Gold Prices: Have We Seen the Bottom?

Long-term bull markets "do not end this way"...

HAVE WE seen the bottom for Gold Prices? If we have, then Dr. Michael Berry sees it as the ideal time to pick up bargains in the Gold Mining sector. In this interview with The Gold Report, Dr. Berry gives his diagnosis for what ails the markets. 

The Gold Report: The Gold/Philadelphia Gold and Silver Index (XAU) ratio recently surpassed its high in 2008, slightly crossing 11 and peaked in the high 10s at the bottom in 2008. Do you think we have put in a bottom?

Michael Berry: If I were 100% sure, I would be a very wealthy person. I think we're close to a bottom here. Gold is too important. The long-term secular bull markets, such as we've seen in gold and silver and in fact in many of the metals, do not end this way. They end with a parabolic move upward. That is why I don't think this is the end of the gold bull market at all. I think it's probably a welcome reprieve. But ultimately, if we are not at the bottom, we're fairly close to it. 

TGR: You testify to the Federal Reserve Board twice a year. In the last meeting, was there any indication of more easing on the way?

Michael Berry: There is every indication of more easing; there is every necessity of more easing. But the Fed is divided. Some of the Federal Reserve Bank presidents and governors believe we should tighten, while others have followed the Bernanke line, pushing easing. 

I cannot even imagine how we could raise rates in this market. I'm not saying that we don't have food price inflation, but the Fed really wants to inflate out of this problem. So I think we'll have more easing. But for now, the Federal Open Market Committee is divided between hawks and doves in a way it has never been in the past. It is going to be very interesting to see what happens as we move forward. 

TGR: Many of your preferred companies have significant byproducts, primarily copper. Is this because you think copper has a bright future or because having significant byproducts tends to lower cash costs for gold and silver miners?

Michael Berry: I think it's the former. If we are going to go into an irrecoverable economic depression, then there's no future for copper. But I'm an optimist, and even though these are very difficult days for global growth, I think companies that own copper deposits are going to be very valuable when we exit this down period. 

Therefore, I like copper—not necessarily as a byproduct, but as a major primary product. And if you look around the world right now, many countries are nationalizing their copper deposits. Good copper deposits are hard to come by. Copper is clearly an indicator of global economic health, and we are going to continue to grow again. It's just going to take some time, perhaps a long time.

TGR: When it comes to silver and gold companies, what do you look for in a possible investment? 

Michael Berry: I have developed a 10-factor model for discovery micro-cap and small-cap companies. First, in extractive resources we look for world-class deposits or at least the potential for world-class deposits. The second critical factor is management. There are a lot of good management teams right now. But it is a very difficult time. Many of these companies have been sold down. And some of them are not going to survive. It's a pity but that's just the way it is.

A number of companies that I would have said were good if we were speaking a few months ago are less good today, because a lot of them cannot access capital markets to raise money. One of the characteristics of all junior miners is that they are constantly raising money because, by definition, they don't have production and cash flows yet. There are some great bargains out there, but it is going to take a strong stomach to buy some of these companies.

TGR: How is the US doing getting project permits through bureaucracy?

Michael Berry: That's a great question. We are doing a lot of work in Washington D.C. now trying to educate the staff of various congressmen and senators on the importance of pending natural resource legislation. The Obama administration is trying to shut off mining for alternative energy solutions. And it is a huge mistake. 

But at least there is awareness in Washington that we have to have a transparent, faster permitting regimen. The Canadians are going to that. And we need to do it here, because we need to be developing some of our own natural resources. The good news is a pending senate bill could simplify the permitting process. If we have a Republican administration in January, it will be easier to get that passed into law.

TGR: Nevada seems to be a hot spot, both for silver and gold. 

Michael Berry: Yes, I am bullish on Nevada. I think there is a lot of opportunity in gold, silver and copper there. Why go to Africa or China, when you can go to a place like Nevada and make great discoveries and subsequently mine? 

TGR: Thanks for your insights.

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