Bullish on All Metals

Greg McCoach is an entrepreneur who has successfully started and run several businesses the past 22 years. For the last eight of these years he has been involved with the precious metals industry as a bullion dealer, investor, and newsletter writer (The Mining Speculator). Greg is also the President of AmeriGold, a gold bullion dealer.

Greg's years of business experience and extensive personal contacts in the mining industry provide unique insights that have generated an impressive track record for The Mining Speculator since its inception in 2001. He also spreads his vast knowledge of the precious metals markets in a weekly column for Gold World.

TGR: What’s your take on the market — where we are . . . where we’re going?

MCCOACH: I'm increasingly fearful about what we’re seeing. It seems like the bad news is just continuing to pile up, such as the news about the Federal bailout of Bear Stearns, a major player in the financial markets. I am sure we’re going to hear more news like this going forward.

When you add this to the liquidity problems, the derivatives, the prime, adjustable rate mortgage problem on the heels of all of this subprime mess, we’ve got some major problems. In my opinion, the Fed is caught between a rock and a hard place. They’re trying to help the banks by lowering the interest rates, and trying to give them as big a spread as possible. They can make as much money as possible quickly to offset some of these losses. In the meantime, they’re basically saying they’re going to let the dollar go, and it’s not a priority. Their priority is to avoid recession; well, recession looks like it’s already here.

And we have the dollar hitting an all-time low—72 on the dollar index. We’re getting to that critical 70 benchmark, which—I’ve been saying this for a long time now—once we go below 70 on the dollar index, I believe gold will start having $100 up days instead of $20 up days. Gold may move from $1000 an ounce to $2000 an ounce in a matter of six to eight months, depending on how the issues with the dollar pan out from here. Overall, I am very bullish on the precious metals.

TGR: How does that bode for mining stocks?

MCCOACH: The junior mining stocks currently are in a real funk; I think we’re going to stay in that funk until we get past the capital gains taxpaying season, which for Canadians is April 30th, but here in the U.S., of course, it’s April 15th. So after that I think these precious metal prices are going to start pulling these junior mining stocks out of the trough and moving them much higher. There are three or four big hedge funds in New York that have gone long gold with all the majors, but have shorted all the juniors, and as these metal prices keep going higher, the juniors are going to want to move, and these guys are going to have to run to cover their short positions.

And that should really launch our junior market up to new highs for the HUI and XIU. So I'm very bullish on the metals—we will see what happens as we move forward, but it should be fun to watch.

TGR: Greg, when you talk about the metals, are we talking about just the precious metals or do you have views on the base metals as well?

MCCOACH: I am bullish on all the metals; it’s just that I’m more bullish on the precious metals because of their financial aspects. As you know, gold and silver are now money. They’re also commodities, and when paper markets and governments are performing well, precious metals like gold and silver go back to their status as commodities. They’re good for jewelry; they’re good for industrial uses, etc.

What we’re seeing now, however, because of the lower dollar and investor flows because of safe haven type of purchasing, everyone is looking to the precious metals, and they’re moving into the precious metals to protect their hard-earned savings. And so gold is becoming money again. Silver is becoming money again, and it moves from its status as a commodity to the status as money when these times hit. So, what’s driving the price of gold is investor flows, due to the dollar dropping precipitously and looking like it’s going to drop even further.

Commodities worldwide are doing well, not just the metal base metals, but the grains and other commodities are doing well also. The reason for that is we have 3 billion people in the emerging nations of the world who are embracing capitalism at 100 miles an hour. As I travel through the world, it's so apparent to me the growth that is occurring, not just in China and India that we hear about, but in all of Southeast Asia, Indonesia, Argentina, Brazil. An amazing growth in infrastructure building is occurring in these countries. So that takes a lot of base metal—copper, nickel, zinc—to build refrigerators, houses and cars, etc.

So, as opposed to some people who are very negative about base metals, I am actually very bullish on them. A lot of naysayers are talking about if the United States goes into recession, then that’s it for the base metals and the commodities. Absolutely not. That’s because the world is no longer centered around the United States. This is an unprecedented moment in history—an infrastructure-building boom of this magnitude where you’re talking about 3 billion people. The only thing you can compare it to is what happened after World War II in the United States. It was the greatest infrastructure-building boom the world had ever seen. In my opinion that’s bullish for all of the commodities for many years to come, not just a couple of years . . . I believe the base metals will be in a bull market for at least 10 to 15 years.

TGR: Let’s pretend we have a million dollars to spend. Let’s start first by asking how much you would put in dollars, gold, physical gold, and junior mining stocks.

MCCOACH: Well, my model portfolio would be 15% in cash. I am very aggressive towards my precious metal holdings, so 20% in physical gold and silver, and I also have a little bit of palladium, which I've been buying over the last six to seven months. I've also got quite a bit in junior mining stocks, and some base metal, but mostly in precious metals.

