Panel of Experts All Agree on Strong Future for Precious Metals

By Alexander B. Korelin           January 30, 2004 www.abkorelin.com, www.kuik.com

The conversations I had with colleagues this past weekend at Joe Martin’s “Gold Show” in Vancouver, British Columbia strengthened my resolve and today I would challenge anyone who felt that the current strong markets associated with gold and silver were going anywhere but up.

Let me recount some of these conversations for you and see if you don’t agree.

My co-host on the Korelin Business Report, Paul Warren and I had dinner with Jay Taylor Saturday evening just prior to the Gold Show. As regular listeners to our program are aware, Jay is one of the most respected individuals in our industry and thousands of people seek his advice weekly by subscribing to his newsletter, Jay Taylor’s Gold and Technology Stocks.

We discussed the fundamentals behind why the precious metals should continue to rise in price. As Jay has brought up numerous times in the past both in his newsletter and on our program, one of the strongest of these fundamentals is the fact that the level of debt in the United States on the part of consumers, business and our government is frighteningly high. I agree with Jay when he says that when consumers are unable to borrow additional money, the economy will suffer tremendously. Historically, in a bad economy, gold and silver do very well and investors who heed Jay’s advice in a time like this could do very well.

We conducted four panel discussions at the Gold Show in Vancouver for our listeners and the opinions given during these discussions were well thought-out and valuable.

Our first panel, on Sunday morning, included Doug Casey, Laurence Raulston and Brent Cook. These are three very knowledgeable and successful individuals whose past writing has proven to be accurate.

Raulston’s advice to listeners was the same as he tells his subscribers, “Look for exploration stage gold companies with significant assets because the larger companies need these assets and are willing to pay dearly for them.” When this happens valuations of these exploration companies usually appreciates resulting in a lot of happy investors. (A good example is Northern Dynasty, which Laurence covered in Resource Opportunities some time ago when the stock was trading well under the $1 level. Today, after the news pertaining to the size of its Alaskan asset was released, the stock began trading in the $8 range.)

Doug Casey said that, “gold isn’t just going to go through the roof…..it’s going to the moon.” Doug is a guy who has made a lot of money in the market over the past thirty years and I take what he says seriously. He feels that a great way to take advantage of, what he predicts is becoming a “significant bull market in gold”, is to invest in gold mining stocks. In a recent article that Doug wrote he said, “The public will be chasing these things the way they ran after Internet stocks.”

For the wary, Doug said, “How do I know? Because I’ve been in this market for 30 years, and I’ve seen it happen five times in the past.”

He points to the peak years of 1973, 1980, 1983, 1987 and 1996. “This one will be the biggest of them all, because not only will gold be running, but the public – trained by the 1983 – 2000 bull market – all have brokerage accounts, and will be looking for the next hot sector.” (The three and a half thousand or so attendees at the Gold Show all agree with Doug that the next “hot sector” could very well be precious metals.)

The other member of this panel, Brent Cook, stressed that investors must carefully examine each company before they invest. He suggested that they read reports by a qualified geologist to insure that the company has a viable asset. (Considering Brent’s education and background in the industry, I personally take his advice seriously.)

Sunday evening, I attended a hockey game with a group of people from Diamond Fields International (TSX symbol, “DFI”); Frontier Pacific Mining (TSX symbol, “FRP”); Candente Resource Corp. (TSX symbol, “DNT”); and, Cangold Ventures (TSX symbol, “CLD”) These are companies whose executives are some of the most experienced people in the industry. In the conversations that I had with each of them, they all agreed that we were living in one of the most advantageous periods of the last twenty years for the mining industry. They all felt that success would continue to come to both the companies and the investors who bought stock in them.

About midway through the hockey game I sat down next to David Morgan (Silver-Investor.com) and we discussed the importance of silver in this market.

David said, “The amount of silver available from the dealer classification is around 50 million ounces at this time. The shortfall for 2003 will be reported in a couple of months and most likely will be in the range of 65 million ounces. Thus, you can plainly see that the physical market is getting tighter and tighter. Obviously, what remains on the Comex in the Registered category is less than one years supply. The current open interest in the March delivery contract is very large and some interesting rumors have been flying around. These rumors center around someone wanting to take a large physical position in silver by the end of March 2004. If this rumor turns out to be accurate then expect the silver price to move much higher very quickly. However, if the potential holders of silver (longs) decide to settle for cash before the end of March look for a spike and then a pull back.”

David believes that, “Long term the gamesmanship on the Comex will not matter because soon the market will recognize the silver story is real and market forces will respond to this reality. Meaning, silver will become priced much higher.

On Monday, I was involved in a panel with four of Vancouver’s best mining analysts: Dorothy Atkinson, Graeme Currie, Don Poirier and Jim Mustard. These are folks who stake their personal reputations on the advice they and their employers give to their clients. In addition to giving specific investment recommendations, which is beyond the scope of this article, they answered questions pertaining to basic industry fundamentals. All agreed that, for the time being, precious metals investment represented a great opportunity for financial gains. They cited falling currency values, questionable economic conditions throughout the world and political instability as being the rationale for the strengthening of precious metal prices.

I have been very bullish on precious metals since we started emphasizing this investment arena about two years ago on The Korelin Business Report.

I believe that many mining companies will do well in the months ahead providing that gold and silver trade at levels that allow profitability for each one. Most of the companies, which I follow, would be profitable all the way down to a $350/ounce gold price. Below $350 the universe grows smaller but it does not disappear.

Remember that most of us invest in gold and silver because we believe that these “hard money” investments give us insurance against difficult economic times. The price of the metals is certainly an important criterion in our investment decisions, but it is not the only one. Regardless of the price of gold or silver, corporate profitability is always the most important consideration when a person is deciding if they should buy stock in a public mining company.

Why would you invest in a mining company that is not profitable at $600/ounce gold or $7/ounce silver? Conversely, why would you not invest in a mining company that is profitable at $250/ounce gold or $4/ounce silver?

The recent guests on The Korelin Business Report have convinced me that under the current conditions my investing emphasis should be weighted toward hard asset type savings.

Dispatched: January 29, 2004

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Alexander B. Korelin has been writing his Northwest Commentary for the past twenty years. Mr. Korelin is the founder and president of A.B. Korelin and Associates, Inc., a business-consulting firm that works with the management of public companies. Mr. Korelin is also the co-host of “The Korelin/Hartfield Report” a one hour business radio program which has been on the air in Portland, Oregon for the past thirteen years and which airs on Saturdays at 11:00 a.m. on radio station KUIK a.m. 1360. The program is also available for listeners on the radio station’s website which is www.kuik.com/KH/KH.html