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Successful bullion dealer Greg McCoach
brings more than 20 years of business experience and a vast network of mining
contacts to the mining investment newsletter he launched in 2001, The Mining Speculator. In this exclusive
interview with The Gold Report, Greg discusses his strategies to
prepare for what he says will be a real buying opportunity.
The
Gold Report: In your January newsletter you project that
"the Fed will continue to create liquidity and the dollar will continue
to fall. As the dollar falls, the bond market will sink. This will send
interest rates higher, and rising interest rates in turn will put additional
pressures on the economy." You are monitoring three measures as the
indicator of beginning of big changes economically and politically. These are
(1) a collapse in the bond market, (2) a crash in the stock market, (3) an
explosion in the price of gold.
We've had
a stock market crash, gold has increased 400% in the last 10
years—which could be considered an explosion—and the bond market
has pulled back. Are we in or about to begin the period of "big
changes" you write about and what are the big changes?
Greg McCoach: The price of gold right now is
nowhere near its high in this particular cycle. In other words, gold is still
dirt cheap compared to where it will be by the end of this year, next year,
and in the years to come. The Fed is caught between a rock and a hard place
and will do what governments always do when they put themselves in these
positions. They will try to inflate their way out of the mess they created.
The problem thus far is that their inflationary tactics are not working the
way they would like as deflationary pressures continue to exert their
influence on markets. So expect even bigger and further massive injections of
money into the system as the Fed tries to maneuver their way out. History
clearly shows that governments caught in such a scenario will soon reach the
inflection point where the fiat currency implodes and the credibility of the
issuing government collapses. This is not just the case with the United
States, but Japan, England, and Euro land as well.
Thus far
investors have been playing the game of musical chairs with these fiat
currencies as they jump from one to the other, depending on the circumstances
of the day. In the end, the only currency that will be left standing will be
gold, and when the rush comes to take a position in the yellow metal, it will
be a move for the record books. The reason for this is simple. When oceans of
fiat money suddenly try to take a part in this tiny market called gold, the
move will be astounding. If you took all the physical gold that exists in the
world above ground (not what is still in the ground) and melted all that gold
into a giant cube, the cube would measure 20 yards by 20 yards by 20 yards.
That's it. That is why they call it precious. When the big move into gold
occurs, there simply will be no room to receive it, thus driving the price
into the stratosphere.
The big
changes I talk about refer to the consequences that decades of abuse of our
system of credit will have on the everyday lives of citizens not only in the
United States but around the world. Aside from the obvious financial
implications just mentioned, I believe will we see turmoil in the form of
civil unrest, revolution, and wars. This is why I believe it is so important
to think about preparing for such events. I hope for the best, but prepare
for the worst.
TGR: You predict
the TSX Venture Index will be 4,000 by the end of this year because investors
will flood to a sector that won't lose money. To what extent are you
predicting another market crash and will it test the March 2009 lows? Will we
see DOW/Gold parity? Will this all occur in 2010 and if so, what do we have
to look forward to in 2011?
GM: I believe we
will see another stock market meltdown as we saw in the latter part of 2008
and early 2009. This will take the DOW, in my opinion, lower than the March
2009 low. These events will occur primarily because of the problems related to
commercial real estate derivatives, which will cause yet another horrendous
ripple effect throughout the financial world. The loss of confidence in the
markets at that point will be staggering as the world financial system goes
through further rounds of bailouts and smoke and mirror cover-ups. The
resulting loss of confidence on the part of investors will drive them to the
safe-haven investments such as precious metals and their related mining
stocks. This titanic shift in asset allocation on the part of investors, when
it happens, will drive the TSX Venture Index to well over 4000, in my
opinion. As to when this will occur, it is hard to say, but I believe we
could see this happen before the end of 2010, and for sure by 2011.
The
DOW/Gold ratio will drop precipitously as these events unfold. Right now the
DOW/Gold ratio is roughly 10 to 1, but I would not be surprised to see this
ratio around 5 to 1 by end of this year, early next year. Eventually as the
world financial system completely implodes under the enormous and
unsustainable debt loads, derivative losses, and fiat currency debacles, the
DOW/Gold ratio will once again hit a 1-to-1 ratio. The gold price at that
point could easily be $5,000 or more.
