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-- Posted Thursday, 13 January 2011 | | Source: GoldSeek.com
Has the U.S. economy turned the corner? Mark Lackey with Toronto-based financial services company Pope & Co. is forecasting modest growth and slight inflation. In this exclusive interview with The Gold Report, Mark explains why that shouldn't drive a continued correction in gold prices. He also shares some insights on what makes gold companies prosper—whether they've got an NI 43-101-compliant estimate or not.
The Gold Report: Mark, when you worked for the Bank of Canada, you made regular forecasts on the U.S. economy. What is Pope & Co. expecting from the U.S. economy in 2011?
Mark Lackey: We're expecting the gross domestic product in the second and third quarters to be in the 3% range with inflation around 1%. We're not looking for huge growth, but there could be some improvement in the labor market and in industrial production in a scenario with little inflation. Unlike some people who think deleveraging is going to continue and cause subpar growth in the U.S., we see potential growth of 2.5%–3.0%. That's not bad.
TGR: That might not necessarily be good for gold stocks or the gold market in general. We've seen a correction already this year. Gold is down about $60 an ounce, or about 3%, from what it was in late December. Should we expect that correction to last awhile, or will the climb resume shortly?
ML: We don't think there will be much of a decline. We thought there would be a little bit of a correction in the short run—and that has happened—and we think it could go a little bit lower. I don't think the strength of the U.S. economy is so much an issue with gold. The bigger issue is that investors will look at the debt problems in the U.S. and ask themselves how those are going to be resolved. Gold prices could be back up to close to $1,600 an ounce by the end of the year. Some people on the Street are forecasting $2,000, but we are not quite that bullish. The underlying factor is that some investors in the world aren't comfortable with any paper currency and they're more comfortable owning gold.
TGR: What will push it to that level?
ML: Investors will start to realize that commodity prices are rising. There's been a pretty large rise in copper and a big move in silver. Companies are going to try to pass production costs through, which could lead to inflation coming out of the commodities sector. In addition, as the unemployment rate decreases in the countries comprising the G-7, the market is going to realize that inflation can come back. It won't be at the same levels as in the '70s when inflation hit between 16% and 20%, but there are some indications that inflation is going to start to come back and will feed into gold's performance.
TGR: Will gold be the only beneficiary, or are we going to see continued upward momentum in other precious metals like silver or platinum group metals like platinum and palladium?
ML: We like silver because it doesn't get recycled. Also, 90% of the silver in the world comes from secondary sources as a byproduct of copper or nickel. There aren't many pure silver mines out there. The demand for silver has increased as well, because investors use it as a hedge against currencies and it also has a number of industrial uses. Although silver had an incredible year last year, we don't expect that performance to continue. However, we certainly expect that silver prices will rise again this year.
Palladium could benefit from any continued rebounding in the auto sector because it is used in catalytic converters.
TGR: We saw some interesting things in the gold space in 2010. Namely, a number of companies entered production without an NI 43-101 resource estimate. Do you expect more companies to move forward without those technical reports?
ML: I think the technical reports were instituted when there were scandals in the '90s and the market was looking for a standard approach in order to determine the size of a company's resource. The regulators said, "Okay, we're going to try to protect investors," and these reports will provide investors with inferred and indicated results that will provide an estimate of the resource size. The flip side is that companies will have various types of deposits like a gold deposit that is very nuggety that turns out to be a higher grade in a bulk sample than when it is drilled. But in order to be NI 43-101 compliant, they have to drill the property. Sometimes, there are cases where the 43-101 actually understates the resource.
TGR: Do you see that as a positive trend, though? Doesn't that open the door to somewhat less-reputable companies perhaps exploiting that trend?
ML: There's no reason to worry because the companies that have the labs that determine the drilling results have rules and regulations that must undertaken or they will be out of business. Also, the vast majority of companies are likely to get their 43-101s quickly.
TGR: Earlier you said you doubt that silver will see another increase of 83%, but could we peg that down a little bit? Could it maybe go to $40 by year-end?
ML: Silver could reach the high $30s, somewhere around $37 or $38. In about three years, we could see $50 silver. I think we've got a 10-year cycle for commodities left; so, silver could be $75–$80 down the road.
TGR: Do you have some parting thoughts on precious metals, in general?
ML: I was at a meeting yesterday where a number of people were suggesting that the tide had turned when they saw the weakness in gold and silver, but I don't think that's the case. Not every country in the world feels comfortable with paper currencies. Russia and China are trading with each other in their own currencies—they're no longer using the U.S. dollar. Also, there is a limited amount of gold and silver in the world. It's been hard to increase the supply of gold. The supply/demand issue is one of the reasons that I anticipate a higher price by year-end.
TGR: Thanks so much for your time, Mark.
Mark Lackey, currently the investment strategist at Pope & Company Limited, has 30 years of experience in energy (oil and gas; hydro), mining, central and corporate banking and investment research and strategy. He worked at the Bank of Canada where he was responsible for the production of U.S. economic forecasting, briefing Governor Gerald Bouey on U.S. economic developments on a weekly basis. Mr. Lackey was a senior manager of commodities at the Bank of Montreal where he helped to determine whether or not the bank would loan money to companies in the commodity space. He spent 10 years in the oil industry with Gulf Canada, Chevron Canada and Petro Canada where his main responsibility was developing corporate plans. This involved forecasting oil and natural gas prices, oil and natural gas demand, oil and natural gas supply, downstream products and their competitive position versus other oil companies. During his tenure at Trans Canada Pipelines and Ontario Hydro, Mr. Lackey helped develop corporate plans while also working closely with each company's pension funds.
In the investment community, Mr. Lackey was director of research at Brawley Cathers and the investment strategist at both Blackmont Capital and Hampton Securities. He is a regular guest on BNN, having made more than 200 appearances in the last 10 years (more than 40 of which were in 2010). On his most recent appearance, Mark discussed his new role at Pope & Company and branded Pope as an up-and-coming institutional resource boutique dealer. Streetwise - The Gold Report is Copyright © 2010 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part. The GOLD Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report. From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise. Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported. Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734. Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.
-- Posted Thursday, 13 January 2011 | Digg This Article | Source: GoldSeek.com
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