Gold Market Update

In the last update, despite being extremely overbought, gold was expected to advance to even higher levels, for various reasons, principally the COT readings and the bullish volume pattern. I gave a target in the $1900 area, and that target was very nearly attained on Friday when gold hit $1881 intraday, before reacting back to close well off its day's highs.

Gold is now monstrously overbought and has finally caught the attention of the mainstream media who are all over it. These factors alone are regarded as making the probability of it reversing soon very high, and if we look at the charts we can see good reasons why it should react back shortly.
On all its short and medium-term oscillators gold is now horrendously overbought. We can see that on our 6-month chart with gold now super critically overbought on its short-term RSI, with it having been critically overbought all this month to date on this indicator. Meanwhile on its more medium-term MACD indicator it is now massively overbought - these conditions being reminiscent of silver late in April. In addition it has opened up a now huge gap with its moving averages.

Although it did not qualify as a bearish shooting star, the candlestick that formed on Friday, with its long upper shadow, is viewed as an indication of exhaustion, or near exhaustion, and thus as a warning. After further consideration of this latest chart it is suspected that an intermediate Head-and-Shoulders top could be forming in gold as shown on the 2-month chart below, with the price possibly having hit the high of the Head of this pattern on Friday, after the Left Shoulder formed earlier in the month, around the 10th. The volume pattern supports this hypothesis, with very high volume going into the Left Shoulder and high but lesser volume on the rally into the suspected Head of the pattern late last week.

When you stop and think about it, it is not unreasonable for gold to top out here and take a rest after after its recent spectacular run. On our 6-year chart below we can see that it has risen to hit a target at the upper return line of its long-term uptrend channel. The bird-brained commentators on the telly are now talking about it a lot, and as we know they have a tendency to do that once something has already risen 500 - 1000% as gold has done after the last 10 years. Actually, they are not as stupid as we may think, as one reason for their huge salaries is that they are paid to drum up a market for Smart Money to sell into, once something has risen a lot.

Gold's COT chart looks about the same as last week, although the Commercial's short positions can be presumed to have risen in recent days (the chart, below, is up to date only as of last Tuesday's [Aug 19th] close).

With gold remaining firmly in a long-term bullmarket, there is thought to be no justification for selling bullion, which could be difficult or impossible to replace later. Instead, holders of bullion may temporarily hedge their positions to preserve gains accrued to date. Traders in the surreal paper gold market can likewise hedge positions or take partial profits on holdings here to sidestep an expected reaction.
One possible reason for gold dropping here would be a sudden unexpected rally in the dollar, as a spinoff from a collapse in the euro occasioned by the deepening crisis in Europe, with further panic funds flowing from plunging stockmarkets temporarily into the dollar and Treasuries, mainly because most investors can't think of anywhere better to park their funds (hint: try bear ETFs).
Clive Maund
email: support@clivemaund.com
website: www.clivemaund.com

Silver Offers Greater Upside Than Gold: Experts

With gold prices soaring to a record high of $1,910 on Tuesday, some experts are starting to look at silver as an alternative trade, believing it has greater upside than the yellow metal.

"Silver [XAG=  43.01    -0.74  (-1.69%)   ] may come back on," Paul Heffner, CEO of investment managenet firm Gen2 Partners told CNBC on Tuesday. "I think the outside chance of more upside....is actually pretty high, as we see more momentum coming in to alternatives to gold."

Heffner believes silver could rise to as much as $50 an ounce, a 15 percent gain from current levels. That's compared to gains of around 5 percent, if gold[XAU=  1882.30    -14.59  (-0.77%)   ] were to rise to $2000 an ounce, a target cited by several analysts.

Although silver prices collapsed in late April and early May following margin hikes, Gavin Wendt, Senior Resources Analyst at Mine Life thinks the metal is likely to outperform gold over the next 6 months.

"Silver tends to lag the performance of gold," he said. "I think we are at that point now where we are most likely to see some further buying in the silver price, which could well take it up to $50."

Tom Price, Global Commodity Analyst at UBS also has a $50 price target on silver.

"We've got there before, we'll probably get there again," he said. "The markets are very emotional right now, it's not about fundamentals, it's about fear. So we've probably got some upside, just for the same reason gold does."

While gold has outperformed silver in recent months, silver has done much better over the past year, gaining 140 percent, compared to a 50 percent gain for bullion.

