Market Call with Jim O'Connell: The Great Gold Debate
RoBTV Gold Debate Sept 19 2006
(not spell checked or for accuracy.)
stockhouse.com
John Embry, chief investment strategist, Sprott Asset Management
Paul van Eeden, president, Cranberry Capital
Steven Hochberg, chief market analyst, Elliot Wave International
From bce place in toronto, cadillac presents report on business television, live on location. Market call with Jim O'Connell.
>> Jim: And welcome to the heart of downtown toronto, this is the great gold debate. We're joined today by john embry from sprott asset management, john, welcome back, good to see you.
>> Always nice to see you jim.
>> Jim: Paul van eeden, and steve hochberg will be joining us from elliot wave. Good to see you.
>> Hi jim.
>> Jim: Let's go around the table. John, you call this correction this 20% haircut on gold an ir irrational correction. Why is that.
>> I think gold is severely under valued, in terms of paper currencies. You know my view, the U.S. Dollar is doomed and the extent to which is falls will be governed to by other countries and how much they want their currencies to rise. I suspect they will cushion the U.S. Dollar policy, we'll be dealing with global currency debasement and gold will then be seen as a currency, it will be the currency people go to. It's going up a lot in price.
>> Jim: Paul, you call the run-up irrational. On what basis?
>> Paul van eeden: My model for pot gold price is very simple. I go back to be 1933 when we knew what the price of gold was vis-a-vis when we knew what the price of gold was, it was determined by $20, one ounce coin and I look at the expansion of U.S. Money supplies since 1933 and the expansion of U.S. Gold supplies since 1933 and that money tells me gold should be 850, $900 an ounce right now and the reason gold is not there is because the U.S. Dollar is over valued. It takes a 35% deevaluation of the U.S. Dollar make it $900, so when gold is $600 i think gold is fairly valued. I'm not alone in thinking the U.S. Dollar could depreciate by that amount because the eocd came out this year and called for exactly that valuation.
>> Jim: Let's go to steve hochberg, elliot wave in atlanta. How bearish are you on gold, steve?
>> Steven hochberg: First of all, I can't find anybody who thinks the U.S. Dollar is going up which is one reason I think it's poised for a significant rally over the next several months and if that happens, our views that goild could get down to the $450 area and I think we'll see where it goes from there. I think the potential is we're sitting on the precipice of a deflaigsary environment after the revaluation we've had over the last up pelliers and in a deflationary environment, just about everything goes down. I happen to be in agreement with the gold bulls on a currency basis and i do think longer term gold is the ultimate currency but the question is I think we're going to have a big step back before we step forward and have that move up in gold. We're in agreement in that longer term. >> Jim: That sets the table. We've got lou schizas standing by in the audience, he's going to be take ig questions. How are you?
>> Lou: Fantastic. Good to be with the audience. Some of the comments i got from talking with some of the viewers, things like i fired my broker, I'm using robtv to get us where they wanted to go. A hot of bragging going on so a lot of money's being made and I want to thank cadillac as well jim for sponsoring this live event all week.
>> Jim: You'd look good in that convertible, lou.
>> Lou: I'm going to have to follow some of our viewers' advised. It's priced out at $113,000, I'm going to be asking for some tips from our viewers.
>> Jim: Cadillac lou, stay with us. We've got a great show. The great gold debate continues live on "market call." We'll be right back.
[Applause]
>> Welcome back to the great gold debate and our first question comes to us from the floor from our audience lou?
>> Lou: Jim, I'm here with bob, he's enjoying his retirement, he's 58 years young and having a good time. He watches every afternoon. He's got a question for our panel.
>> Good afternoon. My question is should our rcmp portfolio has any gold stock and if yes, what should be the percentage.
>> Jim: Gold in an rrsp. Jump in.
>> John embry: I'll take. Absolutely I think you should have gold in your rrsp and i would say you should have at this point in the cycle a minimum of 10%.
>> Jim: Why do you say that. What about you?
>> I'm not an investment voice or so I can't answer the question. Outside of the cash i raised this year, all of my investments are in gold.
>> You've described yourself as a gambler but we'll come back to that. Ron on the line in vancouver. Hello, ron.
>> Oh, hi, great show. I'd like to ask mr. Embry why there is not a concentrated effort by the imf or others to verify exactly how much gold is in the central banks and do an actual accounting on it all? And a comment on madison mineral, if you could.
