<i>Midas Letter's</i> James West: What's with $1,500 Gold and $42 Silver?

As gold and silver continue their spectacular rise, The Gold Report checked in with Midas Letter Publisher and Editor James West to get his take on the situation. James, always strongly opinionated, sees this as the beginning of a global revolution that could result in long-term opportunities for gold and silver juniors. In this exclusive interview, James shares some of his top companies to watch.


The Gold Report: James, we’ve been discussing the significance of gold’s recent push through $1,500/oz., and what it means, beyond the obvious. Do you think this is just an asset class appreciating thanks to fundamental forces, or is it somehow an important milestone with new implications for the future of the global economy?

James West: In the last 30 days, gold has risen in price by $83.50/oz. Now that it’s darting furtively above $1,500/oz., with a clear eye and ambition for the next level—$1,600—a cacophony of know-it-all voices are going to proclaim the imminent end and catastrophic destruction of the gold bubble. Ho-hum. . .go back to your crossword puzzle, armchair economists. This is no bubble. This is the beginning of a global revolution.

Seriously, the events in the Middle East, the crumbling of Eurozone economies, the relentless depression entrenching itself in the United States and the soaring prices of gold and silver are not unrelated. The byproduct of our now truly connected species is the ability of the forces of desire and yearning at the core of all human ambition to impart a physical influence on markets, commodities and governments.

Myopic mainstream media fail to adopt a holistic, high-level, eonic time-sense perspective, providing zero valuable information and thereby only adding to the noise and confusion. Absence of leadership—real visionary leadership—renders us pinballs rolling feverishly, yet without intent beyond the immediate obstacle, careening aimlessly with no collective purpose and goal.

In the rising prices of gold and silver, we see irrefutable evidence of irresponsible and possibly criminal negligence in the management of our money. With the United States trapped in a cycle of fabricating vast electronic sums of debt with the virtual printing press, the mantle of legitimacy and cloak of secrecy proffered by the government’s favorite off-balance sheet entity, the U.S. Federal Reserve, guarantees the inability of the will of the people to manifest itself and break free from this pattern. The Federal Reserve has become the slave master who ensures the bondage of humanity to the foul and putrid U.S. dollar. It is now, more than ever, the enemy of the American people, and by extension, the rest of humanity.

TGR: I’m sorry, James, but that comes across as a bit “anti-America,” if you don’t mind my saying.

JW: I don’t mind, Sally. That is an accusation I’m only all too familiar with. But it’s completely misplaced. America was founded on the principles of free enterprise, and on the concept of no taxation without representation. The current regime in the United States, whereby the democratic process has been hijacked by the financial services industry, is directly and reprehensibly undermining those twin key American principles. That is anti-American. By identifying it as such (although I am a Canadian by birth), I consider myself a patriot to humanity first and foremost, and to a lesser extent, to national interests.

TGR: Okay. . .So, do you see the factors supporting the gold and silver price at this level mostly as political, or are they related to demand from jewelry, or in the case of silver, industrial demand? Or is it all of the above and more?

JW: Definitely all of the above and more. The political factor I’ve covered, more or less. I would point out that the people of the United States, who are fiercely independent, will replace their own debauched currency with gold and silver with or without the government’s participation. Utah has clearly demonstrated that.

But in terms of fundamental, market-centric drivers, many people are under the mistaken impression that the higher gold and silver prices go, the more negatively demand is impacted. I think that the higher the monetary metals go, the greater their demand is in terms of capital preservation strategies. That’s because the higher they go, the stronger the correlation to and proof of an increasingly unviable dollar, thereby spurring demand.

In terms of industrial demand, silver has unique physical and chemical properties that make it irreplaceable for certain applications. The same is true for gold, to a lesser extent. So yes, there will be a slight deterioration in demand from those sectors, but that is not going to be significant—especially as measured against the increasing demand for capital preservation or speculative strategies. In the case of jewelry, the desirability is enhanced, while the affordability is diminished, by rising prices, and so I think those two factors will balance each other out in that equation.

But most importantly going forward, the demand for gold and silver by sovereign investors is tantamount. Governments with U.S. dollar holdings are increasingly embracing the wisdom of dumping dollars in favor of better value stores, and gold and silver certainly fit that bill. When the U.S. dollar is finally decommissioned, which it definitely will be, the replacement global trade standard must, in some way, be moderated by an official peg to the prices of gold and silver.

While this arguably constitutes a gold/silver standard, it by no means implies that the currencies of the world must be quantitatively relative to a certain amount of gold or silver. That is the biggest misconception in the public.

But central banks are seen to be accumulating gold and silver now, and that is because there is a tacit consensus that gold and silver have a role to play in the globalized monetary future. That concept not only enhances demand for these metals, but it legitimizes their value as investments for the general public. I am personally of the opinion that, contrary to conventional conspiracy theory suggesting that the United States has no gold, the government is using a portion of its fabricated ersatz capital to accumulate gold and silver surreptitiously, fully cognizant of the fact that the U.S. dollar is doomed.