According to Daryl Guppy, CEO of Guppytraders.com the charts also indicate that silver has further upside. He believes the metal could reach its previous high of $48.48, which would translate to a 10 percent upside from current levels.

JPMorgan Economist: QE3 Only If We See Deflation, Equities Will Finish 2011 Up 8% To 10%

While global markets have collapsed in recent weeks, erasing more than $5.4 trillion in equity value around the world, market watchers have come out to call for a double-dip recession, with NYU economist Nouriel Roubini leading the charge.  But the economy won’t double-dip, explained J.P. Morgan’s chief economist Anthony Chan, and equities will rebound once risk is re-priced.  The economist also added that Bernanke’s hand will be forced only in the face of a deflationary cycle, making QE3 unlikely.  Chan reaffirmed his view that the S&P 500 will end the year up 8% to 10%.

The Dow has tumbled over 12% since the July 21 peak and is now down almost 5% in 2011.  Global markets collapsed in tandem, with equities in France, Germany, and Italy completely breaking down and gold spiking to fresh all-time highs.  With S&P having downgraded U.S. debt and investors running for the hills, calls for a double-dip and desperate begging for more monetary stimulus have run rampant.

Amid so much chaos, J.P. Morgan chief economist Anthony Chan stuck his neck out, noting “markets are readjusting to a new world, and there’s going to be a little turbulence, but once we adjust and see that this isn’t the end of the world, things will come back to normal.”

As analysts have downgraded their outlook on U.S. GDP, with Goldman Sachs adding a recession is 33% likely, J.P. Morgan sees growth in the coming 12 months at around 2%.  “There are good and bad things coming from 2% growth,” explains Chan, “it means we won’t have a recession, but it does nothing to bring down the unemployment rate.”  Growth needs to be at least 2.75% to begin to bring the unemployment rate down, according to the economist. (Read Goldman Sachs: Recession Is 33% Likely, QE3 Is Coming, GDP Will Grow Only 2%).

Equities will rebound once market participants fully digest the implications of a slow economy and that “it’s not a guarantee that global markets will enter a double-dip,” notes Chan.  Europe is part of the solution, actually.  While European debt woes, with so-called bond vigilantes forcing Spanish and Italian bond yields to spike, have been part of the problem, Chan highlights the European leadership’s commitment “step up to the plate” and do what is needed to avert a more extended downturn.

The ECB has already intervened by expanding its bond buying program, sending yields on Italian and Spanish debt sharply lower.  The EFSF has been expanded and given greater flexibility in order to provide emergency liquidity and stabilize financial markets, and the G7 has affirmed its will to do anything it takes to quell exchange rate volatility.  “I give them credit for taking steps in the right direction,” says Chan, who notes “this may not be the end [of the European crisis], they may still have to take further steps” to stabilize markets, but they seem to have proven that they are willing and capable to step in. (Read Berlusconi Confirms Italy Moving Toward Balanced Budget Amendment).

In terms of policymaking in the U.S., all eyes are now set on Fed Chairman Ben Bernanke and the possibility of QE3.  “We will see the reaffirmation that simulative monetary policy will continue for a protracted amount of time,” explained Chan, but decisive action won’t come from Tuesday’s FOMC meeting. (Read After ECB And G7 Commit To Intervne Markets, Will Bernanke Enact QE3?).

Three factors would force the Fed’s hand and lead to a further round of quantitative easing, the most relevant of which would be a deflationary cycle.  We are actually in a situation where prices continue to rise, according to Chan, so there’s no deflationary concern for the moment.

QE3 could be spiked by a continued, and deep, fall in asset prices, Chan noted.  Many have criticized Bernanke for targetting equity markets, but there does seem to be a connection between rising stock prices, consumption, and capital expenditures.  Quantitative easing appears as a good tool in the face of a deflationary market, but it would face serious trouble in a stagflationary cycle.

Chan’s final condition for QE3 would be a realization that the U.S. economy is entering another recession by FOMC participants.  ”None of these three conditions appear to have been met,” says Chan.

Chan appears as one of the few voices of optimism, albeit a moderate optimism, given market volatility and a generalize collapse that reminds investors of the turbulent days that followed the demise of Lehman Brothers.  With chaos descending into markets, from New York to London to Sao Paulo, Chan stands out as one of the few brave enough and willing to see markets optimistically.

