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Gold and Silver Stocks' Wild Ride Ahead

Commodities / Gold and Silver 2012 Feb 21, 2012 - 06:12 AM GMT

By: The_Gold_Report


Best Financial Markets Analysis ArticleGreg McCoach, publisher of The Mining Speculator, feels gold is ultimately headed above $6,000/oz and silver into the hundreds of dollars and those who aren't paying attention now are missing their best opportunity to buy before the frenzy begins in earnest. In this exclusive interview with The Gold Report, he spells out the reasons for his optimistic projections and shares several of his favorite stories in the junior mining sector, which he believes is headed for much higher ground.

The Gold Report: You last spoke with The Gold Report in October 2010. A lot of things have happened since then. You were predicting that the Fed would start printing money to pay its debts, thereby creating a Ponzi scheme, which it had, sort of, been doing all along. So, have things played out the way you thought they would? And, what are you expecting is going to happen in the rest of 2012?

Greg McCoach: I think we've been very accurate in that we'd see additional quantitative easing (QE) events. I remember saying when QE1 came out that they'd be doing QE2 and QE3. Of course the Fed denied that and the media said that's not going to happen. Well, it has and we are now at QE3. I believe we're going to see QE events indefinitely until the whole system implodes. So, on that part I feel we've been very accurate. But, on other parts we haven't been so accurate.

The junior mining share market certainly hasn't participated with the higher metals prices that we hit last year at $1,900/ounce (oz) gold and $49/oz silver. The juniors performed very poorly relative to those metals prices, particularly into the latter part of 2011 when the market really tanked. Tax-loss selling varies from year to year but last year was brutal, and even the best-of-class companies took a hit. But, I'm bullish for the long term.

Short-term debacles are a great buying opportunity for me. I believe this secular bull market in precious metals is going to continue for many years to come. My mantra is to buy on dips. I do believe we're going to see a great influx into the junior mining shares at some point. Right now the precious metal prices seem to be leading the equation, which isn't always the case. But, I expect these junior miners to catch up and do very, very well when the fiat currency scam finally comes to an end.

TGR: You've been pretty bullish all along on the prospects for gold. And, you've talked in the past about an eventual target price around $6,500/oz. So, where do you think we are relative to that at this point?

GM: I think in the immediate term it's very difficult to predict, but before year-end we're going to run to the next new highs in gold and silver. I would expect gold to be well above the $2,100/oz level in this next run with silver pushing toward $70/oz. The driver for this will be QE3 and the stoppage of the manipulation game in New York on the Comex. That game has been played for a long time now, over 15 years in my opinion, but will soon be vacated by the shorts due to horrendous losses as other big players—Russia and China—fight against them.

In the longer term, the end game for all this debt and fiat currency insanity will take gold to a minimum of $6,500/oz. In reality, it will probably go much higher than that as governments topple and civil unrest unfolds. As an example, if you took all the current debts known to the world in the system right now and had to cover those debts with gold, it would take a price of $19,500/oz to do so! Of course, this is just one methodology of trying to figure out just how high gold could go, but I think you get the picture. What I am trying to say is that my $6,500/oz number is probably very conservative. How long is it going to take to get there? I don't have a crystal ball. Those prices would happen as the world financial system hits systemic collapse.

In this next run higher for this year, gold could easily hit $2,500/oz to $3,000/oz, depending on how much QE3 is injected into the system. The more QE3 that is done, the higher the precious metals prices would go. Also, the vacating short situation on the Comex could be a big swing factor. Silver could easily see $70, $75, even $80/oz if these events occur this year as I expect. That's also going to lift our junior mining shares and get them going once again.

With that being said in the short term, however, we need to be aware of extreme volatility in either direction in short bursts. We may experience a violent downdraft in precious metals prices based on some supposed or concocted solution to the problems that ail the world. This, of course, would be total hogwash, but we should expect to hear a lot of this type of nonsense that could affect us to the downside in a very short-term situation. These would be your key buying moments if they happen. Have absolutely no fear that fiscal responsibility will take hold and all the financial problems of the world can be solved. That simply cannot happen based on the absolutely ridiculous levels of debt that must now be dealt with. Buy the precious metals on any dips with great confidence.

TGR: Last time you also talked about having a substantial position in silver. Are you still that bullish on silver?

GM: Yes! I've owned for 14 years and we have zero clients who are not in the money. I own both gold and silver. But, I believe that silver is going to far outperform gold, even though I think gold's going to $6,000–10,000/oz. From where we are right now, gold performance will pale in comparison to what silver's going to do. Eventually, I think silver could be priced at maybe $400–500/oz. If gold goes to $10,000/oz and we're at a 15:1 or 10:1 ratio, silver could be $700, $800, or even $900/oz.

