Wednesday 16th April 2014

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Grandich on 2011

A December 16 interview

By Kevin Michael Grace

Q: So tell me, to what do you attribute the hammering gold took the last week?

A: I think we saw technical selling which was exaggerated by year-end trading, where when people looked around there weren’t a lot of things they could sell that had profits, and gold was one of them. The physical market remained very strong. In fact, a lot of people spoke about premiums expanding on purchase. There’s people talking about central banking intervention and all that; that’s just more sour grapes than anything else.

Q: Everyone is talking about the 200-day moving average being breached.

A: The thing about that, Kevin, is that that it is an important issue for a pure technician. The problem is that it’s been broken at least a half a dozen times in this bull run starting at $400, and that didn’t end up stopping the market from driving much higher later on. I think it’s an important thing to look at for the short term and even intermediate, but I don’t think it’s something that overrides the bullish fundamentals in that market. I won’t lose sleep over it.

A December 16 interview

Q: How low could gold go in the short term?

A: I think support is about $1,530 in gold and $26 in silver. They can still be tested and maybe be broken briefly, but I think that’s the downside risk for the short term.

Q: I keep hearing about this liquidity problem, but the Dow has done pretty well. Where do these losses come from?

A: I think there’s been an over-exaggeration of how dire things were. I think it was more fluctuating positioning than an enormous number of people suffering dramatic losses. That’s why the US stock market wasn’t shorted.

Q: We’ve heard prophecies of doom with regard to Europe for several months now. Have the markets discounted this already?

A: People do get conditioned to it. That doesn’t mean that if the dire things happen, that it’s all going to be well and good. I am not one of those anticipating a total collapse of the markets.

Q: The US dollar is now the “safe haven.” But if you take the American federal debt and add it to the State and municipal debt, it would seem the US is worse off than Europe.

A: It’s worse. Europe is just the opening act; the real problem will come when it hits the shores in America. In terms of a safe haven, the lows on the US dollar index was around 70, we’re at 80; so we’re talking about a market that’s about only 15% up from its multi-decade lows. I don’t know how you consider that a safe haven. I just think the acuteness of the moment has made the Euro very weak versus the dollar. I don’t consider it a safe haven at all.

Q: Do you think that in the future physical trading of gold could become more important in determining price than paper trading?

A: I like to hope that would be the case because I do concur that there’s two distinct markets and that the paper market has not truly represented what takes place in physical. The good news has been that the manipulation and pressures from the paper market would last for sometimes months or even years, but now they have a diminishing effect that sometimes only lasts for hours or days, and the physical market and its internal strength reverses these negative influences.

Q: It seems like everything I learned as a young man about capitalism is no longer true. For instance, how it is possible to determine the price of gold when paper trades are leveraged at 100:1, and we don’t know how much gold exists?

A: That’s part of Jim Sinclair’s argument. I think you have to look at the whole financial arena. When you think of what just happened a few years ago [in 2008], expecting anything to be fair or reasonable is foolhardy. The financial industry effectively sold tens of billions of dollars of bad cars they knew were going to crash, and then bought life insurance on the drivers. That industry is around and still leading. These people are doing things that are unimaginable in the history of finance. I know the mainstream media doesn’t like hearing that, but they’ve been the goats and the patsies. I don’t know anybody that’s gone to jail over this.

Q: Why isn’t Jon Corzine, as the English expression has it, “assisting police with their inquiries”?

A: Where is the uproar over this? Where are the press conferences demanding there be a special prosecutor looking into this thing? That’s the sadness of where we are today. Believe it or not that’s one of the reasons the most dire goldbugs have predicted $5,000, $10,000 dollars an ounce. When it all comes unglued, nothing on paper is going to be worth anything, in their view.

Q: After 2008, we were told there was more than $10 trillion in counter-party obligations. Three years later, nothing has been done about this.

A: There was a determination we’re not going to look at it. We’re just kicking the can. CNBC and all the rest of the media are just not going to cover this. Thankfully, with the Internet people can learn about this and have a voice.

Q: Perhaps I’m a terribly cynical person, but I no longer believe government statistics. For example, where I live, the price of a loaf of bread has increased 60% in seven years. Yet, supposedly, inflation isn’t a problem.

A: Most people don’t believe the claim of 2% inflation, but they can’t do much about it; they can just try and live with it. As consumers we can look at all our bills; our food and clothing is much more than that. That’s why bonds are the most horrific investment anyone can make, worse than stocks right now. To give our money away at 2% for 10 years or 3% to 4% for 30 years when we all know that it’s costing us already that much more… The people that make the laws, it’s in their interest not to have the real truth come out.

It is unfathomable to look at metal prices, even after this correction, and then look at the valuations that have been placed on mining shares —Peter Grandich

Q: I wonder if that’s a problem with democracy. Bloomberg reported that the US government fought against revealing that it gave $13 billion in secret loans to the banks, but it seems that people would rather watch the Kardashians instead of thinking about the implications of this.

A: Reality television is a great symbol of how bad things have gotten. People don’t want to face reality, so they watch TV shows and dream that their lives can be that way. There are shows now where people are benefiting from other people’s misfortunes, like Storage Wars. Or these shows about pawn shops; this is the whole unravelling of the fabric of how life used to be lived.

