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Real Gold Explorers Take No Prisoners Says Thibaut Lepouttre

|Includes: Almaden Minerals Ltd (AAU), PIRGF

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.

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