The Longwave Winter of Ian Gordon's Discontent
Streetwise The Gold Report
By Brian Sylvester - theaureport.com
January 20, 2014
As the Fed runs low on ammunition to further suppress the gold price, Ian Gordon, founder and chairman of the Longwave Group, is extremely bullish on gold. In this interview with The Gold Report, he recounts his history of the manipulation of the gold price and its implications for the global economy. He also expands on research showing that juniors are more effective and cost efficient at making discoveries.
Ian Gordon: I'm extremely bullish for the gold price in 2014. Part of that bullishness is related to my work on cycles. Indeed, I am confident that 2014 will see the beginning of the 4th long-term cycle for precious metals and precious metals stocks and the bullish phase of this cycle should last about three years.
The prices of precious metals and precious metals stocks have been badly bruised following their price peaks in 2011, due in part to what I consider to be manipulation in the COMEX. There is a long history of gold price manipulation: In the 1960s, the London Gold Pool was formed to try to hold the price at $35/ounce ($35/oz)—the price the U.S. dollar was pegged to—because gold was leaving the U.S. The London Gold Pool lasted for six years, at which point it became impossible to maintain the $35/oz price and that effectively forced the U.S. off gold in 1971. In the 1970s, the gold price rose, eventually reaching $800/oz in 1980. In an attempt to contain the rising gold price, the International Monetary Fund and the U.S. sold gold during the late 1970s. In 1999, the price of gold bottomed at $250/oz, then started to bubble up.
As the price of gold started to rise, the U.S. inveigled countries like Canada, the United Kingdom and several others to sell their physical gold, in an effort to contain the price. When those overt gold sales failed to stop the price from rising, Western central banks moved to gold leasing. That was done so funds that were borrowing the gold could sell it to suppress the price. That came to an end when there was no more gold to lease, perhaps evidenced by the fact that U.S. cannot return just 300 tons of gold to Germany.
The final battlefield for the U.S. war on gold is being waged in the COMEX. Gold was down $480/oz during 2013, and on two days in April, it was down $246/oz, which is more than half the total drop in the gold price for all of 2013. The ratio on the COMEX of paper gold to physical gold is now effectively 100:1.
It seems to me the U.S. is running out of ammunition to suppress the price of gold, to convince people that the paper dollar is better than gold. All the physical gold has been moving to Asia. The war will end in 2014. The manipulation will be exposed for what it is. When that happens, the gold price will rise dramatically.
TGR: Is there any evidence that gold's previous price performance can be used to forecast its future performance, or are we in uncharted territory?
IG: Whenever we have manipulation in markets it becomes much more difficult to make forecasts. For example, the stock market is being driven higher through massive monetary stimulus on the part of the central banks, particularly the Federal Reserve.
Our research demonstrates that cycles of secular bull and bear markets occur within what we call the longwave cycle seasons. We are now in the winter of the longwave cycle, when debt is effectively taken out of the economy. The central banks are resisting that process and have been since 2000. During the winter of the longwave season, gold is in a secular bull market and stocks should be in a secular bear market.
We've been in a secular bull market for gold and the gold stocks effectively since 2000. The HUI Gold BUGS Index bottomed at $35.50 in 2000; today it's just above $200. The gold price bottomed at $251/oz and today is above $1,225/oz. Within these secular cycles there are long-term and intermediate cycles. Long-term cycles last between four and five years and there are four and a half of these long-term cycles in each secular cycle. I have written about how these cycles fit together; this can be seen on my website.
We should be in a price bottom of the 3rd long-term cycle and beginning the bullish phase of the 4th long-term cycle for precious metals and precious metals stocks. In my cycle work I have estimated that this bullish phase should take the price of gold to $3,300/oz and the HUI Index to $990 sometime early in 2017. It won't be straight up; there will be intermediate corrections along the way.
TGR: Is 2014 the year that the financial system crumbles?
IG: I'm absolutely convinced that will happen this year. According to our cycle work, we're in a currency crisis very much akin to the crisis of the last longwave winter during the 1931–1933 global currency crisis. I believe we will see world currencies fail this year. The euro and the dollar are going to be in jeopardy.
