The Gold Report: Bob, in our last interview in February, we had currency devaluation in Argentina and Venezuela. We had interest rate hikes in Turkey and South America. We had a cotton and federal bond-buying program. Just eight months later in October, we've got Ebola. We've got ISIS. We've got Russia annexing Crimea. We've got a rising U.S. Dollar Index. We've got pullbacks in gold, silver and pretty much all commodity prices. With all this news, what, in your view, should people really be focusing in on?
Bob Moriarty: There is a flock of black swans overhead, any one of which could be catastrophic. The fundamental problems with the world's debt crisis and banking crisis have never been solved. The fundamental issues with the euro have never been solved. The world is a lot closer to the edge of the cliff today than it was back in February.
About ISIS, I think I was six years old when my parents pointed out a hornet's nest. They said, "Whatever you do, don't swat the hornets' nest." Of course, being six years old, I took stick and went up there and swatted the hornets' nest, which really pissed off the hornets. I learned my lesson.
We swatted the hornets' nest when we invaded Iraq and Afghanistan. What we did is we empowered every religious fruitcake in the world. We said, "Okay, here's your gun, go shoot somebody. We'll plant flowers." We are reaping what we sowed. What we need to do is leave them to their own devices and let them figure out what they want to do. It's our presence in the Middle East that is creating a problem.
TGR: Will stepping back allow the Middle East to heal itself, or will there be continued civil wars that threaten the world?
BM: We are the catalyst in the Middle East. We have been the catalyst under the theory that we are the world's policemen and that we're better and smarter than everybody else and rich enough to afford to fight war after war. None of those beliefs are true. The idea that America is exceptional is hogwash. We're not smarter. We're not better. We're certainly not effective policemen.
The Congress of the United States has been bought and paid for by special interest groups: part of it is Wall Street, part of it is the banks and part of it is Israel. We're just trying to do things that we can't do. What the U.S. needs to do is mind its own business.
TGR: You've commented recently that you're expecting a stock market crash soon. Can you elaborate on that?
BM: We have two giant elephants in the room fighting it out. One is the inflation elephant and one is the deflation elephant. The deflation elephant is the $710 trillion worth of derivatives, which is $100,000 per man, woman and child on earth. Those derivatives have to blow up and crash. That's going to be deflationary.
At the same time, we've got the world awash in debt, more debt than we've ever had in history, and it's been inflationary in terms of energy and the stock market. When the stock and bond markets implode, as we know they're going to, we're going to see some really scary things. We'll go to quantitative easing (QE) infinity, and we're going to see the price of gold go through the roof. It's going to go to the moon when everything else crashes.
TGR: How are you looking at the crash—short term, like before the end of this year? How imminent are we?
TGR: Are you in or out of the market?
BM: Oh, I'm in. Not in the general market, but I'm in resources. There's a triangle of value created by a guy named John Exter: Exter's Pyramid. It's an inverted pyramid. At the top there are derivatives, and then there are miscellaneous assets going down: securitized debt and stocks, broad currency and physical notes. At the very bottom—the single most valuable asset at the end of time—is gold. When the derivatives, bonds, currencies and stock markets crash, the last man standing is going to be gold.
TGR: So the last man standing is the actual commodity, not the stocks?
BM: Not necessarily. The stocks represent fractional ownership of a real commodity. There are some really wonderful companies out there with wonderful assets that are selling for peanuts.
TGR: In one of your recent articles, "Black Swans and Brown Snakes," you were tracking the U.S. Dollar Index as it climbed 12 weeks in a row, and you discussed the influence of the yen, the euro, the British pound. Can you explain the U.S. Dollar Index and the impact it has on silver and gold?
BM: First of all, when people talk about the U.S. Dollar Index, they think it has something to do with the dollar and it does not. It is made up of the euro, the yen, the Mexican peso, the British pound and some other currencies. When the euro goes down, the Dollar Index goes up. When the yen goes down, the Dollar Index goes up. The dollar, as measured by the Dollar Index, got way too expensive. It was up 12 weeks in a row. On Oct. 3, it was up 1.33% in one day, and that's a blow-off top. It's very obvious in hindsight. I took a look at the charts for silver and gold—if you took a mirror to the Dollar Index, you saw the charts for silver and gold inversely. When people talk about gold going down and silver going down, that's not true. The euro went down. The yen went down. The pound went down and the value of gold and silver didn't change. It only changed in reference to the U.S. dollar. In every currency except the dollar, gold and silver haven't changed in value at all since July.
The U.S. Dollar Index got irrationally exuberant, and it's due for a crash. When it crashes, it's going to take the stock market with it and perhaps the bond market. If you see QE increase, head for your bunker.
TGR: Should I conclude that gold and silver will escalate?
BM: Yes. There was an enormous flow of money from China, Japan, England, Europe in general into the stock and bond markets. What happened from July was the equivalent of the water flowing out before a tsunami hits. It's not the water coming in that signals a tsunami, it's the water going out. Nobody paid attention because everybody was looking at it in terms of silver or gold or platinum or oil, and they were not looking at the big picture. You've got to look at the big picture. A financial crash is coming. I'm not going to beat around the bush. I'm not saying there's a 99% chance. There's a 100% chance.
TGR: Why does it have to crash? Why can't it just correct?
BM: Because the world's financial system is in such disequilibrium that it can't gradually go down. It has to crash. The term for it in physics is called entropy. When you spin a top, at first it is very smooth and regular. As it slows down, it becomes more and more unstable and eventually it simply crashes. The financial system is doing the same thing. It's becoming more and more unstable every day.
