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Midas Letter's James West: What's with $1,500 Gold and $42 Silver?

Apr. 27, 2011 12:50 PM ETT
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Midas Letter's James West: What's with $1,500 Gold and $42 Silver?
Source: Sally Lowder of The Gold Report  04/22/2011


As gold and silver continue their spectacular rise, The Gold Report checked in with Midas Letter Publisher and Editor James West to get his take on the situation. James, always strongly opinionated, sees this as the beginning of a global revolution that could result in long-term opportunities for gold and silver juniors. In this exclusive interview, James shares some of his top companies to watch.

The Gold Report: James, we've been discussing the significance of gold's recent push through $1,500/oz., and what it means, beyond the obvious. Do you think this is just an asset class appreciating thanks to fundamental forces, or is it somehow an important milestone with new implications for the future of the global economy?

James West: In the last 30 days, gold has risen in price by $83.50/oz. Now that it's darting furtively above $1,500/oz., with a clear eye and ambition for the next level-$1,600-a cacophony of know-it-all voices are going to proclaim the imminent end and catastrophic destruction of the gold bubble. Ho-hum. . .go back to your crossword puzzle, armchair economists. This is no bubble. This is the beginning of a global revolution.

Seriously, the events in the Middle East, the crumbling of Eurozone economies, the relentless depression entrenching itself in the United States and the soaring prices of gold and silver are not unrelated. The byproduct of our now truly connected species is the ability of the forces of desire and yearning at the core of all human ambition to impart a physical influence on markets, commodities and governments.

Myopic mainstream media fail to adopt a holistic, high-level, eonic time-sense perspective, providing zero valuable information and thereby only adding to the noise and confusion. Absence of leadership-real visionary leadership-renders us pinballs rolling feverishly, yet without intent beyond the immediate obstacle, careening aimlessly with no collective purpose and goal.

In the rising prices of gold and silver, we see irrefutable evidence of irresponsible and possibly criminal negligence in the management of our money. With the United States trapped in a cycle of fabricating vast electronic sums of debt with the virtual printing press, the mantle of legitimacy and cloak of secrecy proffered by the government's favorite off-balance sheet entity, the U.S. Federal Reserve, guarantees the inability of the will of the people to manifest itself and break free from this pattern. The Federal Reserve has become the slave master who ensures the bondage of humanity to the foul and putrid U.S. dollar. It is now, more than ever, the enemy of the American people, and by extension, the rest of humanity.

TGR: I'm sorry, James, but that comes across as a bit "anti-America," if you don't mind my saying.

JW: I don't mind, Sally. That is an accusation I'm only all too familiar with. But it's completely misplaced. America was founded on the principles of free enterprise, and on the concept of no taxation without representation. The current regime in the United States, whereby the democratic process has been hijacked by the financial services industry, is directly and reprehensibly undermining those twin key American principles. That is anti-American. By identifying it as such (although I am a Canadian by birth), I consider myself a patriot to humanity first and foremost, and to a lesser extent, to national interests.

TGR: Okay. . .So, do you see the factors supporting the gold and silver price at this level mostly as political, or are they related to demand from jewelry, or in the case of silver, industrial demand? Or is it all of the above and more?

JW: Definitely all of the above and more. The political factor I've covered, more or less. I would point out that the people of the United States, who are fiercely independent, will replace their own debauched currency with gold and silver with or without the government's participation. Utah has clearly demonstrated that.

But in terms of fundamental, market-centric drivers, many people are under the mistaken impression that the higher gold and silver prices go, the more negatively demand is impacted. I think that the higher the monetary metals go, the greater their demand is in terms of capital preservation strategies. That's because the higher they go, the stronger the correlation to and proof of an increasingly unviable dollar, thereby spurring demand.

In terms of industrial demand, silver has unique physical and chemical properties that make it irreplaceable for certain applications. The same is true for gold, to a lesser extent. So yes, there will be a slight deterioration in demand from those sectors, but that is not going to be significant-especially as measured against the increasing demand for capital preservation or speculative strategies. In the case of jewelry, the desirability is enhanced, while the affordability is diminished, by rising prices, and so I think those two factors will balance each other out in that equation.

But most importantly going forward, the demand for gold and silver by sovereign investors is tantamount. Governments with U.S. dollar holdings are increasingly embracing the wisdom of dumping dollars in favor of better value stores, and gold and silver certainly fit that bill. When the U.S. dollar is finally decommissioned, which it definitely will be, the replacement global trade standard must, in some way, be moderated by an official peg to the prices of gold and silver.

While this arguably constitutes a gold/silver standard, it by no means implies that the currencies of the world must be quantitatively relative to a certain amount of gold or silver. That is the biggest misconception in the public.

But central banks are seen to be accumulating gold and silver now, and that is because there is a tacit consensus that gold and silver have a role to play in the globalized monetary future. That concept not only enhances demand for these metals, but it legitimizes their value as investments for the general public. I am personally of the opinion that, contrary to conventional conspiracy theory suggesting that the United States has no gold, the government is using a portion of its fabricated ersatz capital to accumulate gold and silver surreptitiously, fully cognizant of the fact that the U.S. dollar is doomed.

It's fraudulent, and criminal. Not to harp on and on, but this government should go to jail. I don't include Obama in that, because I think he's a good man who has inherited a viper's nest and lacks the deep economic savvy to forge a solution. That is evidenced by his appointment of the same incumbent economic advisors and managers who have overseen the willful destruction of the American economy.

