Gold-tracker Thibaut Lepouttre treks the world hunting for solid gold mines and companies with the guts to dig for riches. The editor of Caesars Report and Sprout Money tells The Gold Report why the price of gold is moving sideways for the moment. Don't be fooled by cowardly gold bears, says Lepouttre; invest in muddy, muscled, bull-headed explorers with noses tuned to sniffing out the purest form of value.
The Gold Report: In an interview with The Gold Report in April, you predicted that gold will continue to trade "sideways" between $1,200 and $1,410 an ounce [$1,410/oz]. That is exactly what happened! Why?
Thibaut Lepouttre: The problem was the lack of catalysts. Nobody was really worried about war in Ukraine, or the Federal Reserve's reduction of quantitative easing [QE]. When the market is not at risk of collapsing, gold's appeal as a safe-haven investment fades. And with no inflation on the horizon, gold sours as a hedge against rising prices.
TGR: Is the drop in the price of oil affecting gold?
TL: Gold mining companies that depend on diesel generated power stations can benefit from a falling oil price, but there is no real direct correlation between the price of oil and the price of gold anymore.
TGR: Why did gold drop in October and November?
TL: Some people point at the Fed's decision to reduce quantitative easing, but that is bogus thinking. The gold price did not start to slide until 36 hours after the Fed's decision. I am not a conspiracy theorist, but the temporary drop could have been an orchestrated move to make the weak hands sell. Just a few weeks later, we were back up above the support level of $1,180/oz.
TGR: When you say orchestrated move, who would you be pointing at?
TL: The country that was positioned to benefit the most from a falling gold price was China. Not long ago, a person who works for one of China's biggest gold companies said that when gold trades below $1,150/oz after QE ends, there will be M&A activity from the Chinese in the gold market. What did we see? We saw the quantitative easing program with the Federal Reserve stop and gold slid to $1,150/oz. Go figure.
TGR: Where is the gold price headed in 2015?
TL: The two main gold price drivers are inflation and market panic. Right now, investors are falling over themselves to buy stock. The European Central Bank and the Bank of Japan are pumping ridiculous amounts of money into the financial system. The main issue is the velocity of money, which is currently at a multidecade low. The higher the velocity of money, the higher the inflation rate if the money supply decreases at a slower rate.
The real problem here is that the money supply is increasing, but because the velocity of money is decreasing, no inflation is being created. When the velocity of money returns to the average velocity of the past 30-40 years, the inflation targets proposed by the European and Japanese central banks will be underwater. We are all walking on thin ice with monetary policy.
TGR: Do you have a timeframe on the ice cracking?
TL: Sooner rather than later; Japan is playing a very dangerous game. It injects $700 billion a year into the financial system. That amounts to 12% of Japan's GDP. Compare that to the United States, which was pumping $1.02 trillion a year into the economy: 6.3% of its GDP. Japan's quantitative easing program is twice as large as the American program. If the velocity of money spirals back up, it will be very difficult for Japan to reduce its money supply. Inflation will rise like a rocket.
TGR: What gold juniors do you favor for the coming period?
TL: Almaden Minerals Ltd. (NYSEMKT:AAU) has proposed spinning off a few of its early-stage exploration properties. It might be a smart move for Almaden to delay, actually. Spinning off properties in the current market might not be value accretive. Nonetheless, Almaden's Tuligtic project in Mexico has an updated preliminary economic assessment [PEA] calling for a 30,000 ton per day [30 Ktpd] operation worth between $151-260 million [$151-260M]. Once inflation pounds the markets and gold will be attractive again, Tuligtic will be in the spotlight.
TGR: Why did Almaden's stock price take a hit last year?
TL: The market views Almaden as still in the PEA stage. Production is four or five years away. The market is understandably a bit wary of exploration stories right now. That will change-gold is not going away! Quite a few juniors are trading at bargain prices.
TGR: What about the Carlin Trend in Nevada?
TL: In the Carlin Trend, we at Sprout Money like Premier Gold Mines Ltd.'s (OTCPK:PIRGF) [PG:TSX] Cove project. I am a bit more excited by Premier's Trans-Canada project, because it is more advanced than the Cove. But the Cove mine has a lot of high-grade potential at depth. Premier has also discovered silver-lead-zinc mineralization. The company has more than $50M in working capital. I expect Premier's managers to spend quite a bit of cash developing the Cove project in 2015, getting ready for an impressive PEA debut.
On the other hand, Premier's Trans-Canada project should release a feasibility study in the second quarter of 2015. The mine is partly open pit, partially underground. It could be in play in the next year, so keep it in sight.
TGR: It certainly sounds as if gold exploration is not dead, Thibaut. These companies all seem to be rather well positioned for a rebound in gold.
TL: Try to pick companies with cash in the bank, or cash-attracting managers. Premier Gold has over $50M in working capital.
TGR: Thanks for your time, Thibaut.
This interview was conducted by Peter Byrne of The Gold Report and can be read in its entirety here.
Thibaut Lepouttre is the editor of the Caesars Report, a newsletter and mining portal based in Belgium that covers several junior mining companies with a special focus on precious metals and base metals. More recently he also became the editor of Sprout Money, a publication focusing on companies in the precious metals sector. Lepouttre has a Bachelor of Law degree and two economics masters degrees that have forged his analytical approach to the mining sector. Considered a number cruncher, Lepouttre focuses on the valuations of companies and is consistently on the lookout for the next undervalued mining company.
Want to read more 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 Streetwise Interviews page.
1) Peter Byrne conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Almaden Minerals Ltd. and Premier Gold Mines Ltd. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
3) Thibaut Lepouttre: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. Caesar Holdings has a financial relationship with the following companies mentioned in this interview: None. Sprout Money does not have a financial relationship with any of the companies mentioned. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. 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.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.
Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.
Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.
Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.
Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.
101 Second St., Suite 110
Petaluma, CA 94952
Tel.: (707) 981-8999
Fax: (707) 981-8998