Gold and Silver's Enduring Value

Don't be misled by the label "inflation hedge"...

IVAN LO is the editor and founder of Equedia.com and The Equedia Weekly Letter, an online publication focused on mining and resource stocks for Canadian investors.

Now with over 65,000 subscribers, The Equedia Weekly Letter has become one of Canada's most trusted investment newsletters. Here Ivan Lo explains to The Gold Report the philosophies that guide his publications, the reasons why educated investors have nothing to fear, and why some companies remain good bets in the out-of-favor mining sector.

The Gold Report: Some recent headlines from The Equedia Weekly Letter include "A Scary Prediction", "Prepare for a Crisis", "A Nuclear Threat" and "A Shockwave Is Coming". Should investors be fearful, or does fear help sell your newsletter?

Ivan Lo: Fear helps sell the newsletter, but not necessarily in the way you've worded it. Where there's fear and concern people go looking for answers, and we try to provide them. There's a lot of fear and concern right now – war with Syria in western Asia, nuclear threats from Korea, tensions between Japan and China, tension with China invading India's territory. These situations affect our safety and our financial well-being.

I think investors should be educated. If people are educated they are more prepared and don't feel the need to be fearful. Too many people in North America live inside of a small little box and have no idea what's going on around them, let alone in the world.

TGR: In a recent newsletter you wrote, "When you consider that we're in the middle of a currency crisis and a currency war, gold really is your only last form of liquid protectant." What would you say to the doubters who believe that money printing is already built into the gold price?

Ivan Lo: A very fine line needs to be drawn between gold as a safe haven and gold as an investment. Stocks and real estate are investments. Gold is a currency that's held as value; it has had real value since the beginning of time. It doesn't suffer from inflation. There is a downside to gold, which may be what the doubters are talking about: It doesn't generate interest.

People get it wrong when they talk about gold as an inflation hedge and that they don't want it because the inflation numbers aren't there. The price of gold is less affected by the rate of inflation and more by the level of real interest rates. The real interest rates drive the appeal of holding gold relative to other currencies. In the end, I'm not telling my readers to go and buy gold to make money. I say you own gold so you won't lose money. Don't trade it. Own it.

TGR: But that doesn't mean gold mining equities will necessarily perform...

Ivan Lo: Some incredible deals are out there if you know what to look for. People should start looking at gold plays as more of a real estate–style investment, where the idea is to get your hands on the rarest real estate project at the lowest possible price.

Natural Resource Holdings conducted a study last year and identified about 439 gold deposits in the world with over a million ounces. That's not a lot. Of that 439, about 189 are already producing mines. That leaves us with about 250 undeveloped deposits of a million ounces or more. Consider that the majority of them are uneconomic, and you're left with 100 at the most. 

So right now, economic gold projects are not only ultra rare but cheap. Rare is good, but cheap is even better. That's my case for select gold equities. Can you hang on for a second?

TGR: Sure...

Ivan Lo: Sorry about that. I just received silver bars that I ordered.

TGR: Really? Where did you buy them?

Ivan Lo: I ordered them out of the US. I was supposed to pick them up, but they shipped them right to my door. It goes to show you that I actually act on what I say.

TGR: That's funny. Could you share some of your readers' success stories from the The Equedia Weekly Letter?

Ivan Lo: I would say that all companies I mentioned are success stories. On a trading note, when everybody was screaming doom and gloom last year, we predicted that the S&P 500 would go past 1500 and the Dow would go past 14,000. We said to buy in late 2008, when everyone was telling people to sell. We told our readers that Japanese stocks would hit an all-time high while the yen would fall, and we told our readers how to benefit from that with exchange-traded funds. We're very fortunate to have had success when everybody else has failed.

TGR: The S&P 500 is past 1600 now, and the Dow Jones is above 15,000. Should investors approach equities with caution given those levels?

Ivan Lo: I am extremely cautious at these levels, but I do think the market has room to climb, especially given all the liquidity injections and the record amount of money sitting on the sidelines. Interest rates keep dropping, which leads to lower worldwide bond yields, which in turn should change how investors value equities relative to the fixed income market. Long-term bond yields can't keep up with inflation and are losing value. Fixed-income investors have to eventually rebalance their asset mix toward equities just to maintain their current allocation.

I tweeted last week – I just started using Twitter because a lot of my subscribers asked for it – that global yields on $20 trillion worth of government securities now yield even less than 1%. By incentivizing these fund flows into the equity market, stocks are going to rise. This isn't a fundamental market. It's one filled with euphoria. Just remember that the bigger they are, the harder they fall.

TGR: That's a good cliché right now. How does an investor focus on the positive when there's so much negative news?

Ivan Lo: I'll keep this short. There's always a positive if you know and prepare for the negative.