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
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

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

Brien Lundin: Is Gold Holding a Wild Card?

Commodities / Gold & Silver Nov 05, 2008 - 06:30 AM GMT

By: The_Gold_Report

Commodities Best Financial Markets Analysis ArticleAs difficult as it may be for precious metals investors to sit on their hands, that may be the best “action” for surviving this hazardous transition from deflationary to inflationary times. In this exclusive interview with The Gold Report, Gold Newsletter Editor Brien Lundin explains why it is absolutely inevitable that inflation will trigger a rise in gold and hints that a December “surprise” could end the waiting game. While his advice is to let this round of deleveraging and deflation end before making any serious plays, he names a few bargains that stand out even in a downturn.


The Gold Report: Gold and the Dow are both going down. Shouldn’t they be decoupling and if they do, what would it take to make that happen?

Brien Lundin: There’s a fancy word out there – deleveraging – that’s being bandied about almost as much as the word depression. All the pundits and the analysts are talking about deleveraging. What that really means is that market participants are selling hand over fist because they have to. The prices we’re seeing for assets now, whether it’s stocks, commodities, or gold, do not reflect the underlying value of those assets. People are selling them simply because they have to—whether because of margin calls or redemptions from hedge funds or what have you, the assets have to be sold. That’s why anything with a bid, anything that can be sold in volume is being sold. Underlying trends have nothing to do with it.

I do think we’ll see stocks and gold decoupling. We’ll see all of these asset classes start to establish their own trends based on economic fundamentals, once some stability returns to the market. First we have to get past these great down drafts driven by the need for liquidity.

TGR: When do you see that happening?

BL: That’s a difficult call. Some predict the bailout plan will have an impact soon—over the coming few weeks. I think that enough damage has been done to last for the rest of this year. Simply having gotten through October will bring a big psychological boost. It was such a hazardous month and had earned such a well-deserved reputation for being treacherous for equity investors.

At this point, everyone who doesn’t have to sell, who isn’t on margin, or doesn’t need the liquidity, should just sit back, keep their heads low and wait until the New Year.

TGR: But when do you expect some stability?

BL: It’s hard to say how much more selling will occur. A lot of money has certainly flown out of the commodities sector and the stock market. We’ve lost $3 trillion in wealth in the stock market alone since the bailout. And yet, while there’s already been a tremendous amount of selling, there is still some money on the sidelines. It’s just impossible to predict when stable markets, much less an uptrend, will come.

TGR: What do you think of the fact that the value of the U.S. dollar has increased against most other currencies? What’s causing that given all this financial turmoil?

BL: A couple of things. First off, assets are being sold to raise dollars to meet margin calls and redemptions. Until the margin clerks and fund investors start accepting gold in payment, then we’re not going to see gold rising in such an environment.

Secondly, the dollar has been in a bit of a short squeeze. A number of European banks have had to buy dollars to fund redemptions from clients with accounts based in U.S. dollars. The pressure resulting from redemptions and withdrawals forced them to buy dollars at virtually any cost to redeem these calls. That short squeeze has elevated the relative value of the dollar over the near term. This situation won’t last. But typically, when a rebound from a short squeeze occurs, there will be a dramatic move in the opposite direction.

TGR: By dramatic, do you mean fast?

BL: A lower dollar, a weaker dollar. And yes, in fairly quick fashion.

TGR: A weaker dollar would push up the value of physical gold.

BL: Absolutely. And over the longer term, that will happen eventually. Trillions of dollars of are being created to bail out financial institutions and local economies. This will have a dramatic effect on inflation. But for now, this deleveraging process is highly deflationary. We’re getting a stronger dollar and relatively lower values for anything the dollar will buy. But ultimately, all these newly created dollars and all of this new fiat currency worldwide will result in much higher inflation.

TGR: You are predicting we are headed for an inflationary environment?

BL: Oh, absolutely. Even if the currency that has been created or promised thus far proves insufficient to engender an inflationary environment, the financial authorities will create whatever amount it takes to bring about inflation. That’s only way to stop deflation. They cannot transition gradually from a deflationary environment to one with low inflation. The pendulum will have to swing hard in the other direction.

