Hard Asset Digest May 2020
This month, I’m sitting down with Brien Lundin, editor of Gold Newsletter.
Brien is truly one of the most insightful writers I’ve ever known. Time and again, he has been right on the long and short-term swings of the gold price — giving his subscribers more winners than you can imagine.
Before we get to the interview, let me give you a little personal information about Brien, whom I have known for many years. His publication, Gold Newsletter, www.GoldNewsletter.com, which is currently celebrating its 50th year, is the oldest continuously published gold report in existence.
It was founded by James Blanchard III in 1971. Jim was one of the driving forces to return the right of private gold ownership to American citizens. I’m sure most readers of Hard Asset Digest cannot recall a time when US citizens could not legally own gold — but that was indeed the case in the early-seventies.
Brien worked hand-in-hand with Jim for many years and took over the entire operation in the early-nineties. His successful stock recommendation track-record is unmatched in the business. Additionally, his uncanny ability to call long and short-term trends for the price of gold, silver, and other metals continually amazes me.
Brien also hosts the New Orleans Investment Conference — the oldest and most respected investment event of its kind in the world. As we discuss in the interview, Brien is in the process of determining what this year’s event will entail – in-person, virtual, or a combination of the two – in light of the coronavirus pandemic.
The event will be held as planned on October 14-17th, and Brien, as always, is 100% committed to delivering the unique form of value that has become a hallmark of this storied event. A decision will be made within the next couple of weeks, and you can follow developments here.
Additionally, Brien publishes his complimentary newsletter, Golden Opportunities, which is delivered at least once a week and presents Brien’s general views on the markets.
Having both of Brien’s publications in-hand will keep you up-to-date on all that affects the gold price along with specific company updates and recommendations to make you money in the resource sector.
Before we dive into the interview…
Gold has been trading right around $1,700 an ounce over the last few weeks and is up substantially from $1,500 an ounce from just a couple of months ago and up even more from $1,300/oz one year ago.
No matter how you slice it — we’re in a confirmed bull market for the yellow metal. And the current sideways trading action suits us just fine. To paraphrase Rick Rule of Sprott USA — the healthiest bull markets are the ones that sort of grind higher. And that’s certainly the present case with gold.
What we’re witnessing is a commodities uptrend in gold that’s able to digest substantial price gains without suffering a major setback. We’ll take it!
Throughout human history, gold has been viewed as a hedge against inflation and unfettered fiat currency printing as well as a safe haven in times of stress.
During the Great Recession of 2008, for example, we saw gold initially drop along with the rest of the market only to quickly reverse course going all the way from $750 an ounce to an all-time high of $1,921 by late-2011.
You can see from the chart below that gold then fell into a long bear market from 2012 to 2016 and has since rebounded well into bull market territory.
Some of the world’s largest hedge funds are now raising their bets on gold — predicting that central banks’ unprecedented response to the coronavirus crisis will lead to devaluations of major currencies including the US dollar.
New York-based Elliott Management told its investors last month that gold is “one of the most undervalued” assets available and that its fair value was “multiples of its current price.” Elliott cited the “fanatical debasement of money by all of the world’s central banks” as a key driver for the yellow metal.
As Brien Lundin opines in our discussion (below), the fiscal response thus far has been unprecedented, and it has happened over the course of days — not years!
I imagine we’ll see at least one more broad based program before year’s end, and there have already been hints of a “fourth wave” of stimulus coming sooner rather than later.
Mind you, it’s not that the Fed hasn’t done a good job underpinning the markets. The trillions of dollars in fiscal stimulus, thus far, has undoubtedly prevented a total market collapse. And while the S&P 500 has rallied some 35% from the March bottom, I remain skeptical about any V-shaped recovery for Wall Street and, as well, for the US economy.
The current market surge is the combination of a forward-looking bet on the Fed plus FOMO — a Fear Of Missing Out. It’s been a solid bet thus far… but the question is — is it sustainable?
The writing is on the wall…
The continued debasement of fiat currencies, especially the US dollar, will be the primary driver for higher gold prices going forward.
Just think… last year, the federal deficit was $1 trillion. We’re likely looking at a deficit of around $4 trillion for fiscal 2020!
And keep in mind that the current crisis is not limited to Wall Street but is actually centered on Main Street USA. To that end, first quarter GDP came in at a 4.8% contraction. When taking into account that the US lockdown only came into play at the very end of the first quarter — it’s not difficult to predict that Q2’s GDP number is going to be truly shocking.
Meanwhile, another 5 million Americans filed for unemployment insurance during May. That brings the total number of jobless claims filed amid the coronavirus pandemic to more than 40 million in just twelve weeks — leaving nearly 1 in 4 American workers unemployed.
The pandemic is having its most profound effect on lower income families with nearly 40% of US households making less than $40K per year experiencing a job loss in March.
Unemployment in the US has now eclipsed 14% which is the highest level since the Great Depression and follows a historic low of 3.5% from earlier in the year. Kevin Hassett, a senior economic adviser to the President, believes the unemployment rate may soon eclipse 20% before leveling off and heading lower later this summer.
