-- Posted Thursday, 14 July 2011 | | Disqus

The lure of platinum is driving Energy and Scarcity and Outstanding Investments Editor Byron King's investment choices for precious metals. In this exclusive interview with The Gold Report, he explains the looming demand and global opportunities. "We could see platinum prices skyrocket," he says.

The Gold Report: Let's start with politics. In your opinion, would a Republican president in 2012 be good for the gold price?

Byron King: Whether Obama remains in office or a Republican wins the election, it is going to be tough to deal with the inflation and the built-in spending that is driving gold prices up. Republican or Democrat, either way, if you want a stable gold price you are going to be disappointed. If you want to see higher gold prices, you are going to get your wish.

TGR: Do you think we could see dramatically higher inflation?

BK: I think that's already cooked into the pie, yes. For the last 18 months, much of U.S. federal debt has been purchased by the Federal Reserve. It's not people buying U.S. Savings Bonds who are funding the deficit spending by owning the national debt. The Federal Reserve is just issuing new money into the system. That money is floating around the world somewhere and it's coming back in terms of inflation. We see it in the rising prices for energy, especially oil, plus gold, silver and other commodities. We see it in inflation in other currencies and trading zones—the Chinese yuan in Asia, the euro in Europe and even in South America's otherwise strong currencies. These things all reflect the inflation that's coming out of Washington D.C. to fund U.S. deficit spending.

TGR: The CFTC (Commodities Futures Trading Commission) said at the end of June that money managers have slashed their net bullish positions in gold futures to the lowest point in more than four months and silver to the lowest point in more than a year. Do you think that will affect the price given that hedge funds seem to believe in the economic rebound and may be starting to get out of gold and silver?

BK: I think that people trade in and people trade out. What we're seeing is a thought process that says, "We've had a nice run and it's time to take some profits off the table and show some gains to the bottom-line." This is a blip in the long-term upward trend. I go back to the point that inflation is already baked into the pie.

TGR: Gold hit a six-week low to end the second quarter, but was up 5% and led all precious metals during the quarter. Meanwhile, silver was down 7.5% after nine straight quarterly increases. What performance do you expect from both metals in the third quarter?

BK: I think that both will trade in a range without any real breakouts. The world economy isn't panicked enough to drive prices through the roof. But, it also isn't healthy enough for people to decide that they would just as soon liquidate their gold and silver positions and invest that cash somewhere else. That's because the next question is: where is somewhere else? What are the latitude and longitude of "somewhere else" that you would invest if you liquidated?

TGR: You recently wrote in Agora Financial's Daily Resource Hunter that "Smart money is holding gold. Never sell the real metal. Hang tough with the mining company shares." But equities, by and large, have vastly underperformed gold in 2011. Why aren't you telling people to sell?

BK: I was writing that for a retail audience, not for professional traders. When I say, "don't sell the real metal," I mean if you own gold, keep it in your safe deposit box. Real metal is the absolute last thing you want to sell, because looking 2, 5 or 10 years out, you may never ever see it again at current prices, and in the worst case at any price. I think that the scarcity of the physical stuff is that profound, and it's going to be even more profound as the rest of the world begins to catch on.

As far as hanging tough with mining company shares, I mean that, too. Implied in that statement is the idea that you've got to grit your teeth and deal with the fact that mining company shares have lagged the performance of gold over the past couple of years. It's annoying from an investor's standpoint because the mining companies are mining gold, which is going up in price, but so are the companies' costs for energy, labor and other production factors.

I have selectively told people to sell a couple of mining shares in the last six months or so. Still, overall, I'm not telling people to sell gold mining shares because, what do I tell them to do instead? Where do they go with the money? I'm nervous about walking away from the gold miners in this particular precious metal environment.

TGR: You recently spent time touring projects in southern Africa. Did you return from that trip with any new investment ideas that you could share with our readers?

BK: South Africa is investable if you understand the level of risk. The large, deep gold mines have profound problems because they're large and deep. There are limits to how deep you can put human beings underground and have them work. There are limits to what technology can do in those deep, very hot, very stressful environments. When you dig holes three and four km. deep, you get these things called rock bursts where the walls explode inwards because of the pressure of the weight of the rock above. It's very deep, very dangerous mining. I think that within a couple of years, we could see a dramatic falloff in overall gold production out of South Africa, which would affect the world gold price.

In terms of the good news, the best investable item I brought away from two recent trips to South Africa is platinum. South Africa is one of the world’s most significant platinum producers. There's a looming shortage of platinum, which is used in the chemicals industry, in the automotive and electronics industries and in jewelry. It's become an investable item as well, in terms of bullion.

There aren't enough large platinum projects to replace what is being mined out. We could see platinum prices skyrocket.

Here's what I think about platinum overall. It gets back to the medium- and long-term future. If someone discovered a platinum deposit tomorrow morning in Montana, Canada or Alaska, how long would it take to get that mine up and running? How long would it take to get the processing system up and running? We're looking at 10 to 15 years.

As platinum goes into shortage in the next few years and prices skyrocket, you want to be positioned in the companies that have the best chance to move quickly. You're looking for the best ideas in the here and now.

TGR: In a couple of weeks you are scheduled to speak at an Agora Financial investment symposium in Vancouver called Fight or Flight: Your Capital at Risk. What do you plan to talk about there?

BK: My talk is titled "Re-Mining the Wealth of Nations Past; Discovering Assets Hidden by History." I'm going to give several examples of mining or resource plays that were simply lost to history over time, and that are now coming back into vogue. It's the idea of what's old is new again.

TGR: Do you have some parting thoughts on gold and silver and precious metals in general?

BK: Considering the uncertainly of government currencies such as the dollar, the euro, the yen and the yuan, and even commodity currencies like the Canadian dollar, the Russian ruble, the Brazilian real, you must understand the need to have solid exposure to precious metals in your own physical holdings of metal. Take delivery. Don't comingle it in somebody else's vault. That goes for gold, silver and platinum—and invest in mining shares.

I just don't trust the politicians to do the right thing. Nobody truly knows what the right thing is. I don't think the current group of political leaders will be able to steer the ship through the rocks without punching a few holes in the hull. And if you're an investor out there? Well, you may as well have a steerage ticket on the Titanic. There won't be any lifeboats for you. You'll have to come up with your own means of saving yourself.

Byron King is the editor of Outstanding Investments and Energy & Scarcity Investor. These publications reach over 60,000 paid subscribers. He is also a contributor to the Daily Resource Hunter. King is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has conducted site visits to mineral deposits in 26 countries and deep-water oil fields in five oceans. This provides him with a unique perspective on the myriad of investment opportunities in energy and mineral exploration. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, Marketwatch.com, Fox Business News, and PBS Newshour.

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-- Posted Thursday, 14 July 2011 | Digg This Article | Source: GoldSeek.com

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