Analysts expect gold prices to repeat 1980 climb

The ongoing bull run in spot gold prices may mimic the climb to dizzying heights seen in 1980 as bullion prices are increasingly becoming emotion drive.

PRLog (Press Release) - Aug 22, 2011 - According to Reuters analyst Wang Toa, the price of spot gold may mirror the rapid climb of 1980 as the metals prices increasingly become emotion driven. 

In 1980, gold shot to $835, completing a bull cycle that began with the metal’s price at at $34.95 in 1970, TW-International understands Wang said.

That cycle was corrective, made of three small waves labeled as "a-b-c", and the wave "c" traveled 4.618 times the length of the wave "a".

"That ratio may repeat under the present scenario, indicating gold could hit about $4,000 over the next few years," Wang went on to say.

But he warned that it was too aggressive to target $4,000 right now, saying he would rather target $2,345 by the end of this year, which is the 261.8 percent Fibonacci projection level of the current wave "C", based on his wave count and a Fibonacci projection analysis.

The wave "C" is made up of five small waves, with the current rally labeled as a wave "V", the final stage of a five-wave cycle, Wang pointed out.
The last stage is commonly the most aggressive rally in a commodities market, as seen in the sharp rise over the past several weeks, he said.

Wang also said that while factors motivating the 1980 rally were strong, including high inflation, Richard Nixon's action to detach the U.S. dollar from gold and Soviet intervention in Afghanistan, the latest run also had significant motivating reasons.

Gold Advances to Record

Gold surged to a record $1,899.40 an ounce as mounting concern that the global economy is slowing amid debt crises spurred demand for bullion as a protection of wealth. Platinum rose to a three-year high.

German Chancellor Angela Merkel attempted to shut the door on common euro-area bonds as a means to solve the debt crisis, saying she won’t let financial markets dictate policy. The Federal Reserve holds its annual symposium in Jackson Hole, Wyoming, this week, amid speculation that it may signal a third round of asset purchases to boost the faltering recovery.

“The sovereign-debt issues remain, and Germany has to decide whether it wants to carry the financial burden of the rest of Europe on its shoulder,” Matthew Zeman, a strategist at Kingsview Financial in Chicago, said in a telephone interview. “There are expectations that the Fed may talk about printing more money, and that is positive for gold and negative for the dollar.”

Gold futures for December delivery gained $39.70, or 2.1 percent, to close at $1,891.90 an ounce at 2:05 p.m. on the Comex in New York, the highest settlement ever. The precious metal rose 6.3 percent last week, the most since February 2009. It has advanced 16 percent this month.

‘Remains in Demand’

“Gold is still the safe haven, and as long as people fear recession in the U.S. and euro-zone debt problems, gold remains in demand,” Peter Fertig, the owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said by telephone. More U.S. asset purchases “would be bullish for gold,” he said.

The dollar has declined 6.3 percent against a basket of six currencies this year. Gold is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify their holdings away from equities and some currencies. Global stocks earlier this month slipped to an 11-month low, and bullion reached all-time highs today in euros, British pounds and Swiss francs.

The metal has gained 33 percent this year. The MSCI All- Country World Index fell 12 percent, the Standard & Poor’s GSCI Index of 24 commodities rose 2.4 percent, while Treasuries returned 7.7 percent, a Bank of America Merrill Lynch index showed.

Quantitative Easing

The Fed bought $600 billion in Treasuries from November through June in a second round of so-called quantitative easing, or QE2. The central bank said Aug. 9 that U.S. economic growth was “considerably slower” than anticipated and it’s ready to use a range of policy tools to boost the economy. The Fed pledged to keep interest rates near zero at least until mid-2013.

Silver futures for December delivery in New York gained 89.8 cents, or 2.1 percent, to close at $43.365 an ounce on the Comex. Earlier, it jumped to $44.10, the highest since May 3.

Platinum futures for October delivery advanced $30.80, or 1.6 percent, to $1,905.70 an ounce on the New York Mercantile Exchange, after touching $1,909.90, the highest since July 17, 2008. The metal gained for the 11th straight session, the longest rally since October 2007.

Palladium futures for September delivery rose $16.30, or 2.2 percent, to $765.10 an ounce on the Nymex.

