Tip:
Highlight text to annotate it
X
Rahul Thakkar: Hey, everyone, this is Rahul with the Alternative Investors Hangout, and
today we have a new guest on. He is Chris Marchese. He's over there at The Morgan Report.
Thanks for coming on again, Chris.
Chris Marchese: Thank you. It's good to be here.
Rahul Thakkar: Okay, today I've been noticing a lot of news coming out of Cyprus. It looks
like there is going to be some sort of bail-in. Some may call it a bail-out, and it looks
like many individuals can only take out $100 per day. Capital controls are going to be
implemented. How do you see this Cyprus event? Is this going to spill over all of Europe?
And, how do you think it's going to affect gold and silver in U.S. dollar terms?
Chris Marchese: I don't think it'll spill over into Europe. However, a lot of Europeans
and the Russians, in fact, have quite a bit of money parked at Cyprus banks, so, that
should be bullish for the metals, because investors are not going to trust their banks,
and, you know, there'll be a fear that this could happen elsewhere, and they wouldn't
be wrong in thinking that. So, you know, overall, I think it'll be bullish, although, the degree
to which is rather difficult to quantify.
Rahul Thakkar: So, you're saying that, number one, if you're looking at the rest of Europe,
it's not going to spill over, but you have to see that, if it's happening in Cyprus,
it's going to happen, maybe, in my opinion, it could happen in Greece and then it's going
to go over to Italy and Spain. The reason why I say that may happen because, if you
have a lot of rich people getting screwed over in that country, then why not in other
European countries and it could happen in Britain, it could happen in Germany, and then
the United States.
Chris Marchese: Yeah.Well anything could happen, as we all know. The reason I'm hearing, out
of a lot of these countries, why it wouldn't be put into effect elsewhere is because Cyprus
makes up for such a small percentage of the total Euro zone GDP that it really doesn't
matter. But, you know, crazy things are happening every day, so, it wouldn't shock me, if it
happened in, say, Spain or Ireland or one of those countries.
Rahul Thakkar: More important, I wanted to get into another topic regarding miners. Jason
XXBarok??XX, one of our mutual friends, he told me that you're a mining expert, and the
thing is many big caps are getting slammed right now, and a lot of junior mining companies
are getting slammed as well.
Since you're the expert in this, why are these miners getting slammed right now?
Chris Marchese: That's actually a very difficult question. I think a lot of the reason that
large miners are getting slammed is several fold. One is operating costs, or infracosts,
are rising rather precipitously and capital costs, you know, the costs to construct a
mine and maintain a mine are rising far faster than all these companies had initially forecast.
So that's putting a downward pressure on them.
For example, Berrick's Pascua Lama project is running billions more to construct than
they initially projected, so, that's definitely hampering them.
Also, a lot of the large miners, like Gold Fields and AngloGold Ashanti are based in
Africa, and they're being penalized just because of that. Another reason is, the rise in gold
price we've seen in the last few years isn't necessarily translating to the bottom line
and increased dividends, although it has to some degree, but not nearly to the degree
that one would think with $1600 gold.
This is definitely spilling over into the smaller miners, especially the exploration
companies, because they're running out of money, and the financing markets for all of
those are, they don't want to do it, so, I think a lot are going to go under before the
end of the summer.
Rahul Thakkar: Speaking of the miners, there are many individuals saying that, "Hey, there's
market manipulation." I don't buy that to a large degree. Sure, there can be some manipulation
in the market, but, do you believe that some of the reason that these miners are also getting
canned is because you have ETFs compared to the 1970s where all these dollars are going
to the GLD or the UGL, the double-leveraged gold fund and then the AGQ as well, rather
than going to these miners. Is that a problem?
Chris Marchese: Oh, definitely, because it's taking capital that would otherwise be put
into these miners in order for individuals to gain exposure to the underlying metal.
One option that investors should consider if they don't want an ETF, because it's paper,
and they don't want to take on all the risk of a typical miner or the royalty companies,
which we're very overweighed in, which includes Silver Wheaton, Franco-Nevada, Sandstorm Gold,
and those type of companies where their input costs are fixed and they have no ongoing capital
costs.
Rahul Thakkar: And those listening just want to make sure if you're going to put money
into those stocks that Chris talked about do your own due diligence, just as a disclaimer,
but, getting into gold and silver again, it looks like it's been in a consolidation mode,
especially with gold. It got wacked down from $1920 an ounce to $1600, or $1606 right now.