In time, as things continue to open up, many of those millions of lost jobs will return — but certainly not all of them. And the figures don’t take into account the millions of out-of-work gig workers and self-employed workers — many of whom do not qualify for unemployment benefits.
The critical question is how quickly things return to normal and what the new normal is going to look like.
A dark cloud for small businesses…
Keeping in mind that small businesses generate a whopping 44% of US economic activity… one can only imagine how many small business owners are eventually going to throw in the towel — especially if they’re only allowed to operate at, say, 50% capacity.
And who is going to want to invest their life savings into starting a small business that relies on foot traffic and in-person clientele if strict physical distancing measures remain in-place?
Restaurants, for example, typically only run at a 10%-15% profit margin at full capacity. So the numbers just don’t make a lot of sense under mandated social distancing requirements.
Further, how many companies are going to come to the realization that they can operate more efficiently with a certain percentage of their staff working from home… and what’s that going to do to the commercial real estate market?
The travel industry has also been particularly hard hit, and it’s literally anyone’s guess as to how long it will be before people feel safe boarding a plane or a cruise ship. A lot, of course, lies in the prospects for a viable vaccine which we discussed in detail in last month’s issue.
There has been some encouraging news along that front over the last couple of weeks, yet a viable vaccine made available to the general public en masse is still likely a minimum of 12 months away — and a lot has to go right for that timeline to work.
Unlimited fiscal stimulus is etched in higher gold prices…
All told, the US government has committed more than $6 trillion to ease the economic downturn — representing more than a quarter of US economic output. The administration has committed to a “whatever it takes” posturing in terms of the fiscal measures it is willing to undertake until the pandemic is behind us.
As noted, all of that stimulus coupled with the pandemic’s negative impact on GDP has our nation on the path to an eye-popping federal deficit of around $4 trillion for 2020.
The implications of such a debt load are that negative real rates will last into perpetuity. Otherwise, the US government will have zero chance of being able to service the federal debt. That means the Fed has no choice but to continue to erode the value of the US dollar — which we all know is bullish for gold and related precious metals securities.
I think Nick Hodge of Outsider Club summed it up well when he said, in last month’s issue…
“Can the Federal Reserve and the government create untold trillions out of thin air — already at a quarter of GDP or more — without real-world consequences? Can they alter a cycle that’s played out throughout human history? Can they defeat gravity? Is it different this time? Or is the world going to have to pay for the rampant debt accumulation and currency debasement as it has throughout history? I’m still long on the latter, but they aren’t going to go down without kicking and screaming. Either way, I think gold goes much higher over the next few years. If it doesn’t… we’ll all have some very hard questions to ask ourselves.”
Sure, the broader market indices have rebounded solidly off the March lows — and that hasn’t come as much of a surprise. But, like I said, a V-shaped market recovery seems unlikely given the numbers we just discussed.
Meanwhile, generalist investors are starting to come back to the precious metals space in anticipation of an extended bull market environment for gold and precious metals related investments.
I see it as the start of a timely wealth-building opportunity that could last the next 3 to 4 years — and our panel of experts has you covered every step of the way!
Please enjoy my exclusive interview with Mr. Brien Lundin.
Yours In Profits,
Mike Fagan, editor
Hard Asset Digest
Exclusive Interview with
Brien Lundin — Gold Newsletter
Mike Fagan: Brien, great to connect with you during these crazy times! First, how are you and your family? And secondly, let’s start from the beginning if you will.
Where did your early interest in gold stem from… and if you could take my readers through your unique editorial journey starting with the late, great Jim Blanchard to where you are today with Gold Newsletter and Golden Opportunities.
Brien Lundin: Mike, wonderful to be with you… and, yes, thankfully, we’re all good here.
Interestingly enough, Mike, I never really had an early interest in gold. In all honesty, I was simply looking for a job in the mid-eighties and saw an ad for a junior copywriter for Jim Blanchard’s Coin & Bullion Company.
I was working at a small advertising agency at the time as a writer and decided to apply. They gave me a writing test along with a number of competitors. I passed that and started working for them straight away — writing copy on gold, silver, bullion, coins and the like. I kind of just got thrown head-first into the world of the hard money investment newsletter industry as it were.
It was a crazy place to be sure!
And perhaps even crazier being that it was Jim Blanchard, who was known as the original gold bug and who was so instrumental in getting gold ownership legalized for US citizens in the early-1970s.
And from that, he started his own coin and bullion company, which grew to be the largest in the country. He also started Gold Newsletter as part of his lobbying efforts to return gold ownership to American citizens. And once that was successful, he started the New Orleans Investment Conference.
So he had quite an operation going. And I was literally the lowest man on the totem pole when I started. I quickly struck up a great friendship with Jim as we had a number of things in common. I was kind of a natural born libertarian. We had some science fiction authors that we liked in common.
Jim really took me under his wing. He exposed me to a more structured view of the libertarian philosophy behind gold ownership and its true role in preserving wealth against the inevitable depreciation of currencies — which, by the way, is something that's always happened throughout human history.