Source: http://www.bloomberg.com/news/2011-08-22/gold-advances-to-record-as-platinum-reaches-high.html

The Neverending Story of a "Gold Bubble"

Gold continued to make headlines last week, reaching nearly $1,900 an ounce on Friday before resting around the $1,850 level. Gold’s 15 percent rise to new nominal highs over the past month has rekindled “gold bubble” talk from many pundits. Long-term gold bulls have been forced to listen to these naysayers since gold reached $500 an ounce. If you would have joined their groupthink then, you would’ve missed gold’s roughly 270 percent rise since.

That said, gold is due for a correction. It would be a non-event to see a 10 percent drop in gold. This would actually be a healthy development for markets by shaking out the short-term speculators while the long-term story remains on solid ground.

Forty years ago this week, President Richard Nixon “closed the gold window,” ending the gold-backed global monetary system established at the Bretton Woods Conference in 1944 and kicking off a decade of stagflation for the U.S. economy.

At the time, $1 would buy 1/35th an ounce of gold. Today, $1 will net you about 1/1,178th an ounce of gold. Put differently, “One U.S. dollar now buys only 2 cents worth of the gold it could buy in 1971,” says Gold Stock Analyst. This means that consumers have lost roughly 98 percent of their purchasing power compared to gold over the past 40 years.

The U.S. dollar isn’t the only asset gold has outperformed during recent decades. The yellow metal has also seen periods of relative strength against the S&P 500. This chart from Gold Stock Analyst pits the performance of gold bullion against the S&P 500 since 1971—you can see that gold immediately rallied following Nixon’s announcement before peaking at $850 an ounce in 1980. At that price, one ounce of gold was 7.6 times greater than the S&P 500, according to Gold Stock Analyst. Gold’s relative performance then declined for the next 20 years, with the S&P 500 taking the lead in 1992 and peaking at 5.3 times the value of gold in 1999. Currently, gold’s value is roughly 1.6 times greater than the S&P 500.

What drove gold’s relative underperformance from 1980 to 1999? It was a shift in government policies, which have historically been precursors to change—a key tenet of our investment process here at U.S. Global Investors.

Gold Stock Analyst points out that Federal Reserve Chairman Paul Volcker began steering the U.S. economy toward positive real interest rates in 1980 and Volcker’s goal was met in 1992—the same year the S&P 500 overtook gold.

In order for gold’s relative value to return to 1979-1980 peak levels of 7.6 times the S&P 500, Gold Stock Analyst’s John Doody says gold prices would have to hit the $10,000 mark. Obviously that scenario is unlikely, but it does put all this “gold bubble” nonsense into perspective.

One point to pop the “gold bubble” talk is that negative real interest rates are poised to stick around for a while. We’ve previously discussed that negative real interest rates—one of the main drivers of the Fear Trade—have historically been a miracle elixir for higher gold prices. The magic number for real interest rates is 2 percent. That’s when you can earn more than 2 percent on a U.S. Treasury bill after discounting for inflation. Our research has shown that commodities tend to perform well when rates fall below 2 percent.

Take gold and silver, for example, which have historically appreciated when the real interest rate dips below 2 percent. Additionally, the lower real interest rates drop, the stronger the returns tend to be for gold. On the other hand, once real interest rates rise above the 2 percent mark, you start to see negative year-over-year returns for both gold and silver.

It’s important to point out that it’s the political policies not political parties that drive this phenomenon. During the 1990s, when President Clinton was in office, there was a budget surplus and investors could earn more on Treasury bills (about 3 percent) than the inflationary rate (about 2). This gave investors little incentive to embrace commodities such as gold, and prices hovered around $250 an ounce.

Since 2001, increased regulation in all aspects of life, negative real interest rates, welfare and entitlement expansion funded with increased deficit spending have created an imbalance in America’s economic system. It’s this disequilibrium between fiscal and monetary policies that drives gold to outperform in a country’s currency. Today, the Fed capped interest rates near zero back in 2008 and the federal budget deficit has ballooned to $1.4 trillion. In fact, both the deficit as a percentage of GDP (negative 11 percent) and federal government debt as a percentage of GDP (nearly 65 percent) are at the highest levels since 1950, Citigroup research shows. This has helped fuel gold’s rise through $1,000, $1,500 and now $1,800 an ounce.

