Bob Moriarty: The cause of all the turmoil in the Middle East—and what's going on in Wisconsin for that matter—has nothing to do with religion. It has nothing to do with democracy. It has everything to do with the cost of food.
Either Ben Bernanke is the dumbest guy in the known universe or the biggest liar—and perhaps both. He says that the Federal Reserve's second round of quantitative easing, QE2, has nothing to do with the cost of fuel and food. Of course it does. He has been wrong about every single thing he's said since he took office.
When people are hungry, they start riots. The riots in Egypt were directly related to the cost of food. The riots in Wisconsin are being framed as union versus anti-union. But it is really about people being afraid they won't be able to feed their families.
In the U.S., the problem is that the government can't afford the outrageous sums that it's paying union members for retirements. As many as 90% of members are retiring on permanent disability in some unions. California couldn't balance its budget even if it fired every state employee. We have too much government.
TGR: To what extent do you think Wisconsin is a harbinger of government cutbacks to follow in other states?
BM: Wisconsin is the canary in the coal mine. The funny thing is that Wisconsin isn't the state that is in the worst shape. California, Michigan or maybe New York, is in the worst shape.
Do you know how long it will take for the U.S. government to fail? Nineteen days.
TGR: How do you arrive at 19 days?
BM: Because that's how long it took in Egypt.
TGR: Do you think this unrest is going to overflow into the oil-rich countries, like Saudi Arabia?
BM: Absolutely. The media is highlighting the Middle East, but unrest has occurred in Croatia, Albania, France, England and Greece as well. The breadth of these uprisings is connected to the power of the Internet. These crowds can communicate because of Twitter, Facebook, Google, instant messaging and e-mail. People have the ability, on an individual basis, to take command of the situation. This has never before occurred, and it's a very important concept.
If the U.S. has riots and we overthrow the government, which I absolutely believe is going to happen, we're no better off. The debt still exists.
The entire world needs to go back to real-world economics—supply and demand. The economy needs to start producing things of value. This is literally a worldwide revolution.
TGR: So, if it's 19 days to overthrow a figurehead government, how much time does it take until some regulatory body is able to create food, jobs or a middle class?
BM: If there isn't any real money, which is gold and silver, probably 20 years.
TGR: What if you're Saudi Arabia and you have oil?
BM: Have you ever tried to eat oil?
TGR: You can't eat gold or silver either.
BM: You could trade it for food. There are no individual companies in Saudi Arabia running the oil business; rather, it's the government of Saudi Arabia. If the government fails, then oil refining and oil shipping stops immediately. It's already happened in Libya, but Libya's only 1.2% of world oil production, and Saudi Arabia is about 14%.
After the Yom Kippur War in 1973, Saudi Arabia was very upset with the U.S. for supporting Israel and declared an oil embargo. But what really happened was that the Organization of the Petroleum Exporting Countries (OPEC) started raising the price of oil across the board. Oil went from about $0.15 in 1969 to several dollars a barrel. There was another crisis in 1979, when the Shah of Iran was overthrown. Oil shot up to $12 or $15 a barrel, which was enormous.
TGR: Shouldn't we be getting out of equities, and getting into precious metals, at this time?
BM: I define investing in gold and silver primarily as being an insurance policy. I believe that everybody should own some gold and silver. I had a meeting with a billionaire yesterday and I told him exactly the same thing. You could have hundreds of billions of dollars and not have the ability to buy gasoline.
Owning gold and silver is something that prudent people should do. I'm not saying that people need to go buy silver at $34/oz. because it's going to $500/oz. I'm saying people need to own some silver, and I don't give a damn what the price is today because they may want to buy some food and gasoline down the road.
TGR: Let's assume our readers own physical gold and silver. Should they be pulling out of equities?
BM: You always need a spectrum of investments. Once they get past physical gold and silver as an insurance policy and investment, investors have got to put money into something. I keep most of my liquid assets in equities, even though I believe that we're on the verge of a major collapse in the stock market, and gold and silver shares could absolutely get whacked.
TGR: Currently, gold is doing quite well and silver is doing even better. Are there certain types of mining or junior equities that investors should be looking at?
BM: I avoid the popular areas in investment. Investors should want to get into investments when nobody wants them. That's when they're cheap.
TGR: Do you believe that metal juniors are popular now, or that they are yet to become popular? A lot of the mainstream investment shows and media really aren't talking about gold yet.
BM: I think we are in phase two of three. But I'm seeing a lot of scary things—like "market experts" forecasting that silver could go to $500/oz. I could see silver at $40/oz. in the short term, but I could see it at $20/oz. in six months. Silver at $34/oz. is pretty expensive.
TGR: A lot of people are speculating that silver will go higher. I haven't heard $500/oz., but we're looking at that gold:silver ratio.
BM: They're wrong about the gold:silver ratio. Historically in the U.S., it was 17:1, but we were using silver for coins. Nobody in the world uses silver for coins now, so most of the demand is as a commodity. Unless we go back to silver coins, I don't see the ratio going to 17:1.
TGR: No one really uses gold coins now either.
BM: True, but almost all the gold ever produced is still above ground. Gold gets recycled. Silver gets used. It's a commodity. At today's prices, there is something like $8 trillion worth of gold in the world. I doubt very seriously that there's $500 billion worth of silver.
TGR: You mentioned that you still have a large part of your liquid assets in equities. Can you share a couple of companies that you find particularly compelling?
BM: I've seen some really great stories. I went out to Guyana, South America last week and met with Sandspring Resources Ltd. (TSX.V:SSP). It has a green stone belt shear zone deposit, which can be giant systems. Across the border in Venezuela is the Las Cristinas gold project, one of the largest deposits in Latin America.
