The Fed Doesn’t have the Gold

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Check out the New Orleans Conference in Oct 2014

Transcript:

Future Money Trends: Greetings and thank you for joining us at FutureMoneyTrends.com, I’m here with Brien Lundin. If you’ve been to the New Orleans Investment Conference, he is the person who runs and hosts it. He is also the CEO of Jefferson Financial, and he publishes and edits the Gold newsletter. Brien, thank you so much for joining us.

Brien Lundin: Great to be here, Dan.

Future Money Trends: Brien, I just want to start off with the Gold market, and specifically the junior market. It feels like we’re off to a really good start in 2014. Now I’m only looking at a handful of companies. What are you looking at when you talk to everybody and see the whole pulse of the market?

Brien Lundin: Well, the recovery has been slow, and our hope now is that it’s slow and sure. I just put out an alert to my readers saying that Gold’s been very boring recently. And I won’t complain about that because boring is good compared to what we did last year. So it’s kind of sideways, it’s creeping higher. Gold itself is trying to breach some key levels, resistance levels, around the 50 day moving average, which as we speak it appears to be doing. And trying to get above that 1250 to 1253 area where there’s been some selling resistance. So if we can get a bit higher from here, and as this is being distributed, I believe we are in the middle of the Martin Luther King holiday where markets are closed, then Gold may be able to get a leg up while the Western speculators are kind of absent from the market.

Future Money Trends: Brien, have you ever seen a market where the physical demands are soaring, while the prices are falling?

Brien Lundin: No. It’s interesting, the price is set in the Western hemisphere in the paper Gold markets, that the speculators in New York primarily, use to make their bets on where Gold is going, but the demand is being set in Asia, particularly China and to a larger degree recently India, where they are saying if you’re going to put the market, if you’re going to put Gold on the clearance rack we’ll buy it hand over fist. And that’s the real trend that we’re seeing, the Western Gold supplies, the Western vaults, are being drained of Gold and it’s all going to Asia right now. And that’s going to be a dynamic factor for Gold, that will play out to an increasing degree this year and at any point in time could really light the fuse under the metal.

Future Money Trends: Brien, in the junior space. I know some really big news came for on a stock that both our newsletters are covering, Brazil Resources. They raised $6.4 million, which over a million came from Rick Rule, from his funds. I just want to know, it’s ran from 48 cents here to 63 cents just in 2014, what are your thoughts on Brazil Resources and what’s one of the reasons why you guys initiated coverage?

Brien Lundin: Well, I love the company right now and I didn’t love it when it came public a couple years ago. Because despite the fact that I’m one of the biggest fans of Amir Adnani, who is the CEO and a really dynamic entrepreneurial executive running the company, big fan of his, big fan of Brazil, big fan of their business plan to go through, go to Brazil and really scoop up some significant Gold projects and assets in the nation. I wasn’t a fan of it when it came out because it had such strong backing, financial backing, and such strong investors, and it had such a great management team that it was, in my view at the time, overpriced. It really didn’t have any Gold assets at the time, and I was just waiting for this business plan to develop. I didn’t know that the market was going to go through a significant downturn as well. So what we have now is, we’ve got this very well run company, great business plan, it’s acquired really the top two assets that I knew of in Brazil. It’s gotten it’s total Gold resources close to four million ounces. And it’s scooping up these assets at fire-mill prices. Coincidentally and fortunately the price of the company itself has come back to near its lowest levels ever, so it’s just an extraordinary buying opportunity. And I think there’s more to come, but the fact that they raised $6.5 million in the middle of the holiday season shows that the company has backers who are willing to write more checks for this company, and I think it’s preparing for more acquisitions.

Future Money Trends: That’s good and exciting to know because a lot of companies out there, I was reading this chart on the TSX that shows 70% of them have a market cap of less than five million. Do you foresee a big clearing out on the TSX venture exchange?