>> John embry: That's an excellent question. Quite frankly, you could ask why has want the united states honoured its gold reserve since the 1950 said. Clearly the imf has supported accounting rules that a have allowed central banks to double count so i would accuse them of being complicit in the whole scheme to keep gold prices uncan because this is not a transparent market. Basically the facts being provided to the public are not reality so I would ask the imf that question, dent ask me. I think they're wrong.
>> Jim: Let's talk manipulation, conspiracy theories, you call it a rational collection, an orchestrated collapse, a gold takedown what do you think of these theories? I want to get your response, first of all.
>> I don't know if gold is being manipulated. There's no way to prove it. But my position on it is that if i assume that gold is being manipulated, that assumption alone gives me no predictive capabilities, so as an investor, having that position is of know use to me. Second point is that --
>> Jim: So you don't buy it.
>> I don't buy it. But the second point is that gold, gold declined from 1996 to 1999. Quite substantially from $417 in february of '96 to $254 in 199. And during that time everybody was talking about the manipulation of the gold price, central bank selling, et cetera, and none of that had any relevance to the decline in the gold price. Then gold rose from $250 to $730. Now if that happens during a period when gold is manipulated down and conspired against, then it is irrelevant.
>> Jim: We're going to to guelph into it deeper but john?
>> John embry: I would say gold should never have gone to $250, paul it was the I lease of an enormous must amount of central bank gold to the market not through selling but leasing, which eventually then did get seldom so rally today from $250 to $730 looks highly impressive but it never should have gone under $400, and everything else that's going on in the financial system, we started out at $4500, $700 wouldn't look that impressive. So i still think it's manipulated.
>> Jim: We're going to come back to that. Lou's got another question from the floor.
>> Lou: Jim I'm here with dal, works over at centennial college in montreal. He's got a question for the panel on the same subject of manipulation manipulation.
>> Hi, I was wondering if I could get both of your views on the pos oibl manipulation of the gold price.
>> Jim: Who's manipulating the gold price?
>> John embry: The U.S. Government and the central banks and they're doing it through their bouillon bank associates.
>> Jim: What do you say to that? This conspiracy theory?
>> Paul van eeden: Again, I don't buy it. John made a good point, which was that gold went from $400 to $250, and according to the manipulative thoery, gold should never have gone down to $250. According to my model, gold should absolutely have gone down to $250 because the U.S. Dollar appreciated by 120% from 1990 to 2001, and that appreciation of the U.S. Dollar causedded a devaluation of gold in terms of U.S. Dollars which is what we measure it in.
>> John embry: But that was part of ruben strong dollar policy, to crush the gold price to put more of a lift into the dollar of the you've got the horse before the cart.
>> Jim: I want to bring in steve hochberg from atlanta. What do you make of these conspiracy theories, steve? You put them in the same camp as the J.F.K. Conspiracy theory in dallas don't you?
>> Steven hochberg: Right, I think if you want to go chase people behind a grassy knoll you can do that but i don't think that helps people trying to invest. I happen to be in agreement there's absolutely no evidence that the price of gold is being manipulated. In fact in terms of the work that we do, we're technical analysts at elliot wave international. We use the elliot wave principle a our methoddology, the really from $250 to $732, the rent high, traced out what a beautiful elliot wave pattern, so if there was manipulation this pattern would have been somehow interrupted but it juan interrupted. I just don't think it gets you anywhere in trying to figure that out. What you need to do is look at the internal indicateors of the market in terms of sentiment, pattern, cycles, and I think that will point new the direction of where gold is going in the future.
>> Jim: John's chomping at the bit.
>> John embry: As you know we wrote a paper suggesting the goal price was manipulated much it was never refuted by anyone. A lot of people agreed with us, congratulated us and the rest people maintained a stoney silence but since we wrote that paper merm mit me to read a comment from william white, the head the economic monetary department the bank of international settlement, bis, the central bank's central banker. >> Jim: Do it quickly.
>> John embry: And he said talking about a major objective, central bank cooperation was the provision of international credits and joint efforts influence asset price, especially gold and foreign exchange and circumstances where this might be useful. Now if that isn't something from the horse's mouth, reason why what is.
>> Jim: You're saying there's deceit going on?
>> Absolutely.
>> Lying going on?
>> Absolutely.
>> Jim: Involving the biggest banks in the world?
>> Absolutely.
>> The central banks and bouillon. Final word on man up lailgs?
>> I still don't buy man up lailgs, because what john said the strong dollar policy was part of the manipulation. The united states government adopted the strong policy after the U.S. Dollar strengthened and the U.S. Dollar was strengthening because of an influx of foreign capital due to foreign durns see crisis. So it wasn't manipulation by the government. The U.S. Government was being reactionary at the time.
