Sean Brodrick: Bull Market for Gold and Silver
Source: Karen Roche of
Weiss Research Natural Resources Analyst Sean Brodrick expects the
bull market for precious metals to run for "quite some time," with
gold hitting $1,450 /oz. by year-end and silver at $25 not long
after. In this exclusive interview with
The Gold Report,
Sean sees silver reasserting itself as a monetary, investment
and industrial metal. South of the border, some of the Mexican
miners have an "embarrassment of riches"-which have largely escaped
the attention of Wall Street.
The Gold Report:
You recently remarked that we're "trillions of dollars in debt and
we can't seem to grow our way out of it," adding that, "the only
way to get out from under the debt is to print money or inflate out
of it." But you also cited an article with a long list of bullish
indicators for the global economy, including positive indicators
for the U.S. So if the economy is growing, why can't we grow our
way out of this debt?
Much of the growth was predicated on debt. We borrowed about
one-tenth of our GDP to boost things along and got some growth out
of it. The problem, now reflected in the markets, is that investors
and traders wonder if we're going to keep borrowing to keep pushing
the economy along. If not, we can expect contraction.
In Europe, of course, they're now borrowing even more to bail
out the bankers who loaned Greece too much. The market's really
wondering where that ends. The whole point of this exercise is to
stimulate the economy enough to spur intrinsic growth instead of
As in World War II, they should have borrowed more to really
stimulate. Or they should have left some banks hanging and accepted
everybody losing and going back to a lower level for a while. They
should have gone one way or the other. Instead, they've gone into a
no man's land.
They can keep borrowing more and more, and I think we'll see
that because this is an election year. Politicians don't want
things to really turn down. We just have to remember that a lot of
the growth we're seeing is borrowed. It is borrowed through debt
from the future. That bill will finally come due someday.
So the future growth you foresee in terms of the bullish indicators
is still debt-driven.
Exactly. They were hoping to use debt to fuel the economy enough to
spur real economic growth. We haven't seen that much of that yet.
There are bullish indicators, but it's a very weak recovery. The
markets fear that things are really going to go down when we take
away the blindfold, and they might be right. We're caught between a
rock and a hard place. Either keep borrowing and keep spending the
money all over the place and keep the market moving along-or else
sober up, stop the borrowing and the extra spending and understand
that things will slow down.
As you indicated, no politician is going to want to stop the
spending in an election year. So they're going to continue to
stimulate economic indicators with debt. Eventually, as you stated,
they'll to have to print money or inflate out of it.
That seems likely. But on the other hand, the GOP has turned into
the party of "no." They don't want to do anything; maybe they'll
say "no" to everything. I kind of wish I didn't have to live
through it, but it's actually interesting. We are living this grand
socioeconomic experiment. I don't really like any of the choices
we're facing, but I think we will see more borrowing-if not to
stimulate the economy, then to pay for bad choices Wall Street is
making right now. Wall Street always gets bailed out; it just works
out that way. And as we see more borrowing of one kind or another,
we will see pressure on the paper currencies.
It's already hitting the euro hard.
The euro is under a great deal of pressure and, within a year, it
might well not be in the same form it is today. The U.S. dollar
looks strong right now, but that's only because central banks
around the world have decided they own too many euros. The fact
that they're getting rid of euros is the reason the euro's been
sliding so much. They are buying U.S. dollars just because they can
always convert the dollars to something else. And of course,
they're buying-and have been buying-gold. So the U.S. dollar and
gold are going up at the same time. The question is, what will they
do maybe six months from now? Will they keep buying the USD? Will
they keep buying more gold? The U.S. debt situation is actually
quite remarkable for the way it's being ignored, frankly; and I
think we've hit peak gold.
That should be good for the gold price.
Absolutely. The ore bodies being discovered now are smaller and
lower-grade than in the past. We aren't finding big, rich ore
bodies anymore. The amount of gold we can produce in any one year
is probably hitting a peak, so the price is just going to go
higher. So I think gold will get more valuable for that reason, as
Does that also bode well for silver, particularly if you look at
silver as a monetary metal?
Again, absolutely. Silver is not only a monetary metal, it is an
industrial metal. But it's always a problem for any silver investor
to gauge how much silver's price reflects global economic
conditions. Maybe there will be a global recovery. Things don't
have to get worse just because I see that possibility; the global
economy could improve. If it does, we'll see increased demand from
multiple sectors of society-more demand for silver for all of its
many industrial uses.
The economy is on an improving track globally now, but will a
return to recession drive the price of silver down? It can do that.
Also, if the global economy slows and we see less demand for
industrial metals, remember that much of the world's silver
production is a byproduct of other industrial metals. If they shut
down industrial metals mines, it pulls silver supply out of the
market. That might cause a financial panic, which will send people
looking for hard assets again. That would drive silver up. None of
this means silver can't go lower, but I think the trend will be up
for silver and gold alike.