Brien Lundin: I think it’s been happening. I think it’s accelerating right now. If we see this market downturn continue, although I think it has bottomed, but if we see it continue than it’s really going to accelerate at an even greater degree. You have a lot of companies that are merging right now, some of which that are effectively, a large number of which that are effectively, zombie companies. They’re not doing anything. When you can’t raise any more money the first thing you do is you cut exploration for these types of companies, and the last thing you do is cut salaries. And they are to the point where they’re not taking any money, they’re cutting salaries, they’re merging with other companies, so it’s really getting to a dire state. I think there’s going to be more consolidation and what you’re going to see are companies that will emerge from this as the winners. The companies that are able to go in and scoop up these assets, specifically companies like Brazil Resources. I mean, they just bought a Gold company in Brazil that I thought had a fantastic project, but they couldn’t go forward because they were running out of money.

Future Money Trends: Now how does this entire junior sector ultimately affect the physical price of Gold? Ok, so if there’s not that much exploring going on, when does this finally start to affect the pipeline of the market? Is this going to take five years to play out? Or how long can this remain?

Brien Lundin: Yeah, it’s a long term factor. It would take five to six years before the malaise in the junior explorers has a real impact on actual Gold supplies. What’s happening right now is you’re seeing that the Gold prices come down to right around the sustainable ongoing average cost of production for the companies. Which is around $1100, $1200 once you add in all the costs of financing and more for Gold production. So that’s not to say that Gold can’t go much lower, but what you see happen is once the Gold price start hitting against, and go lower than, the cost of production, then you see supplies start to be curtailed, and then you see prices starting to rise again. So over the long term, I think what we’re at, generally around the bottom for the Gold price. If you go lower, it could go fluctuate around this level, but I don’t think you’re going to see a Gold price that can sustainably trade much lower than where we are right now.

Future Money Trends: Brien, I’ve gotten a lot of e-mails and I’m sure you have this week, about the central bank in Germany and the situation with the Fed where they gave them a 50% payment. The Gold was melted down prior to giving them their Gold bars; I guess that they were supposed to get their actual Gold bars back. I don’t know if you saw the Glenn Beck story, but I think that’s where a lot of these e-mails are coming from. If you could just give us your opinion and thoughts on what exactly is going on? What’s the story with this German bank that’s asking for their Gold back? Does the Fed not have the Gold?

Brien Lundin: It almost assuredly does not have the Gold. There’s some conflicting reports about whether the Gold was melted before it was sent back to Germany, or whether after it was sent back to Germany the German Central Bank itself melted the Gold and recast it. So there’s some disagreement as far as that goes. But to me, the key factor here is that when Germany asked to have half of its Gold reserves that were being held overseas, just half of its reserves that were being held overseas, returned to it, that the answer coming back was, “that’s fine, we’ll get it to you in seven years.” Now the fact of the matter is, if there was an urgent need it could have been sent in seven days. Under any circumstances it could have been sent back in a month or two. But for them to, for the reply to be that it would take seven years for this Gold to be sent back to you, your Gold to be sent back to you, was an obvious admission that the Gold just isn’t there.

Future Money Trends: Now what is the significance if it was melted and recast? Is that just basically an admission that the Federal Reserve no longer had their Gold and had to actually get their Gold from new mining supply?

Brien Lundin: Yes, it’s an admission that the German reserves were not still sitting there in the vault in the same form that they were sent there after WWII. They were not the original Central Bank Gold bars, same serial numbers etc. It’s an admission that at some point since then, that Gold has been used for other purposes. And in fact, throughout the 1990s central bank Gold reserves went out to bullion banks, which were able to borrow the Gold at around one percent interest or less, very low cost to sell the Gold, take that money, and then put it in to riskier assets. So the dirty little secret here, is that a significant portion of central bank Gold reserves, including the U.S. don’t exist now in their original bar form. In fact, they exist as IOU’s, paper IOU’s, from the very banks that were bailed out in 2008 by the Federal Reserve. So the Gold isn’t there, and the secret that they’re hiding is that it’s been replaced by IOU’s, and importantly those IOU’s are for Gold that was borrowed at much lower prices. To repay that Gold, these speculators in Western banks would have to pay much more, in either cash or Gold, to get even again. Or if that Gold would be put back in the vaults though, it would create tremendous demand on existing Gold supplies and draw the price through the roof.
Future Money Trends: Brien, on the overall stock market, what do you think over the next two or three years? DOW 20,000 or DOW 10,000?

