Nice mentionGreg McCoach Sees $1,500 Gold This Fall
Source: The Gold Report 09/22/2009
Postsummer doldrums, we're now beginning to see a nice fall run up in theprice of gold—one that marks the beginning of a parabolic move,according to Greg McCoach. The seasoned bullion dealer, investor andnewsletter writer sees a number of factors culminating inever-increasing prices going forward. In this exclusive interview with The Gold Report,Greg reveals current and forthcoming events that will continue drivingthe yellow metal's price northward. . .not the least of which involvesthe commercial real estate market and its "associated derivativesewage."
The Gold Report: Greg, gold has really started to take off. You've talked about a parabolic move for gold. Are we in the beginning of that?
Greg McCoach:Yes, I would say so. I've been anticipating a nice fall run up. We knewwe'd experience the typical summer doldrums, but a couple of things arehappening right now.
First, you've got the major gold traderscoming back from vacation and starting to make some trades. But moreimportantly, there were two major announcements in the first week ofSeptember that could really launch gold. We could see $1,500 gold thisfall. No doubt about it.
TGR: What two announcements are those?
GM:First, the Chinese, in layman's terms, put a stop loss on theirderivatives, which they're taking a bath on. These were sold to themfrom the likes of Goldman Sachs. This is a huge development. In otherwords, the Chinese are basically saying it's a fraudulenttransaction—which it was. Goldman Sachs sold these same instruments toIceland and what took the country down were the derivatives, right? Andthe people that created these derivative packages and sold them toothers like Iceland and China knew full well that they were flawed,that there was no way these people were going to make money on them.So, knowing that, now the Chinese government says we are putting a stoploss on our losses on these instruments and we're simply not going topay anymore. So that's good. Somebody's standing up against thesecorrupt jerks who have been taking advantage of other people.
Thatwas a big development and, if you notice, there's been a lot ofdiscussion. Independent-thinking kinds of newsletters have been talkingabout this and, so, we've seen gold start to rise up.
The secondbig announcement is that the Hong Kong Monetary Authority has built itsown high-tech vault to store its own gold, and they just requesteddelivery. Up to this point, the Chinese gold had been stored andvaulted in London, England. So now the Chinese are requesting theirgold be shipped from London to their new vault in Hong Kong. This hasmajor implications because this is a large amount of physical gold, andI think what it's going to do is begin to expose the naked shorts whohave been playing this game with the gold and silver markets, trying tokeep a cap on the prices. So this is a major, major development.
TGR: Why would moving gold from one vault to another vault expose the naked shorts?
GM:Because they won't have access to that gold. In other words, theshorts, in order to keep a lid on the gold prices, can't control thegold price. This goes into the manipulation. I don't talk about thistoo much just because, to me, it really doesn't matter. In the end,manipulation never works and free markets eventually overcome anymanipulative activity, and gold and silver will go to where they'regoing to go. But in this case, the way they've been able to play thisgame over the years—and it's been going on for a long time—themanipulation crowd could short paper contracts of gold and silver withhuge amount of paper contracts. They didn't have the physical metal todeliver in case the longs decided they wanted delivery. They would getcaught if they didn't have enough physical metal to meet those demands.
SoI think it really means that the whole situation of manipulating andplaying games with the gold and silver markets just puts even morepressure on it when people start taking delivery of their gold. We allknow that the manipulation game will be over at some point when there'sno gold left to play the game. Then the manipulation crowd has noammunition to play and that'll all go away.
TGR: Is this what's really causing the parabolic move for gold or are there other factors?
GM:No, there are other factors. This is just the starting point. What I'msaying is we're starting to see gold ramp up. The bigger factors arethe derivatives associated with the commercial real estate market. Ithink that's going to start to blow up this fall and into early nextyear. And that's because the commercial real estate market and itsassociated derivative sewage is much larger than the derivative sewageassociated with the residential real estate mortgages that went bad.