That was my initial exposure to the industry. I never knew much about gold, never cared much about it. But at my core, I was kind of, again, a natural libertarian and my views were never really formalized until I met Jim and the remarkable group of people around him and his company.
An important part of my role in the marketing department was to position the coin company for a potential sale. We were doing some fairly aggressive marketing and were able to get the coin company up to a very valuable level whereupon Jim sold it to a private equity group in 1988.
And within two years, that group had completely run it into the ground!
Mike, that was a remarkable experience. The group was associated with General Electric, and they came in thinking they knew everything about the business from the moment they stepped through the door. Well, they quickly proved they didn’t know a thing!
Jim bought it back and then sold the coin company to the management group that had taken over. I was still merely a copywriter in the company. Jim decided to take the newsletters and the conference and start a brand new company and brought me along with him. So I was employee one for the new venture.
From that point forward, I pretty much ran the show for Jim in what was christened at the time — Jefferson Financial.
MF: Such an interesting story… it must have been surreal working so closely with Mr. Blanchard and picking his brain along the way!
Brien, it goes without saying that the COVID-19 pandemic has single-handedly changed the world as we know it, and we’re now in this global experiment of opening things up while gauging the virus’s response.
What’s your take on the US government’s fiscal response, thus far, and what it might mean for gold prices going forward?
BL: Yeah, it's just been awe inspiring, hasn't it? The way I like to tell people is I fully expected and predicted just about everything that's going on right now response wise. Yet, I expected it to play out over years — three, four, five years. Instead, it has played out over mere days.
So it's not only the degree of everything that's happened, but the rapidity — how quickly it has impacted the economy. And it's no holds barred. It has become a bidding war in Congress. There’s nothing that’s been considered before that hasn't been ramped up to levels never before seen. And they're coming up with new ideas — crazy ideas.
But crazy talk has been normalized since 2008!
So the degree of liquidity has just dwarfed anything that we could have imagined beforehand. And it's going to have repercussions for years to come. The federal debt has been completely blown out of the water on this. And the implication of that alone is that we're never going to have anything close to normalized interest rates ever again.
In fact, we almost assuredly will have negative real rates forever or for as long as this monetary regime is in effect. Because, otherwise, the cost to service the federal debt will blow the federal budget apart.
So there's no choice at this point but to continue to depreciate the value of the dollar and to continue to have negative real rates. And this, of course, is enormously bullish for precious metals and the associated derivative investments like mining stocks and the like.
MF: And bullish because of the deterioration of the purchasing power of the dollar or more so that precious metals prices are quoted in US dollars?
BL: It's a bit of both. The scholars and pundits can quote facts and figures and display charts to show that gold is not the most effective hedge against inflation and that other hedges may work the best.
But gold is the ultimate money!
And because of that, its perceived value in the public side grows with their concern over the valuation of the dominant currency — in this case, the US dollar. So it's kind of a race to the exits for the dollar translating to a race into gold.
In times of stress, with growing concern regarding the future value of the dollar, is typically when you see the relative value of gold soar. In times when you have only mild inflation, a sense of complacency sets in where no one's too interested in gold.
But it's precisely the kind of environment we're in right now – and that we see approaching over the coming months and years – where gold will really shine and, in effect, play catch up. At some point, it will overshoot. But that's why you're in gold in the first place.
It’s also why I recommend physical gold primarily; it’s insurance against something that's inevitable. And for building wealth, there's nothing like gold and gold related investments such as mining stocks when you have this kind of fundamental move afoot.
MF: We'll definitely be taking a look at some of those investments in just a bit. Brien, your hometown of New Orleans has a long history of being hit hard and then bouncing back with incredible resiliency.
Tell me about your love affair with The Big Easy and what things are looking like on the ground now.
BL: Mike, as you know, New Orleans is unique. There's really nothing quite like it in the United States, for sure, and certainly North America. It has more of a Caribbean, Central American feel — a very laid back atmosphere.
I can appreciate it better than a lot of my friends that grew up here, I think, because I was born and raised about 80 miles north of New Orleans. So while my family was originally from the city and we only visited a few times a year, being ‘not from here’ as it's called — I got to see it from the angle of people seeing it for the first time and, therefore, am able to appreciate it to a greater extent.
And people who come here are absolutely amazed by the ambience — just the immediate feel of the city when they land.
Sometimes I'll meet friends or acquaintances who've never been here before; I'll meet them out for dinner after their first day in the city, and I'll ask them… "Well, did you feel it?" And, invariably, they’ll say with unbridled exuberance… "Hell yeah I felt it!"
It’s really great; I think people immediately appreciate the attitude of not just the locals but also the visitors. New Orleans just has this very natural laissez faire attitude. Nobody really cares who you are, what you're doing, what you do for a living — as long as you don't bother or hurt anyone.
There’s this sense of personal freedom that's absolutely intoxicating… and people just fall in love with the city.