>> Jim: We're going to pick up on this discussion. Stay with us. The great gold debate continues. "Market call" live on location. Do stay with us.
[Applause]
>> Closed captioning of this program is brought to you in part by empire life. Solutions for your investment, insurance and group benefit needs.
>> Steven hochberg: Welcome back to the great gold debate, live from down town is toronto. John embry, paul van eeden, steve hochberg our guest today. And lou?
>> Lou: I'm here with arnav a co-op student from the university of guelph working for cibc world markets. He says he loves the business environment, watches report on business television every morning, he's got a question for our guests.
>> Hi guys, great show. I was wondering what your outlook is on zinc. I know it's a little off topic but it would be appreciated if i could get your response.
>> Base metals.
>> In the last 12 months, we've seen base metal prices run substantially, especially zinc. They are at historically low prices and prices are set at the margins and so all these commodities are very expensive. I believe the major reason for the run-up in commodity rises is institutional investment money. Generalist funds and hedge funds, coming into the market, the metal marketses hooking for a hedge against the deevaluation of the dollar so I believe that these metal prices have run up substantially higher than where they should be. There's a lot of systemic risk, especially in places like zinc and if you just look at it intuitively, when do you want to be buying assets? Do you want to buy when the prices are high and inventories are low or do you want to sell when prices are high and inventories are low low?
>> Jim: Let's go to allen from winnipeg beach?
>> Caller: Hello, jim, thank you for an excellent show. Mr. Embry, I'd appreciate your comments on the mongolian government's efforts to pose a royalty tax and I was wondering how you see playing outs and what sort of effects you see it having on companies such as qgx?
>> John embry: That's an excellent question. Needless to say I'm extraordinarily disappointed in the mongolian government's initiative. A country with -- i don't think they have three million people and they have considerable mineral riches. For them to do this is essentially turning away foreign capital. What kind of both others me a little bit, I don't know whether they've got a side deal with the chinese, they just sort of move in there and sort of take advantage of this, but as -- I'm a big player in qgx and clearly the stock's gotten trashed as a result of it. It's cheap now but they can only keep under the way it's proposed, two-thirds of their property and the amongglian government goes along for the ride so it's a very retrograde step, i think.
>> Let's go back to lou schizas on the floor from one of our questions, lou?
>> I'm here with carol, she's telling me she's travelling a bit nowing she's retired and she's got a question for our panel.
>> Hi. How will the gold sector perform compared with commodities?
>> John embry: Do you want to take that? Yeah, i think -- paul probably addressed it pretty well, because i think they will decouple to some extend because gold oh will be seen as a durns see whereas the other commodities will be seen as commodities that are more susceptible to economic vaguearies so consequently I think there's a good chance sometime in the not too distant future we will see a recession in the united states and sort of might have implications for the rest of the world. That assay would be very bad for commodities in general in the short run. I'm still very bullish longer term but goal, conceivably in that kind of scenario, the U.S. Dollar could come under tremendous pressure and gold could do very well and couple from commodities it. I much prefer gold at the current price levels.
>> Jim: Let's go to guy on the line, vaughan, ontario. Are you with us? Guy? Yeah, I'm right here. I was just wondering, the last correction we had was pretty bad, i was wondering what do you guys think of gold year en, gold and silver prices year end and could this be our next leg up to see gold at $700 an ounce?
>> Jim: Paul?
>> Paul van eeden: I hate to make short term price predictions because I just don't know how to do it.
>> John embry: Because the market's manipulated.
[Laughing]
>> Paul van eeden: But I think there's a lot of systemic risks in all the market funds. The same that came in and bought metals the beginning of last year, bought lead, zing, silver, copper, aluminum, nickel and gold. And because they bought gold, I call it indiscriminately bought gold without differentiating between a monetary commodity asset and a commodity, my fear is when they sell these commodities with the developing U.S. Economic down trend they will in the short term sell gold as well. So I'm nervous about short term weakness in the gold price. Longer term I absolutly agree with what john said. There will be a decoupling and gold is going to outperform the other metals.
>> Jim: Let's bring in steve hochberg who joins uss from atlanta. Steve you told me, and "no one is going to get rich investing gold in the last five years." What do you mean by that? I guess I know what you mean but explain iT.