We'regoing to go through another round of this. This round looks like it'sgoing to be worse than the last round. And any hogwash about peoplethinking the economy is back on track and all this stuff from Joe Bidenthat a million new jobs were created, that's just nonsense.
TGR: Would you anticipate the market to crash like it did last year as the residential real estate bubble burst?
GM:Here's the different scenario that I see. Yes, it's going to affectmarkets—stock markets will plummet worldwide; but I think it will bedifferent for the precious metal stocks. The mining stocks and preciousmetals got sucked right down the toilet in the last meltdown. That wasunexpected. The reason for that was that all the big hedge and indexfunds had to liquidate, and they were heavily invested in preciousmetals and junior mining stocks. So, as that crowd had to sell to raisecash for their clients who were sending in their redemption notices,that's what hurt us.
This time I think we will get thedisconnect. I think precious metal prices will soar to new highs andpeople with money will flock into the precious metals and the miningstocks as a refuge, as a safe haven. Yes, it'll affect world marketsagain, but I think the precious metals will have an insulatingprotection because people will finally start to realize that preciousmetals are where you need to be. There will be a new interest and abeginning of a big flow of money into the precious metal sector.
TGR:So if that's true, won't all boats float up if precious metals start totake off? Won't all juniors see appreciation in the stock price?
GM:When the market kicks into gear, the money goes first into the majors,then the quality juniors, and then eventually—you know, even turkeyscan fly, right? The more quality-oriented companies will definitely bethe bigger recipients of the best funds because people are moreselective now than they were before.
Since the last meltdownpeople have definitely gotten more educated in certain areas where youhave to be. You can't just put your money in a mining stock anywhere inthe world. It has to have infrastructure. If it's in an existing miningcamp, that's better than in an area that has no infrastructure and nomining camp. Why? Because the developmental costs to put something intoproduction are so much higher in those kinds of areas.
Sosmart money people are looking for new discoveries in existing miningcamps, where all the infrastructure exists. So those will be thecompanies that make the big runs, and that's what I'm focused on rightnow. That's what I've been focused on in the newsletter—looking forthese opportunities.
TGR: What's your recommendation about owning physical metal vs. equities? And should the mining stocks be in the major, juniors?
GM:I always recommend owning the physical metals, gold and silver, thebullion bars and coins and the mining stocks. Now for some people, themajors work better for them and their portfolios than the juniors. Ipersonally like the juniors because of the leverage. When someone makesa discovery, as a junior you can make up for a lot of losses veryquickly with just one discovery, if you own the right junior miningstock.
So we play the odds; we know we're not going to win onall of these stocks. But in a good market, where we see a parabolicmove, hell, everything's going to move. We're hoping to have some ofthose that do those big moves and everybody's happy and we'll take ourprofits and buy other real assets. At that point it could beundervalued real estate, it could be undervalued ranch land. I'm onlywilling to give up my precious metals and my precious metal miningstocks for other real assets because I don't want to hold dollars atthis point. I'm not interesting in holding U.S. dollars in quantity.
TGR: Especially if they're going to be losing value.
GM:Right. A U.S. dollar devaluation at this point is as certain as deathand taxes in life. We just don't know the exact timing; that's all.
Should You Own Physical Metal or Mining Stocks?
TGR: What are some of your favorite juniors?
GM: Let's talk about Pediment Gold Corp. (TSX:PEZ; OTCBB:PEZGF; FSE:P5E)because I still list them as number one. Their stock has been a littlequiet this year because the company really hasn't made much in the wayof news and it looks like that's finally going to change.
Theygot out their new 43-101. It wasn't spectacular, but it wasn't badnews. It was a drastic increase in the quality of ounces, from 1.45million to basically 1.65 million in total ounces, but the quality ofounces went from the inferred category to what we call the measured andindicated. That's a quality differential and that was a goodannouncement from that standpoint.
So I think what's going tohappen now—and the company hasn't made any news yet—but their shareprice, when it ran up to $3.50, $3.60 a share, was based on thediscovery news on their southern Baja property in Mexico, in what wecall the San Antonio District. I would guess the company now is goingto get back into a major drill program at some point this fall and I'mwaiting for that news.