It’s fraudulent, and criminal. Not to harp on and on, but this government should go to jail. I don’t include Obama in that, because I think he’s a good man who has inherited a viper’s nest and lacks the deep economic savvy to forge a solution. That is evidenced by his appointment of the same incumbent economic advisors and managers who have overseen the willful destruction of the American economy.

TGR: What are the opportunities for astute investors now? Why have we not seen recent corollary price appreciation in some of the senior producers, royalty companies or even near-term producers with proven precious metals (PM) assets?

JW: The opportunities for astute, and more importantly, swift investors, are unprecedented. The fact that these valuations are not yet apparent in derivative asset classes, such as shares in mining producers and explorers, is exactly such an opportunity.

The market as a whole is like a timid little abused dog that’s afraid of its own shadow. At the slightest raised hand in the form of market instability, it cringes and scurries for shelter. It peers out from its perceived safety under the stoop, and only ventures out when the coast is clear. So the market hesitates to commit capital. The never-before-seen confluence of volatile factors that characterize today’s world economy enforces the impression that the whole thing could collapse again at any minute. And it will. . .again and again.

Seasoned investors who have weathered the downturns know that the best time to go shopping for stocks is when the rest of the market is paralyzed with fear. That is the case now, and so I’m picking up companies that have the greatest potential for rapid appreciation when the rest of the herd clues in and understands that the world isn’t going anywhere. Markets will ebb and flow like the breath of life itself, and the trick is to tune out the noise, adopt a disciplined strategy, and execute ruthlessly. Fortune favors the bold, as the old saw goes.

As ever, the various classes of opportunities populate the scale of risk from conservative to speculative. Owning bullion is owning the purest form of money. It doesn’t spend easily in the current world, but it trades effortlessly. It’s really difficult to store and secure, so next on the list is bullion funds. Of course, then your security and storage issues are solved, but you’ve adopted a degree of risk in that your holdings are not in your direct control. Exchange-traded funds (ETF’s) backed by physical gold are, in fact, a perfect replica of the original money, when a “bill” represented a coincident amount of gold in storage.

Next on the list are gold-producing miners, which are generally good stores of value and have a bit of upside opportunity if they can acquire ounces cost-effectively. Barrick Gold Corporation (TSX:ABX; NYSE:ABX), Newmont Mining Corp. (NYSE:NEM), Anglo American Plc. (NASDAQ:AAUK), Goldcorp Inc. (TSX:G; NYSE:GG), Agnico-Eagle Mines Ltd. (TSX:AEM; NYSE:AEM) and a host of others are enjoying record profits, and I think that’s going to continue.

For speculative strategies, I like the junior gold and silver explorers: Colossus Minerals Inc. (TSX:CSI) and Lago Dourado Minerals Ltd. (TSX.V:LDM) in Brazil, Continental Gold Ltd. (TSX:CNL), Waymar Resources Ltd. (TSX.V:WYM), CuOro Resources (TSX.V:CUA) and Seafield Resources Ltd. (TSX.V:SFF) in Colombia, Golden Reign Resources Ltd. (TSX.V:GRR) and Corazon Gold Corp. (TSX.V:CGW) in Nicaragua, Prodigy Gold Incorporated (TSX.V:PDG) in Ontario and Newstrike Capital Inc. (TSX.V:NES) in Mexico. The latter just announced an incredible 230 meter intercept at 7+ g/t gold.

The cool thing about the juniors is that the mainstream market is nowhere near this space right now. Case in point: when Newstrike came out with that hole, the stock blasted up to $2.30, which is an 87% increase from where we initiated coverage in January of this year, and the investment world is out to lunch. Here we’ve got a deposit that is shaping up to look like a $1 billion gold deposit, and the mainstream investment community is so utterly out to lunch, they don’t see it.

The last time a company drilled a hole like this was Ventana, and that stock is now over $13. That was a 1,200% winner for Midas Letter subscribers, and I’m willing to bet the farm that Newstrike Capital is going to head in the same direction. If the next set of holes they release emulates these results, look out.

TGR: Usually the summer months are a slower investing season for PM equities. With all the macro factors in play, including unrest in the Middle East, and the U.S. without an approved budget and with an increasing debt load, along with high unemployment and the threat of hyperinflation, do you see a continued increase in the price of gold throughout these months?

JW: Gold just put on in 30 days what it normally does in one year. Considering the macro economic factors in the world right now, and the steepening appreciation curve in both gold and silver, I think you’re going to see an incremental average increase in the price of gold throughout the summer, with very high potential for corrective drops by as much as $100/oz. But gold is heading for $1,600/oz. this year, and silver is going to be $90/oz. within 24 months at the latest, if not sooner.