This is only one side of gold’s long-term story. Another point to pop the “gold bubble” talk is that we’re entering what has historically been gold’s strongest period of the year in terms of demand. In the past, gold prices have bottomed in August but recently gold’s strong seasonal period has extended into the dog days of summer as the holy Muslim holiday of Ramadan moves forward on the calendar by 10 days each year. This year Ramadan began August 1.

In its latest Gold Demand Trends report, the World Gold Council (WGC) confirmed that the Love Trade is burning bright in Asia. The WGC council said Chinese and Indian buyers continue to be the “predominant drivers” of gold demand, accounting for “52 percent of bars and coins and 55 percent of jewelry demand.” China’s demand grew 25 percent, while India saw an increase of 38 percent. WGC attributes this growth to “increasing levels of economic prosperity, high levels of inflation and forthcoming key gold purchasing festivals.”

But China and India aren’t the only emerging markets feeling the love for gold. Vietnam, Indonesia, South Korea and Thailand – labeled by the WGC as the “VIST” countries – are additional key gold-consuming countries.

The WGC’s chart below shows a potential opportunity in increased demand for gold, especially in jewelry, in the VIST countries. In 2010, demand rose to 253 tons after a sharp drop in 2009. Jewelry demand, however, was historically low while investment demand grew considerably.

Similar to China and India, the VIST countries have had a 2,000-year long relationship with gold which is intertwined in their culture, religion and economy. Jewelry and investment demand are one and the same, says the WGC: “The demand for gold as a store or accumulator of wealth, as an auspicious gift or as insurance against unforeseen risks, is to a large extent independent of the form it takes.”

This strong tie to gold means that, as wealth among residents of Vietnam, Indonesia, South Korea and Thailand increases, price is less of a consideration, and gold will continue to be at the top of their shopping lists.

At some point in the future gold prices will fall, that’s for certain. However, don’t expect it to happen soon. We believe the one-two punch of the Fear Trade and Love Trade will keep gold prices at elevated levels for another few years.

$5,000 gold and $200 silver lie ahead within four years - Rob McEwen

Rob McEwen explains his rationale for $5,000/oz gold and $200/oz silver and how factors leading to those prices will affect the industry and comments on some of the companies with which he is currently involved.. Gold Report interview

Author: Zig Lambo and Sally Lowder

PETALUMA, CA - 

The Gold Report: Rob, you've been quite vocal about your belief that gold will reach $5,000/oz. (ounce) and silver $200/oz. for silver. Why and when will that happen?

Rob McEwen: Your readers need to appreciate: Gold is money. It is currency. I think the number of people familiar with gold will grow as people see gold as a currency. China, India, Russia are buying gold to diversify their foreign reserves. To restore the confidence in currencies, I think some central banks, such as the Chinese and possibly the Russian, will increase their gold holdings to the level that the percentage of their total currency will be greater than that of any other currency in the world. At that point, they will assert that their currency should become the reserve currency of the world.

If you look at the last gold run, gold went from $200/oz. in mid-1979 to $800/oz. in early 1980. During the 10-year period of 1970-1980, we saw a 20-fold increase in the price, from $40/oz. to over $800/oz. We also had a 20-year low in 2001 of $250/oz. If you apply that 20-times multiple, you're up to $5,000/oz.

For silver, if you use the historic ratio of an exchange ratio with gold of 16:1, you get to $312, so $200 is conservative. I think we'll see these numbers within four years' time. 

TGR: You are talking about a 15-year bull market for gold and silver, starting in 2001 and ending in 2015 or 2016?

RM: Yes. I don't think prices will necessarily fall dramatically, but gold and silver will reach the zenith of purchasing power relative to other asset classes. When gold peaked in 1980, Volcker was channeling up interest rates. If you had rolled out of bullion into fixed income then, you would have made a tidy gain. 

TGR: Are you predicting prices of $5,000/oz. and $200/oz. as spikes, or plateaus that they will reach, stay at and trade around?

RM: I think you'll have a spike at or above $5,000. Credit will become more expensive, and at some point credit will be denied. There'll be a need for liquidity, and the metals address that need. 

TGR: When prices reach those levels, any project that smells of gold or silver will become a prospect that people will try to put into production. Will we end up with a glut of gold and silver on the market?

RM: No, but the higher prices will spur more exploration. At the same time, it is getting harder to bring a mine into production. It takes longer and costs more. The regulators have put more rules in place. It is not so much that the rules are wrong, but it's the extended time frames. The risk of putting a property into production has gone up dramatically. 

