(Article edited on 1/27, removing mentioning of company “bias”)

I had the chance yesterday to speak with gold mining executive and co-founder of a growing gold producing company. It was a fascinating conversation, as he has raised $85 million dollars up to 4 years ago to grow what is now, a near $450 million dollar gold producing company.

What my contact said he is doing right now in this market, is closely watching the price of gold, and ”constantly scanning” the marketplace for acquisition targets.

On the acquisition side he said, “It’s a fear market not a greed market right now. If you look at some of the charts out there, the companies are trading as if gold was under $1000. Relative to the price of gold, these companies are way undervalued, [however], you have to be patient, you have to be gauging the market, and you have to be watching the marketplace all the time. You must be constantly scanning.” 

In discussing what might cause a spike in gold, he commented that, “Gold lends itself to the physical market. A lot of the ETF’s are simply options on gold and I think there has to be some catalyst here that will drive up the price of gold.  The catalyst may come in the form of some ETF defaulting, not having the physical gold in their accounts, and not being able to option their way out of it…there has to be some catalyst…where people say, ‘Wow, gold’s up $100 this month.’”

“The nice thing about the gold market is that you have to have the physical gold to back it up. If you don’t have it, then you’ve got a problem. There’s so much paper gold in circulation, that they couldn’t possibly cover all these pieces of paper. This is the same thing that they’ve done in the mortgage market, and same thing they’ve done with derivatives and swaps. So there could be a short squeeze on at some point in gold which would drive up its price. I can’t see a scenario in which the price would go down.”

“The conditions that have driven gold to this price have not abated, they’ve gotten worse and worse. Look at Japan, they’re going to be printing more money. They’ve tried deflation and it didn’t work.  If we get inflation, gold goes up along with all assets. If we get deflation, gold is used as a real currency. It’s the only thing that works.” 

When asked about the journey of founding and growing his company, he said, “We started this company 7 years ago when gold was $425 an ounce…and you have to fight like mad to get to production I’ll tell you. Everything’s lined up against you…You have to find it [the project], develop it, raise the money, put it into production without giving up the whole company, and you’ve got guys trying to pull the company out from underneath you in one way or another while you’re doing it…there’s dilution, there’s debt, and it’s hard to maintain a good interest in the asset by the time you’re finished, so it’s not easy.” 

In a final word on the gold equities, he added that, “This is one of those normal corrections in the bull market…but we’re still in a bull market. This two year correction is really shaking the tree right now. We’re going to need to see more fund inflows, and for that to happen, we’re going to have to see gold go much higher. So I’m very bullish on gold, and I can’t see anything else that’s going to be making more money than the gold sector in the next few years. Gold to me will be the best business to be in on the planet. 

Best,
Tekoa Da Silva
Bull Market Thinking