Why a Fed Rate Hike Could Be a Blessing for Gold Prices
Like a loyal contrarian, Gold Newsletter publisher Brien Lundin looks over a headlines to know what is unequivocally relocating changed metals prices. He has resolved that a mainstream media competence have it all wrong. Suspected anchors on a bullion price, such as an seductiveness rate boost and devaluation of a yuan, could indeed be a rallying cry for commodities, he says in this speak with The Gold Report. And, he points to a baker’s dozen of companies staid to take off when a arrows turn.
The Gold Report: You recently pragmatic in an essay patrician “The Cocked Trigger” in Gold Newsletter that a stream superiority of brief bullion positions is indeed a good thing for bullion prices, generally if a Federal Reserve raises rates. That goes opposite all we’ve been led to believe. Why do we contend that?
Brien Lundin: We have an surprising conditions in a bullion marketplace right now in that in a Commitments of Traders reports by a U.S. Commodities Futures Trading Commission, for a initial time, a managed income zone has a net brief position in gold. Typically, speculators have a net prolonged position, and a commercials—jewelers, bullion dealers, etc.—have a net brief position since they have to hedge. But a speculators are now net short, and a commercials have their lowest brief position ever. It is a set adult for a brief covering convene during some point.
Add to that a probability of a Federal Reserve rate travel during some point, and we could see a big, astonishing pierce ceiling in gold. we consider a timing of a rate travel has been suspended a bullion marketplace for good over a year. Relieving that emanate could indeed prompt a brief covering rally. It would be kind of a sell-the-news eventuality where a shorts figure that a trade is over and this is a good time to start covering, some-more and some-more conduct for a door, and we have a convene underway.
TGR: You also pronounced a Chinese banking devaluation could be a hint for increasing bullion buying. Will that be a identical sell-the-news scenario?
BL: Yes. The initial proclamation devalued a yuan by about 2%, that of march increasing a cost of bullion and other line by 2% for Chinese consumers. So we would consider that would be a negative. However, it wasn’t a one-off devaluation. It was a new banking regime in that a yuan would be authorised to boyant some-more openly opposite universe currencies and, in fact, would be authorised to dump opposite universe currencies, in sole a U.S. dollar. So Chinese consumers, a investors and savers domestically who have been shopping bullion palm over fist, now consider that a yuan is going to be unheeded over time, so their inducement to buy bullion is heightened. we design that a devaluation will indeed boost bullion direct in China.
TGR: A new Barron’s essay personal line as a many out-of-favor courtesy organisation in a tellurian batch marketplace and afterwards resolved it’s time to buy commodities. Does a fact that a mainstream announcement is creation this prophecy meant we’re not nonetheless saying what Rick Rule calls finish capitulation?
BL: we consider we saw something unequivocally nearby to finish defeat in bullion on Jul 20 when speculators pounded a whole metals marketplace by orchestrated flooding of brief sales onto a futures exchange. Due to incomparable direct from China and now incomparable safe-haven direct from Western buyers, bullion prices should continue to rise.
TGR: As we pierce into a tumble bustling bullion equity shopping season, we seem to be changeable your portfolio to companies with proven resources. Why now?
BL: Because there is no need during today’s cost levels to accept scrutiny risk. There are a few special cases in scrutiny that we like and will still suggest going forward, though we have been changeable a portfolio some-more toward companies that have proven world-class resources, some of them with mercantile studies in hand. we consider these will be a initial movers in a metals cost rebound. Companies with large-scale resources offer a same upside intensity that an scrutiny play would have supposing a few years ago, and they’re offered for about a same cost with a lot reduction risk.
TGR: Give us some examples of companies that are impending prolongation though are still bargains in this market.
BL: A array of them have kept operative even during a marketplace decrease and done some unequivocally good progress. Almaden Minerals Ltd. (AMM:TSX; AAU:NYSE), Auryn Resources Inc. (AUG:TSX.V), Balmoral Resources Ltd. (BAR:TSX; BAMLF:OTCQX),Columbus Gold Corp. (CGT:TSX.V; CBGDF:OTCQX), Gold Standard Ventures Corp. (GSV:TSX.V; GSV:NYSE), Kaminak Gold Corp. (KAM:TSX.V), Lion One Metals Ltd. (LIO:TSX.V) and Rye Patch Gold Corp. (RPM:TSX.V; RPMGF:OTCQX) fit that description.
