Why has the price of gold punched through every barrier to a
record high of $1,500/oz.? The market's rigged, according to
Peter Grandich, editor of The Grandich Letter. In this exclusive
The Gold Report
, Grandich explores if it's time to unload silver and transition
out of gold and why it could be the perfect time to look more
closely at junior explorers.
Alderon Resource Corp.
Altius Minerals Corporation
Barrick Gold Corp.
Consolidated Thompson Iron Mines Ltd.
Crocodile Gold Corp.
Equinox Minerals Ltd.
Formation Metals Inc.
Heatherdale Resources Ltd.
Northern Dynasty Minerals Ltd.
Oromin Explorations Ltd.
Rathdowney Resources Ltd.
Sunridge Gold Corp.
Taseko Mines Ltd.
The Gold Report:
Peter, in a recent interview you said, "I believe the game is
rigged. Not only is the silver market being manipulated, the
whole investment world has been rigged." You suggested that
Goldman Sachs and Morgan Stanley were tilting the game in their
favor. Does that mean that those firms are responsible for
driving up commodity prices across the board?
I was trying to emphasize that we are playing in a game that is
heavily tilted against us. A classic example is that companies
like Goldman, Morgan Stanley and others were selling
mortgage-related products to clients while at the same time
betting against those very products. Ironically, none of those
people has gone to jail.
We are not on a level playing field. One of the main reasons I
had been bullish on silver was the belief-a very small minority
belief-that silver was manipulated for several years. At that
point in time, it was actually helping the price. My call to sell
silver was influenced by that manipulation because the price had
gotten to such a high level.
You told investors to sell silver at just less than $50.
Yes, $49.25 at the time. At that time, we did not note selling
gold, but we did a week later.
Do you believe large banks are driving up other commodity
I see two types of manipulation. There is fraudulent manipulation
like what happened in silver for a lot of years. I also believe
the oil market has been manipulated, but not in a centrally
controlled way. A group of people with a lot of money bid up the
prices-even though there was no oil shortage.
Commodities in general have risen because they have an
underlying strength. Increasing world population creates a need
for more commodities that are, in some cases, scarce or declining
in supply. Of course, the declining dollar has also driven
commodity prices up.
Do you believe resources, or hard assets as they're commonly
being referred to now, are morphing into a generally accepted
asset class like real estate investment trusts, or is the market
It's just getting to that point. The legitimization of the sector
is deserved and it should have happened years ago. However, it
took $1,500/oz. gold and record high silver prices to get
investors, money managers and the like to appreciate them as a
legitimate asset class.
However, resources may never become popular worldwide. Things
like gold and silver are mortal enemies of stocks and bonds over
the long term. I don't expect the general investment community to
embrace it as a true asset class. That said, investors are
realizing that gold and silver aren't just for crazy people who
think the end of the world is coming. Commodities are not just
cyclical or total speculation. Commodity-related stocks are just
as good as other classes of stock.
What mining commodities have the most near- to medium-term
potential for price appreciation?
There's no commodity at this point that could go sharply higher
in the near term. But there are some that have washed out and
their downside risk should be limited. The first one that comes
to mind is uranium. Most of the damage that has come on the heels
of Japan is already priced in the stock. There's limited downside
risk, but there may not be a lot of upside yet for a while. I
just added several uranium stocks to my Tracking List.
The lithium market also fits that description. Lithium shares
had a good wash out after a spectacular rare earth metals blowoff
and that's turning.
Iron ore is interesting because the price is still extremely
strong, but the stocks have come back sharply in recent days.
There is also a metal that a lot of investors don't talk
about, but is very strategic: cobalt. In North America, the only
pure cobalt mine that will be built this summer is by
Formation Metals Inc. (
. Cobalt has become a strategic metal, but we don't have a lot of
access to it.
Copper is still quite attractive long term. I think the days
of $0.90 or $1.20/oz. copper are gone. While we still see a 10%
decline from here, there's a lot of value in copper.
Barrick Gold Corp. (TSX:ABX; NYSE:ABX)
recent acquisition of
Equinox Minerals Ltd. (TSX:EQN; ASX:EQN)
strongly suggests that it was having difficulty as a pure gold
company. It's hard to keep finding 5 to 10 million ounces of new
gold each year. Copper, while a base metal and more cyclical, is
a metal that's going to be in demand for a long time.
You outlined three strategies in
The Grandich Letter
for playing gold and silver in the current market. One was a
conservative strategy. One was somewhat speculative. The third
was basically gambling.