Either way, I think we'll see silver reassert itself as a
monetary metal, as well as an investment metal. More small
investors, in particular, will start putting money into silver
because, as gold gets more expensive, it becomes unaffordable for
some people. It's kind of an interesting situation for silver.
So the two primary demands are industrial, which depends on the
global recovery; and monetary or physical silver, which will go up
in tandem with gold. Do you know the percentage of physical silver
held versus what's used for industrial purposes?
I don't have that statistic in front of me. But people are buying
bars and coins in addition to ETFs. If mint production doesn't keep
up with demand, it tends to feed into the price of silver. That's
the funny thing about precious metals-everybody wants more when
it's not available.
If everybody will want more, where would you peg the price of
silver in two or three years?
It has to get through $20, and I think we'll see that fairly soon.
I'm expecting the pullback in gold to work out over the next week
or so, and then it should head higher again. My target for gold
would be $1,450 by year-end. We could easily see silver at $25-if
not by then, certainly next year. We haven't hit the mania phase
for either metal yet. Most people remain completely unaware of the
gold and silver markets. If anything, people are actually selling
to all these outfits that are in the scrap market now, urging
people to bring in their old and broken jewelry. They aren't taking
a part of each paycheck and running to their local gold and silver
dealer to purchase more every month. That's not happening yet.
When the mania phase does come, I don't want to put a price
target on either gold or silver. I don't know how high they can go,
but whatever it is, it won't stick. You want to buy before the
We'll have to see what happens. Usually after a period of mania,
you get some kind of blowoff. This could be years down the road, by
the way; these things take time to unfold. I'm not expecting this
to happen next year. We're in a good bull market for both gold and
silver. They're both continuing quite nicely, so I expect higher
prices for both for the next two or three years at least. Then we
can finally get to the mania.
If the global economy is recovering, albeit slowly, from where will
the fear that fuels the mania originate?
That is a good question. I'm not really sure that most manias in
investments are necessarily caused by fear. It could be greed. But
we can have a nice bull market for quite some time. If the global
economy continues to grow, perhaps slowly, it will increase
industrial demand for silver. A lot of people worried about demand
when they stopped using silver in photography, but now it's used
more and more for many other things. It's an amazing metal in the
way it conducts heat; it's really far beyond the competition.
Something like 300 tons are used every year just as chemical
reagents for plastics and so forth. Silver's also used now in solar
power technology. They're talking about using silver for catalytic
converters. They don't quite have that technology yet, but silver
would be a great replacement because platinum and palladium are
That brings up an interesting possibility. Everyone gets all riled
up about rare earths because China mines most of the world's
production. If silver can replace rare earths in such applications,
would we see an exponential rise in the silver price?
I'm not talking about silver replacing rare earths. It doesn't mean
they can't find new substitutes for lithium for batteries, but I
don't know what would replace rare earths now. That's the beauty of
metallurgy, right? You can always find substitutes. They may not
work as well, but once you get down into nanotechnology, that's
coming. That will probably be the next big industrial wave; we'll
see some really amazing things. That's actually one of my hopes for
That we might be able to engineer our way out of the mess we're in
we can get that technology to come fast enough.
Back to silver. Do you focus on Mexico?
As natural resource analyst for
Uncommon Wisdom Daily,
I cover everything. But yes, I certainly cover silver in
One of your articles talks about Mexico being relatively unexplored
for various political and historical reasons, which leaves plenty
of bonanza-grade deposits. Would you talk a bit about that?
Sure. Blame it on the Mexican Revolution. They had some really
serious troubles at the beginning of the 20th century. Many people
who were investing in mines there got very nervous, so they up and
left. They were able to invest in other places without the
headaches. As a result, Mexico missed out on a whole phase of
exploration and expansion that the U.S. went through. Now there are
these really high-grade ore bodies there-many of which were mined
before; that's the amazing thing.
For example, I was recently at
IMPACT Silver Corp. (TSX.V:IPT)
, which has maps of at least 1,800 narrow shafts that were put in
the ground over the past 500 years just in one valley. That's only
three per year over 500 years, but it's amazing when you remember
that they were using extremely primitive technology. They basically
mined the silver they could see. They pulled silver of 1,000 -1,500
grams per ton (gpt) from these narrow shafts, ignoring this huge
block of rock all around them. They weren't interested in it
because it wasn't visible silver, not their "high-grade" stuff; but
it's high grade to us-500 gpt, at least. Impact Silver's saying,
"We'll take it. This is absolutely fine. This is a great grade to
be working nowadays."