Of course, the culture extends beyond that to music and food and everything else that's generally associated with a carefree view toward life and a view toward appreciating the pleasures in life. Whether it be music or food or the nightlife — and oftentimes doing so to an excess that very few other places in the world are able to offer.
MF: I know exactly what you’re talking about… it’s something everyone should experience at least once in their lifetime!
Now with this pandemic, Brien, obviously a lot has changed. What are your feelings about where we are now and how the Big Easy can reclaim its well-earned title?
BL: Well, the city has always been known as a hotspot. It's only in this pandemic that that took on a new definition — a more disturbing definition. But because we were fairly early in the curve – with a good bit of that being Mardi Gras – it seems like New Orleans proper was a bit of a petri dish that helped to spread the disease. That goes for here and as well throughout the country from the thousands of people who came to experience Mardi Gras.
The timing seems to indicate that it was kind of a super spreader situation.
You add that with some of the other demographics and health issues of the people of New Orleans and you, unfortunately, get higher infection rates and death rates. But because New Orleans is not quite as closely packed as, say, Manhattan, we’ve hit our peak and have actually been in decline for close to five or six weeks now.
So infection rates are really dropping. Our transmission rate is now 0.78, which is well below the critical point of 1.0 wherein one infected person infects at least one other person. So below 1.0 is an indication that basically the disease will flame out as long as reasonable precautions are followed.
So I think we're on a good road now. Naturally, it all depends – not just here, but across the country – on how the process of opening up proceeds. In my personal experience, I’m noticing that people are becoming much more willing to go out and socialize as restrictions are loosening just a bit.
I'm starting to think that the rebound, at least in the social aspect, is not going to be as slow as many had feared. It seems that people are becoming a little less fearful of resuming their normal lives. Of course, everything depends on what happens over the next several weeks. If we get a major uptick in the infection rate, things will have to pull back — but so far, so good.
MF: I agree… it’s definitely encouraging to see things trending in the right direction. And, Brien, speaking of things that require people to venture out, you host the annual New Orleans Investment Conference which is the longest running investment event of its kind in the world.
Where are you now in terms of the planning process for this year’s conference in October?
BL: It’s been interesting, Mike. Right now, we’re planning along two tracks. One being a live in-person event with some virtual component and the other being a purely virtual event. We expect to come to a decision within the next couple of weeks.
It’s tough because if you go with a live in-person event with a virtual component, you have to essentially build two events. And that entails all of the expenses of a live event plus so much more. So we have to figure out exactly what we're doing very soon.
Initially, I thought we could see where the world was in July, but the reality is that we are now approaching our peak marketing season for the event. So our goal is to figure out what it is we're producing and then go out and market it to investors.
Yet, our primary goal, as it is every year, is to deliver value above and beyond that of any other investor conference. And, of course, we’re able to combine that with our really unique ambience and sense of community that can only happen in a place like The Big Easy.
People love coming here to experience what we just talked about… that kind of natural, innate feeling of personal liberty and fun!
In that sense, it’ll be very difficult, if not impossible, to capture that same ambience if we’re forced to go completely virtual. But to whatever degree, we're going to try to include that in our offerings. Our sense of community is truly something that no other conference is able to duplicate.
So we’ll be doing our very best to find ways of extending our unique brand of value to our attendees regardless of which route we end up taking.
MF: Lots of moving parts to be sure… I know everyone’s rooting for an in-person event. Brien, turning to the gold market, what areas of the gold stock sector are you looking at now – and do you see this as the start of a major gold bull market that could last for years?
BL: Yes, it really is. You know, Mike, I’ve been through a few bull markets, and people don't realize that, outside of internet stocks, the gold sector is the youngest asset class out there because it has only been freely traded worldwide since 1971.
So we have not been through that many so-called bull markets in the metal. We had 1971 through 1980, which was technically two bull markets interspersed by a two-year bear market. And then we've had a few since then.
Most closely related to what’s happening now with gold, I think, is the bull market that began in either 1999 or 2001 —— depending on how you mark the lows. That market saw gold rise by over 650% from around $252 to $1,920 an ounce, and it was just an amazing run that lasted about 11 years.
But what was really life changing and wealth building were the junior mining stocks.
We saw a rising tide lifting all boats so that virtually any new junior gold deal coming out of the gate had a very high likelihood of doubling or more in value. And if you had access to some of the best newsletters and attended the conferences and were somewhat selective in choosing good companies with good management groups, then your downside, assuming you got in early, was companies that would go up three or four times in value.
You could then deploy those winnings into four or five other gold mining companies that would perform similarly. And along the way, you’d have the occasional company that would go up 10X - 20X in value and even higher.
So you can see very quickly how, if you continued with that kind of bull market environment for 8 or 10 years, the tremendous amount of wealth you could accumulate by playing that trend.
And by that I mean… you also invest the time and the resources to subscribe to the best newsletters. You go to the mining and investment conferences. With a little legwork, you’re able to take that universe of junior gold companies and break it down into a list of the better ones to get into.
If you then apply a bit of trading acumen like taking profits off-the-table and redeploying those gains at the right time — the result is just an incredible wealth-building experience.