TGR: Doing the math, that's 15% and 20%, or 35% of your portfolio. So what is the balance of your portfolio?

MCCOACH: Then I've got 50% in junior mining stocks. And then I've got the last 15% in Canadian T-bills.

TGR: So that's all but cash.

MCCOACH: Yes, I consider that cash, too. And the cash that I have, the cash in the States—that's 15% is for use. If I see investment opportunities, I like to take advantage of those.

Most of my investing, especially over the last few years, has been with the junior mining stocks. I know what I am doing and I understand what I’m doing, but I don’t recommend my portfolio to people. Individuals have to determine for themselves what they’re most comfortable with, what they’re knowledgeable about. And I am also of the opinion that the wealthier you are, the bigger the problem you have. And you have to start thinking about getting money outside the country, outside dollar-dominated assets.

Comments

[CookTing:]

All the bullish cases for gold seem to assume we're about to enter a period of hyper-inflation. With a global credit crunch in play I don't see that happening. Homeowners can't treat their mortgage like an ATM anymore, the stock market is declining, banks aren't lending to each other, etc... The fed rate may be low, but if nobody can get credit it doesn't really matter.

Where are all these inflationary dollars going to come from?

2008 Apr 13 09:10 AM

[ritr54:]

OVERSEAS; We have run a trade deficit since the 60's or early 70's. Billions each month.

2008 Apr 13 10:25 AM

[bloodbankbob:]

Inflation is demonstrated by two factors; one is an increase in money supply which lowers the value of currency, and the other is a rise in demand whch causes prices to go up. Oil demand is not falling and now food demand and cost has lead to riots and starvation. Pick one or both. The dollars are partly due to the pegging of oil to the dollar. If oil were pegged to some other currency, it may not rise as much in that currency, but would still rise against the weakening dollar.

2008 Apr 13 10:27 AM

[locke:]

Something called "TheGoldReport" is bullish on metals? What a surprise!

"I'm increasingly fearful about what we’re seeing."

Be greedy when others are fearful.

2008 Apr 13 11:39 AM

[NOWHEREMAN:]

Where oh where are the inflationary forces coming from?

A drastically increased money supply will eventually cook America's goose.....but lets see...Food, energy, the Chinese currency(used to be above 8 now around 7 and still appreciating...6 years ago they were exporting deflation now its inflation), material costs for just about everything else...

Three years ago a junior miner made an assestment for project costs on a certain property...because the costs jumped by 150% in that time frame they are unable to raise the capital and have shelved the project...this type of problem will only drive costs higher...no new supplies. Refiners have a problem...input costs have risen faster than refined products...They are shutting production until prices rise high enough to reopen...capacity utilization is down from 95% to around 80% in the last two years...Americans have insulated their homes, reduced temperature settings, installed more energy efficient appliances, are driving less....big deal...they can't do enough anymore to offset the higher costs...they will learn to live with it...and will want higher wages to cope....bye,bye deflation, hello inflation.

I don't see hyperinflation but do expect another 50% increase across the board in the next 5-10 years...

2008 Apr 14 04:31 AM

[sorgmot:]

Business cycle years in which USA dollar interest rates are falling have been supportive of gold price upswings as well as increases in gold mining stocks and also mutual funds such as the Fidelity Select Gold Funs which holds gold mining stocks. For example, in the 2001 through 2003 period, gold rose from $280.00 to $400.00 per ounce and in the same period the Fidelity Select Good Fund shares rose from $10.00 to $31.00 each by the end of 2003.

Who knows what will happen as the Fed cuts rates starting in late 2007. History could repeat.

To check this data, you can go to financialtrax.googlepa...
and click on Commodities and then click on the Moore site click and then look at short term interest rate history and then look at gold prices.

Gold mining stocks per cent change amplify the gold bullion because in the short their costs per unit of gold extracted stays constant while the whole increase in the revenue from the unit of gold sold passes through to profits.

2008 Apr 14 02:04 PM

[xxooxx:]

if gold will reach 2000 an oz in 6-8 months then what would the prize of oil be, and what would the prizes of other commodities and food be? and what would this world be? Hell?

2008 Apr 15 03:02 AM

[Clavis:]

Learn a little every day

'Most of my investing, especially over the last few years, has been with the junior mining stocks. I KNOW what I am doing and I UNDERSTAND what I’m doing, but I don’t recommend my portfolio to people. Individuals have to determine for themselves what they’re most comfortable with, what they’re knowledgeable about.'

'Three years ago a junior miner made an assestment for project costs on a certain property...because the costs jumped by 150% in that time frame they are unable to raise the capital and have shelved the project'

The conclusion?
Knowledge, understanding and ensure your junior miner is cash rich!

2008 May 27 06:45 AM