TGR: You spoke at the Cambridge House International 2014 Silver Summit Oct. 23–24. Bo Polny also spoke. He predicts that gold will be the greatest trade in history. He's calling for $2,000 per ounce ($2,000/oz) gold before the end of this year. We're moving into the third seven-year cycle of a 21-year bull cycle. Do you agree with him?
BM: I've seen several interviews with Bo. The only problem with his cycles theory is you can't logically or factually see his argument. Now if you look at my comments about silver, gold and the stock market, factually we know the U.S. Dollar Index went up 12 weeks in a row. That's not an opinion; that's a fact. I'm using both facts and logic to make a point.
When a person walks in and says, okay, my tea leaves say that gold is going to be $2,000/oz by the end of the year, you are forced to either believe or disbelieve him based on voodoo. I don't predict price; I don't know anybody who can. If Bo actually can, he's going to be very popular and very rich.
TGR: Many people have predicted a significant crash for a number of years. How do you even begin to time this thing? A lot of people who have been speculating on this have lost money.
BM: That's a really good point. People have been betting against the yen for years. That's been one of the most expensive things you can bet against. Likewise, people have been betting on gold and silver and they've lost a lot of money. I haven't made the money that I wish I'd made over the last three years, but I've taken a fairly conservative approach and I don't think I'm in bad shape.
TGR: Describe your conservative approach.
BM: The way to make money in any market is to buy when things are cheap and sell when they're dear. It's as simple as that. Markets go up and markets go down. There is no magic to anything.
TGR: Let's talk about some gold equities, because many gold equities are probably at the cheapest they've ever been. What are some companies you are particularly interested in?
BM: Compared to the price of gold, gold shares are the cheapest they've ever been in history. Could they go down further? Of course. However, mathematically you've got the best opportunity right now. I went to see a gold company in California—California Gold Mining Inc. (CGM:TSX.V). The company has a historic resource from three different sources of 2 million ounces (2 Moz). It's high grade, easily mineable. The company owns a 3,351-acre parcel you could literally sell for the value of the company at today's price. It has an $8 million ($8M) market cap, and $8M worth of land. You can have 2 Moz gold for free. Now I'm sorry, but there is zero risk in that stock at this price. You couldn't screw that up. It's a very high probability of success.
TGR: Are there other names you think are interesting?
BM: I was down in Australia with Novo Resources Corp. (NVO:CNSX; NSRPF:OTCQX). Geologist Quinton Hennigh's theory of gold precipitating out of salt water has been absolutely proven. He's moving that project toward production, and I think the company will have a feasibility study by summer of next year. Novo Resources has been hammered. It's down from $2.15 to about $0.80/share, and it's cheap.
TGR: Last time we interviewed you, you were talking about WCB Resources Ltd. (WCB:TSX.V), also in Australia.
BM: WCB Resources is drilling in Papua New Guinea on a gold-copper porphyry, and the company will come out with drill results shortly. The stock is pretty cheap. WCB Resources could have big potential.
There's another company that I follow very closely called Barisan Gold Corp. (BG:TSX.V). It's in Indonesia. Of course, Indonesia is on the wrong side of the tracks, but the company keeps coming up with these incredible results. It will be a mine. That company is selling for a market cap of $3M. That's so irrational I just can't believe it. Forty years ago, that would have been a half-billion-dollar company. I think it will be again.
TGR: Does this low share price offset the risk of the Indonesian government?
BM: Yes. Barisan has a $0.14 share price. It either goes to zero or to $13/share. There's no in between. The management is young and aggressive. When the market wakes up to the opportunity, I think Barisan will be fine.
TGR: When Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) purchased Cayden Resources Inc., it prompted a flurry of conversation about possible acquisitions. What do you think about that strategy, and do you have any companies that you're looking at as possible targets?
BM: It's very funny that you talk about Cayden because I was writing about Cayden at $0.72 a share, talking about how wonderful it was. Agnico Eagle came in and offered Cayden about $3/share. I think anybody buying Agnico Eagle shares is going to make as much money as the investors who bought Cayden's shares at $0.72. Agnico Eagle is going to make a lot of money.
TGR: Would you care to share any more promising companies?
BM: Columbus Gold Corp. (CGT:TSX.V; CBGDF:OTCQX) has a 4.3 Moz resource, and it got a Russian company with nine operating gold mines, Nordgold N.V. (NORD:LSE), to come in and commit to spending $30M to do a bankable feasibility study. Nordgold can earn a 50% option on the resource. At some point, it will come in and buy Columbus Gold. Most of these resource companies are really cheap because they haven't got any money. With Nordgold spending $30M at the Paul Isnard project in French Guiana to feasibility, Columbus Gold may devote the $7.5M held in treasury to advance its recent gold discovery in Nevada, the Eastside gold project. Columbus is a no-lose deal.
TGR: If these companies are so cheap, why aren't we seeing more acquisitions?
BM: We are seeing acquisitions. The really funny thing is everybody's ignoring them because they say, "Oh my God, my gold went down. I don't want to buy gold any more. I don't want to own it," which is stupid.
TGR: Hard to argue with that. Bob, thanks as always for sharing your candid insights.
BM: Happy to be here.
Bob and Barb Moriarty brought 321gold.com to the Internet over 10 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 820 missions in Vietnam. He holds 14 international aviation records.
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1) Karen Roche conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
2) Bob Moriarty: I own, or my family owns, shares of the following companies mentioned in this interview: Novo Resources Corp., California Gold Mining Inc., Barisan Gold Corp. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned: Novo Resources Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over what companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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