TGR: Greg, in our
last interview with you, you mentioned real estate derivatives would blow up
this year. To what extent do you think this will affect the resource sector
in 2010?
GM: I think this
could be one of the biggest catalysts for driving investors into the precious
metals sector this year. The sub-prime mortgage derivative problem we
experienced in the first meltdown pales in comparison to the commercial real
estate derivatives that now lurk on the horizon. The general public is
absolutely clueless about these instruments and their potential nightmare
fallout.
TGR: Will the
projected commercial collapse in real estate help gold only and not other
metals/resources?
GM: Prices of all
the precious metals would benefit in such a collapse.
TGR: Are we seeing
the metals prices/stocks disconnect from the rest of the market?
GM: No, this has
not yet occurred as I expect it will. I have been telling my subscribers to
watch for the moment when this disconnect from the
general market activity begins. In other words, as the move toward safe haven
investments greatly increases, the precious metals prices along with their
associated mining stocks will be the best performers while other markets
tank.
TGR: Back in
September you predicted gold hitting $1,500 before year end. In your opinion,
why hasn't that happened yet? Do you think we're on our way to that goal in
short order?
GM: The pattern
for gold the past nine years has been this: gold runs to a new high every
year and then retraces upwards to 14% before moving on to the next new high.
The last new high of $1,226 per ounce for gold was reached on December 3,
2009. Since then we have retraced as much as 14%, briefly hitting the $1,055
level before rebounding to $1,155. We now reside right around the $1,100
level, but will once again be on the move towards another new high before the
end of the year. This will occur because of the problems I have already
mentioned and the unsustainable debt structure of the U.S. government. I
maintain my outlook of a $1,500 gold price before the end of this year.
TGR: You're
maintaining that the price of gold is going to ultimately hit $6,500 an ounce
with silver at $400 an ounce. How are we getting there and in what time
frame?
GM: Yes, I believe
we will see gold hitting a minimum of $6,500 an ounce as the U.S. dollar
collapses. I also believe that the silver/gold ratio will go back to its
15-to-1 (15 ounces of silver to buy 1 ounce of gold) benchmark. As this
happens silver will be roughly $400 an ounce. ($6,500 /15 = $433.00).
The time
frame as to when this will occur is much more difficult to predict since you
are trying to predict the collapse of the U.S. dollar. In my opinion, the
collapse of the U.S dollar is as certain as death and taxes. It is not a
matter of "if," but when. The dark clouds that surround the issues
of the U.S. dollar are growing by the day and getting much darker by the
moment. If I had to make a guess, I can't imagine we will get past the year
2012 without significant fallout. So I guess I'm saying I predict the
ultimate collapse of the U.S. dollar within the next two and half years.
TGR: With regard to
the physical metal, are you still recommending accumulating and holding it or
at these prices should investors focus on investing in the juniors?
GM: My mantra for
the past 10 years is to get the leverage with the precious metals juniors and
take profits when they are running hot to build a significant position in the
precious metals. I recommend buying gold, silver, platinum, and palladium and
taking delivery of those metals. Don't rely on ETFs, pooled accounts, or
certificate programs to do this for you. In the end, I believe all of these
products will be proven to be fraudulent. In other words, you won't be seeing
the benefit in those investments as the gold prices rise because the gold
doesn't exist the way they say it does. Those who want to protect themselves
need to own the physical precious metals themselves and take delivery.
You want
own the juniors and you also want to own the physical precious metals. I look
at my holdings of physical metals as the ultimate bank account that cannot
frittered away by corrupt, power-seeking politicians who seek our
destruction. I use the juniors as my way to get big leverage in my
investments. The combination of owning both the mining stocks and the
physical precious metals is the best way for investors to protect themselves
from the debacle of fiat currencies and utterly corrupt politicians and
financial corporations.
Also, be
very careful when selecting a place to purchase precious metals. There are
good and bad dealers out there and unsuspecting buyers need to beware. Make
sure you do your due diligence before purchasing.