I've always said this is going to be a2 to 3 million-ounce deposit, a sizeable gold deposit. It's in a goodjurisdiction, and we can look forward to a lot of appreciation on ourshare price. What's great about it and why I still have it as a strongbuy, number one, is you can still buy it so cheap; it's 80 cents, undera buck. It's dipped down as low as 70-75 cents. It's been as high asabout $1.20 in the last six months. So it's at a good range to buy itright now before we make the move.
They also have a productionscenario at another project, La Colorado, that's moving forward verynicely. They're drilling on this and they're finding even more ouncesthat El Dorado Gold left over. El Dorado Gold was the one that startedthat mine. It's now been opted to Pediment, who now controls it and ismoving it back into production again.
Now as gold prices go upand they keep the drills going and they make further discoveries, whichI think is sure to happen down there, that will take that stock rightback up again. So there are some good profit opportunities. Again, inthe top ten I list the companies with the least amount of risk thathave the biggest opportunity for profit.
So if somebody says,Greg, at this point all I have is enough money to buy one stock, youshould buy Pediment Exploration because it has the least amount of riskand the biggest upside for a junior mining stock at this point. There'sa nice cash flow for the company that could be in production next yearsometime and that stops shareholder dilution and that's as good as itgets in the junior mining business. A nice big discovery that'sincreasing in size and a good jurisdiction with another project also inMexico that was an existing mine that is now being put back intoproduction for cash flow, so the company doesn't have to keep raisingfunds in the private markets that dilute current shareholders. That's agood story. It doesn't get much better than that. And don't bediscouraged by the price. That's just because there's been little inthe way of news and the company's been protecting their savings.They've got about $14 million in the treasury and they've got plenty ofroom to do some things.
TGR: Another company that's on your strong buy list is Fortuna Silver Mines Inc. (TSX.V:FVI, Lima Exchange:FVI), which happens to be a silver play.
GM:I love silver. I'm not one of these guys who only likes gold. I loveMexico and a company like Fortuna, who's got not one, but two assets.One is already in production; one will soon be in production. Peru andMexico are the two countries those assets are located in. They have avery low cost of production. The material is good grade and it's highprofit with higher silver prices. This company will do very, very well.You'll see a multiple gain in this stock price.
Again, it'sstarting to bump up a little bit, but it's still reasonably priced. Ithink you can still buy this one and do quite well with it. If youbelieve silver prices are going higher, Fortuna Silver is a no-brainer.
TGR:Excellon Resources Inc. (TSX:EXN) is also on your list as a strong buy.
GM:Excellon is a very, very fascinating situation. It's been a long-termrecommendation in my newsletter. We originally bought it years andyears ago at 15 cents. It ran all the way up to two bucks. We made lotsof money on that one. It went right back down again with the meltdown.The company is starting to creep up again.
They recently did adeal and acquired a mine, which they needed to help them on theproduction side, which was a good move for the company. Unfortunately,they had to give away a lot of shares, so the company has a dilutionproblem right now and I'm not quite sure how they're going to handlethat. At Platosa, their main project, they keep discovering more oreand the type of geology that this deposit represents is called acarbonate replacement system. These are the biggest silver deposits inMexico in the most prolific silver mining belt of the world. It's rightsmack dab in the middle of this.
You get into the carbonatereplacement system and it's like elephant hunting. Excellon has hit thetrunk of the elephant and they're working their way up the trunk and Ibelieve what is going to happen is they're going to hit the body of theelephant. When they hit the body of the elephant, all hell is going tobreak loose because that stock will just go through the roof.
