've said about the other dip in the "W," our basic view is we're still in the eye of the storm and we're looking to head out into second half of the storm later this year and into 2011. As this becomes evident and fear rebounds, the consequences for gold should be very substantial. People think the economy is recovering and everything's going to be fine, and that hope is going to get smashed. The level of fear produced is going to be even larger than in 2008. That will move gold significantly.

TGR: Do you have a forecast out on 2011?

LJ: No, we'll probably do that at the end of the year.

TGR: Do you have some parting thoughts you would like to leave with us with?

LJ: I just want to specify again that I am bullish in the near term on gold, if you think of the end of the year as near term. But in the very immediate future, I am saying there is plenty of room for volatility. If you read this article and go out and buy gold Buffaloes today because they're Louis James' favorite, and gold goes falls off $30 tomorrow, don't get mad. If gold drops in the short term, look at that as a buying opportunity.

TGR: Thanks, Louie. Interesting to talk with you, as always.

Always on the lookout for the next double-your-money winner, Louis James is the master of metals at Casey Research, where he's the widely read and well-respected senior editor of the `International Speculator, Casey Investment Alert and Conversations with Casey. Fluent in English, Spanish and French—and conversant in German and Russian to boot—Louis (aka Lobo Tiggre) regularly takes his skills on the road, evaluating highly prospective geological targets, visiting explorers and producers in the far corners of the globe, and getting to know their management teams. In addition to subject matter expertise, he's built a following on the basis of a dynamic combination of investment savvy, practical advice, experience in physics and economics and a gift for comprehensible technical writing.

 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.

1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Timmins.
3) Ian Gordon: I personally and/or my family own shares of the following companies mentioned in this interview:Timmins Gold, Golden Goliath, Millrock and Lincoln. My company, Long Wave Analytics is receiving payment from the following companies mentioned in this interview, for receiving mention on my website, Golden Goliath, Millrock and Lincoln Gold.

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 - 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