Sandspring has 6 Moz. of one-gram gold at surface. It's going to be a really successful operation. It has a $300 million market cap and should probably have a $1 billion market cap. The company has $50 million in the bank. That's going to set a floor underneath its stock.
Evolving Gold Corp. (TSX.V:EVG; Fkft:EV7), Gold Canyon Resources Inc. (TSX.V:GCU) and EurOmax Resources Limited (TSX.V:EOX) keep coming up with home runs. Stock in Timmins Gold Corp. (TSX.V:TMM) went from $0.40 to $2.25 recently. Stock in Rio Alto Mining Limited (TSX.V:RIO; BVL:RIO; OTCQX:RIOAF) went from $0.50 to $2.35 recently. There are some wonderful opportunities to invest in now.
TGR: What's new at EurOmax? In September, you were not saying too many nice things about it.
BM: Most junior companies out there are stock promotions. The company is run strictly for the benefit of management. There was a management change at EurOmax, which was a good thing.
EurOmax had a half dozen world-class projects that had no direction. A major shareholder started a little revolution to get the management changed. The management was voted out 3-to-1, but they said they were not leaving. I believe that they spent $2.3 million trying to defend an indefensible position, but eventually the company got new management.
Now the company is actually advancing its projects and communicating its story. It's still a very cheap stock at $0.36.
TGR: Are there other inexpensive juniors out there?
BM: Gold Port Resources Ltd. (TSX.V:GPO) in Guyana is in a spring stone thermal system, similar to those in Ghana, Mali and Burkina Faso, Africa. It's all the same kind of rock. These are multi-million-ounce deposits.
Gold Port probably has a couple of million ounces identified already and it's got a $15 million market cap. The company hired some people to do an NI 43-101. When I heard that, I went out literally this morning and bought shares at $0.15 each. It will be making a lot of progress.
TGR: How close is Gold Port to the Sandspring project?
BM: Very close, maybe 30 miles.
TGR: Are they part of the same system near Las Cristinas?
BM: Yes, it's called the Guiana Shield.
TGR: We've discussed Comstock Mining Inc. (OTCBB:LODE) in the past. What's going on with it now?
BM: Its plan was to be in production at 20,000 to 25,000 oz. per year in May. They have backed off that time prediction but still say they will be in production this year. That would be a giant accomplishment. It would be making money hand over fist. I would like to see more action, and more communication, from the company. But it has a big district—if it actually gets into production as it planned, it will be self-funded.
TGR: Is the stock price currently reflecting production this year?
BM: I don't think it is. Everybody's gotten bored. When I wrote about the stock, it went up from $2.80 to about $4.40. It's at about $2.90 now. It's a good story. However, the management needs to do more and communicate more.
TGR: What is the probability that it will go into production this year?
BM: I don't think there's any issue. It has a mill. It has a production facility. It was just going to bring in some equipment. It's fully permitted. The company was previously in production. It was just going to upgrade the equipment.
TGR: Another stock that you follow and commented on in the past is Animas Resources Ltd. (TSX.V:ANI).
BM: Animas was down in Mexico, but it never got traction there. The company has made a shift of focus to Nevada. Animas actually picked up a project that I looked at 10 years ago. I'm sure the company will be drilling. It's got really qualified people. I think that it will be successful one of these days.
TGR: Kiska Metals Corp. (TSX.V:KSK) was on your list for quite a while. It had a nice run-up in its stock.
BM: Kiska is in Alaska—big potential. With gold at $1,400/oz., Kiska could be making money hand over fist. It is still an exploration company, but it is moving forward. There haven't been any home runs, but it is well financed. If you can't make money at these prices, you should be raising moose.
There's a road that goes right past Kiska to the NovaGold Resources Inc. (TSX:NG; NYSE.A:NG) Donlin Creek deposit. If NovaGold chooses that road, it would be very beneficial for Kiska because it has to bring everything in by air now.
TGR: Any other thoughts you'd like to leave with our readers?
BM: Investors should be looking at graphite companies. Graphite is a metal that's been ignored. There's big potential there. There are just a few juniors that have started mining graphite.
I believe there is going to be a correction in gold and silver. It's not something that panics me, but people are making too much money and are getting too bullish.
TGR: Do you think the correction will be more than 10%?
BM: Absolutely. Silver can correct 10% in one day.
TGR: What about in gold?
BM: I'm a contrarian. I would rather see gold go down to $900. That wouldn't hurt my feelings at all.
TGR: It's a privilege, Bob. Thanks for being so forthright.
Convinced that gold and silver were at a bottom, and wanting to give others a foundation for investing in resource stocks, Bob and Barb Moriarty brought 321gold.com to the Internet almost 10 years ago, and 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 the current events affecting both sectors. Before his Internet career, Moriarty was a Marine F-4B and O-1 pilot with more than 820 missions in Vietnam. A captain at age 22, he was one of the most highly decorated pilots in the war and the youngest naval aviator in Vietnam. He holds 14 international aviation records, and once flew an airplane through the Eiffel Tower's pillars "just for fun."
Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.
1) Karen Roche of The Gold Report conducted this interview. She personally and/or her family 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: Sandspring, Evolving Gold, Gold Canyon, EurOmax, Timmins, Rio Alto, Comstock Mining, Animas, Kiska and NovaGold.
3) Bob Moriarty: I personally and/or my family own shares of the following companies mentioned in this interview: Sandspring, Gold Canyon, EurOmax and Gold Port. I personally and/or my family am paid by the following companies mentioned in this interview: None.