What is up (the Dow Jones Industrial Average and Standard & Poor's 500) will come down, and what is down (gold equities) will go up fast, predicts the ultimate contrarian investor, Bob Moriarty. In this interview with The Gold Report, the president of 321 Gold proclaims all gold stocks are cheap right now, and talks about some favorites that he expects to jump when the junior market turns. Those who turn their backs on the market over the summer just might lose their best chance to get in at historic lows.
The Gold Report: Bob, in light of financial uncertainty in the world, including the banking crisis in Cyprus and the drastic proposal to solve it by taxing the depositors, does the old adage "sell in May, go away" still hold true for gold investors in 2013?
Bob Moriarty: We've got an incredible dichotomy where the resource stocks are being destroyed and the Dow and S&P 500 are hitting new highs. But there's going to be a reverse shortly when the Dow and S&P 500 head toward a major bottom and the gold equities skyrocket.
TGR: What is the catalyst that will turn everything upside down after such a dramatic plunge last week?
BM: We've been conditioned to believe that there's an action and reaction in the stock market. If you turn on the evening news, you might hear that the Dow went up today because of tensions in the Middle East. But there is no direct link. Gold doesn't go up because of something that happens in Europe today. There's a lot more randomness than anybody wants to admit, and really the only way to tell whether we are at the top or the bottom is by focusing on psychology. In the psychology of bulls, we're at record highs in the S&P 500, and in the psychology of bears, we're at record lows for gold, silver and the junior mining stocks.
TGR: If there is no rationality, then how can you be so certain that the psychology is going to change?
BM: Everything changes. It's pretty easy to read psychology. When 100% of investors are bullish, the next trade is going to be down, and when 100% of them are bearish, the next trade is going to be up. When you run out of bulls, you have nothing but bears left.
TGR: Is the banking crisis in Cyprus a foretelling of what is to come in other countries? And will it impact the Dow or gold stocks?
BM: This is the proverbial handwriting on the wall. Everybody who has money in any bank, anywhere, has been warned that their money is at risk. I simply cannot come up with any reason for keeping money in a bank, or any more money than you need to.
TGR: Where should people put their money?
BM: One of the major roles for gold and silver is insurance against financial chaos, and we certainly do have financial chaos in the world. You didn't say anything about North Korea, but we don't know if a major nuclear war will start tomorrow; that's how crazy it is. All money in banks and all paper assets are at enormous risk. Gold and silver, regardless of price, are insurance against such financial chaos.
TGR: What are some of the companies you are going to be watching for movement this summer?
BM: A lot of companies are worth looking at from a financial point of view rather than a technical one. Tembo Gold Corp. [TEM-TSX.V] for example was around $0.35/share a month ago and it is $0.21/share now. Nothing has changed with the company. Investors can be very irrational. When the markets are buoyant, everything is wonderful. But at market lows, investors panic and dump shares; they should be doing the exact opposite. From a psychological point of view, we've had the lowest ratings we've ever had on the relationship of gold shares to gold. The Sprott Physical Silver Trust (NYSEARCA:PSLV) today is at the lowest premium it has ever had-a -.37% premium. It should have a 5% or 6% premium; it has had its highs of a 34% premium. What it means is people don't want gold or silver. You can't give this stuff away. At $50/ounce [$50/oz] everybody wanted silver and at $23/oz everybody hates it. That's irrational.
TGR: Do you also look at other financials, such as cash on hand versus market share?
BM: A lot of companies are selling for less than the cash they have on hand, and everything is just as good.
TGR: What gold price do you use when you are estimating how much these companies could be worth?
BM: I don't try to estimate how much companies are worth. I evaluate whether they're cheap, fairly valued or fully valued. And right now, across the board, they're all cheap. Moneta Porcupine Mines Inc. [ME-TSX.V] is getting $4-5/oz for gold in Ontario. That's crazy.
TGR: Why do you think a company in Canada, which is a safe jurisdiction, would have this kind of a challenge? Moneta Porcupine's NI 43-101 has a resource estimate of 4.3 Moz gold. Does the price reflect that?
BM: People worry too much about conspiracies and manipulation. They should look at investment decisions rationally and decide for themselves. Unfortunately, when investments are fully valued, everybody is really optimistic, and when they're cheap, everybody is really pessimistic. That's just plain dumb. When investments are fully valued and every Tom, Dick and Harry is talking about how great their stocks are doing, you should be unloading. And when they are cheap, you should be buying. If you went down to a Porsche dealer and he offered to sell you an $80,000 car for $50,000, you'd say what a great deal. But when you can buy dollar bills for $0.75 everybody thinks there's something wrong with that.
TGR: Do you like early stage exploration plays or companies that are getting closer to having a mine?
BM: I like pretty much all production stories.
I own shares of a company called Northern Lion Gold Corp. [NE-TSX.V]. It happens to be in Cyprus and is probably selling for less than the cash it has on hand. Northern Lion has come up with some extraordinary drill results over the last year, which have been ignored. And the company just got into a deal with Centerra Gold Inc. [CG-TSX], where Centerra can earn up to 70% interest in these projects in Cyprus with really nice grades. Strangely enough, the countries you want to invest in are the ones in the most chaos today. Northern Lion has about a $1.5M market cap and now it has a partner with deep pockets that can really move that puppy forward.
TGR: Thanks, Bob, for your insights.
This interview was conducted by JT Long of The Gold Report and can be read in its entirety here.
Convinced that gold and silver were as low as they were likely to go, and wanting to give other investors a foundation for adding resource stocks to their portfolios, Bob Moriarty and his wife, Barb Moriarty, brought321gold.com to the Internet more than 10 years ago. They later unveiled 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, opinion pieces, pricing figures and updates on relevant current events. Moriarty was a Marine F-4B fighter pilot and 0-1C/G forward air controller with more than 820 missions flown in the Vietnam War. A Marine captain at 22, he was the youngest naval aviator in Vietnam. He was highly decorated for his service, holds 14 international aviation records and once flew through the Eiffel Tower's pillars just for fun.
1) JT Long conducted this interview for The Gold Report and provides services to The Gold Report as an employee. She or her family own shares of the following companies mentioned in this interview: None.
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3) Bob Moriarty: I or my family own shares of the following companies mentioned in this interview: Northern Lion Gold Corp. I am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.