Out of that, a new world monetary system will evolve, much as it did at Bretton Woods in 1944. This will be a very difficult process as people lose faith in fiat paper currencies and turn to gold and silver.
TGR: Some people argue that this apocalyptic gold narrative does nothing to help gold stocks and gold investors. How do you respond to that?
IG: I think that is ridiculous. The world is facing an unprecedented fiat paper money currency crisis that can only end very badly. I know that gold goes up in the longwave winter as it did after 1929, and before that, after 1873. The price of gold rises because people no longer trust paper money.
The paper money fiasco is getting out of hand. France and Italy are teetering. When they collapse, it will be very difficult to keep the euro functioning as a currency.
I'm confident that the gold bull market is nowhere near over because in times of crisis gold becomes the money of choice. As I have already said, we are facing a mammoth crisis.
TGR: In a December 2013 issue of That Was the Week That Was, you noted some points made by Richard Schodde of MineEx Consulting when he compared the performance of juniors and seniors in mineral exploration in Canada and elsewhere since 1960. What were some of his findings?
IG: I think the most important thing we can take from his analysis is the importance of the junior companies in the exploration field. Between 1960 and 2012, 46% of the largest discoveries were made by junior companies. The juniors also were much more efficient than their senior counterparts in making those discoveries. It cost the juniors far fewer dollars to make discoveries similar to those made by the seniors.
TGR: If gold stays at around $1,200/oz, Schodde expects about $1.3 billion ($1.3B) to be spent annually on exploration in Canada. You help exploration companies arrange financing. How did 2013 compare with 2012 in that regard?
IG: Both were difficult years. Many junior mining companies are fighting just to survive. Toronto, the principle financial hub for the mining sector, was to a large extent put out of the financing game because the gold funds were experiencing significant redemptions and had to sell positions to make those payments. There was no money for financing.
I've noticed that Europeans and Americans along the eastern seaboard remain pretty active in financing the juniors. Europeans understand gold and they understand that paper currencies are in serious trouble.
I suppose my biggest contribution to financing last year was helping Barkerville Gold Mines Ltd. (BGM:TSX.V) raise a $15 million ($15M) gold loan through Eric Sprott.
TGR: Barkerville had issues crop up in 2012 that carried through 2013. Have they been resolved?
IG: Yes. The British Columbia Securities Commission lifted the cease-trade order on the company in 2013.
There were 14 months when the company could not raise capital, but continued to spend money. Snowden Mining Industry Consultants was brought in to do a new NI 43-101. That took time, but the numbers are not hugely different from the numbers that Peter George and Geoex originally came up with. The capped resource is 5 million ounces (5 Moz) and the potential is much larger than that.
I'm extremely bullish on Barkerville Gold Mines. I have visited the property several times and believe Barkerville could become one of the world's biggest gold deposits at a really good grade of something like 3 grams/ton from surface.
TGR: Is Barkerville drilling now?
IG: First, the company is following Snowden's recommendation to use metallic screening to redo assays because the deposit is nuggety. As a result, we expect a possible 20% bump in the resource.
Second, a lot of the drill holes done through visual inspection were determined to be barren, and were not submitted for assay. Now, Barkerville is assaying those drill holes. That could produce another bump in the resource. In addition, a lot of the Inferred will probably be moved into Indicated and some of the Indicated could even be moved into Measured.
TGR: What's on tap for some of the junior miners you mentioned in your last interview with The Gold Report?
IG: I really like Terraco Gold Corp. (TEN:TSX.V). It has an excellent management team—a particularly important component for a junior miner. The company has 1 Moz in Idaho, and a property that abuts the Barrick Gold Corp. (ABX:TSX; ABX:NYSE) and Midway Gold Corp. (MDW:TSX.V; MDW:NYSE.MKT) joint venture at Spring Valley. Terraco's management acquired some royalties on that Barrick/Midway property, which I think could have a value of $50M and that is considerably greater than Terraco's tiny market cap.
TGR: Terraco has the right to exercise an option on a 3% net smelter royalty on the Barrick/Midway Spring Valley joint venture. Terraco has to act on that $15.1M option before December 2016. Do you think that's likely?
IG: Barrick will be very interested in appropriating that royalty for itself. Royalties are so costly to production that no company likes to give out big royalties. I think that before the time is up someone will buy out that royalty. That would give Terraco lots of cash.
