-- Posted Monday, 25 November 2013 | | Disqus
Source: Brian Sylvester of The Gold Report
It's been a pretty rotten year for gold equities, and most investors can't wait for a fresh start in 2014. There's plenty to look forward to, according to Jay Taylor, publisher and editor of Gold, Energy & Tech Stocks and host of the radio show "Turning Hard Times into Good Times." Taylor, who is speaking at the Metals & Mining Conference in San Francisco, is forecasting a staggering rise in the real gold price, and profits for small-cap gold companies in the new year. In this interview with The Gold Report, Taylor describes his portfolio as he positions for a gold run.
The Gold Report: Jay, you're presenting "Deflationary Forces in the Midst of an Inflationary Monetary Regime," at the San Francisco Metals & Minerals Conference Nov. 25 and 26. How can that concept affect gold investors?
Jay Taylor: We're in a deflationary environment that policy makers are trying to overcome with inflation. That won't work as long as people remain confident in the currency—but if there's a loss of confidence in the currency, deflationary forces will give way to inflation. It might even lead to a hyperinflationary situation down the road. That's the worst outcome, but I fear it could happen.
TGR: The government is pumping money into the system. We have a window before the dollar crashes. How long is that deflationary window going to stay open?
JT: It's very difficult to say because what we're talking about is a con job. You can't predict when people are going to lose confidence in the currency or the establishment. We probably have six months to a year, if not longer. Keep in mind, you don't have to create more money to cause the value of it to go down. In Iceland, for example, the currency lost 50% of its value in 24 hours without increasing the supply just because people said, "Oh gosh, we're in trouble. I don't want to own this. I want to own something that is tangible." And they dumped it.
It's impossible to say when that day will come for the dollar, but people need to be ready for it because when it occurs, it could happen with frightening rapidity.
TGR: What do you believe is going to happen next for gold?
JT: The chances are better than 50/50 that we've seen the bottom and we're just meandering around and building a base for the next major leg up. It's not hard for me to imagine gold exploding off the launch pad to hit new highs. The question is: How much higher than $1,900/ounce ($1,900/oz) will it go? I don't have a strong opinion on that. It depends on how the economy goes and the psychology of the masses.
TGR: Will silver follow suit or chart its own course?
JT: It will follow suit, to a great extent, because it will take on more of a monetary component; currently much of its demand is still from industry. Silver and gold nearly always move in the same direction, but because silver is more undervalued than gold, it could have a much bigger move in percentage terms.
TGR: Do you see the market's blindness to gold as one of the few bright spots in gold space in 2013?
JT: It is for investors who have money. A lot of the people I know in Vancouver in the junior sector are just flat-out broke. There are companies out there that have great projects that are not being recognized. In that regard, it's very bullish. I'm having a hard time keeping myself from jumping into things sooner than I should because stocks are so cheap—and yet they get cheaper. Gold shares have been punished unmercifully. When this thing turns, there are going to be some major profits made in the gold sector.
TGR: In June you told us that you were seeking cash-flow positive, small-cap gold producers with strong exploration potential. Are those still the tenets of your investment thesis for companies that size?
JT: Yes, very much so. I still look for companies that have cash flow, that have lots of exploration potential, that can grow earnings over time, combined with higher real gold prices and larger production.
TGR: In the November edition of Hotlines, you wrote, "When the real price of gold explodes as it historically does with credit implosions, the stocks that may seem like the riskiest in the lot, and as such sell at very low prices, have much greater potential in percentage terms." Do small-cap gold equities have greater leverage to the gold price?
JT: I wouldn't limit it to nonproducers. There are producers that could benefit very dramatically. They provide a better leverage play on gold, but exploration companies that have the goods also will be leveraged to the price of gold. When the real price of gold rises, you get a huge rise in the profitability of gold mining projects. It's the real price of gold that matters in mining. It's not the nominal price.
TGR: Do those big companies act as the anchor in your portfolio?
JT: I build my personal portfolio around the producers and a couple of project generators that, even though their share prices have gotten clocked like everybody else's, haven't had to go out and issue huge numbers of shares to keep the lights on. I prefer project generators as a category. A fair number of companies out there are promising. When this market turns around and when the real price of gold rises, the big guys are going to earn big profits and then they'll start looking down the food chain at the companies they might pick up to increase and continue production. There will be a big percentage gain for the more marginal companies that are in production.
TGR: The end of 2013 is around the corner—not soon enough for some. What are you looking forward to in 2014?
JT: Well, I can sum up 2013 in one word—horrible. But if you've been able to squirrel away some cash, this year has provided great opportunities.
We've had 10 years of rising gold prices, so 2013 will be the first year with a pullback in a cyclical bear market within a secular bull. It's very natural. If you compare this to the last great bull market, when gold went from $200 to $100 to $850/oz, the same kind of a percentage move could very well be in place in 2014. We could see a similar explosion in the gold price.
Deflationary implosion doesn't bother me because I'm more favorably disposed toward gold in credit deflation such as what we had in the 1930s. It was very bullish for the gold mining sector. Catalysts for triggering an explosion in the gold price could be a loss of confidence in the mainstream assets: the dollar, Wall Street, a collapse of the London Bullion Market Association (LBMA) or the COMEX.
The speculative games that are played by the bullion banks are leading to some big problems. A default on either of those exchanges could shake the confidence of the other markets and play into the hands of China and other BRIC countries that are squirreling away as much gold as they can get at these cheap prices from the West. Those countries have made no bones about wanting to see the dollar replaced as the world's reserve currency.
That fall could take place fairly soon in 2014. People that have cash now should look for these gold mining shares at bargain basement prices that we talked about today. I also still believe that people should have physical gold and silver as their core asset. That's the best advice I could give: own gold and silver coins and then the gold and silver shares.
TGR: I've enjoyed speaking with you. Thanks for your time.
As he followed the demolition of the U.S. gold standard and the rapid rise in the national debt, Jay Taylor's interest in U.S. monetary and fiscal policy grew, particularly as it related to gold. He began publishing North American Gold Mining Stocks in 1981. In 1997, he decided to pursue his avocation as a new full-time career—including publication of his weekly Gold, Energy & Tech Stocks newsletter. He also has a radio program, "Turning Hard Times into Good Times."
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-- Posted Monday, 25 November 2013 | Digg This Article
| Source: GoldSeek.com
