Predicted: Price Gold will be $5,000 and Silver can be $200

Rob McEwen: $5,000 Gold and $200 Silver Predicted

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 Corp. (TSX:K; NYSE:KGC), which has been trading at a five-year low, or Barrick Gold Corp. (TSX:ABX; NYSE:ABX), 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 Inc. (TSX:MAI; OTCBB:MNEAF) and US Gold (TSX:UXG; NYSE:UXG), 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 (M) 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 Inc. (TSX:LEX; OTCQX:LEXVF; Fkft:VN3A). 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 Inc. (TSX:G; NYSE:GG), 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 Corp. (NYSE:NEM) 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 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: Is there a small company or two with which you have a particular affinity?

RM: Rubicon Minerals Corp.'s (NYSE.A:RBY; TSX:RMX) development with Agnico-Eagle Mines Ltd. (TSX:AEM; NYSE:AEM) is positive. Rubicon just took a position in Agnico partly because the Rubicon head of operations worked up in the Red Lake district.

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.

Rob McEwen, whose association with the resource industry spans nearly three decades, serves as CEO of US Gold Corp. and chairman of its board of directors. Five years ago he also became the company's largest shareholder. Rob joined the Minera Andes board of directors in August 2008 and took over as president and CEO a year ago. Rob is also chairman of Lexam VG. He started building his reputation as the founder of Goldcorp, which has what is still considered the richest gold mine in the world in its Red Lake Mine in Ontario. He took Goldcorp from an investment company with $50 million market capitalization to one of the largest gold-mining companies in the world with an $8 billion market capitalization by the time he retired from the company. Rob has been recognized with awards such as Canadian Business' Most Innovative CEO, Northern Miner's Mining Man of the Year, Ernst & Young's Ontario Entrepreneur of the Year (2002) and Prospectors and Developers Association of Canada (PDAC) Developer of the Year. A 1969 graduate of St. Andrews College—where the McEwen Leadership Program was modeled on Rob's vision—Rob went on to obtain a bachelor's degree from the University of Western Ontario. He earned his MBA from York University's Schulich School of Business, where he serves on the Dean's Advisory Board, holds the Alumni Recognition Award for Outstanding Executive Leadership (2007) and provides generous financial support. He also holds an honorary Doctor of Laws Degree from York University. With community-oriented efforts focused on encouraging excellence and innovation in healthcare and education, Rob's generosity helped establish the McEwen Centre for Regenerative Medicine at the Toronto General Hospital and support the Red Lake (Ontario) Margaret Cochenour Memorial Hospital.

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DISCLOSURE:
1) Zig Lambo and Sally Lowder of The Gold Report conducted this interview. They personally and/or their families own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Rubicon Minerals Corp., Goldcorp Inc.
3) Rob McEwen: I personally and/or my family own shares of the following companies mentioned in this interview: US Gold Corp., Lexan VG Gold Inc., Minera Andes, Inc. I personally and/or my family am paid by the following companies mentioned in this interview: None.

( Companies Mentioned: TSX:AEM; NYSE:AEM, TSX:MAI; OTCBB:MNEAF, NYSE.A:RBY; TSX:RMX, TSX:UXG; NYSE:UXG, )

from : http://www.businessinsider.com/rob-mcewen-5000-gold-and-200-silver-predicted-2011-8