>> Steven hochberg: Well I guess that really goes back to your previous caller who was noting that gold's run up and price metals have run up but that's not it. Commodities have run up four ex has run up, for example the euro, housing and stocks have run up and I think people are miss an important point, and something we've been talking about since early 2004 when we published an article in berens, we put a chart together called all the same markets and what's happening here is firmly contra-cyclical market, such as stocks and commodities are now running pro-cyclical and what we theorize at the time and it appear to be come ogg true is that at the late stages of a credit cycle, everything seems to be moving with liquidity, as liquidity expand, everything rises, more or less together and as liquidity contracts, everything falls more or less together. So what we're seeing is --
>> Jim: Okay.
>> Steven hochberg: Go ahead, we're seeing one by one things start to roll over and fall, housing, commodities, stocks are topping outs and we think gold and silver are going to be in that category to fall along with everything else.
>> Jim: John, 30 seconds.
>> John embry: I share steve's concern on the deflationary tendencies. What I would say, though, in a murray fiat monetary system, you can really do a lot of work to sort of push moral -- more liquidity into the system. If the U.S. Government is to monday advertise everything in the world to keep it from collapsing, I think it will.
>> We'll be back in just a moment. John embry, paul van eeden, steve hochberg in atlanta. This is the great gold debate. Day with us, "market call" continues rights after this.
>> With back to the great gold debate. John embry, paul van eeden, steve hochberg, and steve hochberg with elliot wave in atlanta said that deflation is going to bring bouillon down. Is that a fair quote, steve?
>> Yeah, that's a fair quote. Sure.
>> Jim: We've got somebody who wants to say something about that. Paul?
>> Paul van eeden: Yes, I think that's wrong for two reasons. First of all as john mentioned, deflation is a low probability event. We've got ben bern knack co-as the chairman now and the first thing he's going do if we see any serious threat of inlaigs is he's going to monday advertise the U.S. Debt and if you monday advertise the U.S. Debt you create massive amounts of inflation. In fact the biggest threat is inflation not deflation. The second reason the deflationary model is wrong is because the last time we had a real deflation in the united states was the great depression in the 1930s and then there was only one reserve currency. It was $1 based on gold. It was a closed system. We now have an open system of fiat currencies and the fact that it's an open system means if we have a deflationary economic turndown in the united states, the rest of the world is going to sell U.S. Dollars, and when they sell U.S. Dollars, you're going see the U.S. Dollar exchange rate go down while the U.S. Economy goes down and gold is going to go up in U.S. Dollars.
>> Steven hochberg: All right, steve, you want to defend that?
>> Oh, absolutely. Here's what the inflation has seemed to miss in their arguments is that the inflation that we've had over the past seven years has not been a currency inflation, it has been a credit inflation and the fed's main goal here has not been printing federal reserve notes, it's been fostering the expansion of credit and there's a subtle yet vital difference and there's one thing people can take away from this programme, the difference between a currency and credit indisplaigs a credit inflation, what we've had, credit can be extinguished much faster than the fed is able to print greenbacks, hard dollars, kurns seegss and when the dollar denominated value of debt declines on a currency inflation, that is the definition of deflation. Eventually that may lead to hype her inflation but first you're going to have a deflationary environment.
>> Jim: Very good. We're going take a call from sergio in toronto. Are you with us sergio?
>> Caller: Yes, I am. I have a question for all three. Are we headed for a U.S. Recession? And as housing starts are down 20%? Second part of my question, if we are heading to a recession, does that not mean the U.S. Government will receive less tax revenues which will balloon the U.S. Deficits which will hurt the U.S. Dollar? Your comments, thanks.
>> John embry: I agree with everything he said. I think we're headed for at best a recession worst, something along steve hochberg's line.
>> Jim: Are you talking depression?
>> John embry: Could be but it will be an inflationary depression for the simple reason economic activity -- U.S. Is more like argentina was. It's not like japan. There's no savings, it's a current account deficit, a totally different situation,.
>> Jim: We're going take a question from lou on the floor. Lou?
>> Lou: Jim hirm with bob, student at the university of western ontario stoud I didn't think business, and i want to show you something really quick. Do you know what they team you at the university of western ontario school of business? At uncertain types, eat desert first. Look what bob's got under his chair right there, okay? He didn't want to miss out and I want to congratulate him for knowing what to do in uncertain times. Bob you got a question for the guys? >> Yeah, just wondering if you could offer up some advice for an investor starting out. Is gold a portfolio to blo upon?
>> Jim: Is gold a good cornerstone?
>> Paul van eeden: John you're the investment advisor, you should take that.
>> John embry: Paul has most of his own assets in gold and I have to fess up I have a considerable proportion of mine. It's different times and cycles. At this stage of the cycle, yeah, I think gold's a very important component of anybody's portfolio. Absolutely.
>> Jim: May I ask you how much of your portfolio consists of gold?
