Source: Diane Fraser of The Gold Report 10/13/2010
Carlsbad is several hundred miles south of Sutter’s Mill, but the experts and investors who gathered for Casey Research’s recent Gold Summit were just as enthusiastic about the precious metal as the prospectors who headed into the hills back in 1849. The Gold Report took the opportunity to speak with some of the many experts on hand. For three days, the leading experts in the resource investment sector gathered with investors to discuss the investment strategies. Doug Casey, Richard Russell, Ross Beaty, Eric Sprott, Ian McAvity, Rick Rule, Robert Prechter and Bob Quartermain all gave their varied impressions on the market and their investment ideas.
The time was right to focus on gold because, according to Casey Research, LLC Managing Director David Galland, "the gold bull market is in its 10th or 11th year. Many of our subscribers have been in gold since 1998. They’re sitting on big positions on gold and gold stocks. We sat down and said, ‘OK, new record highs for gold. Where does it go from here? Should I be hanging on until the end? Should I sell some?’ The Summit, held October 1 to 3, featured a dozen leading experts on gold and resource investing. We brought in speakers that have very, very different opinions about what will happen with gold and precious metals. According to CEO Olivier Garret, "hopefully, the conference-goers received a lot of information and that will help them make better decisions as investors in the resource sector."
Attendees not only listened and learned, but they were also able to "push back," according to Galland, who is managing editor of The Casey Report. "Our newsletters are one-way communication. At a conference, you get to meet and talk with the faculty members; you can push back and ask questions, to clarify their positions and your own thinking."
For Brent Cook, an independent exploration analyst and author of Exploration Insights, the biggest takeaway form the conference was "that we’re not at the end of the gold cycle. My perspective, based on Bud Conrad’s presentation, is that there’s still a lot out there that needs to happen in the financial world to make a case for gold actually going down and not going up in value. So actually, we’re still relatively early in the gold cycle."
The gist of the conference, according to Karen Roche, publisher of The Gold Report, was that "we are in the eye of the financial storm. We’ve had one financial and market downturn. Now we are experiencing the lull before we get the second half of the financial crisis and market downturn. There was universal acceptance that we will see more recession, a market adjustment, more credit unloading and a quantitative easing. All of those factors result in a very poor economy, but it is very good news for the price of gold."
The Bull Market in Gold Still Running
Bud Conrad, chief economist, Casey Research, had a simple answer to the question, is it too late to get into gold? "Certainly not. That was one point of consensus I saw throughout the conference. We’re all looking at a new record price. We’d tap each other on the shoulder and say ‘I’d hold on to gold, but are you selling yet? No, not yet,’ was the usual answer."
Garret linked the upward pace of gold prices to ongoing concerns about currencies: "The main reason people are interested in gold at this point is because they’re concerned about what will happen to fiat currencies. One of investors’ main concerns right now, as gold becomes more popular, is wondering if we are close to a bubble. People remember 1980. One of the things I think investors learned at this conference is that we’re not trying to say it’s different this time. Pretty much all the speakers agreed that we’re very, very far from a top in gold. It has a long way to go, especially as we anticipate more quantitative easing on the part of the U.S. government and probably the European governments."
There were mixed opinions on whether or not people should own gold equities. The split in opinions was driven by thinking that the equity markets will see another downturn before they return to an upward movement.
Cook also pointed up the valuation issue related to gold mining equities. "I was just at the Denver Gold Show and what struck me was that these gold mining companies are still being valued based on gold being at US$900. They have not kept up with the gold price. At least the margins they are making means every $100 uptick in the price of gold is $100 to their bottom line. Once the realization that the gold price is here to stay catches on, the cash flow is going to be impressive."
The Choice Between Silver and Gold
Although gold was the headliner, the investment enthusiasm for silver also shone brightly. Several speakers alluded to the potential of silver outperforming gold in the short term for three central reasons: first of all, the traditional silver-to-gold ratio is abnormally large on the silver side. In addition, silver’s supply and demand components indicate a supply shortage. Finally, silver, like gold, is a monetary currency in addition to its industrial value.
Conrad summed up some one speaker’s perspective, saying, "Bob Quartermain, of Silver Standard Resources Inc. (TSX:SSO; NASDAQ:SSRI), the premier silver guy, gave his complete analysis of where the whole silver market is going. Based on the simple fact that there is less gold than silver, you might think silver would be priced at a level something like gold. It’s not. Silver is 60 times cheaper. When you look at the production of silver it’s 10 times more than gold in a year, in which case silver should be trading $130 an ounce.
"The point is that I think most of us who are gold bugs looking at anti-dollar plays have maybe overlooked some of the opportunities of the poor man’s gold. It’s another opportunity to protect yourself in what we think will be a worldwide collapse of government money issues and paper."
Cook weighed in on the silver versus gold issue, "you know silver is called the ‘poor man’s gold.’ Why wouldn’t I just want to get gold? Gold I know is money. Silver is part money, part industrial. With silver, I think it’s more important to be in early on high-margin deposits. But, that said, the case for silver is pretty strong."
The Currency Conundrum
In his presentation, Conrad, the author of Profiting from the World’s Economic Crisis, set up the case for why sovereign debt default and quantitative easing will occur. Later, he answered The Gold Report’s questions about what will happen at that point.