Impact Silver's is an interesting story. They are making money
and they have almost an embarrassment of riches. There's so much
around them that they can mine. The question is what do they mine
next? It's not as if they have to look for stuff-they're surrounded
by it. They have an interesting approach. They are not going into
debt. They are drilling to prove up ounces in one of their land
packages, but they're working in an area that's easier to drill
because of the geology. The main mines have what you might call
"lumpy" deposits; they know where the silver is, but they aren't in
a hurry to prove up those ounces because it would be expensive. So
while they will have a new resource report coming out later this
year, they have so much more they won't be reporting because that
would require a lot of drilling that they'd rather not pay for just
But even if it's in lumpy deposits, it's high-quality stuff.
Any miner in the U.S. would be knocking themselves over to get it.
The very high grades that have been mined out in the U.S. Charts
show how the ore grades of all metals peaked in the 1920s to
1930s-incredibly rich grades of iron, copper, silver, gold and
more. Why? We came to this new level in technology that made mining
easier, especially at the deeper levels. So most of the high-grade
stuff is gone now; it's been used.
And in the meantime?
Mexico's become a very mining-friendly country. As long as a few
decades ago, many smart Canadian miners went to Mexico and put
together land packages of properties that had been abandoned.
They're finally getting to work on them and are finding some
amazing grades. An average grade of 500 grams of silver per ton is
a very rich mine. You don't even have to drill much, you just go
along the same path the previous miners followed. The ore you get
is just really excellent.
Quite the bonanza.
And it's not just Impact Silver.
Great Panther Silver Limited (
is another one I've visited a couple of times. Very interesting
story. It's a smaller miner but it's really ramping up production.
Guanajuato is one of their projects and Topia is another one.
Between the two, they produced about 2.2 million ounces last year,
and should produce 2.6 million ounces this year. They've increased
production in each of the last four years. They'll probably hit
production of about 3.8 million ounces of silver equivalent per
year by 2012. Operating costs are around $6/oz. net of royalties.
Great Panther is cash flow positive and has another project it's
fast-tracking toward production.
Guanajuato is just amazing. It's an incredibly long
strike-something like 4.7 kilometers. This huge ore body stretches
on forever, and it's really, really rich. They've pulled something
like a billion ounces out of there.
All that, and they aren't close to exhausting it?
There's a lot left, and remember the huge upgrades in technology.
As they go deeper-deeper than was possible in the past-Great
Panther comes to incredibly rich grades. There's a lot of amazingly
rich stuff left in Mexico that lay dormant for a long, long time.
It's now coming into play, and Mexico is a very mineral-rich
country anyway. So that's why I think the future for mining in
Mexico is so bright.
One of your recent articles said that the Mexican silver miners are
underpriced. With those amazing grades and amazing land packages,
what's causing them to be underpriced?
Part of it is the fact that some are better at public relations
than others. Not all of them are underpriced, but some just don't
get their message out well. If you do your research and check into
them, you can find some really good bargains. Another factor is
that they aren't really being followed on Wall Street; so, to that
extent, people don't know about them either. They are being
followed up in Canada, of course. As you might expect, only people
who know the niche in the U.S. and tune in to what's going on in
Canada realize the great things going in Mexico. Right now, they're
a few steps removed. But their story will get out, especially as
the world gets more focused on what's happening with gold and
silver. These companies will become much better known.
How about some examples of companies that aren't well-known but are
Impact Silver is one. I think their approach is about the only
thing that's weighing on their price, plus the fact that they
aren't as well-known as they might be. Great Panther is another
that has great upside potential simply because they're in this old
historical silver-rich zone and keep stepping out beyond what had
been done so many years ago.
Another one would be
First Majestic Silver Corp. (TSX:FR;
. It is a better-known stock than some, but it still has tremendous
upside-it's well off its highs. It owns and operates three
producing silver mines in Mexico with all-in costs of about
$8.49/oz. That's higher than some, but it is certainly very
profitable. They produced 4.3 million ounces last year and should
produce 6 million ounces this year. Their production schedule is
just to keep going higher and higher and higher, and they have a
pipeline of projects lined up. It should really be a great story
going forward. They just picked up a new property that has some 33
million ounces of silver Measured and Indicated. Add that to some
184 million ounces already in their other resources, and you can
see that is going to be a really, really good story.
I've also been to
Endeavour Silver Corp. (NYSE:EXK; DBF:EJD;
and seen their projects in Guanajuato and Guanaceví-they look
great. I expect they'll be acquiring either a private or a public
company. I'm not hearing that from them; just seeing how they're
positioned, sitting on cash, looking around for this deal and that
deal. What that would do to the share price depends on the
structure of the deal, but it can't hurt. Endeavour isn't in the
same league as First Majestic, at least not yet; but they have a
good path outlined going forward and I think they'll do extremely
well. They had nice revenues last year, and in the first quarter of
this year revenues increased something like 115% over the year
prior. That's not hard to do when the price of silver is soaring,
of course; but the nice thing about each of these companies I've
mentioned is they went through the low prices we had in silver and
came out stronger. Each of them had to cut back, really tighten
their belts. That made them much leaner and meaner. Their growth
picture is really good now because they've already been through the
bad times. So as the price of silver goes higher, they can have
real growth in their earnings and their revenue. And they're all
ramping up their production. They have new land packages.