>> John embry: Personally? 65%?
>> Jim: 65% gold. Don't try that at home, right?
>> John embry: No my wife thinks i'm crazy, too.
>> Jim: Paul what about you?
>> Paul van eeden: I've raised a lot of cash in the last six months but prior to may i would said 1995, 5% of my assets were if gold. Right now it's probably somewhere between 40 and 50% with the rest in cash and I'll go back to 65%, 70%.
>> Jim: We're going it take a short break. Steve hochberg in atlanta, elliot wave. Thank you so much for joining us today. We do appreciate your input.
>> Steven hochberg: Thanks, it's been fun.
>> Jim: Great to have you on the show
[Applause]
>> Jim: And we'll be back with the second half-our great gold debate here from B.C.E. Place in downtown toronto. I'm jim o'connell. Stay with us.
>> Report on business television. Guiding your investments.
>> Bce place in toronto cadillac reports report on business television, live on location. "Market call" with jim o'connell. And welcome back to the great gold debate, john embry, paul van dunedin my guest today, paul, you're quoted as saying we are not currently in a gold bull market. What do you mean by that?
>> What I mean is i look at the price of gold from 2001, pick your own bottom. Up until now gold has appreciated by well over 100%. But that appreciation is not a bull market in gold, it is a bear market in the U.S. Dollar. The only time we saw substantial decoupling of gold from the U.S. Dollar exchange rate was from the middle of last year to may of this year and decoupling can be explained by the influx of capital into metal market, not just gold, all metal market, and guess what? It was as a hedge against the deevaluation the U.S. Dollar exchange rate. So it all comes back down to two things. Monetary inflation and exchange rates of fiat currencies. That's the model that dictates the price of gold. And the rise in the price of gold is no more than a deevaluation of currency by inflation and a deevaluation of the U.S. Dollar on foreign exchange marketses.
>> It's semantics, really. I think it's being under written by a decline in the dollar and currencies in general. But how do you explain what happened in 1970, 1980 where gold went to $850. Sure there was inflation and everything but the gold got way ahead of itself and it can decouple currencies, and it can become panic stricken, it's in the a big market. It's like all the elephants through the key hole. It's a problem.
>> How high is the price of gold going? Once it finds the bottom in base, say the next 12 months to two years.
>> John embry: I'll quote my friend jim sinclair, he thinks $16.50 and he's smarter than I am. I'll take his number.
>> Jim: Over what period?
>> Jim: Over the next 18 months.
>> Jim: I'm going to pin you downment your target?
>> Paul van eeden: Can't pin me down on 18 months but I'll go this far. I have two model, one predicting $850, $900 for the current gold price today if we work on constant 1990 dollars. So if we see an instantaneous deralluation of the U.S. Dollar to fair value, $800, $900, my other model predicts $1300. So I'm saying $900 to $1300 but every year we wait for the deevaluation of the dollar, that price goes up. So could it be $1600? Absolutely. If it occurs over five years.
>> Jim: Could be $3,000.
>> John embry: The key thing isn't the actual price. I ago with paul. These spot predictions are ridiculous. All you got to know is the trend is dramaticly higher over the next few years and most people aren't trading like that right now or the gold shares would be a lot higher than they are. Right now they're all still looking at it's going to go down and whatever you.
>> Jim: Let's go back to the lines, ken is in hamilton.
>> How are you doing? It's a great show hee today. Personally we're seeing a sell off of gold by U.S. Banks.
>> Allegedly.
>> We see gold coming into the september 26th meeting of central european banks and discussing their gold reserves, what do you think of intrepid mines mines?
>> Well I think that may be a minor factor because they do need a physical source of gold to sort of bring the gold price down. I think the biggest factor in the gold market right now is the upcoming mid-term elections in the united states. The republicans cannot lose theous if senator bush is going to get impeached. They will do anything to make this look better than it is and part of it is to keep the gold price down because it sends bad messages when it's going up.
>> You're saying the highest levels of administration, the U.S. Government, the fed, treasury secretary are using their line?
>> I believe they are.
>> They're sugar coating things to cover things up. What do you make of that?
>> Well, you know, you can always tell when a politician is lying, his lips are moving.
[Laughing]
>> Paul van eeden: But that not relevant to the gold price. I don't think these people are concerned enough for the gold price to think about more than a few seconds every year or so. >> We'll be back in just a moment. We have a lot of calls for our guest. Paul van eeden, here on the great gold debate, downtown toronto, stay with us
>> Jim: Welcome back to the great gold debate. We go back to lou schizas with a question from our audience. Lou?
