Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Why A Fed Rate Hike Could Be A Blessing For Gold Prices: Brien Lundin

Like a true contrarian, Gold Newsletter publisher Brien Lundin looks beyond the headlines to understand what is really moving precious metals prices. He has concluded that the mainstream media may have it all wrong. Suspected anchors on the gold price such as an interest rate increase and devaluation of the yuan could actually be a rallying cry for commodities, he says in this interview with The Gold Report.

The Gold Report: You recently implied in an article titled "The Cocked Trigger" in Gold Newsletter that the current prevalence of short gold positions is actually a good thing for gold prices, especially if the Federal Reserve raises rates. That goes against everything we've been led to believe. Why do you say that?

Brien Lundin: We have an unusual situation in the gold market right now in that in the Commitments of Traders reports by the U.S. Commodities Futures Trading Commission, for the first time, the managed money sector has a net short position in gold. Typically, speculators have a net long position, and the commercials-jewelers, bullion dealers, etc.-have a net short position because they have to hedge. But the speculators are now net short, and the commercials have their lowest short position ever. It is a set up for a short covering rally at some point.

Add to that the possibility of a Federal Reserve rate hike at some point, and we could see a big, unexpected move upward in gold. I think the timing of a rate hike has been overhanging the gold market for well over a year. Relieving that issue could actually prompt a short covering rally. It would be kind of a sell-the-news event where the shorts figure that the trade is over and this is a good time to begin covering, more and more head for the door, and we have the rally underway.

TGR: You also said the Chinese currency devaluation could be a spark for increased gold buying. Will that be a similar sell-the-news scenario?

BL: Yes. The initial announcement devalued the yuan by about 2%, which of course increased the price of gold and other commodities by 2% for Chinese consumers. So you would think that would be a negative. However, it wasn't a one-off devaluation. It was a new currency regime in which the yuan would be allowed to float more freely against world currencies and, in fact, would be allowed to drop against world currencies, in particular the U.S. dollar. So Chinese consumers, the investors and savers domestically who have been buying gold hand over fist, now think that the yuan is going to be depreciated over time, so their incentive to buy gold is heightened. I expect that the devaluation will actually increase gold demand in China.

TGR: A recent Barron's article classified commodities as the most out-of-favor industry group in the global stock market and then concluded it's time to buy commodities. Does the fact that a mainstream publication is making this prediction mean we're not yet seeing what Rick Rule calls complete capitulation?

BL: I think we saw something very near to complete capitulation in gold on July 20 when speculators attacked the entire metals market through orchestrated flooding of short sales onto the futures exchange. Due to greater demand from China and now greater safe-haven demand from Western buyers, gold prices should continue to rise.

TGR: As we move into the fall busy gold equity buying season, you seem to be shifting your portfolio to companies with proven resources. Why now?

BL: Because there is no need at today's price levels to accept exploration risk. There are a few special cases in exploration that I like and will still recommend going forward, but I have been shifting our portfolio more toward companies that have proven world-class resources, some of them with economic studies in hand. I think these will be the first movers in a metals price rebound. Companies with large-scale resources offer the same upside potential that an exploration play would have provided a few years ago, and they're selling for about the same price with a lot less risk.

TGR: Thank you for the time, Brien.

This interview was conducted by JT Long of The Gold Report and can be read in its entirety here.

With a career spanning four decades in the investment markets, Brien Lundin serves as president and CEO of Jefferson Financial, a publisher of market analyses and producer of investment-oriented events. Under the Jefferson Financial umbrella, Lundin publishes and edits Gold Newsletter. He also hosts the New Orleans Investment Conference.

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 Interviews page.

1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. 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) Brien Lundin: 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. My company has a financial relationship with the following companies mentioned in this interview: None. 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.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
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 (NYSE: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