Gold rally only begins......
says Roger Wiegand
www.premiumexploration.com
s the global economy remains in turmoil, Trader Tracks Editor Roger Wiegandfinds ways to avoid the hazards he sees ahead and profit fromopportunities in precious metals, commodities, currencies and resourcestocks. In this exclusive interview with The Gold Report, Roger sharessome names to help investors do the same. And, despite the hype, itisn't all clear sailing for China and the U.S. dollar isn't dead yet.
The Gold Report: Since you last spoke with The GoldReport in August 2010, there's been quite a bit of political andeconomic upheaval in the world. What, in your view, are the mostsignificant factors influencing your investment decisions at this point?
Roger Wiegand: I think that the number-one pitfallwe've got to be aware of and deal with as traders and investors is thefourth quarter of this year. Historically, from late August through theend of the year, and moving into the next, we would be in the normalrallies of gold, silver, other precious metals (PMs) and related basemetals. However, this year a lot of things are coming to a head incredit and in the bond markets.
Rating agencies like Fitch andMoody's have noted they will put the U.S. sovereign credit on "CreditWatch" if the U.S. national budget is not agreed upon by the end ofJuly. The government's last schedule was August 2, 2011. We think itlifts the debt ceiling and continues on the same path to more inflationand potentially hyperinflation—printing more currency and selling morepaper, and then buying it back itself.
In Europe, the smaller nations are in big trouble. The EuropeanCentral Bank (ECB) is trying to contain the problem and Greece is on thetop of the pile. The IMF says it will be dealing with this problemlater in June and won't push Greece into any kind of a defaultstructure.
That news caused the euro to rise quite a bit. We begto differ on that. We have some relief for the time being, but theproblems are not resolved. The Greek public is very angry aboutproviding a national treasure for collateral (hard assets) in exchangefor ECB and IMF fiat paper-money loans. This could go ugly very quickly.
Getting back to the fourth-quarter issue—that's the primary pointwe've got to deal with this year as stock and futures traders. Numbertwo is controlling risk. In our view, you've got to control risk morethan ever in the fourth quarter. You're going to see a lot ofvolatility, and it's going to scare some people; but, as long as youcontrol risk, we think you're going to be fine.
Number three is going to be European debt. Greece, Spain, Italy,Portugal and Ireland can't control their debt, at this point; they'rejust piling more loans on top of existing loans. This is a combinedeffort among central bankers in numerous Western nations to try to savethe euro.
They do not want the Greek citizens to pull out of the ECB and theeurozone because there could be five more countries right behindthem—and the whole thing will cave in like a house of cards. We thinkit's going to happen eventually, anyway. But they can kick the can downthe road a lot longer than we can invest trying to go short.
TGR: What about China?
RW: Nearly everyone is saying that China is theplace to be fully invested. That's understandable; however, China hasserious problems, too. The first was its version of the TARP (the U.S.'Troubled Asset Relief Program) in the first quarter of 2010.
Thegovernment pumped in roughly $550 billion within 90 days, immediatelycausing inflationary fallout after that first quarter. We're seeing theworst of that kind of inflation right now. Hong Kong has hadunbelievable real estate inflation, with a 90% increase in prices overthe last 12 months. Obviously, that's a bubble that's going to burstsometime.
China also has problems with general inflation, contributed to by thefact that China has to create 25 million new jobs every year, which isunbelievably difficult. It's doing its best, but simply can't do it. Ithink China's central banks are doing a better job than those in theU.S. and in some places in Europe.
But I think it is in aninflationary bubble. It's got huge grain and power shortages and rollingblackouts. The next thing it has to deal with this year is drought, andChina is not alone. The U.S. and other countries will have drought, aswell. China just announced a new "Cash for Clunkers" automobile stimulusplan similar to the U.S.' plan. This is a bad omen.
Being futures and commodities traders, as well as recommending sharesfor our clients, readers and investors, we are heavily loaded up ongrain this year. And we're planning the same positions for 2012. So,those are the issues that we think are serious and require a lot ofattention at this particular time.
TGR: The U.S.' and other governments have beentrying to straighten out their finances for the last few years. Do youthink any progress has been made, or is it just kicking the can down theroad, as you say?
RW: Well, I think it's just can kicking. We're in aslow spiral, and I don't think there will be an imminent cave-inovernight. There's been progress in slowing down an eventual disaster.
I think this thing is going to come to a head anywhere from one tothree years out. And we're on record as saying the end game,historically, is always a world war, which we're expecting in the year2014. We wish we were wrong, but that's our forecast.
TGR: So, where does the U.S. dollar stand in this whole situation?