>> Yeah, jim, I'm with torin from niagara falls ontario. Says i like -- he likes the action in the marketplace, you got a question our guest?
>> Yes, I do. Is gold still considered a geopolitical safe haven or is it still strictly considered a monetary instrument.
>> I think it's entirely a monetary asset. If you look at the biggest political risk, you know, going back a while, it was probably the biggest political event was the oil embargo in 1974 against the united states when the oil price shot up gold did nothing. Invasion of kuwait, iraq, gold did nothing. If you try and correlate the gold price to these types of geopolitical events there is no correlation but if you try and correlate correlate gold to monetary event there's a major correlation. As an example when israel invaded, the gold price shot up that week, and i read many places, oh, hook, gold's going up because of instability in the middle east. What people didn't mention was the fact that that was also the we can in which japan announced they were going to commence raising interest rates and basically what they're saying is we're shutting down the trade. That was far more significant to the gold market and financial markets than israel invading lebanon. >> Jim: We have john on the line in carville, alberta, john, go ahead.
>> Caller: Yes, good afternoon, gentlemen. Great show as always. I would like -- i've got a two part question one for john and one for paul. For john, how big is the risk on companies going into russia? I'm i thising of companies such as bema gold, and I have a fairly big position there. And the other question for paul is does paul buy gold stocks or gold itself?
>> John embry: That's an excellent question, you know? I've been reluctant personally to invest in companies heavily exposed to russia and i was sort of recommitted to that view the other day when she shot the number two sent central banker in russia. And then the stock market went up. These people don't seem to worry too much about these types of activities. I still think it's the wild west, I'm not sure of property rates. I'm not crazy bin cresting -- investing in russia.
>> Paul van eeden: Joe, I can't help it. I would have thoughts if they shot the central banker, you would have been overjoyed.
[Laughing]
>> Up until now I've been buying mostly gold stocks and almost exclusively very small companies involved in mineral exploration predominantly in gold. I am looking at trading physical gold as well but i haven't done that yet.
>> Let's go to bud in coquitlam. Welcome to the show.
>> Oh, hi. Thanks very much for taking this call. I'd like to have comments on the political risks in countries like ecuador, peru, bolivia and your favourite stock in that area. Thank you.
>> I think that you can't lump all three together. I think ecuador, which is having some enormous success in the exploration field are really being the classic case in point. I think they recognise that, you know, they've got to frost per mining so I don't see political risk in ecuador as being all that high at the current time. I think the election in peru was extremely important. Garcia, according to a friend of mine in peru, is following pro business type of policies so I think that's good. Bolivia's a more popular issue. Morales is a populist. I don't think he'll go after the gold industry. It's in the that small, it's not too significant. He probably needs apec silver to invest in there. My favourite stock in that part of the world is because it's so cheap, or vrana and bliveia, tradesing three times cash throw.
>> I'm here with wesley leslie, she works in healthcare. She came here to come with her mother janet and she's the agent triggering the buy/ buy/sell/hold decisions on her mother's behalf. Off question?
>> Yes, should I move my U.S. Investment into canadian currency investment?
>> I can only answer that by saying that i did would you buy U.S. Investments?
>> I think the authorities will resist a dramatic rise in the canadian dollar but i think ir respective of that the fundamentals behind the canadian currency are much better than behind the U.S. Currency.
>> We're going take a short break and go to mna activity and that will get john riehl ready up, I know here on the great gold debate. Stay with us, we'll be right back.
>> Closed captioning of this program is brought to you in part by kpmg enterprise.
>> Nice looking cadillac there. I think, john, you'd look good in that.
>> Too big.
>> Too big.
>> I like smaller cars.
>> We are back and this is brought to you by cadillac, of course. "Market call," the great gold debate and we have lou with another question from the floor for our guest today, lou?
>> Lou: Yeah, jim I'm here with lillian from burlington. She says she doesn't get to toronto much but she came here specifically for this special event of "market call." Lillian? You have a question for our guests?
>> Yes, i wondered if they would recommend investing in any precious metals trusts. Are there any?
>> Trusts in precious metals. I don't know of any, do you?
>> Are we talking about exchange traded funds or --
>> Royalty trusts.
>> John embry: You're going to have to get the gold price up higher so they're generating a lots of money so they can pay it out but that's coming. We don't have any, to my knowledge, yet.
>> Any think so. Thank you very much.