How about gold miners in Mexico?
I've been to
Timmins Gold Corp. (TSX.V:TMM)
in Sonora. They have a nice open-pit heap-leach operation and are
producing now. I believe their cash cost is about $412/oz. They are
expanding their San Francisco vein. Timmins still has some things
to work out. Maybe it'll merge with one of the others in the area;
maybe it will do some other acquisitions. Certainly it has other
projects in Mexico that it can advance. While I like that
particular project and the people running it, I don't see the clear
path that I see in some others. That's the simple reason I haven't
recommended Timmins to my subscribers. I can see where each of the
other companies I've talked about is going in terms of increasing
Any other companies that you'd like to discuss?
Not at this point, though I am looking, especially as we're getting
back to what I think is going to be a buying point. You can't buy
small caps the way you do larger-cap stocks because they just
aren't as liquid. In fact, they can be illiquid at times. You need
a plan, not only for getting in but also for getting out. What if
the company comes out with some bad news? People have to be very
careful. They certainly shouldn't buy anything just because I talk
about it. Even things in my subscribers' portfolios aren't
necessarily right for everyone's portfolio.
Any other suggestions for potential investors?
Yes. Be very careful where you put your money, especially in this
kind of market-and very careful how you go in. I usually go in one
slice at a time and take the same way out, so as not to move the
stock too much. Another point-if you like something because it's
cheap and it gets expensive, don't chase it. You might have another
chance to buy it on the cheap again.
You mentioned your subscribers. Can you give our readers a quick
overview of the publications you edit?
Crisis Profit Hunter
focuses on how to invest in anticipation of some emergency
situations that I see coming along-protective investing but also
making money. For instance, I think we're heading toward an energy
crisis. I also think we're heading toward a food crisis. Other
crises face us as a society. The
Crisis Profit Hunter
doesn't focus exclusively on stocks that pay nice dividends, but
looks at dividends; and we like natural resource stocks, especially
in that portfolio.
Red-Hot Commodity ETFs
is another subscription service. It basically tracks the large bull
market in commodities using ETFs. Of course, there are also
pullbacks, as we've seen lately, but you can play those with
inverse ETFs. I have
Red-Hot Canadian Small-Caps,
too, and finally,
Red-Hot Global Small-Caps
-which probably is really the one I'm known for. That's small-cap
miners all around the world-Australia, Thailand, Chile and Mexico,
as we've been discussing-also Canada, of course. Just looking for
and investing in those companies that have a really bright future
in both the small-cap and micro-cap space.
You have some wonderful freebies, as well.
You can always find the free stuff at
Uncommon Wisdom Daily
. I write the Friday column there, and I have a video there every
Tuesday. And you can go read the free blog that I write every day;
if you click on the blogs tab, you'll see my smiling face.
A natural resources analyst for Weiss Research, Inc., Sean
Brodrick travels far and wide seeking out investment values in the
sector, primarily among the small-cap and micro-cap players. He
edits Weiss Research's
Crisis Profit Hunter
Red-Hot Canadian Small-Caps, Red-Hot Global Small-Caps
Red-Hot Commodity ETFs,
as well as making regular contributions to
Uncommon Wisdom Daily.
He is also a contributing columnist to Dow Jones MarketWatch
and a frequent commentator on one of Canada's premiere financial
websites, HoweStreet.com. Sean's expertise has led to many
financial talk show appearances, including CNBC Squawk Box, Fox
Business, CNN, The Glenn Beck Program, Your World with Neil Cavuto
and Bloomberg Market Line. Released early this year, his book
The Ultimate Suburban Survivalist Guide
to help people survive the ever-changing economic landscape,
from stock market shakeups to oil and currency crises to natural
disasters. A graduate of the University of Maine, Sean has more
than 25 years experience as a professional journalist and financial
analyst, including a stint as investment director of the Sovereign
Society-the world's leading publisher of offshore asset protection
strategies and global investment opportunities. His favorite movie
(interesting in light of his focus on Mexican miners in this
interview) happens to be John Huston's
The Treasure of the Sierra Madre.
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Publisher Karen Roche personally and/or her family own the
following shares of companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors
The Gold Report:
Great Panther Silver, Timmins and First Majestic.
3) Sean Brodrick: I personally and/or my family own shares of the
following companies mentioned in this interview: None. I personally
and/or my family are paid by the following companies: None.
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