TGR: Will the pendulum swinging bring the end of deleveraging? You said earlier that as the deleveraging process completes itself, that the asset classes will now reestablish themselves on their own merits.

BL: Yes.

TGR: Once this deleveraging ends, inflation begins?

BL: Yes, but once we pass through a difficult transition period from a deflationary environment into an inflationary one. We’re probably living through it right now. There’s no telling when the pendulum has reached bottom, and when it’s going to start swinging the other way. Every time we think we’ve hit a bottom in the stock market, we test a new one. Every time we think the last shoe has dropped, another one falls. This uncertainty and fear of what lies ahead really bothers the market.

For so long we didn’t realize that the market was barreling along with blindfolds on. Suddenly these obstacles are hitting us with great force and we don’t know what or where the next stumbling block will be. And that’s scary.

TGR: But in that uncertainty lies opportunity.

BL: Absolutely, but it takes more than insight to see opportunity. It also takes guts to act on it. We all recognize that this is opportunity, but it’s the proverbial falling knife syndrome. When do you step in? I’ve pecked away at a few irresistible bargains myself and in some cases those irresistible bargains are now trading for half of what I paid for them.

So it’s hard to find the bottom, but there is value here. I’m advising my readers not to over-extend themselves. Wait for a trend to establish itself, give up some of these early gains before you jump in wholeheartedly. With that said, it’s not a bad time to peck away at some bargains here and there.

TGR: Do you have some bargains you can share with us?

BL: Yes, I do. All are extremely undervalued and selling for small fractions of their peak prices. The key is to find companies with real assets and the financial wherewithal to survive this down market.

NovaGold Resources (NG:AMEX)(NG:TSX), at these levels, is a tremendous bargain. There’s been a lot of concern about NovaGold and what’s going to happen at Galore Creek, but I think that’s going to end up being a bigger, more profitable project than anyone is currently imagining. Inter-Citic Minerals (ICI.TO) is another great company with a tremendous gold project in China. It’s trading for around 30 cents—a fraction of what this project is worth even at today’s prices. It’s a multi-million ounce project with considerable growth potential. Keegan Resources Inc. (AMEX.KGN) is another one. I think they’ll end up with close to 3 million ounces in their West African projects. Keegan sells for 75 cents with about a $22 million market cap.

On the uranium front, I like Hathor Exploration (HAT: TSX.V). This company is one of the only bright spots in today’s junior stock market. They have a tremendous high-grade uranium discovery in the Athabasca Basin and have only explored about a third of the structure that hosts the uranium mineralization. Roughly outlined, they’ve probably got close to 40 million pounds—once that’s drilled out to a compliant resource, it’s probably worth about $300 million even in today’s market. But Hathor’s trading for well under half that value right now, and the deposit should grow much larger. So I really like Hathor as a stock that almost assuredly will trade for considerably higher prices down the road.

TGR: You follow uranium quite closely. Can you just give us an overview? What’s the outlook for uranium juniors?

BL: Uranium is a great long-term story, but when prices reached $110 to $120 a pound, it did get very much ahead of itself. Since then, we’ve come back to earth, and hard. A lot of that drop in price can be attributed to the diminishing outlook for the global economy. But a significant part of the decline has to do with the fact that hedge funds were speculating in uranium on the long side and they have obviously deleveraged. Some of them no longer exist.

The bottom line is that a lot of the uranium positions—not just the companies, but actually the metal itself—have been sold down. Uranium’s long-term story remains bullish, but it’s not going to develop as quickly as everyone had hoped during the ‘urani-mania’ a couple of years ago. We’re going to have to see China grow considerably, for example. A lot of the uranium forecasts were based on the number of nuclear reactors that China was going to build as well as the rest of the world. But it takes a long time to build a nuclear power plant, even in China. The long-term trend is up, but along the way there will be bumps and corrections like those we’re experiencing right now.

TGR: So even a recommendation like Hathor, which has been pounded down by the market in general along with the drop in the price of uranium, would take awhile to bounce up?