And it also creates other investment opportunities. When you have a fundamental, underlying bull market in gold and gold stocks, you also get a bull market in silver stocks. Silver offers leverage, and the silver juniors offer leverage. Likewise, you can have things like a uranium bull market or a copper or zinc bull market or a rare earths bull market that are kind of off-shoots of that.
In essence, speculation in one sector drives opportunities in other, previously neglected commodity sectors. And I think that's the kind of environment we're looking at now, and it’s being driven by a fundamental, secular trend of monetary debasement.
Once you go down that trend, you can't stop it!
Like I said, governmental debt has grown so large that we cannot endure interest rates that are anything but extremely accommodative. And if the fed tries to normalize, as we saw before, the markets quickly deliver an ultimatum that the fed must obey. The economy has essentially been obliterated by debt and monetary policy.
Loose money is driving everything… so the ‘helicopter money’ has to keep falling to the ground or everything goes away. Again, that's an extremely bullish environment for gold and silver!
MF: And speaking of the junior sector and one company in particular you recommended a few years back, and which I own as well, is Great Bear Resources (TSX.V: GBR)(OTC: GTBDF).
It’s a company that seems to have grabbed the market’s attention as a major new gold discovery in Ontario’s famed Red Lake district. What's your take on Great Bear?
BL: Mike, I’ve coined the term ‘generational discovery’ for Great Bear Resources, and I think that's bearing out – no pun intended – as we watch things develop. I first heard the Great Bear story from the company’s president & CEO, Chris Taylor, in December of 2017.
At that time, they were doing a financing at 30 cents Canadian. So I scraped up every spare penny I had at the time to get into the financing, which unfortunately, because of the long bear market, wasn't an awful lot of money. But I got in and immediately recommended it to my Alert readers right around that same price.
By the time I got our next issue of Gold Newsletter out, it was trading for, I think, about C$0.55 a share. It’s now around C$12 per share. So yes — a very big win for our readers at whatever price they got in.
MF: Outstanding! Interestingly enough, I had that same good fortune of having dinner with Chris following one of the Metals Investor Forums in Vancouver. Chris actually sketched out the deposit on a cocktail napkin for me and told me about some of the drill results that had been released.
I flew home and I think that very next day I got into the stock and am still holding every share!
BL: That is good fortune indeed, Mike… and it’s funny, isn’t it, how many deals are struck and how many investment ideas are sparked via the ole cocktail napkin sketch!
BL: So back then, in talking with Chris, he explained the geologic concept and the long extent of the LP Fault, which extends some 14 to potentially 18 kilometers as far as the structure goes and with multi-multi kilometer indications of gold along that trend.
And you know this very well, Mike, that in a typical deposit, if you can get the mineralization to extend, say, 500 meters in one direction at decent grades — it can be a company maker.
Hence, looking at Great Bear’s LP Fault and the 4.5 kilometers of successful drilling to-date — you've got something that's already about 9 to 10 times larger than the typical successful discovery as far as potential goes.
Naturally, they have to continue to establish solid grades, proper geometry of the deposit, consistency of the mineralization, etc. But certainly the potential there is multi-kilometer in scope.
Along the LP Fault, they have the potential to have a lot of open pit mining and then extending into underground production. So you have that as yet another kicker for them. In addition to the LP Fault, there's potential that it is at least somewhat duplicated by the North Fault and targets in between the two.
So you begin to realize that – as far as Great Bear has already gotten to-date – there's the potential to multiply the deposit a few times in size.
So it's just an extraordinary opportunity not only for those who got in early but also for those who are still riding it. I still have about half of my original position in the company, and I’m kind of content to let it ride now because I don't see much downside relative to other companies in this kind of a market environment. You know, where you have everything working for you… you have discovery success… you have the underlying trend in the metal, etc.
It’s developing into what’s ultimately going to be a strategic deposit – a must-own deposit – by one or more of the big mining companies out there.
MF: Care to venture an educated guess, Brien, as to what the eventual buyout price will be for Great Bear if that indeed ends up being the company’s exit strategy?
BL: Mike, I would guesstimate somewhere between C$20 and C$40 a share is where the target would be. That’s a wide range, and anything can happen. But, you know, when a gold bull market really gets going, the big mining companies can get awfully stupid, spending their money like drunken sailors!
And there's been efforts by some of our friends in the industry – the really big investors, the institutional investors – to try and reign in the gold mining companies to get them to spend wisely and manage properly in this current cycle.
And I tell those friends of ours at the institutional level basically to shut the hell up! We don't want them to get smart! We're focused on the junior companies that these big companies are buying… at hopefully exorbitant and stupid and careless prices.
And that's what we want them to do. Because I don't really invest much in the larger producers. So let them take their shareholders' money and give it to us in the juniors.
And timing is key… Great Bear is essentially in a race to prove up as much value as possible before any serious takeover attempts come about. The longer they can hang onto this tiger by its tail — the better it is for them and for shareholders like you and me.