So, there's a lot of explosive upside in silver and when you understand how tight the silver market is right now, and all the game-playing that's been going on and the monster short position that exists, there's not enough physical metal in the world to cover this. There's such a total disconnect in that market that, at some point, when it is allowed to become a free market, I think silver's going to run like crazy and I see that coming very soon.

In saying this, however, I also need to caution readers to understand that the silver market will be more volatile than gold. In other words, if you think the ride on the gold bull's back has been tough this past decade, the silver bull ride is going to be a lot worse moving forward. If you can handle that kind of volatility, the reward will be worth it.

TGR: You touched briefly on the junior mining stocks and their lack of performance during the last couple of years, relative to the metals. When do you think the turning point is going to come and what will be the catalyst to make these things finally take off?

GM: Retail investors in this sector were hit pretty hard in 2008, and again this past fall and into tax-loss selling season. So, they're not too quick to want to jump back in without seeing some solid evidence that the market is going to perform as we expect it will. All markets are volatile at this point. We've never seen the kind of volatility in day-to-day events we're now witnessing around the globe.

The junior mining space has always been more volatile than the regular markets. I like volatility because, if I just wait long enough and have enough cash on hand, that volatility allows us to buy good companies, again, cheaply. But, we haven't had a good, long upside period in the last few years that has really cemented our position with more mainstream investors. The day is coming, however, when the masses are going to flood into the precious metals and mining stocks. And, it's going to take some shocking events to wake them up to the difficult situation in which we now find ourselves.

I believe it's going to start in Europe but we're temporarily getting the benefit from the downward slide of the euro. People are still turning to the dollar as protection, instead of going to gold and silver as the historic safe-haven currency. Ultimately they're going to find gold and silver, and that day is probably closer than most people realize.

TGR: Let's talk about some of the companies you follow in your Mining Speculator newsletter. What are some of the hugely undervalued situations you see right now?

GM: Since tax-loss selling ended, we've seen a little bit of a rebound in the best-of-class stocks, but many of the junior miners are doing nothing. On a selective basis, where you see real value, like a company trading below its cash value, that's a no brainer. You're going to be a winner at some point. Just take a position, sit tight and wait for the market to go your way. I can't tell you exactly when. But, I do think QE3 is a big catalyst to have another big run for the metal prices and the junior mining shares, particularly if we get the Comex situation resolved.

TGR: You have a Top 10 list of stocks in your newsletter and website. Can you tell us a little bit more about some of the ones you consider favorites on that list?

GM: I have two newsletters. One is The Mining Speculator, which is the base newsletter you can get involved with for a very low price. I have a higher priced newsletter called the Insider Alert. I've been writing The Mining Speculator now for 12 years and Insider Alert for five years. Within those newsletters I like to highlight the companies that I feel have the greatest chance of success in the shortest time possible. In the Top 10 Mining Speculator stocks right now, I would say there are two companies I'd like to highlight. Orko Silver Corp. (OK:TSX.V) has been waiting for a buyout from Pan American Silver Corp. (PAA:TSX; PAAS: NASDAQ). I think now we're very close to that decision coming. Two other suitors are waiting in the wings if Pan American doesn't get its act together. But, I think this is $4 to $5/share in the buyout and pretty much a no-brainer. You can still buy the stock at $1.65 in the open market. Pan American is technically going to be in default because by mid-April it has to bring a full feasibility study to the table as its end of the bargain. There's no way it's going to be able to accomplish that within that timeframe. So, that means it could be in default if it doesn't buy Orko out by that time.

Pan American Silver just purchased Minefinders Corp. (MFL:TSX; MFN:NYSE) and I know for a fact that Pan American Silver absolutely needs to have those ounces at La Preciosa, Orko's flagship project, on their books. These mining majors are in trouble. They're producing their reserves and not replenishing them. Pan American has the cash and needs the ounces now. I can't see it losing its investment and just walking away with nothing. So, I do think you're going to see a push to buy Orko Silver here. That's a good play to get a quick double or triple on your money from here, although I don't know exactly where the buyout price would be. It would be helpful if the silver price and our market recovered as it goes into these negotiations. I expect to hear some news on negotiations that should be finalized by that April date. So, Orko is number one because I think it'll have the quickest and biggest payback in such a short period.

I break my newsletter recommendations into exploration stocks, development stocks and producers, to help new subscribers pick which area suits them best. There's more risk in the exploration stocks but also a higher reward if things work out. The development and production stories have less risk but the upside potential also goes down. The big upside in exploration stocks is there because the risk is higher. So, I like playing in that sector and have done very well over the years.

Another geographic area that I'm very bullish on is the Yukon. The Klondike gold rush started in 1898 and now we have the second Klondike gold rush. That's because a prospector named Shawn Ryan has a prospecting technique that allowed two companies to make major discoveries.