You're starting to see real limits on the amount of growth that can occur. In the 1990s and 2000s, very few people were going through mining schools because there weren't many career opportunities. The people who built the physical plants have scaled back. We are seeing the impact of that lack of investment in education, in the productive capacity of the suppliers and huge jumps in the capital expenditures for various projects. Labor wants a larger piece and you see a lot more labor strikes. Finally, governments are looking at the mining industry as a very easy target to extract more money from because the industry doesn't have a lot of friends. 

TGR: There is also a problem finding mining engineers who have track records of putting projects with proven ounces into production. There is a lack of intellectual capital. 

RM: You can see that manifesting itself all over the place. Coal mines in Australia are hiring miners from Tennessee. They commute between Tennessee and Australia on a three-week cycle. One headhunter told me he had an assignment to hire 400 people-mining engineers, geologists and related workers-for an iron ore mine. His instructions were to make offers 50% higher than their current salaries. 

On top of that, the mines have been mining lower and lower grade, supported by the higher prices. Few high-grade deposits are being found. You have to put more capital in the ground and mine a lower quality or concentration of mineral to stand still. 

TGR: Wouldn't that increase the value of mid caps that have experienced personnel on the production, mine building and engineering side? They know how to put projects with tricky deposits and lower grades into production. 

RM: You're right. There really is a premium on production and on reserves. As the price of gold moves up, those mid caps will become more desirable to the seniors and attractive to investors. Companies doing exploration have proliferated. That creates confusion in the marketplace. Companies will have to go to greater lengths to differentiate themselves to attract capital. Perhaps that is one of the reasons why the exchange-traded fund (ETF) is so popular.

TGR: Could that explain why the juniors have lagged? Companies have projects that sound like they have great potential, yet the prices of most juniors are going nowhere. 

RM: A couple of years ago, gold stocks had greater leverage than bullion; it was said that when bullion moves 1%, gold stocks will move 3%. People bought into that and they haven't seen the performance. Perhaps they were looking initially at the seniors for leadership, but the seniors have been standing still while the price of gold has been running. You can look at someone like Kinross Gold, which has been trading at a five-year low, or Barrick Gold, and a number of others. They just haven't delivered the performance. I think investors are asking, "If they are not delivering the performance, why will the intermediates or juniors deliver?" 

With gold, whether you buy physical or an ETF, you don't have any political risk. You don't have taxation issues or labor strikes. You don't have senior management making an investment that you don't agree with. All of those variables conspire to take the enthusiasm out of the buying of the juniors. ETFs are an easy way to get into gold quickly at a lower perceived risk. I prefer to be in the juniors because they have the potential to explode to the upside if they are lucky with a discovery or they are in a right position next to a mine that is growing and the ore body continues onto their property.

TGR: As the chairman, CEO and largest shareholder of Minera Andes  and US Gold, tell us what's going on with the possible merger?

RM: In mid-June, I put a proposal to the board of Minera Andes and US Gold to combine the two companies with an exchange ratio of 0.4 shares of the new company for every share of Minera and one share of the new company for each share of US Gold. The combined company would be a low-cost, mid-tier silver producer with a strong balance sheet, an income stream, a producing silver gold mine, a development pipeline of two silver and gold mines in Mexico and Nevada, and production out of Argentina. In June, if you combined the treasuries, there would be more than $120 million in cash, no debt, and trade liquidity on the NYSE. It would be a low-cost producer based on the production projections from our El Gallo and Gold Bar properties, anticipated to go into production in 2014. We would be producing silver using gold as a byproduct for a negative cost. With the gold credit, our cost of production would be less than $1/oz. 

The board has formed independent committees and hired financial and legal advisers to determine the appropriate ratio. The merger has to clear the SEC, which takes 30-45 days. Thirty-five days after the SEC approval, the shareholders will vote. In the case of US Gold, I won't have a vote, so what the SEC calls the minority shareholders, who are actually the majority, will vote on the merger. Minera shareholders will take two votes on an "evaluation and fairness opinion," one with me voting and one without me voting. 

So far, the market has suggested this is a good combination. Both share prices went up on the day the proposal was announced and have been performing better than the silver price, the gold price or the junior index. 