TGR: For
individuals just starting investing in metals, do you recommend focusing on
gold or is silver a better opportunity now given the gold/silver ratio?
GM: In general,
most investors will want to start with purchases of gold, but should not
ignore the potential in silver. From the lessons of history, whenever we have
a secular bull market in the precious metals, silver usually outperforms
gold, dollar for dollar invested. While gold typically runs first and gets
most of the attention at the earlier stages of the bull market, it is silver
that typically sling shots past gold towards the latter stages.
Personally,
I own both silver and gold. The problem I see with silver is that it is not
as portable as gold. You can hold $50,000 worth of gold with your two hands
cupped in front of you. You could put that gold into your coat pockets and
walk down the street without anybody knowing what you are carrying. $50,000
dollars worth of silver, on the other hand, would take a handtruck
to move.
Overall,
I believe investors should hold both gold and silver in a well-diversified
precious metals portfolio. They should hold gold as the ultimate store of
wealth that protects their hard work and savings. They should also hold some
silver for the potential use to buy day-to-day items such as bread,
prescriptions drugs, etc., for when the government declares a "bank
holiday" as the crisis in the banking sector exacerbates. During a bank
holiday, checks and credit cards will no longer be accepted as payment for
goods and services. This is another reason why I recommend keeping some cash
on hand at all times. I am not recommending stuffing the mattresses; I am
just saying it is probably smart to keep a few thousand dollars in 1s, 5s,
10s and 20s around the house. Silver Eagles would also be very useful in such
an event as they are considered legal tender in the United States and could
be used to purchase groceries.
TGR: You predict
2010 is going to be a great year for the metals and the juniors! So let's go
to your list of top juniors and discuss some of those.
GM: I don't mind
sharing a pick or two in interviews such as this, but I need to protect my
subscribers who pay for my services, so I will talk about two.
First,
let's talk about Explor Resources (TSX.V:EXS). When investing in junior mining stocks, you want
to put some money on the best cross-section of companies you can find. In
other words don't put all your money on any one company. I have found that by
spreading the risk over 10 quality junior mining
companies you can do rather well over time as these companies go through the
process of discovery, development and then production. Out of 10 junior
mining stocks you will typically lose on a few, gain on a few, and break even
on a few. But, you will also tend to see one or two of these stocks that do
phenomenally well delivering at 10 times or more.
When you
invest in a junior mining stock you want to make sure it has big potential.
EXS is a company that is looking for big, high- grade discoveries and can
deliver such returns if successful. This company is unique in that they have
not one, but multiple projects that could deliver such returns if drilling
activity were to make a major discovery.
Thus far
EXS seems to be on the right track, but is still in the early stages of
discovery on three major projects that they are currently working on. Because
of what they have, I feel the stock is worth buying up to $1.00 per share in
hopes of making a major discovery that could deliver a $10, $20 or $30 stock
if we have drilling success. This is what makes the junior mining stocks so exciting—the big leverage that can come with a
discovery of merit.
EXS is
hunting for an elephant gold discovery and they are hunting in elephant
country. Exploration drilling represents plenty of risk, but if you balance
the risks with the potential rewards, I think it is a wise speculation
particularly in a time of rising gold prices.
U.S. Silver Corp. (TSX.V:USA) is another company I will talk about. I think they
are well positioned to take advantage of higher silver prices that I see in
our near future. The company expects to produce upwards of 2.7 million ounces
of silver in 2010 at an average cash cost of roughly $14.00 an ounce. You
don't need to be a rocket scientist to see how quickly the profits will add
up as silver prices go to higher levels, especially the kinds of levels I
predict in the next few years.
U.S.
Silver does have more shares outstanding then I would like to see, but this is
one silver junior that I think will do well as the precious metals bull
market continues to unfold.
Greg McCoach is an entrepreneur who has successfully started
and run several businesses the past 23 years. For the last nine of these
years he has been involved with the precious metals industry as a bullion
dealer, investor, and newsletter writer (Mining Speculator) and The Insider Alert. Greg is also the
President of AmeriGold, a gold bullion dealer. Greg'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 also writes a weekly column for Gold World.
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