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Silver as a Safe Haven Investment
By Damon van der Linde – Exclusive to Silver Investing News
As investors look for save havens in precious metals amidst fears of currency inflation across the globe, a bullish outlook is projected for silver as a more affordable alternative to gold, though some analysts warn that even if they have been following similar recent price trends, the two metals should be viewed as unique and separate assets.
“Gold is money, and silver isn’t. It kind of has a mind of its own.” said Richard Briggs, a Senior Market Strategist at Lind-Waldock Canada. “Silver should have a good future, but it certainly is more volatile. So if you’re an aggressive trader, you might prefer silver.”
Gold is used by private investors, institutions and even governments as a hedge against potential currency inflation, and the yellow metal has been garnering much attention for this quality surrounding the ongoing debt ceiling impasse in the United States, the euro zone’s ongoing financial crises and worries about the Chinese rise in inflation. The central banks of the US, Italy, and even the International Monetary Fund have huge stores of gold in their vaults for such a purpose, while none of them stock silver bullion as an investment.
Silver has long been associated with gold, and for hundreds of years more or less maintained a ratio of 15.5 to 1 as a bimetallic standard. Today, the silver to gold ratio is around 41 to 1, and this obviously fluctuates widely depending on market activity.
“Bimetallism died about a hundred years ago or more,” says Briggs. “There’s a correlation between gold and silver because people to a certain extent perceive silver as a precious metal. A lot of people believe in it and a lot of people think it’s under-priced.”
According to The Silver Institute, more than 95 percent of annual silver consumption emanates from industrial and decorative uses, photography, and jewellery & silverware, leaving around five percent of total use as store value, depending on whether jewellery is considered an investment. Compare this with gold, where about 60 percent of use comes from jewellery, 30 percent as an investment and around 10 percent for technological and industrial applications.
“Silver is theoretically an industrial metal and its claim as a precious metal is not that concrete,” says Briggs. “You’d think it would be less volatile, but as long as I can remember silver has been significantly more volatile than gold. It’s just the nature of the marketplace.”
Briggs says that he believes the largest factor for today’s differences in the gold and silver market has to do with who are the players doing the bulk of the investing in the respective metals. He says that silver’s lower value appeals more to investors looking to make money on the short term, because the fluctuations are more conducive to quick buying and selling.
“The people who trade silver tend to be more active, and more aggressive,” he says. “The people taking concrete steps for the longer term are typically in gold. I’m sure there are a lot of people who have put silver aside for the longer term, but compared with gold there’s a lot of fast money in silver.”
Disclosure: I, Damon van der Linde, hold no direct investment interest in any company mentioned in this article.

Buy Gold or Buy Silver?