Q: Tell me about your $1-million offer. [Grandich put $1 million in a bank to backstop an open bet that gold would reach $2,000 before it reached $1,000.]

A: The media just loves to wheel out the bearish viewers of gold any chance it gets, and of course during the height of the decline they were all brought ought, including the worst forecaster of them all, Jon Nadler. I said enough is enough, and we really need to put our money where our mouth is. I was pleasantly surprised at the manner in which Dennis Gartman conducted himself with me. He took the high road, but I wasn’t surprised to see Nadler and Jeff Christian’s comments. For Nadler to say at MarketWatch that he’s been an advocate of gold, urging as a core holding and has only tried to temper people when they’ve gotten overly bullish is the biggest lie I’ve heard stated in the gold market. We’ll see now if the gold market recovers, whether some of the appeal of Nadler, Gartman and Christian as commentators will be lost.

Q: Gold producers have this year been making a profit of $800 to $1,000 dollars per ounce. I look at their share prices and find them inexplicable.

A: Probably in a few weeks I will write something saying this is the year for juniors. And I’ll have to cross out the numbers 2006, 2007, 2008, 2009, etc, because every year I’ve said the same thing. It is unfathomable to look at metal prices, even after this correction, and then look at the valuations that have been placed on mining shares. It is unthinkable that 10 or 15 years ago, when metals were one-fifth or one-tenth of where they are now, that we would have thought that prices would increase to this level, and the shares would not come remotely close to reflecting that.

Q: If, as it appears, you can actually make money with a gold grade of 0.2 grams per tonne, you kind of think gold would sell itself.

A: You would, but we must remember that even to this day if you take the total market cap of all the major producers they don’t equal things like IBM. It’s still a rather small part of the overall investment portfolios for people around the world. We live it and breathe it each day, but to the bottom line of people in general it isn’t as critical. For Canadians, it’s frustrating because it’s really second nature for you. Here in America, the only thing people know about natural resources is they wonder if there enough gas so I can drive my car around.

A December 16 interview

Q: Do you think there any particular stocks that will do well in 2012?

A: I don’t think people have recognized yet how strong this developing iron-ore play in Quebec is. There are companies I work with like Alderon TSX:ADV and Cap-Ex Ventures TSX:CEV that are really advancing up the corporate ladder and had tremendous years in 2011. Then there are companies that make no sense in terms of how advanced their projects are versus their market caps. I can think of no better story that meets that criterion than Sunridge Gold TSX:SGC. In the next three to six months, we’re going to see prefeasibilities and final feasibilities on multiple projects of theirs that are going to make their net asset value multiple times more than their total market cap. If I had to pick one stock whose price is totally out of whack, that’s Sunridge. Why is that? A significant part is where they operate, in Eritrea. Despite it being actually a very good place to operate, the perception is still very bad. If that starts to change a little, and they continue to have great success as they have on the corporate front, we could see a dramatic re-evaluation of their stock.

Q: I’m very interested in this because the Canadian media has been very hostile to Eritrea.

A: What happened was this little country, Gabon, which is on the other side of Africa, was about to lose its seat on the Security Council, and they leaked this story they were about to force everything to stop in Eritrea. One of the things that’s going to change this story is you’re going to see the Chinese announce an acquisition in Eritrea. There’s a current company out there that won’t say who it’s involved with, but it’s in talks with a major partner. The Chinese have been in Eritrea sniffing around; they’ve looked at Nevsun TSX:NSU and Sunridge and others. Once the Chinese take a foothold in the country, all that crap in the UN will come to a halt, because they’re the next big thing economically. The worst in Eritrea is going to be behind us.

Peter Grandich is the founder of and Grandich Publications, LLC, and is editor of The Grandich Letter, first published in 1984. Grandich Publications, Inc. provides research, analysis, and investor relation services for certain of the companies featured in the articles appearing in its publications. Grandich is the author of Confessions of a Wall Street Whiz Kid, which Kevin Michael Grace reviewed here.

16 Responses to “Grandich on 2011”

  1. thak you for a great letter somone tell the trut wee need moore people like MR Peter Grandish best wishes jorgen johansson.

  2. As long as there is no internal stability in Eritrea, the Chinese or the Canadian media do not make significant difference to the prospects of a healthy investment in Eritrea.Harnessed and fettered people cowering under the heavy hand of tyranny are not a necessarily peaceful people. They are a humiliated people and mining companies are accomplices in the national humiliation. You and the Chinese leave a bad test in the thinking of oppressed peoples through out the world.
    Yes, if the people are muzzled from speaking to praise, appraise, and to criticize constructively and to have their views expressed in the open, things will remain very unhealthy for investment. As long as the government operates in the dark, things will remain lawless, ill thought, and ill implemented. What is in the dark is a poor prospect for investment. Additionally, Eritrea suffers from the absence of the rule of law.
    The Chinese can come and loot the defenseless and desperate Eritrean people. You may join them in the loot thinking the crisis are “behind us.” You are playing foolhardy hoping others will also be fooled. Your optimism is sadly misplaced; you are a poor prophet in this case. You can find a few to hoodwink, but even there, it will not work, because there no are requisite instruments of rule of law, equity, transparency and a sense of justice in poor Eritrea.