BL: Hathor is such an exciting, high-grade story that its prices are being driven by its exploration success, making it largely independent of the short-term uranium price. Granted, some analysts have made rough calculations of its net asset value and then, rather than assign a price target that’s a multiple of its NAV, end up with a target that’s just half of its NAV. Unfortunately, that’s a function of today’s uranium market. But Hathor will be driven by drill results over the next three to six months, while the rest of the sector will remain pretty moribund. Most uranium explorers need a price over $80, because a lot of uranium in the ground becomes economic around that level. And we’ll need sustained prices around $100 before lower-grade uranium projects become viable and lead the representative stocks to rise.

TGR: At what point will existing nuclear facilities begin to consume enough to push the price up?

BL: When uranium was trading for over $100, everyone agreed that was the time. Now that uranium is in the mid-$40s, I just don’t think that anyone can predict when we’re going to sustain those higher prices again. The decline in the broader commodities market and the corresponding strength in the dollar are having an effect here. Again, I think we need to get through this temporary deflationary phase and the stronger dollar. A weakening dollar will start to bring up commodity prices. That’s when uranium will creep back. But it could be late 2009 before we can see that happen.

TGR: Do you cover any of the rare minerals in the Gold Newsletter?

BL: Not too closely. It’s difficult for those rare mineral projects to get much attention in this market. Gold is what really drives a bullish environment for resource stocks. You really need a very broad commodity bull market before those more obscure metals and elements get noticed. One exception is Rare Element Resources Ltd. (RES:TSX.V). It’s the best of the rare earth plays, ironically, because of its gold project, Sundance, joint ventured with Newmont. Sundance will drive RES, while the rare earth component is more of a backdrop to the gold story.

TGR: Interesting. So even though there’s demand for rare earth minerals from many different areas, that won’t be enough to move Rare Element Resources forward?

BL: No, I don’t think so. I think that’s a gold story.

TGR: You have a conference coming up in New Orleans, from November 13-17. How would investors interested precious metals and/or uranium benefit from your conference?

BL: Investors will get the latest thinking from leading experts in mining and resource stocks—from some of the very people who predicted this downturn. I am referring to Rick Rule, Dave Coffin, Lawrence Roulston, Brent Cook, Greg McCoach and others, who do very well finding the bargains that will survive. Investors will also hear from some of the biggest names and the most respected experts in geopolitics and economics. We take great pride in presenting the most celebrated leaders in the world, who not only take a look at the big picture but also drill down to the details.

TGR: Steve Forbes will be there.

BL: Yes, and Fred Thompson will give us look at the geopolitical angle. Our conference takes place right after the U.S. presidential and congressional elections, and investors need to gain a clear understanding of how the elections will impact the economy, investments and tax strategy. So in addition to Thompson and Forbes, we’ll also hear from Stephen Moore, a noted economist affiliated with the Cato Institute and the Wall Street Journal. James Carville, a well known political operative, will tell us what the fallout of this election will be for the American investor.

And Doug Casey, representing libertarians, will have his annual debate with a conservative and a liberal, i.e., with Thompson and Carville. That’s a real crowd pleaser with a lot of fireworks.

TGR: That’s got to be lively.

BL: People always pack the halls for that one.

TGR: Any last thoughts on where gold will be by the end of the year?

BL: I think I will beg off on that one. Frankly, I don’t want to jinx it, but I think we could see a December surprise. One of the potential wild cards is the emergence of an effort to get people take delivery on December gold and silver contracts, which may or may not end up depleting the warehouse stocks to any significant degree. Just the possibility of that happening could be enough to trigger some short-term upward movement in the gold and silver price.

Brien Lundin, with over 20 years of experience in investment analysis and publishing, serves as president of Jefferson Financial and editor of Gold Newsletter . In Gold Newsletter, he covers not only resource stocks, but also the world of investing, from small-caps of every type to macroeconomics and geopolitical issues.

Visit The GOLD Report - a unique, free site featuring summaries of articles from major publications, specific recommendations from top worldwide analysts and portfolio managers covering gold stocks, and a directory, with samples, of precious metals newsletters. To subscribe, please complete our online form ( http://app.streamsend.com/public/ORh0/y92/subscribe )

The GOLD Report is Copyright © 2008 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.

The Gold Report Archive

© 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