Gold Close to a 28-year low versus Silver; An Opportunity?
It would be an inaccuracy to write that investors don’t like uncertainty. Provided that the return makes up for the risk involved, then some level of uncertainty is acceptable. It’s the nature of the game, after all, to maximize return on investment. But the financial crises which have been brewing over the past several months, first in the Eurozone and now in the United States, have created such a high degree of uncertainty, that investors’ collective “comfort zones” are quickly eroding.
To say investors are nervous would be an understatement; given the current global economic situation, the risk/return ratio is generally off-putting. The typical “safe” investments, i.e. Treasury and government bonds, aren’t so safe anymore, and the safe-haven currencies, the Swiss Franc and Japanese Yen, may be safe, but their return is not that attractive, plus there’s the added worry that there will be an intervention by either the Swiss National Bank or the Bank of Japan.
So what does that leave? Where are investors to turn as uncertainty and instability rise? Where else but to the ultimate safe haven asset: Gold. Historically, it’s always been that way. Just this past week, gold has been pushed to an unprecedented $1,800 an ounce and there’s justifiable expectancy that it could go significantly higher before the rally ends.
Gold during Periods of Financial Stress
Analysts point out that there is an indicator of financial stress and investors’ risk aversion known within financial circles as the “Ted” spread, which is the interest rate spread between 3-month T-bills and the 3-month Libor rate. The “Ted” spread is used as an indicator of investors’ fears, and historically shows massive spikes in gold prices during periods of financial turmoil. These spikes were clearly seen during the fiscally-challenged 1970’s, and in October 1987 following Black Monday and the ensuing stock market crash, then again during the 2007-2009 Lehman-generated global crisis.
Gold is often described as the “crisis hedge,” and there is a strong and definitive correlation between periods of financial stress and the demand for gold during such times. Analysts note that there are three “financial crisis” scenarios that have historically driven up investors’ interest in gold.
Scenario #1: During periods where there is increasing volatility in asset prices and sharp drops in the value of other assets, i.e. equities or currencies, investors seek out an asset with a store of value which is independent of other assets.
Scenario #2: Investors fear a systemic collapse, say of an entire banking system, or have valid concerns of the creditworthiness of sovereign debt instruments for distressed governments.
Scenario #: Desire and need for a liquid asset during periods when it may be difficult to obtain, or even determine, the full value of other types of assets.
Gold’s Relationship to Real Interest Rates
Another factor which influences the price of gold is its relation to inflation, and the levels of real interest rates. Because gold is considered a “sterile” asset and does not draw interest, there is an opportunity cost for holding gold which increases as real interest rates rise, and decreases as real interest rates fall. Gold is especially supported during periods where real interest rates are negative, as it was during lengthy periods in the 1970’s and as it is right now, across much of the developed world. The current economic situation for many of the developed economies, i.e., near zero percentage interest rates and a modest inflationary trend, implies negative real interest rates, thus are supportive of gold prices.
Gold and Political Instability
Finally, another factor which is supportive of gold prices is political instability. In the period following the late 1970’s, beginning with the seizure of the U.S. Embassy in Iran, and the Soviet Union’s invasion of Afghanistan, gold prices spiked. In 2001, gold prices spiked again after the terrorist attacks of 9/11. In more recent months and continuing still, there has been one insurrection after another in parts of the Middle East and Northern Africa. Even among the world’s developed and democratic economies, political instability of a sort exists; it is evidenced by no-confidence votes, the resignation of elected officials and the emergence and rise of new political parties.
Gold and the Current Environment
Gold prices have steadily climbed, striking a new record high almost on a daily basis. It’s easy to see why. The United States and the Eurozone are in a state of flux and uncertainty. In the U.S., even if the debt ceiling issue is addressed, there remains the little issue of an impending and highly likely rating downgrade. In the Eurozone, there’s still a question as to whether or not the newly designed bailout mechanism will be sufficient to prevent a worsening crisis. On both sides of the Atlantic, effective interest rates are negative as inflation continues to rise. And both the U.S. Dollar and the Euro are in danger of a meltdown; investors are just waiting to see which will go first.
Silver’s Role
But what about the price of silver, you might ask? After all, it is considered a “precious” metal, used for coinage and jewelry making, among other things. True, silver may be defined as a precious metal, but it clearly doesn’t have the same “safety” aspect, nor does it hold the same cachet, as gold does, and there is one very good reason for that and it is specific to its “among other things” usage.
Silver is a key component in the industrial sector, used in the creation of a wide range of goods, including vehicles, computers, electrical and electronic components, weaponry, photo voltaic panels, etc. During a bear market, when manufacturing and production output falls, so too does the price of silver.
Earlier this year, silver prices had been trading close to a record high $50; analysts point out that the Fed’s quantitative easing program was a key factor in silver’s rise. Precious metals analysts point out that silver prices could move into triple digits, but only under certain conditions. If the Federal Reserve does eventually initiate QE3, it’s possible that silver prices could trend higher again, but as always with the Federal Reserve, investors will have to wait, and see. For the foreseeable future, however, silver prices aren’t likely to see too much volatility, at least relative to gold prices.
The Gold/Silver Ratio
Because of the relationship between silver and industry, the price risks associated with silver becomes clear. It also becomes clear why investors prefer gold. How much they prefer gold over silver can best be visualized in the gold/silver ratio. The gold/silver ratio is the number of ounces of silver one would need to purchase a single ounce of gold.
At the close of business on Friday, gold slipped from its previous day’s high to around $1,740 an ounce, while silver was trading at around $40 per ounce. The gold/silver ratio then, was around 46, a level not seen in more than six months. Comparatively, following the 2008/2009 financial crisis, the gold/silver ratio averaged near 50 for a full year.
Precious metals analysts expect that it is highly likely that the gold/silver ratio is going to continue to rise, so long as investors’ worry over the global economy persists. How high can it go? In the past, the ratio has been as high as 100, but it’s also been as low as 17; in the earlier part of 2011 (during the pinnacle of the QE2 era), the ratio was around 32.

Trading Commodities (Silver)

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