They’re shareholders as well. In fact, they're the biggest shareholders. So their interests are perfectly aligned with that of the rest of their base.
MF: Exactly… and in a rising gold market to boot!
BL: Yeah, it's like pouring gasoline on a fire but in a good way! Everything's working for Great Bear Resources, and the Dixie deposit is an industry standout to be sure!
MF: Brien, earlier you mentioned physical gold. What’s your feeling about investing in gold and silver bullion & rare coins at this point in the market cycle?
BL: Mike, I’ve been doing a good bit of speaking the last few years to more generalist investment type groups that have an interest in getting involved in gold and other metals investments.
And it can be a bit intimidating when you think about it because there's physical metals… there’s coins… there’s mining stocks… there's ETFs… there’s mutual funds… and there's futures and options.
And within each of those areas, there exists a whole other spectrum of options such as the type of metal, the different kinds of coins, the rarity and collectibility of certain hard assets, and varying risk factors throughout.
And what I tell people is… Take it in stages!
Step one, if you're just getting involved and you have significant wealth, get a physical metals component; build that foundation first. And build a physical metals allocation in gold and silver, at least initially. And if not in your direct possession, then within your near access. I don’t recommend using a safe deposit box because one of the things you're insuring against is a bank holiday.
So beyond telling you that, I don't want to know how you do it. There are reports you can Google that show you how to hide it in your home. But, of course, every burglar worth their salt has already downloaded those same reports! There are some private storage areas, and it's good to have some just in a safe in your home.
All that said, I tell people they have to buy gold and silver bullion initially and to look at it not as an investment or a speculation — but as insurance for their wealth.
It’s not like fire insurance where you’re not expecting your home to ever catch fire. It’s insuring against something you know is going to happen — which is the depreciation of the US dollar.
And you only have to pay the premium once. You can add to your holdings without having to worry about the daily price of gold and silver. You can rest comfortably knowing you have that insurance sitting there. So that's the initial way to go.
After you have the physical metals, you can go into some of the derivative investments like mining stocks and ETFs. The more time and effort you put into researching the sector, the more involved you can get into, say, the junior mining stocks.
But you shouldn't venture into the juniors without having done your research and really becoming knowledgeable in the sector.
MF: Very true… the juniors inherently hold the most risk but also offer the greatest potential reward. So Brien, in a precious metals bull market, silver tends to follow gold and, oftentimes, can be much more volatile both to the upside and downside.
What’s your current stance on the silver market?
BL: Exactly right, Mike. I tell people that if you like gold, and you should, then you should love silver. Whereas silver typically moves later than gold in a bull market, it’s known for catching up quickly and outperforming gold on a percentage basis.
Silver is a natural lever to gold, yet it’s more volatile. When macro issues are driving gold, silver’s response is typically greater both to the upside and downside. So it holds greater risk and is not a free ride in that respect.
But if you’re confident that the overall trend for gold is bullish, then you need to own silver as well.
From a physical basis, it's bulkier than gold but it's also a lower denomination and more divisible. So that's one of the reasons why I recommend what's called junk silver or bag silver coins. Old US coins – dimes quarters, half dollars, and dollars – that were minted and are circulated in trade for simply the bullion value.
Some component of those in a physical metals portfolio is something I really recommend because it's easier to spend in some kind of a dire emergency. And that's one of the things you don't expect, yet you want to be prepared for and insure against.
So I don't recommend silver to the exclusion of gold, but I do recommend a healthy allocation to silver in a precious metals portfolio.
MF: Brien, a mutual friend and colleague of ours, Rick Rule, often says that “Commodities bear markets are the authors of bull markets.” Looking at base metals in particular, what do you think the bear is writing for us this time around?
BL: Mike, it's interesting because there has been tremendous demand destruction in the base metals as a result of this pandemic. But there has also been tremendous supply destruction to go hand-in-hand with that. So it's going to be a timing thing for me.
I think you bet on gold and silver, initially, and gold and silver oriented companies. And I see copper, zinc, and some of the other base metals offering tremendous potential down the line.
Now, the key to investing in those companies is to invest in the mining stocks as it is extremely difficult to hold base metals physically. Futures and options are something that I think entails much greater risk than the average investor is likely to entertain.
So the idea is to invest in the equities, and, with prices low, now is a good time. With the base metals, you have a much longer time horizon — years as opposed to months in many cases.
At some point over the next two to four years, I expect those base metals markets – especially in the junior miners – to really heat up as demand returns to the sector.
Demand is quicker to come back than supply. And we've had a lot of supply destruction, not just because of the pandemic but also because of under-investment by mining companies over a number of years.
Even before the pandemic, we were setting up for supply deficits in copper and zinc. So those are areas I believe are a bit further in the future as far as when they're going to make their moves but, to my mind, seem equally inevitable.
So it's a timing thing. You still have time to invest in that sector, but if you've got a longer-term view and a large enough portfolio, placing some chips in some of those juniors that are developing large-scale projects would be a good strategy.
MF: Brien, I know you also closely follow the uranium market, which is finally beginning to show some signs of life with the recent price move from $24 to $33 per pound.