TGR: Let’s start with Columbus Gold. Were we astounded by a economics summarized in a company’s rough mercantile comment (PEA) for a Montagne d’Or plan in French Guiana?
BL: It was along a lines of what we expected, though we consider there’s still upside remaining since of a geometry of a deposition and a cavalcade module that will be ongoing. The pivotal with Columbus is that it was means to strike a conspicuous understanding with Nordgold N.V. (NORD:LSE) that will lift a plan by to a bankable feasibility investigate on a 50/50 basis. That’s genuine value for Columbus Gold and is not being sufficient famous by a market. The association also has a apartment of rarely impending scrutiny projects in Nevada, including a Eastside bullion project, that offers a good bit of upside potential, a value of that is not reflected in a marketplace tip right now.
TGR: Balmoral is in a midst of a vast cavalcade module on a Detour Trend plan in Quebec. When do we design to see formula there? What’s it going to take to make an impact on a batch price?
BL: Balmoral will be producing news for a prolonged time on both bullion and nickel targets, though we don’t know that any sole news recover is going to have a outrageous impact on a share price. This is one of those companies that we suggest investors buy and forget it, afterwards check behind in a integrate of years, since we consider Balmoral is simply doing a right thing. It has an unusual scrutiny organisation that has been unequivocally successful with other projects via their careers. It has dual premier projects that we consider are usually going to continue to get incomparable over time.
TGR: Gold Standard Ventures recently announced a cavalcade formula on a skill in a Carlin Trend in Nevada. Are we awaiting some-more catalysts from a association this year?
BL: Yes. Gold Standard Ventures is a intelligent income play. The people behind a association have a lot of knowledge in Nevada and have demonstrated their certainty by shopping a stock. The association recently took on a Pinion bullion project, and it is relocating that toward development, that was a smashing move. This association is unfailing to go distant in a subsequent metals rebound.
TGR: What is a subsequent matter for Rye Patch on a Carlin Trend Patty project?
BL: That is a high-potential scrutiny project. But some-more importantly to me, a lot of people are not giving Rye Patch credit for a swell toward production. It also advantages from kingship income from a agreement with Coeur Mining Inc. (CDM:TSX; CDE:NYSE), that radically means it can keep surpassing toward prolongation though any share dilution. Rye Patch is a good association for investors who wish to buy and hold. It affords bearing to an economically sound plan with proven resources. Investors usually have to wait for a marketplace to come behind to prerogative them.
TGR: Kaminak recently reported cavalcade formula from a Coffee plan in a Yukon. The marketplace didn’t unequivocally notice. What did we consider of a results?
BL: The marketplace competence have greeted a formula with a yawn, though to be satisfactory a lot of a formula were from infill drilling. Plus, there’s detachment opposite a marketplace right now. It unequivocally takes some well-developed cavalcade formula to get a market’s courtesy these days. Even then, infrequently a association will put out a good result, get large-scale trade volume, and people will usually use a eventuality to exit a stock.
Kaminak is another one of those buy-it-and-forget-it companies. we trust it is going to be one of a initial companies to be taken out by a vital when a metals markets come back. The Coffee plan has smashing economics and a government organisation that, again, always does a right thing. All a i’s are dotted and all a t’s are crossed. Senior companies can be unequivocally assured that they’re not shopping a plan with any surprises. They’ll know what they’re getting, and a numbers unequivocally demeanour good.
TGR: You recently combined Auryn to a portfolio. Was that formed on a strength of a resource, a government organisation or both?
BL: Quite frankly, a government team. we couldn’t move myself to suggest a association when it had no plan whatsoever, though we was meditative about it since a government organisation has a lane record that’s unblemished by disaster of any kind. They were behind a Keegan Resources Inc. (KGN:TSX; KGN:NYSE.A)/Asanko Gold Inc. (AKG:NYSE.MKT; AKG:TSX) association and a Esaase plan with a find of over 5 million ounces of gold. In a center of a down market, they were means to have a success and have their subsequent venture, Cayden Resources Inc. (CYD:TSX.V; CDKNF:NASDAQ), that sole off final year to Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) during a good distinction for all a shareholders. Auryn is their subsequent association and, we believe, their subsequent vast success. The Committee Bay bullion plan is interesting. Auryn’s government was so vehement after doing initial due industry that it squandered no time in consolidating their tenure over a project. we have good certainty in a government team. If they like a project, we like it. we consider they’re going to make a vast success out of it as they have in each prior company.