I've always struggled with cookie-cutter advice. Firms advise
investors to allocate 30% to this and 20% to that and somehow
100,000 clients all fit into that model? I try to give more
choices so individuals can decide where they fit. I gave three
ways of approaching what I believed was going to take place for
gold and silver.
The most conservative attitude was based on buying gold since
it was a little more than $300 and silver was in the low single
digits-that's 400% to 500% gains. You don't look a gift horse in
the mouth. Take the profits.
The middle-of-the-road strategy recognizes that gold and
silver have skyrocketed, but you still think gold's going to
$2,000-plus before it's all over, which I still do. I suggested
that investors should sell some silver, but hold on to a
significant part of their gold using a scale-up or a scale-down
selling program. In this particular case, I suggested that
investors take profits in gold at certain levels and as it
reached a higher level they should sell a little more and so
The final approach, which Wall Street likes to call
speculative, but I call gambling, is for those who still think
gold and silver can go higher to ride it out.
The last category is for investors who are in gold and silver
because they have no trust in paper currencies. They can continue
holding precious metals because they'd still be better off than
owning the U.S. dollar over time.
Part of your argument for taking profits on silver and, to a
lesser extent, gold, was that May to August is traditionally soft
for precious metals. However, we're seeing growing levels of
inflation. Soon QE2 and the Fed buying U.S. treasuries will end.
There is ongoing unrest in the Middle East. The U.S. likely
rekindled enemy passions when President Obama sanctioned the
killing of Osama bin Laden. Could this be the year when gold and
silver don't see an appreciable price decline during the summer
Nothing is 100%, but we don't forget that a significant part of
gold demand comes from jewelers-about 65% to 70%. Jewelry
fabricators tend to limit purchases of gold until after the
summer months. All those things that you pointed out are still
there. Investors have to decide if they believe they have already
been included in the price. Last week, I advised my readers to
totally liquidate silver at $49.25 and a portion of gold holdings
at $1,575 to realize profits. This past week, I got back into
silver at $35.75 and gold at $1,481 while it is a deal. The good
news is that even if there is seasonal weakness, we've greatly
cushioned ourselves from such a correction.
How do you think the death of bin Laden will affect gold?
I have no doubt that there's some person out there who thinks his
death is going to lead to a tremendous increase in the amount of
terrorism. But an equally compelling argument can be made for his
elimination actually lessening those chances. It's not a reason
for buying or selling gold in my book.
Can you tell us about some of the more compelling gold and silver
stories that you're following?
Investors should not lose sight that the price of metals is
extremely high and there's a lot of opportunity to make money in
exploring, developing and mining them.
Crocodile Gold Corp. (TSX:CRK; OTCQX:CROCF)
has had some setbacks, but it also has some interesting assets.
The company raised some money to meet its goals and it's at a
point where it has to prove to shareholders that it's going to
achieve them. The company's assets have always been considered
first class. We need to watch to see if there's a true
turnaround. If and when that takes place, the share price could
be worth substantially more. It's currently trading at $0.90.
Over the long term, the stock could double.
Crocodile has gold operations in Australia, so it has some high
cash costs because it's trucking ore over a fair distance. What's
your timeframe for solving those problems?
It has run out of time to solve them. Watch the next few quarters
to see if the company is on its way to doing that.
What are some other gold or silver stories you like?
Sunridge Gold Corp. (TSX.V:SGC)
has a series of projects in Africa with drill results that are
mindboggling-some of the best copper drill results I've ever seen
in the world. Right now, the stock is ho-hum because of the
projects' location and because this has been a company that
historically focused its attention on looking for and developing
metals rather than shareholders. It has a wealth of early stage,
prefeasibility and feasibility projects. The share price could be
worth many times its current price in the next 12 to 24
Another company in Africa that has been better at drilling for
ore than investors is
Oromin Explorations Ltd. (TSX:OLE; OTCBB:OLEPF)
. It has numerous deposits that keep getting better and better as
they announce drill results. Two majors have bought significant
stakes in the company. There's a lot of good news flow out of
Are there any management teams that you particularly like?
Juniors are like burning matches. They're always raising money.
The more they can raise at higher prices with less share
dilution, the better chance they have of being successful.
Management is key. The leadership team can be as important as the
project. The best in the world today at the junior to midsize
level is the Hunter Dickinson Inc. mining group. Hunter Dickinson
is so large that it has deep abilities to finance, as well as
provide whatever support companies need.
