-- Published: Monday, 24 March 2014 | Print | Disqus
Source: Brian Sylvester of The Gold Report
Can you hear it? Brien Lundin does. It's the sound of the junior resource market mounting a comeback. In this interview with The Gold Report, Lundin, editor of Gold Newsletter, president and CEO of Jefferson Financial and the man behind the New Orleans Investment Conference, traces the rebound to Western speculators coming to the market at the same time that Asian buyers are maintaining a strong level of demand.
The Gold Report: I'm hearing something and I think it's the sound of a junior market rebound. What are you hearing?
Brien Lundin: Yes, I hear it. I've been very cautious despite a few rallies and bounces since last fall, but momentum is building. We saw a lot of tax-loss selling in the metals at the end of the year, and thus the beginning of the year saw a natural rebound in the resources markets. That momentum has been backed by metal buying in Asia, which, in turn, attracted more speculative buying from the West. In short, speculators and speculative enthusiasm are returning to the junior market.
TGR: In the March edition of Gold Newsletter you suggest that Asian precious metals demand is underpinning the rising gold price. That's not a new narrative, but tell us what's changing with that story.
BL: Asian demand wasn't surprising. In mid-April speculators, in what appeared to be a very coordinated attack on gold, drove the price down by hundreds of dollars an ounce in a couple of trading sessions. That spawned a burst of Asian gold-buying demand. Historically Asians are very price-sensitive buyers. What's surprising is that the higher level of demand has yet to abate. It's encouraging for gold bugs and somewhat surprising.
TGR: Alasdair Macleod, head of research at GoldMoney, puts China's gold imports at 2,668 tons in 2013. If he's correct, that would be one-quarter of all the gold reserves in the U.S. Do you believe his number is accurate?
BL: I do. He's done the best work I've seen. The World Gold Council places it at less than half his number, but that doesn't account for a lot of the buying that we've seen through the Shanghai Gold Exchange (SGE).
The SGE is essentially a physical delivery mechanism, unlike the Comex in the U.S., where gold investors and gold savers in China actually take delivery of gold. Macleod uses those figures as a starting point and conservatively nets out the various flows in and out of Hong Kong so that there's no double counting.
Still, his numbers appear to be conservative because there are other entry points into China that are not accounted for. His numbers are still much more accurate than some of the other more mainstream sources of information.
That number—2,668 tons of gold—is not much less than the entire level of gold production last year. In other words, almost every ounce of newly mined gold is going into China. That's important. That's dramatic evidence for a new secular trend of Asian buying.
TGR: Any theories on what China is going to do with that much gold?
BL: This level of demand implies that something is up—that there's some type of official encouragement or plan afoot. There was recently some speculation that China was about to reveal its level of gold reserves, but it hasn't. Whether the gold it is buying now goes into official reserves or into the hands of its citizens, it's gold in-country, which is effectively national reserves. It's part of a long-term plan to establish China as a preeminent global economic power.
TGR: And maybe world economic reserve currency?
BL: More likely as a global economic reserve currency of equal standing to the dollar, and perhaps to the euro.
TGR: Newsletter writer Jim Dines has been called a "connoisseur of bottoms." Gold recently put in a double-bottom. How have those been positive for the gold price?
BL: A double-bottom on a chart is a very powerful pattern that implies a robust rebound. That's exactly what gold has put in place since the first bottom in June 2013 and the second bottom in December. There's been a very steady and consistent rise recently, in contrast to the pattern of "two steps back, one step forward" that took hold in 2013. In 2014, it's been closer to five steps forward, one step back.
TGR: The junior market rebound is not just about higher commodity prices. What other factors are involved?
BL: Sellers got exhausted. Once there are no more sellers, there is a natural rebound. That upward trend is gaining momentum and in turn attracting more speculators as the technical picture improves.
TGR: As things heat up, how can investors identify the promising juniors?
BL: Go to conferences. Subscribe to newsletters. Find companies with proven resources. Investors can buy companies with established resources for the same price that ground-floor exploration companies were selling at a few years ago. Why take on the additional risk of exploration when you can buy ounces in the ground?
TGR: Are there any specific jurisdictions you might point to as good places for investors to start looking?
BL: Mexico is one of the most prospective exploration frontiers. Regulatory and tax events have thrown a damper on the area, but explorers and developers still have to go where the gold and silver is, and Mexico has proven to be one of the best places to find new deposits.
TGR: What are a couple of themes you expect to dominate in the junior space in 2014?
BL: Buying established resources while they're still on sale is a theme that will endure for much of this year, but the opportunity is beginning to wane. High-quality companies have already doubled or more in value from where they were in late December. They're still at good prices and values, but the opportunity is diminishing.
Another ever-present theme is drill-hole plays, or new resource discoveries. When these discoveries are made, it gives a jolt to the market both for the company that found it and for companies in the surrounding area.
TGR: What are you doing in Gold Newsletter this year to attract subscribers?
BL: I'm offering some opportunities for lower-cost subscriptions. We recently went to an all-electronic format. It allows us to send out interim recommendations and alerts as new opportunities emerge. There's no more delay between when I see an opportunity and when our readers get a hold of it.
TGR: It's always about editing your portfolio as an investor.
BL: The buying part is easy. The selling part is more difficult.
TGR: Thanks, Brien.
With a career spanning three decades in the investment markets, Brien Lundin serves as president and CEO of Jefferson Financial, a highly regarded publisher of market analyses and producer of investment-oriented events. Under the Jefferson Financial umbrella, Lundin publishes and edits Gold Newsletter, a cornerstone of precious metals advisories since 1971. He also hosts the New Orleans Investment Conference, the oldest and most respected investment event of its kind.
1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor.
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-- Published: Monday, 24 March 2014 | E-Mail | Print | Source: GoldSeek.com