Are you sold that this is the beginning of a sustainable uptrend for uranium, and any particular stocks you’re watching?
BL: Yeah, I'm cautiously optimistic that this is the beginning of an upward trend for uranium.
I don't know that we're going to have an explosion of higher prices partially because we've been expecting the bull market to begin in uranium for each of the last five years or so. And it's never really happened. That said, though, the long-term story has always been tremendously bullish and virtually irrefutable.
Now we have the short-term story of, again, tremendous supply destruction – yet demand is still rising at its previous rate.
And we've been waiting for the utilities to have to come back and renegotiate the long-term supply contracts. They have been trying to fill that gap with purchases in the spot market. But these recent supply disruptions and mine closures due to low prices and the pandemic are making it difficult for the utilities to even find supplies in the spot market.
I think the supply demand dynamics are going to have a greater effect over the next few months, which means now is a great time to be looking at the uranium mining stocks.
MF: I agree completely… and are you looking primarily at the majors or the juniors?
BL: I’m focusing on juniors that are close to production or in production, which, at this point, is essentially just Energy Fuels Inc. (NYSE American: UUUU).
I’m also interested in uranium companies that have the ability to start production fairly quickly. During the last uranium mania in the junior sector, I believe there were about 500 companies that sprouted up like mushrooms after a rainstorm to take advantage of prices that were soaring over $100 a pound. But the long bear market has wiped away the vast majority of those.
And those that did have uranium resources in the ground were absorbed into companies that had better management teams and generally better operations and more cash and more resources.
So now, when we have another rush into the uranium sector, instead of 500 companies, there's going to be maybe 8 or 10 that are worth looking at.
So what you can expect is that, at least initially in that run, all of that new capital is going to be focused on those 8 or 10 companies of which you could probably find 5 or 6 that are the best. And so their market values are going to explode higher in a very quick fashion.
MF: Yeah, definitely worth keeping an eye on the uranium price for hints of the next leg up. Brien, getting back to precious metals, can you give my readers a couple of your current gold and silver stock recommendations?
BL: Sure, Mike… I’m happy to do that!
One company I like a lot that’s developing a wonderful silver project is Bluestone Resources (TSX-V: BSR)(OTC: BBSRF).
The company’s project is in Guatemala, which is why the stock is trading at a bit of a discount. It would be trading at a much higher valuation if it weren't in Guatemala. But the fact is, the time horizon for this investment is less than a couple years because the company, next year, will be producing free cash flow roughly equivalent to its current market cap.
So I like and own Bluestone Resources — it's fast tracking along the development timeline.
I think First Mining Gold (TSX: FF)(OTC: FFMGF) has a tremendous gold resource across a number of projects in the Canadian provinces of Ontario, Quebec, and Newfoundland. It’s a company that I believe has excellent exposure to a rising gold price and is currently undervalued by the market.
Another company on the exploration front that I like and own is Libero Copper & Gold (TSX.V: LBC)(OTC: LBCMF).
Libero’s Big Red project in British Columbia’s Golden Triangle has one of the best undrilled gold targets I've ever seen. The trenching results have been spectacular, and the company will be drilling this summer. They just raised enough money to drill, so that risk has been checked off as it were.
They also have a copper project in Colombia and another in Colorado. I think their share price will continue rising as its 2020 drill program at Big Red approaches to the point where someone buying the stock near current levels will have an opportunity to perhaps take some gains off-the-table before drilling even starts.
So I like Libero at current levels.
MF: Great. Anything else from the silver side of the spectrum?
BL: Yes, GR Silver Mining (TSX.V: GRSL)(OTC: GRSLF) has been one of my top recommendations from the silver space, but, unfortunately, it has about doubled in price the last couple of months.
I say, unfortunately, because I've been trying to buy it!
I think there's lots of great news coming. And it’s not too late to get involved because they have the enviable ability to continue to deliver great drill results to the market because they have a tremendous amount of drilling that was done on their property by prior owners and never assayed for silver or gold. Or at least those results were never released to the public.
So just for assay costs, they are able to deliver a near constant stream of really good high-grade drill results to the market when so many other companies aren’t even able to resume drilling.
We've seen that big rise in the company’s price recently, and I think there are good days ahead of it as well.
BL: Sure. Gold Newsletter, as I mentioned, starting in 1971, was the very first precious metals advisory. It really began as a tool to try and get gold legalized again for American citizens. And it had great success in that endeavor.
This is actually Gold Newsletter’s 50th year!
So we've been around a while through every thick and thin. My career in this market extends 34 years at this point. So I've been around through many booms and busts.
And through that time period, I venture to say that Gold Newsletter has made more money for more investors than any other publication out there in the precious metals sphere.
Our track record has been near, if not at, the top of the pack through all of those years. And this is the time to get involved in the sector and to subscribe to a newsletter that will give you, at least what we perceive to be, the best deals and opportunities in the resource space at the earliest time frame. We feel it’s a bargain at $198 a year, and we even offer a free sample issue at our website.
