"Next Stop $1700 Gold"
"Nothing is standing in the way of gold and silver going higher" says analyst Berry...
DR. MICHAEL BERRY has specialized in the study of behavioral strategies for investing and has been published in a number of academic and practitioner journals. His definitive work on earnings surprise, with David Dreman, was published in the Financial Analysts Journal.
His Morning Notes publication, distributed worldwide, provides analyses of emerging geopolitical, technological and economic trends. Dr. Michael Berry has presented testimony to a subcommittee of the Natural Resource Committee and US House of Representatives.
In this interview with The Gold Report, Dr. Michael Berry gives his thoughts on the Gold Price...
The Gold Report: Dr. Berry, you are going to go before the Federal Reserve and meet with Congressional representatives on July 18. What do you plan to say?
Michael Berry: I go before the Federal Reserve twice a year. In this presentation on Monday, I'll talk about the geopolitics of growth in emerging countries and issues related to the Dollar, gold, convergence of the rest of the world and the weak global recovery.
Monday afternoon, I'll head over to the House and meet with the Chairman of the House Natural Resources Committee and Senator Lisa Murkowski's (R-Alaska) natural resource staff to discuss extractive resource policy, natural resource exploration in the US, critical metals and what's really happening in the rest of the world regarding resource nationalism.
I also believe I'll be meeting with Senator Murkowski's natural resource policy representative, McKie Campbell. I'm trying to educate the congressmen and senators and their staffs on how important natural resources are to the US and what's going on in the world with respect to critical metals, metals supply and demand and what policies we need to enact in this country.
TGR: Do you feel you've made progress toward legislation that's a bit more pro-mineral development or metal development?
Michael Berry: Yes, I think we've made some progress. It's a long education process and it's difficult to do because you have to be consistently in front of them. Congress has three bills pending now — two in the House and one in the Senate — that relate to natural resource development in the US for critical metals.
Not just rare earth elements, but a number of others as well. They also relate to exploration and development policy. I think we're making some inroads with Congress and others in Washington. It's very important that we keep that pressure up.
TGR: What is causing the continued upward climb in the Gold Price and what does it mean for juniors going forward?
Michael Berry: There is just a tremendous amount of uncertainty regarding the debt ceiling and the US credit rating. That is pushing gold and silver prices higher, which is positive for gold miners and exploration stocks. Look for $1,700/oz. gold by the end of the year.
TGR: What happens if there is no third round of quantitative easing and our elected officials come to an agreement on the debt ceiling? Does the Gold Price climb lose its momentum?
Michael Berry: Nothing is standing in the way of gold and silver going higher. There will be some accommodation on the debt ceiling and something will be done to try to keep the economy moving just because no one wants to see higher interest rates.
In the meantime, investors have come to the realization that precious metals play an important role in the portfolios of individuals, institutions and countries, which are now buying large quantities of gold. It will continue to hit new highs as the 250-day moving average is increasing beautifully.
TGR: In the second quarter, we witnessed a significant sell-off in speculative positions in both gold and silver. Do you believe a portion of that speculative money could find its way into copper?
Michael Berry: There's tremendous pent-up demand for copper around the world because of emerging economies. It is also much more difficult to make world-class discoveries today. I think copper prices will be very strong. Metals like zinc are also really starting to look very attractive to the exploration industry.
There's a lot of potential for discovery investment flows into some of the base metals, including copper and zinc, and some of the special metals such as manganese, vanadium and graphite.
TGR: Any discussion about copper has to include China. Beijing recently raised interest rates to fight inflation, but the economic indicators in China continue to improve and that ultimately means greater demand for copper there. Will supply disruptions converging with greater demand push the copper price above $5/lb. this summer?
Michael Berry: That is certainly possible. I can remember when copper was $0.65/lb., so obviously there is real upward momentum. Copper is a "quality of life" metal. Infrastructure can't be built-out without copper. I think that prices are going to be quite strong as we approach the fall season.
It is interesting to note that the Chinese started buying again as the price of copper fell in the last couple of months. Their demand is crucial. They are also bidding for copper companies around the world. I think we're in the third inning of a very long commodity supercycle in the world. Copper rightly will take its place in that cycle. Copper miners in Indonesia and Chile are experiencing labor problems as well.
TGR: Do you expect Chinese firms to take more runs at companies as a means to lower the cost of copper?
Michael Berry: I do, but I think the primary motivation of the Chinese is going to be infrastructure build out. It's a huge country with a growing middle class. Somewhere around $4 copper is probably very cheap to the Chinese.
But it will be more than just the Chinese that come into this game. Companies are going to get involved because there just hasn't been a lot of new high-grade discoveries that have been turned into reserves. It's a very interesting game that's being played. Africa is in play in terms of natural resources. No doubt.
TGR: Given the jurisdiction risk in Africa, could there be a bit of a premium on western copper plays?
Michael Berry: The Murkowski Bill, which passed in a unanimous, bi-partisan vote but hasn't been signed by the president yet, should help ease exploration in US Some of the discovery progress in Arizona and Nevada now is going to become increasingly sought after by large and small companies. I think there's going to be a premium on what's happening in the US, Canada and, to a lesser extent, Mexico.
TGR: You recently went to Guyana with a group of Chinese investors. Guyana is starting to see some major gold projects come into development. One is a severe lack of infrastructure and a pristine rain forest environment. Another is a shared border with Venezuela where several gold projects have been nationalized by the Hugo Chavez regime. Also, the Guyanese government is relatively unfamiliar with mining.
Michael Berry: You're probably right about some of those concerns. There is a lack of infrastructure. I don't believe that Venezuela is a factor at all. I don't foresee any problem with the Venezuelan government interfering in the internal affairs of Guyana.
There are some health risks. Malaria and yellow fever are a problem there. But I still think the glass is half full for Guyana. Especially, if foreign companies—primarily Canadian companies—bring their expertise, talent and jobs for the locals.
TGR: Is the government mining-friendly?
Michael Berry: We met with the Prime Minister and it's fair to say that in every developing country there are going to be nationalist undertones. But the government is welcoming in exploration and development. Some of the big companies are now looking carefully at Guyana primarily because Venezuela is so inhospitable. The government seems to know what it's doing with mining law. I don't foresee that the taxes will be more significant there than anywhere else in the world.
Peru and Guyana are on the same continent, but they're almost totally different in every respect. The Peruvian decision has sent shockwaves through the mining community there. There's a lot of gravitation to places like Colombia and Guyana and away from places like Venezuela and Peru. However, Peru, Ecuador and Chile have some of the great deposits and a lot of investors are willing to take that risk. The Peruvian government is smart enough to know that they need to attract money into the country.
TGR: What are the political risks in Guyana?
Michael Berry: There is an election forthcoming in Guyana and things could change. I don't think that they will change for the worse in Guyana. The country recognizes the need to have their country developed, to have capital coming in, to increase investment and infrastructure. I expect the election will be favorable for mining and offshore oil work.
TGR: Any parting thoughts for us, Dr. Berry?
Michael Berry: Canadian Nobel Prize winner Michael Spence has written a book on the coming convergence of the emerging world. I think we have between 20 and 30 years. He thinks we have 50 years of this convergence of emerging country quality of life. If that is true, we have the next three to five decades of converging lifestyles.
That means that the commodity and natural resource sectors, in particular the mining sector, will be a wonderful place to be invested. And we're going to be there with the discovery investing opportunity. We're going to focus and push very hard toward that down the road.
TGR: Thanks, Dr. Berry.
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