>> Speaking of higher price, what about all this mna activity. Iamgold buying cambior, 30% plus premium. I talked to you it the other day, you were livid jo as a shareholder in iam gold that saw the stock drop 20%, the market voted on what they thought of the acquisition. I think the large companies trading on the tse are reasonably efficiently priced and as far as I'm concerned I mean, they're going puts two of these together oh it's not a bad idea to put them together, more bulk and more people will buy, all those arguments, but fact is why don't they just take the 30 day moving average of the price for the previous 30 days and slam them together at that price? Why does iam have to pay 30% more?
>> Jim: You were offended as a shareholder.
>> John embry: I was very unhappy. We don't even get a vote so we can vote it down.
>> Jim: What terminal would you use to describe a deal like what?
>> John embry: I think egos at work.
>> Jim: What about the mna activity?
>> Paul van eeden: Because i invest in the small companies, this activity really doesn't affect me at all. The only thing I can say about it is you usually he get an increase in mna activity at the top of markets so if you see increased mna activity that doesn't make a whole lot-sense it should be an alarm going off.
>> Do you think we're at the top of the market?
>> Well I thought we were in may. We are look at a better time in the market right now, but we are at a higher time in the market, and the easy money was made in '99 and 2000 when nobody wanted to know about these sectors.
>> It's interesting banks are providing finance for takeover of companies. You couldn't even get in the front door of the bank talking about mna companies three or four years ago.
>> Jim: We have another question. Lou?
>> I'm here with matthew, a business student from brock university. Just got back from his last seem mer test in france. Not a bad lifestyle going there.
>> Talk a lot of it in the U.S. Dollar in relation to goad but how do you see the euro faring, the U.S. Dollar deevaluation moving forward?
>> I think the euro is going to strong enagainst the U.S. Dollar as be a sur as that may sound only because the united states has a trade deficit with respect to europe which means that the europeans are hoarding dollars. There's an imbalance in the foreign exchange market asks that has to be creeked. That's the short medium term event and the long-term, the problem with the euro is the fact that if you look at a fiat currency, it's basically -- money was always an iou. An iou and a certain amount of gold. When they took away the gold, it became an ioounothing. And what happened in europe right now, it's a who owes you national hockey league. So in the long term the euro has problems. >> We have peter on the line on "market call."
>> Caller: You've already commented on the importance of the united states economy, the united states dollar and interest rates and now they would affect the price of gold so the question is on cash. Should the retailer now increase their cash holdings in their port fold where he and wait for the correction to take place or would you buy gold or gold stocks or would you comment on worn gold? Have a nice day.
>> All right.
>> I'll take the first part of the question, i didn't hear the company. You can take that i didn't hear that. On the first part of the question, cash is working capital. It's just sitting there waiting to be deployed, it's in the a portfolio assets. If I was to try and device a stable portfolio, that portfolio would have a cash component but i would diversify that amongst other currencies. Gold is a monetary asset but it's not a fiat currency so in my portfolio, gold would be a very large component, but only if i didn't have anything more intelligent to do with the money and i believe i do.
>> John embry: The question was on western gold fields, this the reemergence of rand dofl ollett, and they're sort of reviving the meveg skeete -- m epd skite mine, an old num months property. It's not a bad story but the stock's ramped up from 20 cents to about $2. That's just not the kind of stuff i'd buy. I like to buy them when they're 20 cents.
>> Jim: Okay, let's go back to lou on the floor. Lou?
>> Lou: I'm here with one of our viewers, join us today. He's got a question for our guest about gold what do you think? >> I just had a question regarding peek goldie manned or production in terms of oil. You know how we're seeing there's pique oil, how about pique gold, when that would happen?
>> Jim: An interesting question.
>> John embry: The fact is that gold prices have been low on economics for so long that production's kind of flattening it out here and i suspect will remain flat at best for the next three or four years but if we get the gold prices paul and i are looking for, there's lots of gold still to be found. I don't think it's the same. Prot asset management is a proposal of pique oil, I wouldn't make that same at this point.
>> I'll add one brief comment to that the biggest gold deposit in the world is the basin in south africa and that is past its peaK. It's in the as relevant in the gold market as pique oil would be to gold market. While it's that good question, I don't think it's something that's going to impact the gold price to the same extent as could impact the gold price.
>> We're going to save the rest of our time for the top three picks from each of our guests from john embry and paul van eeden here on the great gold debate. So do stay with us. "Market call" on location continues right after this.
>> Jim: Welcome back to the great gold debate. Three picks from each of our guest, john embry, we're going it start with you, westdome mines, top pick.
>> John embry: West dome is one I've owned for a while. We're getting closer to a pay off. It requires higher gold prices for it to spit out money. They've got two operating gold mines, they're having some exploration success at the one in wawa, eagle river and they made a brilliant acquisition when they took the quina assess for next to nothing and they've discovered a lot of economic ore around the shaft. These mines will be in production for a long time and it's not well appreciated.