When I announced this deal, on a combined basis, my cost base in US Gold was $50M and $60M in Minera. Combined, based on the market, my investment is worth about $350M. If you were to compare that to the CEO holdings of almost every other gold or silver mining company, it's right up at the top, about 27 times higher than the average CEO.

TGR: Congratulations. You'll have cash flow from the Argentinian project, the blue sky of the Mexican silver, and the gold in Nevada with the silver credits. I can see why the shareholders were enthusiastic. Do you have a name for the company? 

RM: The name McEwen Mining has been proposed. Given that we will be in copper, silver and gold, that name isn't aligned with any one metal; it's more reflective of what we're doing.

TGR: You are also chairman of Lexam VG Gold . It sounds like on this deal you're following in the footsteps of your Lexam merger up in the Timmins Mining Camp. Did you use that as a template? 

RM: I started off with five companies and did three corporate restructurings over a period of eight years to create Goldcorp and then bought Wheaton River Minerals to kick it up to another level. 

One of my goals in US Gold was to qualify for inclusion in the S&P 500 in 2015. I think gold is under-represented on the S&P. Newmont Mining is the only gold stock listed there. 

There is more than $1 trillion invested by index funds in the S&P 500. It's a market that can add stability to your base and lower your cost to capital. That is an engine for growth, a low-cost capital. We've met five criteria for inclusion and have two remaining. We need a market cap in excess of $5 billion and four consecutive quarters of earnings. This combination moves us much closer to that objective. 

TGR: Can you expand on the Timmins Mining Camp?

RM: Lexam is exploring in the Timmins area in northern Ontario, historically the largest gold-producing area in Canada. Lexam has acquired a number of properties in the shadow of the headframe, the shaft, of some of the largest mines in the area. We have four drills going and released news about some interesting grades we found, extensions of vein structures that had been mined 40 or 50 years ago. 

There are about 1.5 million ounces largely in an inferred resource. We are looking to get the remnants and to go deeper than previous mines. There are a couple of sweet spots that we want to explore. The company has no debt and it has about $12M in its treasury, which will allow it to explore for the next two years.

TGR: Are there any other topics you've been thinking about that might interests our readers? 

RM: Right now we are looking at debt: the U.S. debt ceiling debate and the debt of sovereign states in Europe. I think any correction should be used as a time to accumulate. 

The quiet summer is a good time to stake out the juniors and intermediates and take positions. We've seen periods like this where physical gold and the gold shares separate in terms of performance. In September 1979, which was just before the top in the gold price, gold went from $200 to $400/oz. in the space of a little over four months, but the gold stocks didn't follow. It was as if the market didn't believe the price of gold would hold up there. It wasn't until September 1980 that gold stocks reached their highs. I believe that the market had to see the impact of the higher gold price on the cash flow and earnings before they would buy the stocks.

I think we're in that period right now. I would argue that we are starting to see the seniors move-Barrick has been moving today with the gold price. These are incredible cash-flow generators right now. They are going to have to do something with their earnings, dividend them out or up their yields. 

They also are going to look for growth. Barrick surprised everyone by buying a copper project, with cash. That was a curveball. I think they went into copper believing it was a better cash flow and cheaper than buying a gold property. Barrick is diversifying because they see opportunities. The seniors are doing deals to build the size of their companies, and that's positive for the intermediates and the juniors. The seniors have been reaching right over the intermediates into the junior-producer/junior-explorer side. The longer this gap exists, the more attractive the juniors and intermediates will become.

TGR: Here at The Gold Report we've seen our readership increase along with the exponential increase in investor interest in gold and silver. Most U.S. investors don't own mining stocks in their portfolios; do you think they will dip their toe into, if not bullion, then an ETF?

RM: Yes. The ETF has given more people exposure to gold. I liken the ETF to a mutual fund. It was often said that buying a mutual fund was the place to start investing in the stock market. Once investors become comfortable with the concept of being in the market, they start thinking about buying individual stocks because they think they understand how the market works. 

I think the same principle applies to the ETF. Once investors are in there, they are going to start looking around and saying, "Well, this gold price is going to do very positive things to these mining stocks at some point. Maybe I'll rotate some of my money out of the ETF or I'll put in some additional money and it will go into individual stocks where I think I can see much larger gains down the road."

TGR: Rob, thank you for your time and insights.

Source: http://www.mineweb.com/mineweb/view/mineweb/en/page103855?oid=133848&sn=Detail&pid=102055