Theyacquired Silver Eagle Mines, which I thought was a good deal and itgives Excellon a lot of other good exploration properties; but, moreimportantly, it gave them a production facility where they couldprocess their ore. They're trying to get their own mill up and runningat Platosa and that should be done, hopefully, end of '09, early'10.They will have the shares outstanding, but once they get the cashflow going, if the share price doesn't go higher, the company couldjust start buying back their own shares cheap with the profits theyhave, reduce the number of shares outstanding. They could do arollback, which I wouldn't be in favor of as an existing shareholder.One way or the other, Excellon will continue to move higher as theymake further discoveries at Platosa, so it's still a buy.
TGR:SilverCrest Mines Inc. (TSX.V:SVL) has been on your top ten for quite a while. Can you give us an update?
GM:I like SilverCrest's story; I like the people running the company. Ivisited the site in Mexico, a good jurisdiction, and they continue tofind more ore down there. It looks like, based on the timeframe,sometime in the first or second quarter of '10 their Santa Elena minewill be in production. That's a sizeable resource and one that's goingto get the attention of the majors, especially when it would be such alow-cost producer.
I think once they put this into production,because of the size of it, this to me looks like at least 100 millionounces of silver equivalent in a good jurisdiction with infrastructure.I think someone will come in and take that company out. That will get anice price for that.
Even though the stock is below where Irecommended, it wouldn't take much buying to get it right back up tothat level. In other words, it's pretty tightly held; there's not a lotof buying volume. If some big buyers came into the stock, it would takethe stock up rather quickly. I think a buyout would be in theneighborhood of a $3 to $5 a share. If silver prices go much higher,obviously that asset's going to be worth even more and somebody mightbe willing to pay even more for it. So that's what I'm hoping for andthat's why I continue to play it and recommend it as a buy.
TGR:Jinshan Gold Mines (TSX:JIN) has also been on your top ten. Can you give us an update on them?
GM:I like China. There are plenty of great opportunities in China, but youhave to be very careful. I've been over to China many times looking ata lot of different projects, and the company I like the most isJinshan. It's a gold project; it's in production. They've had somebugaboos to work through on the production side. As they were rampingthis up, they had some problems with the crushers and they had to getsome crushers that could grind the material up a little finer so they'dget better metallurgical recovery on their gold. So they've gotten thatsquared away now, so I anticipate that for 2010 this is a companythat's going to be producing a lot of ounces, upwards to 70, 80, 90,100,000 ounces next year. So I'm very encouraged by that. It's at agood price.
This is another stock that I've done well on inthe past. It's back at a low price. I like recommending it here again.The Chinese now control Jinshan and it's in the right jurisdiction inChina. When you're investing in China mining stocks, it's all about theChinese partner and province you're doing business in. Some provinceswill work with Western mining companies. In this case, it used to bethat a Canadian company controlled Jinshan. Now the Chinese controlJinshan, so there are no problems with that at all. They've got somegreat exploration targets that, once we get the profits going, they canput that money in the ground and make a further discovery. So I reallylike Jinshan for the longer term, especially if you believe in highergold prices, which I do. It's one of the few China plays that I like.
TGR: Moving back over to North America, can you give us an update on Vista Gold Corp. (TSX:VGZ, NYSE.A:VGZ)?
GM:Vista Gold has been a big performer, another long-term recommendationof my newsletter. Vista Gold vended out all their Nevada properties to Allied Nevada Gold Corp. (ANV; TSX:ANV),which has performed wonderfully. Allied Nevada's share price is uparound $10. Early shareholders in Vista Gold who got shares in AlliedNevada because of the breakup of those companies have done just fine.Vista Gold, once the Nevada properties were taken out, has the Mt. Toddproject in Australia and a good project down in Paredones Amarillos,Mexico, which is right next to Pediment's project on the Baja, andthey've got another big project over in Indonesia.
Theirprojects are coming around and the big upside for Vista Gold still isonce they get the permit situation at Paredones Amarillos rectified,which looks like it's happened now or soon will happen, it could moveforward into production and be a takeover target. What's good aboutVista Gold is they have very few shares outstanding; they have a tightshare structure with some great assets. A major player could easilypick up Mt. Todd in Australia from Vista Gold.
