The gold price may have taken a tumble, but Ian Gordon, chairman and founder of the Longwave Group in British Columbia, is watching for a recovery. As bullishness in gold reaches some of its lowest levels, Gordon, in this interview with The Gold Report says he believes that is indicative of a turn.
The Gold Report: On April 15, the gold price plunged about 9%-the biggest one-day loss ever for the yellow metal. Many gold investors got "murdered" that day. Has your personal investigation revealed any suspects?
Ian Gordon: I suspect it was akin to what happened in 1999. The then-governor of the Bank of England, Edward George, supposedly said that "any further rise in the gold price would take down one or more trading houses." He said the rising price of gold was curtailed through the work of the Federal Reserve and the Bank of England. It appears that a bullion bank was caught offside on the short side and they had to take the price of gold down quite dramatically to allow it to cover.
I think something similar happened in April. I think it was manipulated to the downside. Goldman, Sachs & Co. encouraged its clients to short sell gold two days before this occurred.
TGR: Could it have just been an error?
IG: I always suspect the worst. There's so much manipulation in all the markets as I see it.
TGR: That one-day drop caught even long-time gold investors off guard and shook their confidence. Is being a precious metals investor at this point simply about having the resolve to stay the course, or should even the ardent investors make adjustments to their gold portfolios?
IG: I'm extremely bullish on gold. Bullishness in gold, according to the website Market Vane, is at 40%, the lowest it has been since 2001. Bullishness in the stock market is at 70%, which is almost the highest it has been since Market Vane began tracking it. I see a reversal occurring here, for the gold price to the upside and the stock market to the downside.
TGR: There's no way to sugar coat the disappointing performance of gold and silver in 2013. But has the current global economic backdrop provided some new and compelling reasons to own gold and precious metal equities?
IG: There are compelling reasons to be bullish on gold particularly, simply because there is a real worldwide crisis in fiat money. The unfolding crisis is similar to the 1930s, when the whole monetary system collapsed. We're envisioning something quite similar to that collapse is now occurring.
We can see that there's this huge move to gold, not only by countries like China and Russia and even the small "-stan" countries, but major investors are also taking up the physical metal because they can see this crisis unfolding.
TGR: Most of what I'm reading says that there just aren't a lot of bids in the market right now for precious metals. Investment demand has waned, with gold falling consistently lower since its high in 2011.
IG: Investment demand is huge. The output of American Eagle gold bullion coins by the U.S. Mint is at record highs. Demand by the small investors for gold and silver is at unprecedented levels. The amount of gold that's being imported through Hong Kong into China is at a record level.
TGR: Yet, at the same time, India, which is the world's biggest gold consumer, increased the royalty from 6% to 8% on gold imports.
IG: It has, but India is notorious for gold smuggling. Most people are going to look for a way to go around those taxes. I suspect that there will be the same amount of gold imported into India through Dubai, but most of it won't be declared.
TGR: You say you're seeing strong demand for the physical metal, but investors have been getting out of exchange-traded funds [ETFs] and equities in mass numbers.
IG: With regards to the gold ETFs, I suspect that many investors are cashing in their paper claims to take possession of the physical. Yes, gold stocks, particularly the juniors, have been slaughtered, But once bullishness returns to gold, bullishness will return to gold equities. When you get this overly bearishness in markets, it's usually indicative of a turn. I'm confident that we're going to see a turn to the upside. I also believe that the turn in the stock market to the downside is about to begin.
TGR: I get the sense that there's a prevailing sentiment that we haven't hit a bottom yet in the mining equity space and that there's another leg down before we see a move to the upside. Do you see that as well?
IG: That is always a possibility and it can't be ruled out, but the precious metals' fundamentals are as compelling today as they have ever been.
TGR: Could it be seasonality due to the summer?
IG: I don't think so and anyway I am a long-term investor and I am essentially not concerned by short-term price machinations. As I have said, the most compelling reason to own gold is the crippling debt crisis, which has brought about the probability of a catastrophic end to fiat currencies.
TGR: Sean Boyd, the chief executive of Agnico-Eagle Mines Ltd. (AEM), recently told Bloomberg that gold could reach about $1,800/ounce [$1,800/oz] within a year. What's your medium-term outlook for gold and silver?