>> Jim: How long have you own had?
>> John embry: Oh, I've owned it for yearS.
>> Jim: Number two, great panther resources. Gpr.
>> John embry: Yeah, great panther, as you know, I'm extremely bullish on silver and I'm always searching around for legitimate silver vehicles and there's a lot around that a marginal. This one strikes me as one that i think work. It's basically run by a chap named archer and he's got a good pedigree, he's got an operating mine, he's got a really good one at wanatapo, i can baurlly pronounce it. The stock's moved up a bit, under $2, but i think if I'm right on silver, money's going to flood into stocks like these so i like great panther.
>> Jim: Number three, franconia minerals yoz yeah, it's one that's really flown under the radar screen. It's got $200 million tons of polymetal lick ore in minnesota up around the duluth area and it looks economic. Contained, it's 5 million contained ounces of precious metals, 3 million pounds of copper and a million pounds of nickel and market cap is 60 million. I've doubled my money but I think it's barely underway.
>> Let's go onto pauchlt three pick, ox ventures.
>> Paul van eeden: Auex venture, yes. Jim, let me give a preamble and we can go through the companies pretty quick. I invest in very small, early-stage grassroots exploration businesses and the one thing i learned is when you're doing grassroots exploration, you really have a low probability of success, so i don't buy these companies because of anyone particular project. I buy them because they've got competent management. They've got competent management and I can trust them so they've got technical competence and business acumen. When I look at my investment portfolio, i don't look at it as a portfolio of stocks, i look at this as a portfolio of people and I'm trying to accumulate and build and up grade the quality of people i invest in. If I look at the companies, auex ventures, rimfire minerals and miranda gold are three of the best management teams that I have ever come across in my life. These stocks -- these kind of stocks are not heirlooms but if you get a management team of this cal berx of this quality, you can buy the stock and you can hold it until they make a discovery or they bankrupt because it's the best chance that um ever a have of participating in a major mineral discovery.
>> Jim: How long have you had the first one?
>> Paul van eeden: Auex is a new company so i reason is had it for very long. Probably less than a year in total.
>> Jim: Miranda gold?
>> Miranda I've had probably going onto three years now. I bought the company before it existed in its present incarnation I bought it before the current management team came on and I've just added to my position since then and rimfire, I've owned probably since 2000 or 2001, and I've been buying more stock as the price has gone up.
>> Jim: There we have it.
>> John embry: I'd love to endorse what paul just said. Management absolutely key and I would say that one of the great reasons I was so lucky to be successful in aurelian was because i loved the people involved in the company and they have great success. Invest with great people your chances are a lot better.
>> Jim: We just have a couple of minutes lefT. This phase that we are about to enter in gold, is this where the real money is going to be made?
>> Yes, if you mean on a nominal basis. In other words I mean the biggest amounts of money going to be invested in the next phase and made in the next phase but if you're looking at the easy money, what we call the easy money, that has been made. That was $250 to $600. That's when stocks like miranda went from 20 cents to $2. I don't think miranda is going from $2 to.
>> Sophie: 20 without a discovery, but it went from 20 cents to $2 without a discoverry. Yes, it's pulled back, because the easy money was made, but nominally the most money is going to be made in the next cycle.
>> Jim: Is this the buying opportunity now, john?
>> John embry: I think in the junior, if it isn't, we're darned close. I mean, some of the juniors are on the bargaining table, it doesn't appear to be much buying interest and just takes a little bit of selling pressure to keep forcing them down. I love the valuations of some of the smaller --
>> Jim: What's to stop the central banks, if we take your theory, from continuing to suppress the price of gold?
>> John embry: Because there's enough physical demand in places like india, the middle east, russia, et cetera, their achilles heel is running outs of physical. The central banks don't as you know, as I've said so often, don't have as much as they tell you they do.
>> Paul, you're still not buying?
>> Paul van eeden: I'm still not buying the manipulation, but I do think that it the decline that we're seeing now with gold under $600 is a buying opportunity. I don't know how low it's going to go, but i can tell that you the lower it goes, the more I'm buying.
>> Jim: Gentlemen, thank you so much. Been a great pleasure having both of you here. Paul eden, john van embry, a big round of applause for our guests today [Applause]
>> Jim: And thank you to steve hochberg in land. That that is the great gold debate. "Market call" live at bce place in downtown toronto. I'm jim o'connell. Thanks for being with us today.
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