TGR: One some-more in that same modernized vessel is Lion One, that expelled a PEA on a Tuvatu plan in Fiji final month. What did we consider of a report?
BL: It exceeded my expectations. It came in with good economics and awfully low collateral costs to get into production. Not usually is a plan outstanding, so is a government team. Wally Berukoff runs a unequivocally parsimonious ship, and he has put together a organisation that we have finish faith will be means to move this plan into production. So when a subsequent vast spin in a markets comes, Lion One will possibly be in prolongation or on a verge of production, and would seem to be a primary takeover aim for a majors. we know that Wally Berukoff will get full value for it.
TGR: Let’s speak about some now producing companies in a portfolio that we consider still have upside.
BL: Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.MKT), GoGold Resources Inc. (GGD:TSX), Excellon Resources Inc. (EXN:TSX; EXLLF:OTCPK) and a new play,Newmarket Gold Inc. (NGN:TSX.V), fit that description.
TGR: Let’s start with Great Panther. When will a scrutiny tube during a dual handling mines and swell during a Guadalupe de los Reyes plan in Mexico start to impact a batch price?
BL: Normally, prolongation expansion or scrutiny success would be a catalyst, though in this marketplace where china prices have been trending lower, many china companies are in a formidable situation. Investors have to closely watch a inner prolongation metrics. Is a association creation income during stream prices? Will it make income if china takes another dive downward?
That used to be Great Panther’s diseased point, though a latest quarterly formula are amazing. The association generated aloft prolongation levels and reduce income costs notwithstanding a stronger U.S. dollar. Production was adult over 50%. All-in nutritious costs forsaken about 50%. we was unequivocally gratified with a numbers that Great Panther was means to deliver. It is creation income on each unit of china it produces, nonetheless it did news a net detriment due to banking sell issues. So I’m certain going forward.
TGR: Excellon is a new further to your portfolio. What creates we consider this association can overcome operational hurdles and be profitable?
BL: Excellon has been a highest-grade china writer in Mexico for over a decade, and a association did confront some operational hurdles as a cave got to a abyss subsequent a H2O table. Its grouting module didn’t work unequivocally good and prolongation rates fell. Management brought in new imagination and allocated a collateral investment required to assuage a problem. A new mercantile investigate showed that with a improvements, a association could reduce costs almost and boost production. It has usually begun to exercise that program, and it looks as if it’s removing a approaching results. The association should be rerated once it can infer it can reduce a prolongation cost-per-ounce to levels that would concede it to make income in probably any china cost scenario.
TGR: GoGold was one of a few companies that indeed impacted a batch cost when it announced Q2/15 prolongation numbers for a Parral tailings plan in Mexico. Are we assured about management’s ability to conduct debt and put a Santa Gertrudis cave into operation?
BL: Yes, we am. You can never go wrong betting on Fred George of GoGold. He’s a relentless businessman who has enjoyed a array of big-time successes. I’m unequivocally assured that he’ll do a same with GoGold. The Parral plan was a unequivocally intelligent acquisition. It’s being proven now with income entrance in aloft than expected. This will concede a association to residence expansion of Santa Gertrudis, where it was means to infer adult resources that a prior owners were not means to delineate. The association finished a vital credit trickery lift recently that will concede it to go into production. Not usually does it have proven resources, though it also has a prolongation form that’s fast rising. Almost irrespective of what a altogether marketplace does, we consider a shareholder value will boost with GoGold. It’s a good investment opportunity.
TGR: Is Newmarket an Australian turnaround story? Are we awaiting some-more acquisitions there?
BL: It’s partially a turnaround story. It acquired Crocodile Gold Corp. (CRK:TSX; CROCF:OTCQX), that was a rather troubled, midlevel cave in Australia, though in truth, that prolongation turnaround during a cave was already in place as Newmarket was appropriation a company. So Newmarket was unequivocally advantageous in a timing. But Newmarket is also some-more of a thematic play where it is going to be aggressively appropriation producers in this vexed marketplace during unequivocally low prices and afterwards roving a miscarry in a metals that seems inevitable. If anything, this association would like to have a turnaround in bullion and china wait until it’s means to make some-more acquisitions. Regardless, we consider that Newmarket is an up-and-coming association that is going to unequivocally warn a market.