Brien Lundin: Well, as long as you have the Federal Reserve pumping out the money behind it then anything is possible. I’m not a big believer in finding the tape or finding the trend, and the stock market is going up. Now, that is the result of an economic rebound in the U.S., primarily in the Western world in general. And I think that’s, Gold bugs have to admit that the economy is getting better. You can only hold the U.S. economy back for so long, and it really is the dynamic economic engine of the world. And there’s not, you have to really try hard to hold it back, and not to say that Washington hasn’t been trying hard, but the economy is rebounding right now despite all efforts to the contrary. But the stock market is not necessarily contra cyclical to Gold. The factors that bribe higher equity prices can also contribute to higher Gold prices. The key thing is that it does take away some investment dollars, western investment funds that could be speculating on Gold. But that money is so hot it goes in and out anyway.

Future Money Trends: Brien, at the New Orleans investment conference this year… are you allowed to reveal any of the possible speakers that you might be having?

Brien Lundin: Yes I can reveal one key speaker that we have is Alan Greenspan. And what he’s going to be doing is a moderated Q and A with questions from the audience as well as a moderated panel, which I’m calling a debate, with some other notable celebrity speakers. One of which is Kyle Bass, who I think is one of the smartest guys out there right now. And through these two sessions, that the key thing that I want to do is explore, because Greenspan is a brilliant guy, and as you know he was one of the most hardcore, radical free market Gold bugs in the 1960′s that there ever was. And that somehow, he got consumed by the evil empire in Washington and ended up with himself at the levers of monetary policy that he had so despised beforehand. So we’re going to kind of put him on the hot seat and explore that, and see how that transition happened. And what he sees as the role of Gold in today’s world and going forward.

Future Money Trends: You know that’s going to be a really exciting person to see at one of these events, because typically you find the most hardcore Gold bug, you know the shows I go to at least here on the West coast. You know like in San Francisco’s hard asset show we had Ron Paul, but that is interesting to find a very credible former Gold bug who ran the fed. That’s probably going to be one of the most interesting panels and debates that anyone could see. Now what date is it, and how much does it cost to go to the New Orleans investment conference?

Brien Lundin: Well, the cost right now is, I believe our cost is currently $495, and it goes up as you approach the event. But it’s in late October this year, the 22nd through the 25th, and as I said Greenspan is going to be one of our top speakers. We typically feature, like no other show, a range of celebrity speakers and top experts. It’s a real focus on the resources, on precious metals, and mining stock. So it is a one stop shop for anyone interested in investing in those areas. And anyone interested can go to www.NewOrleansConference.com . Right now I don’t believe we have online registration up, but they can call in and book at the lowest levels. I think it’s going to be a sell out this year.

Future Money Trends: Good, now I know a lot of my techies are going to want to ask this question, and feel free to answer it how you want. Will you guys be accepting Bitcoin for payment for the conference?

Brien Lundin: You know, we haven’t really thought about it. I have a lot of concerns over Bitcoin. I certainly applaud the motivations, but I think that Gold, for 4000 years, has served the same purpose. And what Bitcoin is, is obviously an electronic, or a technological evolution, of the role that Gold was supposed to play. But I think that evolution can happen in Gold itself, and in fact I’m working towards that with a few friends and colleagues. And I think there’ll be some important news on that as the year progresses.

Future Money Trends: Great, well when that news comes up please let us know, because we’ll be very interested.

Brien Lundin: You got it.

Future Money Trends: Brien, thank you so much for your time. If somebody wants to check your newsletter out, its http://GoldNewsletter.com , correct?

Brien Lundin: Absolutely, yes.

Future Money Trends: Well thank you so much, we appreciate your time.

Brien Lundin: Thank you Dan.

 

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