Weak hands could be shaken out of gold...
TOUGH FINANCING markets over the past few years have taken their toll on many junior resource companies, as continuing needs for capital have led to dilution and lower stock prices. In this tricky environment, newsletter publisher Chen Lin likes to place his bets on companies that can minimize dilution through internal cash flow that helps to finance expansion and exploration activities. In this interview with The Gold Report, Lin talks about how he has played the difficult market in 2012.
The Gold Report: We are already into February and the gold market doesn't seem to want to do what most people have been predicting. Why has it been acting so poorly over the past few months?
Chen Lin: That's a good question. Nothing goes up in a straight line and 2013 could be a difficult year for gold. Recently Goldman Sachs predicted that gold will peak this year and then go down to $1,200/ounce (oz) in a few years. That could shake a lot of weak hands, so I won't be surprised to see some selling this year, especially because gold's seasonal peak is around Chinese New Year at the beginning of February.
TGR: Are you expecting a little bounce off of the bottom that we've been seeing for the last few weeks?
Chen Lin: It's hard to say. Right now, money is going to risky assets, exactly opposite of 2008. Money is rushing into financials with banks showing record earnings. In the meantime, funds heavily invested in gold are not doing well. They could be facing redemptions, management changes and other issues. So 2013 could be difficult.
TGR: So what's your feeling about silver? Do you think it will perform better than gold?
Chen Lin: I'm quite bullish on silver. I think the industrial usage of silver could play a key role. About one month ago I told my subscribers to pay attention to miners with base or industrial metal products. Last week, Don Coxe, the highly respected analyst, advised to swap some gold equities to base metal equities. That actually confirmed my vision. I see metals with industrial applications, like silver, platinum and base metals, doing better than gold in 2013. Platinum has already started trading at a premium to gold after years at a discount, and I expect silver to do well also.
TGR: Is that because there's more optimism for industrial recovery worldwide and therefore better demand for most metals?
Chen Lin: Yes, but over the long run I still firmly believe that gold will do extremely well. Every central bank is trying to manipulate and weaken its currency and the situation is getting worse every day. The Japanese yen has weakened a lot and many other countries are already complaining about that. At the end of the day, gold is the only strong currency left. It may go through some weakness in the near term, but the long-term future of gold looks very bright to me.
TGR: Well, 2012 wasn't a great year for precious metals stocks in general. How did your portfolio do and what were your best performers?
Chen Lin: I would say I had a pretty good 2012. Ironically, my success was mainly because I was underweighting gold miners during most of 2012. My big winners were in energy and biotech stocks that I discussed in The Energy Report and The Life Sciences Report. My success in gold and silver mining was mostly from short-term trading, similar to 2011. My biggest winner was buying gold, silver and platinum miner call options a few weeks before the quantitative easing 3 (QE3) announcement and then selling on the announcement. I also had a big winner in platinum futures on the same day that the South African police started to shoot the miners, which was a turning point for platinum, and I was fortunate to catch the bottom and then ride the wave up.
TGR: Basically you had to play the short-term moves and make bets on certain events happening and then take your profits as soon as you could.
Chen Lin: It was a very tough year for the miners; you would lose a lot of money if you played buy and hold. You have to be prepared for the opportunity when events arise. I saw what happened in South Africa and reacted on the same day and I told my subscribers to do the same.
TGR: What's your general advice for investors looking to make some money in precious metals stocks this year?
Chen Lin: Gold and silver miners suffered major blows over the past two years, mostly due to mining and capex cost overruns. However, I'm seeing the pressure start to alleviate. Many managements learned their lesson and have started to be more cautious in their forward guidance. In 2013, gold miners could outperform gold. As I told my subscribers, I'm no longer underweighting gold miners.
However, I'm still very cautious and plan to invest conservatively. I'm looking for the self-funding low-cost producer that can do well if we have any near-term weakness in gold. I also like companies with good base metals byproducts that can generate a lot of near-term cash flow. I'm very bullish on gold in the long run, but I want to invest in companies that can overcome any potential near-term weakness and then reward shareholders in the long run.
As my final thought, I see that every central banker is printing money like mad. Gold is the only real currency left. Every year I put aside some profit to invest in physical gold and silver as well as platinum and I will likely to do the same in 2013. If we have any weakness going into 2013, I believe it's a good buying opportunity.
TGR: I certainly appreciate the opportunity to talk with you again.
Chen Lin: Thank you.
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