TGR: Thanks, James, for your timely insights. Much appreciated.

James West, publisher and editor of the Midas Letter, is an independent capital markets entrepreneur and investor. He has spent more than 20 years working in such capacities as corporate finance advisor, corporate development officer, investor relations officer and media relations and business development officer for companies involved in mining, oil and gas, alternative fuels, healthcare, Internet technology, transportation, manufacturing and housing construction.

Dysfunction Junction

In a sense there is no news at all to comment on in the latest pension episode of the pension soap opera down on the 5th floor. Hard to see how the outcome down at the Pittsburgh Parking Authority board would have been any different than is being reported. Great quote in describing the state of all things pension related for the City of Pittsburgh as “extreme dysfunction”.  Points for parsimony.

Fun with words aside, there is something to read between the lines.  City news junkies follow along with me. It seems clear that no matter what happened on New Year’s Eve, my reading of the news is that there is no intention on the part of the administration to facilitate council’s plan as envisioned.  Sanctioned or not by the PERC it may may be.

Now realize that it really does not matter what council adds up, the whole plan depends on the city’s own actuary certifying that the pension’s assets, to include the NPV of the dedicated parking tax funding stream, amount to 50% of the calculated liabilities. Realize that there are lots of judgment calls, let alone a lot of city-supplied data, that goes into the actuary’s calculations.

Sooo..  If the city really does not want the actuary’s calculation to show 50%, then there is a decent shot that the outcome of the determinative calculation will not be 50%.

Won’t that be interesting.

Vietnam Government resisting a move to gold as money?

Commodity Online reports that the State Bank of Vietnam is putting further restrictions on gold lending and has asked commercial banks to cease lending gold and eventually to stop accepting gold deposits.

“Vietnam has already forbidden banks from lending gold for the production and trade of gold bars since October last year. But starting May 1 banks are not allowed to offer gold loans to jewelry makers either.”

“The new rule is an attempt to eliminate the role of gold as a means of payment in Vietnam, the central bank said. It noted that the government will, however, continue to recognize the right of citizens to have gold holdings.”

“Gold holdings by the public were estimated to be about 400-500 tons then, said Vietnam Gold Association. Vietnam has been among a handful of countries in which banking sector takes gold deposits – bearing some interest – and lends gold as a lawful monetary means to bank borrowers. However, this practice may soon end with new regulations from the central bank.”

Commodity Online has been reporting for some time about increasing restrictions on gold as its people increasing move to using gold instead of their fiat currency and with this latest move it sounds like Government sees a real threat brewing. I’ve had a view for some time that one will not wake up with gold suddenly banned – it will happen incrementally – and this behavior supports that view (although this could depend on country by country factors).

Vietnam I think will be worth watching – we may well be seeing a loss of faith in fiat (hyperinflation) developing in a country where there is an existing use of and infrastructure of gold as money. How the Government responds could give some indication of how others will, but it is a unique situation as few countries have populations that familiar with gold.

Interesting to contrast Vietnam’s approach with India (whose public is said to hold between 10,000 and 15,000 tonnes).

Indian bullion dealer RiddiSiddhi Bullions Limited (RSBL) has just launched a gold account with the option of allowing RSBL to lend your gold out on your behalf.

RSBL “will lend your bullion to various professional bullion market participants against adequate security … at the sole discretion of RSBL Commodities to decide whom to lend and for what time period.” As its fee, RSBL retains 10% of the income and will take liability for any defaults by borrowers.

Note that the account is not targeted at the average investor with the minimum purchase size for gold being 1 kilo.

More on Private Protection of IP

Just to clarify from an earlier post, my stance on protecting IP is that is wrong for the government to do so, but I have no issue if a private business wants to protect its intellectual creation. Furthermore, I am not a piracy positivist. I do not believe that people have a “right” to IP for free. If they can capture another’s idea for free, more power to them. If they have to pay, so be it. No one has a right to information.
In keeping with the above, I would recommend reading this article at Cracked. To me, this seems like the perfect way to handle IP protection. Obviously, the government isn’t cracking down like it used to, so businesses have built designed their own protections to ensure that they actually paid when people use their product.
This seems to be the optimal way of handling this issue, especially since IP law has devolved into a massive redistributionist scheme for big business (cf. Apple’s recent lawsuit, Microsoft’s recent lawsuit, Google’s recent lawsuit, etc.) Why not let people protect their own intellectual “property,” and stop this headache of a legal system? This system does not seem to make any difference to the big companies and has a tendency to screw over the small time inventers and innovators (ever heard if patent trolls?)

Economic Events on April 25, 2011

At 10:00 AM EDT, the New Home Sales report for March will be released. The consensus is that 280,000 new homes were sold last month, which would be an increase of 3,000 from last month.