Greg McCoach, Mining Speculator: "I am Bullish on All the Metals"
Source: The Gold Report (4/11/08)
Greg McCoach is an entrepreneur who has successfully started and run several businesses the past 22 years. For the last eight of these years he has been involved with the precious metals industry as a bullion dealer, investor, and newsletter writer. In this article, the first of a three-part interview, Greg gives us his thoughts on the economy and what it means for precious metals. Parts two and three cover his thoughts on owning physical gold and his top choices for equities.
Greg's years of business experience and extensive personal contacts in the mining industry provide unique insights that have generated an impressive track record for The Mining Speculator since its inception in 2001. He also spreads his vast knowledge of the precious metals markets in a weekly column for Gold World.
TGR: What’s your take on the market — where we are . . . where we’re going?
MCCOACH: I'm increasingly fearful about what we’re seeing. It seems like the bad news is just continuing to pile up, such as the news about the Federal bailout of Bear Stearns, a major player in the financial markets. I am sure we’re going to hear more news like this going forward.
When you add this to the liquidity problems, the derivatives, the prime, adjustable rate mortgage problem on the heels of all of this subprime mess, we’ve got some major problems. In my opinion, the Fed is caught between a rock and a hard place. They’re trying to help the banks by lowering the interest rates, and trying to give them as big a spread as possible. They can make as much money as possible quickly to offset some of these losses. In the meantime, they’re basically saying they’re going to let the dollar go, and it’s not a priority. Their priority is to avoid recession; well, recession looks like it’s already here.
And we have the dollar hitting an all-time low—72 on the dollar index. We’re getting to that critical 70 benchmark, which—I’ve been saying this for a long time now—once we go below 70 on the dollar index, I believe gold will start having $100 up days instead of $20 up days. Gold may move from $1000 an ounce to $2000 an ounce in a matter of six to eight months, depending on how the issues with the dollar pan out from here. Overall, I am very bullish on the precious metals.
TGR: How does that bode for mining stocks?
MCCOACH: The junior mining stocks currently are in a real funk; I think we’re going to stay in that funk until we get past the capital gains taxpaying season, which for Canadians is April 30th, but here in the U.S., of course, it’s April 15th. So after that I think these precious metal prices are going to start pulling these junior mining stocks out of the trough and moving them much higher. There are three or four big hedge funds in New York that have gone long gold with all the majors, but have shorted all the juniors, and as these metal prices keep going higher, the juniors are going to want to move, and these guys are going to have to run to cover their short positions.
And that should really launch our junior market up to new highs for the HUI and XIU. So I'm very bullish on the metals—we will see what happens as we move forward, but it should be fun to watch.
TGR: Greg, when you talk about the metals, are we talking about just the precious metals or do you have views on the base metals as well?
MCCOACH: I am bullish on all the metals; it’s just that I’m more bullish on the precious metals because of their financial aspects. As you know, gold and silver are now money. They’re also commodities, and when paper markets and governments are performing well, precious metals like gold and silver go back to their status as commodities. They’re good for jewelry; they’re good for industrial uses, etc.
What we’re seeing now, however, because of the lower dollar and investor flows because of safe haven type of purchasing, everyone is looking to the precious metals, and they’re moving into the precious metals to protect their hard-earned savings. And so gold is becoming money again. Silver is becoming money again, and it moves from its status as a commodity to the status as money when these times hit. So, what’s driving the price of gold is investor flows, due to the dollar dropping precipitously and looking like it’s going to drop even further.
Commodities worldwide are doing well, not just the metal base metals, but the grains and other commodities are doing well also. The reason for that is we have 3 billion people in the emerging nations of the world who are embracing capitalism at 100 miles an hour. As I travel through the world, it's so apparent to me the growth that is occurring, not just in China and India that we hear about, but in all of Southeast Asia, Indonesia, Argentina, Brazil. An amazing growth in infrastructure building is occurring in these countries. So that takes a lot of base metal—copper, nickel, zinc—to build refrigerators, houses and cars, etc.
So, as opposed to some people who are very negative about base metals, I am actually very bullish on them. A lot of naysayers are talking about if the United States goes into recession, then that’s it for the base metals and the commodities. Absolutely not. That’s because the world is no longer centered around the United States. This is an unprecedented moment in history—an infrastructure-building boom of this magnitude where you’re talking about 3 billion people. The only thing you can compare it to is what happened after World War II in the United States. It was the greatest infrastructure-building boom the world had ever seen. In my opinion that’s bullish for all of the commodities for many years to come, not just a couple of years . . . I believe the base metals will be in a bull market for at least 10 to 15 years.
TGR: Let’s pretend we have a million dollars to spend. Let’s start first by asking how much you would put in dollars, gold, physical gold, and junior mining stocks.
MCCOACH: Well, my model portfolio would be 15% in cash. I am very aggressive towards my precious metal holdings, so 20% in physical gold and silver, and I also have a little bit of palladium, which I've been buying over the last six to seven months. I've also got quite a bit in junior mining stocks, and some base metal, but mostly in precious metals.
TGR: Doing the math, that's 15% and 20%, or 35% of your portfolio. So what is the balance of your portfolio?
MCCOACH: Then I've got 50% in junior mining stocks. And then I've got the last 15% in Canadian T-bills.
TGR: So that's all but cash.
MCCOACH: Yes, I consider that cash, too. And the cash that I have, the cash in the States—that's 15% is for use. If I see investment opportunities, I like to take advantage of those.
Most of my investing, especially over the last few years, has been with the junior mining stocks. I know what I am doing and I understand what I’m doing, but I don’t recommend my portfolio to people. Individuals have to determine for themselves what they’re most comfortable with, what they’re knowledgeable about. And I am also of the opinion that the wealthier you are, the bigger the problem you have. And you have to start thinking about getting money outside the country, outside dollar-dominated assets.