"I see currencies being in a competitive race to the bottom. Governments believe—I think incorrectly—that they’re doing something good for their economies by destroying their currency. I think it’s a false objective, maybe to protect themselves against criticism for not being able to support a country’s currency. Their argument is that a debased currency would make internationally traded products cheaper, therefore increasing exports and increasing job creation. My personal belief is that all finance and all currencies are eventually heading to the bottom.
We asked the question, how and when? What will that look like?
"I think it turns from confusion and convulsion into exponential extrapolations of the destruction of the value of the purchasing power of currencies. That’s why we’re a long way, even at these higher prices for gold, from the end of when people will say gold has hit its bubble or peak," Conrad continued.
"I’m convinced that Bernanke thinks he’s doing something to help us all by printing money for himself and his bankers. I mistrust it deeply. Irrelevant of whether I like or dislike it its coming, it will destroy the dollar. The dollar however, has been the world’s standard for all currencies. We’re no longer better than anybody else but not everybody’s figured that out yet," Conrad concluded.
New Investment Ideas
All that glittered in the presentations was not gold. Marin Katusa, senior market strategist with Casey Research and editor of Casey Energy Opportunities, Casey Energy Confidential,and Casey’s Energy Report, offered insights into alternative energy plays. Although he said he tries to look at things like a fundamental or value investor, he is at heart, a contrarian investor. "I think all the attention to the golds is great. But because of all of the attention to the mining sector right, now you have a lot of undervalued energy aspects," he said.
"Take for example a producing geothermal plant. The market caps of these companies are trading less than a quarter of what it costs to build the plant. That’s where I’m putting my money. I’m looking for unconventional expertise, taking it into areas of prolific conventional production and bringing that added value."
Katusa cited Africa Oil Corp. (TSX.V:AOI), his top pick in 2010, as an example. "I had it as a buy under $1. You could have bought all you wanted under $1. Now, in only three months, it’s trading north of $1.80. I had a lot of subscribers say, ‘Hey, should we buy more?’ Well, I say you bought under $1. You’re almost at double. Why not reduce your risk and take a free ride? This game is about risk aversion."
Risk aversion, Katusa says is what he would most like people to understand. "I hope that people recognize that you have to take money off the table to survive in this business. At a minimum, the thing that I would like subscribers or attendees to this conference to leave with is the fact that you have to reduce your risk by recouping and recovering your initial investment."
For his part, Galland welcomed the opportunity to get outside his routine and look around at what else is out there. "We’re all so busy at home doing our own thing that sometimes you just sort of lose track of stories," he said. "I’ve been a big fan of the Duane and Morgan Poliquin of Almaden Minerals Ltd. (TSX:AMM; NYSE:AAU) for a long time. But frankly I’ve been out of the stock for a while. I just haven’t paid attention to it. So I was able to catch up with them here in Carlsbad and to talk with them at length and with people following their stock. They are good at process. This isn’t just a hit-and-miss operation. They use other people’s money and they go up there and look for things. It sounds like they’re really on to some very good projects."
The Map Room
According to Garret, Casey Research takes a less-is-more approach to its conferences. "Most conferences try to sell as many booths or tables for companies as possible to present themselves to attendees," he said. "We have a very different perspective. We want the 300 people who come to our conference to have a selection of what we consider to be the best companies in the sector. So our editors select companies and for two days attendees have the opportunity to genuinely engage with those executives and learn everything about their companies." Twenty-three companies were invited to participate in the map room. Attendees took full advantage of one-on-one time with company executives. Western Pacific Resources Corp. (TSX.V:WRP), Inter-Citic Minerals Inc. (TSX:ICI), Otis Gold Corp. (TSX:OOO; OTCBB:OGLDF), Copper Mountain Mining Corp. (TSX:CUM) and Uranium Energy Corp. (NYSE.A:UEC) were some of the companies invited to attend.
Cook called the Map Room "the big advantage of the conference. I got to go over map after map, section after section with the geologists and really get an understanding of what these things are," he said, "I came out with some ideas I’m going to follow up on. One great stock is Sprott Resource Corp. (TSX:SCP). They’re trading at 20% under MA and you’ve got some of the most successful people in the world running this thing. That’s a bargain. Premier Gold Mines Ltd. (TSX:PG) looks pretty interesting too. Full Metal Minerals Corp. (TSX.V:FMM) has a new discovery that’s certainly worth watching.
The Casey NexTen
Building on the success of the Casey Explorer’s League, Katusa compiled a NexTen list. [available at www.caseyresearch.com] of the individuals in line to take a place among the Casey Explorer’s League. Topping the Casey NexTen list are Kevin Bambrough, Brian Dalton and Pat DiCapo.
"We realized that, because of their success, the individuals in the Explorers League had a premium built in their company’s market cap. For example, a Lundin shell was trading at $50 to 60 million. A Ross Beaty would get a premium to the market. They earned that because of their successes and they had the attention of the big money and the big fund managers," Katusa explained. "What I tried to do with this new list is identify who is going to be the next Brian Dalton? The next Lukas Lundin?"
"We ranked them according to their successes, the money they’ve raised and the returns for investors. This is the cream of the crop of the under-40 generation. Moving forward, we plan to update what they’re doing, their successes and failures, and build the list every year. The beauty of it is you can always have someone new and after 40 they have to leave the club," Katusa concluded.
For more information on Casey’s Gold and Resource Summit, visit www.caseyresearch.com. To purchase audio discs of all the presentations from the Casey’s Gold & Resource Summit, click here.