I do tell people that they need to invest in a number of the top newsletters out there. So it's not just Gold Newsletter; they need to dedicate their money to invest in a few of the top recommended letters to really get to know the sector and to compare notes among editors.
We also offer Golden Opportunities, which is delivered at least once a week and is free. It presents my general views on the markets, and I think it's valuable from that standpoint. But it does not offer specific stock picks. They need to subscribe to Gold Newsletter for that.
But the free Golden Opportunities e-letter is available on our website and is something that we have a large, growing and dedicated readership because we deliver an awful lot of value in that letter. And not just my views, but the views of a lot of my friends in the industry.
MF: Brien, you also host the complimentary Gold Newsletter Podcast which covers all areas of the investment landscape with distinguished guests such as Peter Schiff, Adrian Day, Ron Paul and many others. How did that come about?
BL: Yes… thank you for mentioning that, Mike. You know, the main reason we started doing the podcast is because I know so many people in the industry. And it's not just the gold industry and mining stocks but also economics and even geopolitics.
From running the New Orleans Investment Conference the last few decades, my Rolodex, if that’s even a term these days (laughs!), is pretty extensive! I figured as long as I know all of these people, why not have some discussions and invite people to listen in?
So that's how it began, and we've expanded the scope to include the philosophy of personal liberty.
We also drill down into the precious metals and mining stocks a good bit and try to get people timely value in that respect in terms of some of my friends' top recommendations of sectors and individual companies.
MF: Glad to hear it’s growing… I always make it a point to listen in and find it both informative and entertaining!
Brien, thank you again for taking the time today. Hopefully, I’ll be seeing you in person at this year’s New Orleans Investment Conference, and if not, I’ll be watching virtually, like everyone else, from home.
Be well, stay safe… and I look forward to catching up with you again soon!
BL: It’s been my pleasure, Mike, and I extend those same wishes to you and your family as well!
We have four reports now available highlighting several opportunities for investment in the resource space.
- The Book of Levi: Picks-and-Shovels for the New Gold Bull Market
- Mid-Tier Takeovers for 2020 and Beyond: Two Top Candidates for Premium Takeovers
- The New Standard in Silver
- Exploration Opportunities
Opportunities discussed in those reports and past issues include:
- Great Bear Resources (TSX.V: GBR)(OTC: GTBDF)
- Energy Fuels Inc.(NYSE American: UUUU)
- Bluestone Resources (TSX-V: BSR)(OTC: BBSRF)
- First Mining Gold (TSX: FF)(OTC: FFMGF)
- Libero Copper & Gold (TSX.V: LBC)(OTC: LBCMF)
- GR Silver Mining (TSX.V: GRSL)(OTC: GRSLF)
- Azarga Uranium (TSX: AZZ)(OTC: AZZUF)
- Skyharbour Resources (TSX-V: SYH)(OTC: SYHBF)
- Ivanhoe Mines (TSX: IVN)(OTC: IVPAF)
- Midas Gold (TSX: MAX)(OTC: MDRPF)
- Teranga Gold (TSX: TGZ)(OTC: TGCDF)
- Sibanye-Stillwater (Nasdaq: SBSW)
- Wheaton Precious Metals (TSX: WPM)(NYSE: WPM)
- Franco-Nevada (TSX: FNV)(NYSE: FNV)
- Bluestone Resources (TSX-V: BSR)(OTC: BBSRF)
- Blackstone Minerals (ASX: BSX)
- Pan American Silver (NASDAQ: PAAS)
- Hannan Metals (HAN.V)
- Agnico Eagle Mines (TSX: AEM)(NYSE: AEM)
- Kirkland Lake Gold (TSX: KL)(NYSE: KL)
- Pan American Silver (TSX: PAAS)(NASDAQ: PAAS)
- Lynas Corp. (OTC: LYSCF)
- Canopy Growth (TSX: WEED)(NYSE: CGC)
- OrganiGram Holdings (TSX: OGI)(NASDAQ: OGI)
- Ely Gold Royalties (TSX-V: ELY)(OTC: ELYGF)
- Trilogy Metals (TSX: TMQ)(NYSE: TMQ)
- Azarga Uranium (TSX: AZZ)(OTC: AZZUF)
- Realgold (private)
- 1903-1926 Gold Commemorative Coins
- Pre-1933 Liberty, Indian, St. Gauden Coins
- Sprott Inc. (TSX: SII)(OTC: SPOXF)
- Alacer Gold (TSX: ASR)(OTC: ALIAF)
- Alamos Gold (TSX: AGI)(NYSE: AGI)
- Silvercrest Metals (TSX: SIL)(NYSE: SILV)
- EMX Royalty Corp. (TSX-V: EMX)(NYSE: EMX)
- Midas Gold (TSX: MAX)(OTC: MDRPF)
- Almaden Minerals (TSX: AMM)(NYSE: AAU)
- Revival Gold (TSX-V: RVG)(OTC: RVLGF)
- Azarga Uranium (TSX: AZZ)(OTC: AZZUF)