Overall I liketheir stability. It's got good management, people who are very smartand know the business and have done very well in the past.
TGR: Since you brought up Allied Nevada, how are they doing?
GM:They're doing great. They continue to move the Hycroft mine forward andeverything's just looking great. They've got some other greatexploration targets that are getting very exciting; they have money.Now that it's back into production, they've got a lot of cash flow.Here the stock was just a couple of bucks a share not too long ago,it's almost $10 now. That's a great success story for us. That's been abig money maker for our subscribers.
TGR: I just want to mention one more company and that is Argentex Mining Corporation (TSX.V:ATX; OTCBB:AGXM), which you currently have as a buy.
GM:Yes, Argentex is a great mineralized system. This is a company thatdoesn't have a lot of money, is trading at a lot lower price than whereI bought it and recommended it, but I continue to hold it as a buybecause the stock is recovering.
This is a giganticmineralized system that the company controls. For a junior to try todrill a project of this size, it's taken some time, but as they getmore drill holes in there, the public and the investing market's goingto wake up to the fact that this is a very, very good story and onethat could become a mine. These are the kind of stories you want to getin on as an investor because there are other big mines in the area. Bigmajors own mines near there and, again, this could have a takeout. Oncea junior proves up they've made a big enough discovery, it's verylikely that a major could swoop this one up as well. So I like thatkind of story.
I had another success story down there calledViceroy. We bought the stock at less than a dollar; I think it was 75cents we recommended it. We sold it a few years later on a buyout for$11. So that's what you hope for in this business and Argentex remindsme of a Viceroy.
TGR: Can you comment on buyingphysical gold and the premiums that are being charged? If people havenot bought physical gold yet, is it time to get in or have they missedthe big run up?
GM: Oh, no. People need to own physicalgold for a different reason. Owning the physical metal is your ultimatesavings account. I only keep in U.S. dollars what I need to spend on amonth-to-month basis. None of my other savings are in U.S. dollarswhatsoever. All my other money is either in Canadian dollars, physicalgold and silver, or the mining stocks. I also own some Canadian oil andgas stocks. That's how I diversify my portfolio.
At thispoint, if you don't have physical metals, you should consider it veryquickly because I think we're coming up to a very big run and thiscould be the last time that we ever see gold in our lifetimes below$1,000 an ounce. Silver is ridiculously low. So you still haveopportunity, but the longer you wait, the higher this is going to go.
Rightnow the premiums are not that high. And a typical premium is 5% overspot price. But last fall when things got tight again, hell, we sawthings run up 5% to 10%. The premiums can go that high. So right nowyou still have reasonable premiums even though the spot prices arestarting to creep up.
Here's the other problem. Just like lastyear, as things got really, really tight, mints stopped making certainbullion coins and bars. We saw the Silver Eagle program stop producingfor 10 or 12 weeks. We saw the U.S. Treasury stop minting the goldbuffalo coins, which still are not being minted. And fractional eaglesare not being minted anymore. All they're minting is one ounce goldeagles. These scenarios tell me that things are going to get tighter,so why not buy when you can still get the stuff reasonably cheap andit's got decent premiums?
TGR: Well said. Greg, I appreciate your time and your insights once again.
DISCLOSURE:
Personsinterviewed for articles on the site may have a long or short positionin securities mentioned and may make purchases and/or sales of thosesecurities in the open market or otherwise. Streetwise Inc. does notguarantee the accuracy or thoroughness of the information reported.
GregMcCoach is an entrepreneur who has successfully started and run severalbusinesses the past 22 years. For the last eight of these years he hasbeen involved with the precious metals industry as a bullion dealer,investor, and newsletter writer (Mining Speculator). Greg is also the President of AmeriGold, a gold bullion dealer.
Greg'syears of business experience and extensive personal contacts in themining industry provide unique insights that have generated animpressive track record for The Mining Speculator since its inceptionin 2001. He also writes a weekly column for Gold World.
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