RW: A lot of folks think the dollar is going todisappear tomorrow. We disagree with that; it represents 85% of theworld's reserve currency. We're also on record as saying the dollar can,in fact, go up in value to 82.5 on the USDX Index on a shorter-termtechnical projection, when this European problem comes to a head. Atthat level, it would put pressure on commodities and, specifically, ongold and silver, but not enough to interrupt the longer-term rally trendof gold, silver and related shares.
If the dollar breaks under69.5, we could see it tumble down to 55, 52, 50, 46 and bottom at 40.That's basically a 50% haircut from the norm. For years, the dollar haspreferred to go to 80 on the Index. Today, we're in the 73.5–74.5 range.Although that's weak, it's not too far from 80. So, to get down intothe 40s, some bad things have to happen, and it could be some years outyet.
TGR: Many people now say that the way things aregoing, we may end up with some sort of a gold-backed monetary system.What do you think?
RW: There's an excellent chance of that. If we hadstayed on a gold standard, we wouldn't have many of the problems we havetoday. But there are other units of measure that could be used, aswell. They could take a basket of global currencies, pick maybe five orsix and have them combined under the umbrella of one new currency.That's one option.
Another might be to use units of energy as atrading currency, such as natural gas and crude oil. Those are hugemarkets and they do affect pretty much everybody throughout the world.
We think that if and after the war in three or four years, orwhenever it happens, there will be a final solution between Russia andthe United States as to who will control energy and the world.
Nobodycan tell the outcome of that. We recently saw some indications that,when things get ugly enough, there will be a coordinated, globalcurrency shift in which all countries will get together and make adecision. Then, they'd have to implement it all at once. That could bevery interesting.
TGR: In order for that to happen, we'd probably needa more-controlled environment wherein people can't play the markets toinfluence them. Otherwise, it'll just be a bigger gambling pool forpeople with big money to make more money.
RW: I would agree with that; however, traders have away of finding new ways to trade. We've seen that with derivatives andsome of the new futures ideas. New trading platforms in China haveopened up; there's one for silver and one coming for gold.
If, infact, some of the markets go upside down, it's my opinion that theoptions markets in Chicago or New York probably would get hit firstbecause of volatility. But we have no real way of knowing what's goingto happen. Traders are traders, and they will find a way. That's why theblack markets work when currency doesn't.
TGR: So, in light of that, what are you telling people they should do with gold, silver, commodities and currencies these days?
RW: I, along with my friends in the commoditiesbusiness, believe that, historically, the commodities cycle is 13–17years. It could go as long as 24 years. We started roughly in 2000 or2001. Gold and silver have had a long decade-rally run so far. Asfantastic as this has been, we think it's only the beginning.
Historically, the majority of the gains in gold and silver are earnedduring the last six to eight months of a many-years-long rally. Whatwe've seen thus far in gold and silver is only a drop in the bucket.
So,where are we today with our recommendations? We're looking at all longand tradable ideas with very few short ideas. The ones that I have aregoing to take 6–12 months. So, the first question we ask is: Whathappens if it goes the wrong way? What is our risk control?
Howdo we use stops? What kind of percentages do we allocate to differentkinds of trades? Then, of course, the overriding unknown is politics.Risk can generally be controlled as long as traders and investors don'tget greedy and try to make too much money too fast. Historically, thepeople who do control risk are the winners.
TGR: So, narrowing that down to gold and silver,what do you think there? Was the silver market that we had sort of aconcocted blowoff?
RW: Prior to the silver-selling event, when silvertouched near $50/oz., I reported that there would be a major selloffbecause that was the old high back in 1980. Technically, when pricetouched between $48.50/oz. and $51/oz., I knew we were going to sellback. I said it would go down between $5 and $15, and it did exactlythat.
So, on the next run, we're looking at $41.85/oz. To reallybreak out hard and get silver beyond that old high of $49–$50, we'd needthree hard closes over $51/oz; then we're looking at $55/oz.resistance, and then at $59.85/oz. My 2011 projection, if in fact thingshappen the way we expect, is for silver to be at $59.85/oz. as aminimum high.
Where is gold going to go? It stalled at $1,585/oz. during its mostrecent high and came back. Now it's gradually crawling back up the hill,but we're liable to go into choppy markets all the way through thesecond and third week of August. But we're looking for a possible minirally in the middle of July. Nothing exciting, but it will be anoticeable mini rally. So, we like gold, silver and all the grains.
In terms of currencies, we like the Swiss franc long. We like theeuro short, but not right now. Also on the long side, we have beentrading crude oil. The next things coming are heating oil, natural gas,and then crude oil again. All long positions. Inflation is a majorfactor.
You can see just the beginning of it in food and energy.There's no way Bernanke can stop doing what he's doing because, even ifhe got a one-point rise in interest rates, that would kill all the paperprofit the Federal Reserve is reporting on its balance sheet currently.Depending upon how things go, we could easily see a stealthquantitative easing 3 (QE3) and QE4 following quietly in the steps ofQE2. It simply cannot continue indefinitely.