  3. Eritrea is doing very good in deed. The UN and UNDP reports on child mortality, education, health services and many of the social justice shows Eritrea’s huge success. Besides their strategy on food security is exemplary. None of African countries has yet showed progress as in Eritrea. The mining companies are more than happy to work and see how the out come of the revenue Eritrea is turning it to social development. For Eritrea it wont matter whether it is Canadian, Chinese or British that are investing on it’s soil. As long us they get money they will continue to harvest high quality of social justice and food security!

  4. On the contrary Tlk, there exists a well written and established mining law in the country, and the Eritrean government has shown their seriousness and reliability in developing the country’s mining industry. Well aware of the resource trap. I’m sure it will be of benefit for the Eritrean people.

  5. Mr. Tlk….you obviously have issues that you need to take care of. There is absolutely nothing that is going to stop Eritrea’s move to prosperity. Thanks for the G. of Eritrea (GOE) the country is ready to take off economically. If there is a rule of law any where in the world it is in Eritrea.

  6. TLK
    Grandich is right. The crisis is over in Eritrea. But, you don’t want to hear any good news about Eritrea. Who cares about people bloated with presumptuous righteousness and patronizing attitude, anyway. You don’t matter. Eritrea will prove you and your ilk wrong, as happened in the past.
    I am an Eritrean and care very much about the wellbeing of the people. I know what the government is doing in terms of economic development and social equality is right.

  7. I was surprised , but also laughed to read your comments- a comment that is full of hatred,that lack credibility. you said,’there is no internal istability in eritrea’. I doubt that your hatred might have overwhelemd your IQ. I do not know in which planet you live.
    As for Eritrea,it is the land of peace, generiosity,coupled with a well diciplined political leadership and with a hard working people.They believe in mutual respects by bieng masters of their own affairs and not interfering on thers’s affairs.Un like others, the people and Government of Eritrea are masters of their politcal policies and economies- based on their long stand policy of self reliance that develoved during the struggle for independence.
    you have to wake up and smell the freshness of self reliance and self dependence and that is the strategies and policies of the people and Government of eritrea.Eritrea is endowed with pricious minerals and rich natural resources, coupled with hard working people and healthy political leadershiop. And these worries and frustrates to all the enemies of Eritrea.

  8. Oh my god, Liars are always the first to speak so that they have to smokescreen truth. the fact is Mr/Mrs Tlk, Eritrea is a country with the most convenient investment climate compounded with a sound political stability. Apart from the machinations of malicious outsiders like the Yankees and their Ethiopian dogs(which i believe you are an Ethiopian) who are hell bound to see Eritrea fail, Eritrea has proved invincible. Contrary to the devilish wishes of its enemies Eritrea will be the paradigm of economic success in the world in general and in Africa in particular.

  9. When it comes to its mining industry Eritrea has established a well written code and the government has shown its reliability in its desire to develop the industry in a responsible way. I agree with the writer when he states “…all that crap in the UN will come to a halt, because they’re the next big thing economically.”

  10. ghirmai Berhane says:

    Responding to TLK.s posting,
    Eritrea is land of democracy from centuries back, twisted views like yours cause death and distraction, eritrea is a country that is one of the few countries that is gaining in wining on hunger and poverty,education. there more school, health center, hospitals, farm projects, roads, more people are drinking cleaner water, and access to medicine, rule of law and transparency, you must be a remnant of the of the 40s sad history of eritrea, Let the people who know run the show

  11. Yes, Exploitation has never stopped in Africa. The Eritrean youth become no payments at all. Only the dictator in Asmara makes all business alone, as if the country were a properity of his grndmother.The chinese are makeing now a good figure in Africa with no other intention except exploitation and exporting their ideology, if there is sitll any!

  12. @Tlk,you need to seek more knowledge on this story. Time will tell any way.

  13. tlk are you ok? is there a reason why you are wetting your pants?

  14. TLK is an Ethiopian or an angry sk opposition that wish ill of Eritrea. Thank you Mr. Grandish for the truth. Eritrea will survive and will shine than any African country. The fabricated sk sanction will be thrown to the dust been and the enemy of Eritrea will be naked crying soon.

  15. TIk,

    What nonesense. But it shows how disturbed you are. Look at what you said above:
    “The Chinese can come and loot the defenseless and desperate Eritrean people.”

    Obviously, you are one of those ill wishers of Eritrea, who never want that country to progress at all.

    Shame on you

  16. Tlk is nothing different than Gabon. All accusations based on lies, he is simply talking trash. Eritrea is the most stable country in the world.If we the masses, people of Eritrea, accept and love our Government what is the problem to you and all those who accuse us because we do not entertain hypocrites.If the reality was not painful to you and people like you the media would have reported our unconditional support in action at the UN General meeting in August 2011. That was an event where we flock to New York city by the thousands to show our support for our President. He loves his country, He works hard and we love him.

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