TGR: What are the opportunities for astute investors now? Why have we not seen recent corollary price appreciation in some of the senior producers, royalty companies or even near-term producers with proven precious metals (PM) assets?

JW: The opportunities for astute, and more importantly, swift investors, are unprecedented. The fact that these valuations are not yet apparent in derivative asset classes, such as shares in mining producers and explorers, is exactly such an opportunity.

The market as a whole is like a timid little abused dog that's afraid of its own shadow. At the slightest raised hand in the form of market instability, it cringes and scurries for shelter. It peers out from its perceived safety under the stoop, and only ventures out when the coast is clear. So the market hesitates to commit capital. The never-before-seen confluence of volatile factors that characterize today's world economy enforces the impression that the whole thing could collapse again at any minute. And it will. . .again and again.

Seasoned investors who have weathered the downturns know that the best time to go shopping for stocks is when the rest of the market is paralyzed with fear. That is the case now, and so I'm picking up companies that have the greatest potential for rapid appreciation when the rest of the herd clues in and understands that the world isn't going anywhere. Markets will ebb and flow like the breath of life itself, and the trick is to tune out the noise, adopt a disciplined strategy, and execute ruthlessly. Fortune favors the bold, as the old saw goes.

As ever, the various classes of opportunities populate the scale of risk from conservative to speculative. Owning bullion is owning the purest form of money. It doesn't spend easily in the current world, but it trades effortlessly. It's really difficult to store and secure, so next on the list is bullion funds. Of course, then your security and storage issues are solved, but you've adopted a degree of risk in that your holdings are not in your direct control. Exchange-traded funds (ETF's) backed by physical gold are, in fact, a perfect replica of the original money, when a "bill" represented a coincident amount of gold in storage.

Next on the list are gold-producing miners, which are generally good stores of value and have a bit of upside opportunity if they can acquire ounces cost-effectively. Barrick Gold Corporation (TSX:ABX; NYSE:ABX),

Newmont Mining Corp. (NYSE:NEM), Anglo American Plc. (NASDAQ:AAUK), Goldcorp Inc. (TSX:G; NYSE:GG), Agnico-Eagle Mines Ltd. (TSX:AEM; NYSE:AEM) and a host of others are enjoying record profits, and I think that's going to continue.

For speculative strategies, I like the junior gold and silver explorers:

Colossus Minerals Inc. (TSX:CSI) and Lago Dourado Minerals Ltd. (TSX.V:LDM) in Brazil, Continental Gold Ltd. (TSX:CNL), Waymar Resources Ltd. (TSX.V:WYM), CuOro Resources (TSX.V:CUA) and Seafield Resources Ltd. (TSX.V:SFF) in Colombia, Golden Reign Resources Ltd. (TSX.V:GRR) and Corazon Gold Corp. (TSX.V:CGW) in Nicaragua, Prodigy Gold Incorporated (TSX.V:PDG) in Ontario and Newstrike Capital Inc. (TSX.V:NES) in Mexico. The latter just announced an incredible 230 meter intercept at 7+ g/t gold.

The cool thing about the juniors is that the mainstream market is nowhere near this space right now. Case in point: when Newstrike came out with that hole, the stock blasted up to $2.30, which is an 87% increase from where we initiated coverage in January of this year, and the investment world is out to lunch. Here we've got a deposit that is shaping up to look like a $1 billion gold deposit, and the mainstream investment community is so utterly out to lunch, they don't see it.

The last time a company drilled a hole like this was Ventana, and that stock is now over $13. That was a 1,200% winner for Midas Letter subscribers, and I'm willing to bet the farm that Newstrike Capital is going to head in the same direction. If the next set of holes they release emulates these results, look out.

TGR: Usually the summer months are a slower investing season for PM equities. With all the macro factors in play, including unrest in the Middle East, and the U.S. without an approved budget and with an increasing debt load, along with high unemployment and the threat of hyperinflation, do you see a continued increase in the price of gold throughout these months?

JW: Gold just put on in 30 days what it normally does in one year. Considering the macro economic factors in the world right now, and the steepening appreciation curve in both gold and silver, I think you're going to see an incremental average increase in the price of gold throughout the summer, with very high potential for corrective drops by as much as $100/oz. But gold is heading for $1,600/oz. this year, and silver is going to be $90/oz. within 24 months at the latest, if not sooner.

TGR: Thanks, James, for your timely insights. Much appreciated.

James West, publisher and editor of the Midas Letter, is an independent capital markets entrepreneur and investor. He has spent more than 20 years working in such capacities as corporate finance advisor, corporate development officer, investor relations officer and media relations and business development officer for companies involved in mining, oil and gas, alternative fuels, healthcare, Internet technology, transportation, manufacturing and housing construction.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

1) Sally Lowder of The Gold Report conducted this interview. She personally and/or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Colossus, Continental, Goldcorp and Prodigy.
3) James West: I personally and/or my family own shares of the following companies mentioned in this interview: Colossus Minerals, Lago Dourado Minerals, Continental Gold, Waymar Resources, CuOro Resources, Seafield Resources, Golden Reign Resources, Corazon Gold, Prodigy Gold, and Newstrike Capital. I personally and/or my family am paid by the following companies mentioned in this interview: None.

James West's Midas Letter Premium Edition identifies five stocks from the TSX Venture Exchange on the first Sunday of each month that are expected to double within 12 to 18 months, 9 out of 10 times, or your money back. Subscribe now for $49 per month, or $499 for one year, at http://www.midasletter.com/subscribe.php. The Letter offers a 30-day instant refund period from the first subscription day if readers are not 100% satisfied.

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The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

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