TGR: How are metals prices going to affect resource stocks? What do you see on that horizon in the coming months?
RW: Most markets are generally flat over the 60–90days of summer, until Labor Day. We think the shares of our juniorminers are going to be fine. Trader Tracks looks for opportunities thathave the potential to gain 20%–25% within three months. Obviously, we'renot perfect and neither is anybody else.
But we've been prettyfortunate in finding some really good ones. For all of 2011, we expectsome of our picks to be up over 100%. Although we are traders, I try torecommend trading the shares as little as possible. However, we'realmost forced to trade at least a couple of times a year. There arestocks in our newsletter on their fourth or fifth trade, and some ofthem have gained from 20%–200%.
We can't really post our record as a group, because the trading mathmakes it confusing. But what I try to do is let traders pick and choosewhat they want. We name a stock, an entry price, a price goal, atimeframe and an exit price.
Whether or not we exit at that predetermined price depends on whathappens in the markets as we go along. But some of the returns on thesejuniors have been absolutely fabulous. Looking at the list of some ofthe companies The Gold Report follows, I see four that are in mynewsletter.
TGR: Would you like to comment on those?
RW: Sure. The four that we have, and we like themall, are Pretium Resources Inc. (TSX:PVG), Millrock Resources Inc.(TSX.V:MRO), Northern Gold Mining Inc. (TSX.V:NGM) and PremiumExploration Inc. (TSX.V:PEM).
Pretium has a big property that was previously owned by SilverStandard Resources Inc. (TSX:SSO; NASDAQ:SSRI), when Bob Quartermain wasthe CEO. He retired from that company and started Pretium, and he'sdone a fabulous job. He raised nearly $300 million in three weeks lastfall. Some of the reserves that Pretium is reporting are absolutelystunning.
The property is huge, and it's right next to SeabridgeGold Inc. (TSX:SEA;NYSE.A:SA) in British Columbia. The company has 42million ounces (Moz.) gold already proven; so, my guess is that Pretiumand Seabridge will be folded into one big company, probably Seabridge.The stock has already provided a fabulous return for our readers. We gotin at $6.30, and it went over $13. Then, we recommended profit taking; Ithink we took 90% or 95%. It's probably one of our heaviest currentnewsletter-recommended investments.
Millrock Resources is a new one. It's in Alaska and Arizona and isusing a project generator business plan. What's appealing here are theprice, cash, management and, even more importantly, some fabulouspotential partners. When the big boys move in and want to be yourpartner, there's a very obvious reason. Same thing goes with NorthernGold.
Premium Exploration fooled a lot of people in that it was just aquiet little junior for many years. We know the company well and havevisited the mine. Premium has developed what we think will be anincredibly big operation. It's doing it properly by maintaining cashflow and marching through the property using aerial magnetometers andlooking at geological structures, as well as continuing to drill.
The more the company does, the more it keeps proving. We feel thestock is going to be a big one down the road. It will take some time. Itcould pop as early as September, but it could also be a year and a halffrom now. We know the property and the management, and we like Premiumvery much.
TGR: Would you like to expand on any of those, or do you have any more details you'd like to provide?
RW: I suggest visiting the websites of theaforementioned companies. I know you have some analysts who have donewrite-ups in The Gold Report. In Trader Tracks, we periodically featurewhat we call the "Miner of the Week." We do a four-page write-up on acompany showing the charts, our technical forecast, where the company'sbeen, where it is today and where it's going in our view.
We would encourage traders to do their due diligence and geteducated. We're not registered advisors, and I don't manage funds. Iwrite a newsletter and give my opinions; I give the facts as I see them.One of the things we do that not many others do is call prices andforecasts with hard predictions. If we're wrong, we're wrong. Butgenerally our trend has been good. Calling tops and bottoms is a fool'sgame. If you can get on the trend and you have a good solidorganization, you should come out pretty well.
TGR: So, in light of that, do you have any final thoughts you'd like to leave with our readers?
RW: Volatility scares a lot of people. Anytimethere's a bit of a correction or a downturn, they get upset. I thinkit's best to keep things as simple as possible. Start out with long-termcharts, and look at the history of a company and/or a market.
Figureout what's liable to happen at a certain time of the year, based uponhistory, and then look at the technicals on the charts. Put those factstogether, and I think you can do pretty well. Those who have the nerveto stay in and be invested at the right times are going to doexceedingly well.
TGR: You've given us some very good insights here.There are some potentially scary things on the horizon, but at leastpeople will be able to prepare for, and hopefully profit from, them.
RW: I think they will.
TGR: We appreciate your time, Roger. Hopefully, we'll talk again soon.
RW: I appreciate the opportunity to visit with you today.