TGR: You also have a gold organisation metals (PGM) plan in a portfolio. Are we bullish on a supply and direct fundamentals for gold or is this a government story?
BL: It’s a bit of both. You can never divorce government from a equation. It is typically a many critical member in examining a company. But Wellgreen Platinum Ltd. (WG:TSX; WGPLF:OTCPK) has a polymetallic plan in a Yukon so vast that it is a vital apparatus for some vast actor down a line. we demeanour during Wellgreen as not so many a play on any specific conditions in platinum, palladium or nickel, though as a well-run association with a apparatus that is positively universe class. It represents one of a few primary PGM projects that is not in a high-risk domestic regime. At some point, a Wellgreen plan will paint a safe, secure, large-scale source of PGMs, and that will have value many incomparable than what a marketplace is now assigning to a company.
TGR: Are there any other companies that we wanted to mention?
BL: There is one association I’m concerned in that we haven’t been means to suggest to my readers since we am a authority and largest singular investor, and that’s Natcore Technology Inc. (NXT:TSX.V). It recently done news that it has grown a solar dungeon that totally eliminates china in a prolongation process, an allege that will dramatically reduce costs. The dungeon structure is also fair to ultrahigh efficiencies. This could unequivocally take a marketplace by storm.
TGR: Your annual New Orleans Investment Conference is entrance adult in October. What will attendees take divided from this year’s eventuality that will assistance them position themselves for a subsequent upcycle?
BL: we consider a subsequent upcycle in metals is imminent. Because of that, a concentration this year is on top-notch investment recommendation by some of a world’s best experts, including Wall Street’s heading contrarian Doug Kass, Dr. “Doom” Marc Faber, Euro-Pacific Capital’s Peter Schiff and Sprott US Holdings CEO Rick Rule. Plus vital newsletter writers like Dennis Gartman, Doug Casey and James Rickards will share their insights on a instruction of a markets. We will also try a geopolitical landscape with Dr. Charles Krauthammer and Canada’s famed commentator Mark Steyn. The discussion comes during a finish of Oct and ends on Halloween Day, that fulfills a bucket list eventuality for many who have longed to spend this time in New Orleans’ French Quarter.
This year will concentration some-more on changed metals and mining bonds than ever before. Typically, a biggest gains have been done during a bottoms of a markets. Some companies in assemblage in 1993–1994 and 2000–2001, cyclical marketplace bottoms, subsequently double 10, 20 or even some-more times when a marketplace turned. we consider we’re primed to do that again.
The discussion is also an eventuality to ask government about their knowledge and how many of a batch they own. In this environment, a many critical doubt is a financial resources a association has in a bank. Many companies forced to lift income currently have to do it during a nickel or less; that’s awfully dilutive to a company’s share structure. By participating in a nickel private placement, utterly often, you’re not doing yourself or a association any favors, since during some indicate that association will have to hurl behind a shares. You don’t wish to deposit in a zombie association that’s usually sitting on a hands and not doing anything and perplexing to wait out a markets. Time is money. You need a association that is going to keep relocating forward. When we attend an eventuality like a New Orleans Investment Conference, a companies in a vaunt gymnasium have done a poignant commitment, so we know that they are dynamic to keep working. It’s typically a intelligent government organisation that’s stability to build shareholder value even during a bottom of a market.
Over and above a speakers and a companies, attendees have a advantage of rubbing elbows with some of a tip investors in a world, their associate attendees. Just by determining to go to a New Orleans Investment Conference, they’re self-identifying as smart, savvy investors who make their possess decisions and are information hungry. Our attendees tell us this all a time—that they get some of their best ideas by articulate to others in a audience. In fact, even a consultant presenters like to association with a attendees for that unequivocally reason. It unequivocally is a entertainment of unequivocally smart, unequivocally gifted investors where ideas for creation income are all around you.
TGR: Thank we for a time, Brien.
Courtesy: JT Long of The Gold Report