It has two young companies that have been in its stable for a
long time that are having really good results:
Heatherdale Resources Ltd. (TSX.V:HTR)
Rathdowney Resources Ltd. (TSX.V:RTH)
. Hopefully, that will pay off in the share price down the
Hunter Dickinson has been one of the more successful outfits. It
has a number of companies under that umbrella. The most
successful in recent years is probably
Northern Dynasty Minerals Ltd. (TSX:NDM; NYSE.A:NAK)
Taseko Mines Ltd. (TSX:TKO, NYSE.A:TGB)
has been a success story, too. Hunter Dickinson took Taseko from
pennies when chief executive Russell Hallbauer showed up and made
it a $7 stock with a large-scale copper mine.
Hunter Dickinson doesn't do broker placements, so it doesn't
get a lot of the coverage from brokerage firms. But I don't know
of any company that's bigger or better.
You've called an iron play on Quebec's north shore,
Alderon Resource Corp. (TSX.V:ADV; OTCQX:ALDFF)
, "the son of Consolidated Thompson." You describe it as "a
legitimate takeover target" and say, "I'm hard-pressed to find a
reason it can't make a new all-time high this quarter." Why are
you so bullish on Alderon?
I'm involved with other companies headed by Alderon Chief
Executive Mark Morabito. He could write a book on how to build
and develop a junior resource company. The company was born out
of his initiative. It's a well run and respected player in the
Altius Minerals Corp. (TSX.V:ALS)
had a large iron ore project that wasn't getting the valuation.
Alderon was created to run with it. It's had phenomenal drill
results. The key here is that a large part of the management of
Consolidated Thompson Iron Mines Ltd. (
, which is probably one of the better-known success stories in
the business, left and became part of Alderon.
Once the NI 43-101 is updated, one of the bigger players or a
major Asian mining company will be hard pressed to not to come in
and take it out. It has the entire infrastructure. It's the way
that Consolidated Thompson became a takeover target, but Alderon
will reach its peak faster than Consolidated Thompson. That's why
I think the stock is compelling.
It has almost 500 million tons (Mt.) at 30% iron. It has another
120 Mt. in the inferred category.
It could have a billion pounds by the time the year is out.
There are a number of different companies in the vicinity that
could be predators in this case.
It could be one of those, one of the worldwide major mining
companies, or it could be one of the end-users that decides the
company is too good to pass up. It's a legitimate takeover
You talk about having a defined exit strategy for the current
commodity bull market. What are some of the key elements of a
dependable and responsible exit strategy?
One of the most common complaints you hear from investors is that
experts always tell you when to buy, but they never tell you when
to sell. Whether they tell you or not, there are a couple of
things investors need to recognize. Investors shouldn't be
married to their investments. They should consider selling when
they can no longer buy something. Investors shouldn't be flying
by the seat of their pants. They need a legitimate exit strategy.
Investors need a formal plan with price targets.
What are your thoughts on the U.S. dollar?
Long term, the U.S. dollar should continue to depreciate. I noted
just the other day that we could see a fairly substantial bear
market rally on the belief that when the Fed's quantitative
easing formally comes to an end, interest rates are going to tick
up. Some might consider the dollar a player now, but it's
terminally ill. Eventually, the U.S. dollar index should break
This is one of those occurrences that investors need to plan
for long term. They need to have some sort of strategy in place
and not just go by how they feel emotionally on a particular
It's been enlightening. Thanks for your time, Peter.
Though he never finished high school,
entered Wall Street in the mid-1980s and within three years was
appointed vice president of investment strategy for a leading New
York Stock Exchange member firm. He went on to hold positions as
a market strategist and a portfolio manager for four hedge funds
and a mutual fund that bore his name. Grandich is the founder of
and Grandich Publications, and editor of
The Grandich Letter,
which was first published in 1984.
Grandich is a member of the
Association of Christian Financial Consultants
The New York
Society of Security Analysts
The Society of
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1) Brian Sylvester of
The Gold Report
conducted this interview. He personally and/or his family own
shares of the following companies mentioned in this interview:
2) The following companies mentioned in the interview are
The Gold Report:
Alderon and Crocodile Gold.
3) Peter Grandich: I personally and/or my family own shares of
the following companies mentioned in this interview: Alderon,
Sunridge, Formation Metals, Heatherdale, Rathdowney and Northern
Dynasty Minerals. I personally and/or my family am paid by the
following companies mentioned in this interview: Alderon,
Sunridge, Formation Metals, Heatherdale, Rathdowney, Northern
Dynasty Minerals, Crocodile Gold, Taseko and Oromin.
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