TGR: What about other companies you discussed?
IG: Temex Resources Corp. (TME:TSX.V; TQ1:FSE) has close to 5 Moz and an NI 43-101 on its Juby and Whitney properties. Whitney abuts Timmins and is situated on the old Hallnor mine, one of the highest-value producing gold mines on that belt.
TGR: Temex has been working on those assets for a long time and finally has something fairly substantial. Once the market turns, could this be one of the better assets out there?
IG: Yes. Temex is trading at $0.09/share and has 5 Moz gold. When the gold price starts bubbling and attention turns back to the junior gold mining companies, it's not a stretch to see a stock like this doubling and tripling from that position in very short order.
TGR: Does Temex have what it needs to survive until the market turns?
IG: The company really slowed down its cash spending on exploration. It has about $3M in cash and could easily go another year on that amount.
I don't think cash will be an issue for Temex or Terraco.
TGR: Are there any other companies you would like to talk about?
IG: Two that spring to mind have only recently come to my attention. Brazil Resources Inc. (BRI:TSX.V; BRIZF:OTCQX) has a resource in Brazil. The company has a very competent management team led by Amir Adnani, who ran Uranium Energy Corp. (UEC:NYSE.MKT) and did extremely well for shareholders.
One of the company's projects in Brazil has about 1.4 Moz gold. It just raised $6.4M, a sign that investors are attracted to the company. According to Amir, the company will use some of that money to buy up cheap assets and add to its portfolio. I like that kind of thinking.
Integra Gold Corp. (ICG:TSX.V) has a similar perspective. It owns the Lamaque project in Québec's Val-d'Or. That project is an NI 43-101 resource just under 1 Moz, but the company has recently raised $5M. President Steve de Jong sees this downside in gold as an opportunity to acquire cheap good assets and build on the Lamaque project.
TGR: Can you offer a couple of investable themes as 2014 begins?
IG: I'm extremely bullish on the gold price. The gold price will explode to the upside once it becomes apparent that the emperor has no clothes and no gold, and the war on the gold price ends. That means junior mining companies with good assets and good management will do likewise.
On the other hand I'm extremely bearish on the stock market simply because of my cycle work. Since 2000, we've been in a 2, 5, 2, 5 sequence: two years down, five years up, two years down and five years up. These are Fibonacci numbers and in cycles such numbers are very important. It suggests to me that the end is nigh for the stock market in 2014.
When that happens, the Federal Reserve will be out of ammunition to keep stock prices higher. Interest rates in the U.S. are essentially at zero and we're pushing money at the rate of $75B a month into the major U.S. banks. When the market caves in, the Fed will be unable to bring it back because it has no room to cut interest rates. If the Fed keeps printing money at the current rate or increases it, the dollar will be under tremendous pressure. The Fed is caught between a rock and a hard place.
TGR: So, even if quantitative easing (QE) comes back, it won't suffice.
IG: Increasing QE to induce money back into the stock market through the banks will destroy the dollar. Once that begins, interest rates have to rise and that will be the quandary facing the Fed.
TGR: Ian, thank you for your time and your insights as we head into 2014.
A globally renowned economic forecaster, author and speaker, Ian Gordon is founder and chairman of the Longwave Group, which comprises two companies—Longwave Analytics and Longwave Strategies. The former specializes in Gordon's ongoing study and analysis of the Longwave Principle originally expounded by Nikolai Kondratiev. With Longwave Strategies, Gordon assists select precious metal companies in financings. Educated in England, Gordon graduated from the Royal Military Academy, Sandhurst. After a few years serving as a platoon commander in a Scottish regiment, he moved to Canada in 1967 and entered the University of Manitoba's History Department. Taking that step has had a profound impact because, during this period, he began to study the historical trends that ultimately provided the foundation for his Long Wave theory. Gordon has been publishing his Long Wave Analyst website since 1998. Eric Sprott, chairman, CEO and portfolio manager at Sprott Asset Management, describes Gordon as "a rare breed in the investment-adviser arena." He notes that Gordon's forecasts "have taken on a life force of their own and if you care to listen, Gordon will tell you how it will all end."