Silver from $50 then it went down to $26. I think it's hovering around $28 or $29 right
now. Will gold and silver continue to be in consolidation mode for the next few years?
Because, if you look at the Dollar Index right now, it's strengthening, because all the countries
are debasing more than the U.S. right now, and, also, do you see a super spike in silver
within the next few years?
Chris Marchese: Well, let me first talk about the U.S. Dollar Index. You know, it's just
the US dollar compared to primarily the Euro, British pound, and the yen, the Swiss franc,
which is tied to the Euro to some degree, and, I think, the Canadian dollars. So, it's
just measuring garbage against garbage, so, as we've seen over the last few years, gold
will continue to go up even with the Dollar Index staying the same or even going up.
As far as the consolidation, we think we bottomed a little, you know, we might continue to consolidate
until the end of summer, but we think we'll start to pick up before that due to a number
of reasons including Cyprus, the fact that the US monetary base is growing at $85 billion
a month, and the metals seem to track the growth in the monetary base pretty well, and
that has just started to grow, so we should see a follow-through with the metals, you
know, if history is to repeat itself, and also Japan is going to engage monetary debasement
more than it has in the past due to the appointment of Kuroda as
chairman if The Bank of Japan. He's openly said he plans to weaken the yen against the
dollar, and we also expect other issues in Europe to arise which will be bullish for
the metals, such as bailouts of some of the paid countries, like we've seen over the past
few years.
So, really, nothing's changed. Consolidations are normal ion a bull market. Yes, it's been
discouraging, and this one's been fairly protracted, but we think that's coming to an end, and
the mining equities are just more attractive than we've ever seen them.
Over the last ten years, the gold to HUI ratio has only been above 4.0 for 47 trading days,
and 37 of those have come within the last nine months, so this is when you want to buy,
when there's a lot of blood in the streets and things are trading at extremes which they
are now.
Rahul Thakkar: One thing I wanted to add regarding the Dollar Index, if you look at it, obviously,
it's a basket of fiat-based currency. The Euro consists 57 percent of that and then
the yen ten percent around and then the British pound around 10 to 11 percent, so, roughly,
that's close to 80 percent of three garbage fiat-based currencies, so that's why I think
the dollar's going to continue to strengthen, even though it's a piece of crap, in my opinion.
Getting to the last topic, I wanted to look at what the price of gold and silver will
be at the end of the bull market. I've interviewed many individuals, and they've been concluding
that it's going to be around $5,000 to $10,000 an ounce. Peter Schiff has also said this
because we're going to go back on some sort of gold standard, whether it's fractional
reserve-based or not, I don't know, probably. Do you see something like that happening?
$5,000 to $10,000 an ounce? Right now it seems ridiculous, but it could end up happening.
Chris Marchese: Oh, I think that's going to be easy, although it sounds nuts, but, you
know, we're stuck between a rock and a hard place. We can't take in all the excess liquidity,
otherwise, it'll cause interest rates to rise, then our cost of servicing our gross federal
debt would skyrocket and then we would have to print more money in order to just be able
to service that, which, you know, in turn would cause our deficit to just go through
the roof even more so.
Basically, you know, to put a certain price target on gold and silver is kind of a fool's
errand, because all fiat currencies have collapsed sooner or later, so, it's best measured, you
know, against, say, something, another commodity, like oil, or something they can't print.
Rahul Thakkar: So, when do you think this market's going to be over? Is it going to
be when the Fed just completely loses control of printing money? Is it going to be higher
prices? Is it going to be a new currency that's introduced? I know that's really difficult
to project, but what are you thinking?
Chris Marchese: It will be when they can't manipulate interest rates any more. Interest
rates will have a life of their own and the market will decide them. The Fed, no matter
what they do, won't be able to keep them in check and that'll lead to the bond bubble
popping and, in turn, the U.S. dollar.
Rahul Thakkar: All right, Chris, before I let you go, how can people follow our work?
Chris Marchese: There are a few ways. You can go to Silver-Investor.com, and we also
started a new website, which is research-based on resource companies, not just mining companies,
that's RichesInResources.com, that's Riches, I, N, Resources, dot com, or you can send
me an email at Chris@Silver-Investor.com.
Rahul Thakkar: All right, thanks for coming on again, Chris, or thanks for coming on,
Chris.
Chris Marchese: My pleasure, thanks.