The clear leader up there now is one of those discoveries called Kaminak Gold Corp. (KAM:TSX.V). I think it's a very good play right now at a very cheap price. I see them as an absolute buyout in the near future with an upcoming NI 43-101 calculation somewhere in the neighborhood of 4–6 million ounces (Moz) gold. There are infrastructure and seasonality issues up there and it's very difficult to work year-round. But, again, it's in an area where a lot of big gold discoveries are being made. I think Kaminak is definitely the clear leader and will be rewarded for its big discovery with a buyout from a major.

The second company is what I'm calling "Kaminak Junior." I think Ethos Capital Corp. (ECC:TSX.V; ETHOF:OTCQX) is poised to be the next big discovery up in the Yukon. You can buy the shares for less than $1/share right now. The exploration drilling this summer should prove that it has made another big gold discovery similar to Kaminak's. Ethos' mineralized area is on the same big geological trend as Kaminak. These trends produce the mineralized systems that come up in economic quantities near surface, where they can be mined. I've been on both projects in the last few years. I can tell you the rocks coming out of the ground, in trenching, are identical quartz rocks that have high-grade gold in them. And, I'm very excited for what can happen for Ethos.

TGR: Are there some other ones that you'd like to talk about?

GM: Orex Minerals Inc. (REX:TSX.V) is another company I like. It has projects in Mexico. A very nice joint venture deal called Coneto is with Fresnillo Plc (FRES:LSE), one of the world majors. I think that, given enough time and money spent, there could be a big discovery at Coneto. More immediately, Orex's flagship deal over in Sweden is an advanced-stage gold project it picked up from another company for cents on the dollar. I think Orex's excellent management team is going to be able to take it to the next level. What is now probably a 1 Moz gold resource could soon become a 2 Moz gold resource, with very economic numbers. That could get Orex going in the right direction in a hurry. At $0.70–$0.75/share, it's really a low-risk play with a high-potential reward.

TGR: Do you have any preference between gold and silver equities?

GM: No. I like owning the combination of physical gold and silver along with the quality junior mining shares that have the people with the right management track records, in the right areas, doing the right thing for the right reasons. They raise money and put it in the ground to build resources and deposits and make investors money. It's hard to believe this secular bull market for precious metals is now going into its 12th year. All the naysayers have not only been wrong, they've been way off in their expectations that gold would never last this long. I remember people telling me gold would never get over $400/oz. Then, when it did they would say, "Well, gold's never going over $500/oz." I kept saying gold's going into the thousands. And, people looked at me as if I was some kind of lunatic.

To directly answer your question though, I like both gold and silver equities but only if we have the right set of circumstances. There are so many companies in the gold and silver equity space that you don't want to touch with a 10-foot pole. Management is the key.

TGR: Investors will be all over gold when it hits $2,000/oz and $3,000/oz, saying it's the best investment in the world.

GM: Absolutely. I'm super bullish on it. But, I can't tell you the exact timeframe on how things are going to work out. My mantra is "buy the physical metals as your ultimate bank account." I call it the "Bank of McCoach." It's the safest bank account in the world and will pay the best returns. Don't worry that it doesn't pay you any interest. What bank is paying any interest anyway at this point? Own the physical metal. Take delivery of it. Buy the metals and then buy quality mining shares for big leverage. And be smart enough to take profits, because paper still has to trade on a market. The world is just drowning in debt and we keep funding this through creating money out of thin air.

It's amazing to me that 80% of the people have no idea this is happening and the wakeup call is going to be ugly for them. They don't have any understanding of it and they're going to get wiped out. Stick with the precious metals and you'll be on the better side of the equation.

TGR: Well, I think that's a good point to close on. You've given us a good, broad picture of what the situation looks like. It sounds like the believers are going to do much better than the latecomers.

GM: I tell everybody that I'm an optimist by nature, but I have to deal with reality. And, I believe that once we deal head-to-head with our problems and the masses wake up, it will take years for us to get through all this. It's going to be ugly. But, once we do, I think we can get to a level of prosperity, liberty and freedom previously unknown to the world.

TGR: We appreciate your time and insights.

Greg McCoach is an entrepreneur who has successfully started and run several businesses over the past 22 years. For the last seven of these years, he has been involved with the precious metals industry as a bullion dealer, investor and newsletter writer. McCoach's years of business experience and extensive personal contacts in the mining industry provide unique insights that have generated an impressive track record for The Mining Speculator since its inception in 2001. He further spreads his vast knowledge of the precious metals markets in his Insider Alert service. McCoach is also the president of AmeriGold, a gold bullion dealer.

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 Exclusive Interviews page.

1) Zig Lambo of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Minefinders Corp., Ethos Capital Corp., Orex Minerals Inc. Streetwise Reports does not accept stock in exchange for services.
3) From time to time, Streetwise Reports LLC and its 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.

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The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

From time to time, Streetwise Reports LLC and its  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.

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