IG: The market is going to have to go through a consolidation that could last for weeks. However, I'm much more bullish on gold than I am on silver because gold has traditionally been recognized as money sine qua non. Industrial demand is going to drop quite precipitously as the world goes into the depression stage of the cycle. Nevertheless, it is likely that silver will take on the role of poor man's gold.
My belief is we're going to see a decoupling between the paper markets and the physical markets. The demand for physical is going to grow dramatically. It's going to make the paper markets irrelevant.
I'm not sure if it's going to be a year as Sean says, but it's going to be extremely strong and the move will be very dramatic once it starts. The old highs of $1,900/oz will be surpassed by a long shot over the medium to long term.
TGR: Do you think silver will fall below the $20/oz level in the next six months to a year?
IG: We're as oversold as we were in 2008, although the price isn't as low as it was then. I see a consolidation in the price, but I don't forecast much lower prices occurring in either of the precious metals. Once this consolidation is over, I see a resumption of the bull market.
TGR: Amid the moribund news cycle for gold and silver, there have been some feel-good stories in the equities space.
IG: True. A company like Newmont Mining Corp. (NEM) is a really good story because it has a 4% dividend. It's trading at a low book value.
Agnico-Eagle is well managed. It's been moving into the junior space in anticipation of a move up in the market. Agnico-Eagle has recently acquired interests in five junior mining companies because management is bullish on gold and the company can invest in promising junior companies at very cheap prices that have good potential to grow their assets.
TGR: Does Newmont have the cash flow to maintain a 4% dividend?
IG: Yes, I think it does. Investors are buying these companies at or close to a price low. When the gold price increases, Newmont's profitability will increase and it should be able to raise the dividend quite dramatically. The same thing happened in the 1930s. Even though the gold price was fixed at $20.67/oz, the dividends that companies like Homestake and Dome Mines were paying out were enormous-10% dividends were being paid out, particularly after Roosevelt raised the price from $20.67 to $35/oz.
TGR: The silver producers continue to perform regardless of the commodity price performance or investor sentiment for the most part. What names are you following in that segment of the precious metals market?
IG: I'm more bullish on gold, Brian. However, I do follow a few companies that I don't have a stake in. I watch Endeavour Silver Corp. (EXK) because I helped finance the company in its preproduction days when I was at Canaccord. The company is also extremely well managed. I love the growth profile that the company has achieved. It's really interesting and cheap. If you're looking for a silver play, it might be the one simply because it's so cheap. Its high is $13/share and it's at around $3.85/share, yet it's increasing production all the time.
TGR: How do you determine cheap?
IG: Relative to where it was formerly priced and the value I place on the company's assets. I started to buy gold and silver stocks in 2000 because they were cheap and no one wanted them. We are in the same position in the market today. We know the bullish consensus numbers for gold are at the same levels that they were in 2001. You can buy these things really cheap.
The only reason anybody wouldn't be buying them is because they don't believe that the price of gold is going to rise. I believe that the price is going to rise substantially because the chaos in the financial markets is going to be horrendous.
TGR: Thanks, Ian.
This interview was conducted by Brian Sylvester of The Gold Report.
A globally renowned economic forecaster, author and speaker, Ian Gordon is founder and chairman of the Longwave Group, which comprises two companies-Longwave Analytics and Longwave Strategies. The former specializes in Gordon's ongoing study and analysis of the Longwave Principle originally expounded by Nikolai Kondratiev. With Longwave Strategies, Gordon assists select precious metal companies in financings. Educated in England, Gordon graduated from the Royal Military Academy, Sandhurst. After a few years serving as a platoon commander in a Scottish regiment, he moved to Canada in 1967 and entered the University of Manitoba's History Department. Taking that step has had a profound impact because, during this period, he began to study the historical trends that ultimately provided the foundation for his Longwave theory. Gordon has been publishing his Longwave Analyst website since 1998. Eric Sprott, chairman, CEO and portfolio manager at Sprott Asset Management, describes Gordon as "a rare breed in the investment-adviser arena." He notes that Gordon's forecasts "have taken on a life force of their own and if you care to listen, Gordon will tell you how it will all end."
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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.