Daniel’s Q&A with Bob Kirkley:
1. Now that the election is behind us, what are your feelings on this “fiscal cliff” the media keeps counting down to? Is it really a cliff? And of course, how do you think the precious metals will respond as we get closer to the expiration of the Bush tax cuts, debt ceiling, and automatic spending cuts?
We suspect that the fiscal cliff will be more or less postponed with a few minor changes regarding tax increases and some of the so called loops being plugged with spending virtually untouched. No great change and certainly not enough to prevent the deficit from rising and the debt ceiling being progressively raised.
In four years from now we could well be discussing a deficit of $20 trillion. We need to remember that politicians want to stay employed and they do that by being popular, that is their main objective. The state of the nation is a secondary consideration for them.
This is the age of entitlements and for a politician to take those away from the voter means that the vote goes elsewhere. So as a solution they will turn to Mr Bernanke who will print, twist, QE, whenever it is necessary to do so. The debasement of the currency will continue and this can only mean higher prices for both gold and silver.
2. For gold investors who are looking at the mining sector, where are we in the junior space? A lot of these companies have been beaten down for the past few years, have the good companies seen the worst of it, or will the drag from the worthless ones continue to drag down the entire junior sector?
We haven’t bought a mining stock for almost two years now as we just cannot justify such an investment. During the early part of the is bull market we were very active in the mining sector as the producers were outperforming gold by a ratio of three and four to one.
Alas, that is not the case today as many of these stocks can no longer keep pace with the metals and so it not worth shouldering the myriad of risks that are inherent in the mining space to get a return that is less than that which gold provides.
The junior sector may occasionally produce a ten bagger; however, there are thousands of them so the chances of a retail investor picking a winner are remote. We are investors who seek leverage on our trades so we use various options trading strategies which over the last two to three years has given our portfolio a real boost and dramatically outperformed gold producers including the juniors.
If you take a look at the GDXJ it is currently trading at $22.00 and gold is trading at $1716.00, back in April 2011 it was trading at $40.00 when gold was trading at $1450.00. Those investors who sold at the top have made money; those who bought for the long term are well and truly under water.
We would need to see some serious signs of recovery in this sector before being tempted into purchasing any of these stocks. We should note that many of our peers are of the opinion that this is the place to invest, so we are out of step with them for now.
3. You have been very positive toward Bradford Cooke’s, CEO of Endeavour Silver, other company, Canarc Resource Corp. What are your current thoughts for investors looking at Canarc? A lot of people would love to be part of something like this partnered with a very successful CEO, is Bradford what has pushed you torward Canarc?
Yes we did cover Canarc back in April 2012 when we concluded with the following:
‘At the moment we do not own this stock, however, when we consider the current back cloth of falling prices for the mining sector, as evidenced by the HUI which closed today at 445, it might be time to prepare a bargain hunters shopping list, which would include this stock.
We will continue to watch this stock and should the environment for the miners continue to deteriorate then a low level entry point may present itself. We would prefer to see this current euphoria subside and then we could initiate a buying programme, starting very gently and slowly but firmly, build a position in the Canarc Resource Corporation.
As regular readers will know, we have steadfastly refused to increase our exposure to the mining sector for some time now, despite many of our colleagues being bullish on this sector. However, we still feel that ‘timing’ is an essential part of a good investment decision and had we bought in the last 18 months or so, we would be financially worse off.’
Canarc Resource Corporation: Add to the Bargain Buy Shopping List:
At the time this stock was $00.19, today it is $0.12 so it would appear that our patience is paying off as the entry level is now a lot cheaper than it was back then. If and when we make a purchase our subscribers will be the first to know about it as we publish every buy or sell action that we make.
We met with Brad Cooke and Hugh Clarke a few years ago at the silver summit in London, we were already holders of stock in Endeavour Silver at the time and being able to talk to the management team filled us with confidence and confirmed that we had made a good investment. Canarc is similar challenge for Brad so we would expect a similar successful outcome so we will continue to observe and when the time is opportune we will pounce.
4. Do you have any price targets for gold and silver in the next 6 months to a year? Will we be making new highs?
We are a little disappointed that gold and silver are not making new highs already as the fundamentals make perfect sense for both of these precious metals to be trading higher. It’s not just the United States that is printing money, so is the United Kingdom, Japan, Europe, et al, the debasement of currencies would appear to be gathering pace and not subsiding.
On the supply side there are no discoveries of a major significance so it’s not possible to boost production if demand were to suddenly increase. The central banks have become buyers rather than sellers and the gold and silver investment funds continue to grow, all taking supply off the table. The outlook looks bright to us.
In the next 6 months we expect gold to at least get to $1850 with silver in hot pursuit. Once this level is in and reasonably well established a challenge to hit $2000 will be underway. This sort of upward movement will garner the attention of the pessimists thus adding more pressure on the buy side.
Silver is my favourite, but like any thoroughbred it comes with an unpredictable temperament, sprints one minute, sleeps the next. But it should be noted that it was the best performing asset class during the last four years of the Obama administration, so we are looking for a repeat performance during the next four years. However, we doubt if silver can make a new high in the next six months but we do expect it to be trading a whole lot higher than it is now, say, $45.00/oz.
5. For those who would like to follow you, where is the best place for them to go?
For those interested in gold and gold stocks we host www.gold-prices.biz, which is free to our subscribers. For those interested in silver and silver stocks we host www.silver-prices.net which is also free to our subscribers.
Due to numerous requests from our readership we also provide a premium options trading service called www.skoptionstrading.com which has generated a profit of 505% in just a little over three years.
This is an article we wrote some time ago questioning the wisdom of owning gold stocks which may be of interest to you:
Are Gold Stocks The Real Barbarous Relic?