Interviews from the Yukon: John Kaiser of Kaiser Research
Trevor Hall Welcome to Mining Stock Daily. I am in Dawson City, Yukon at the Yukon Mining Investment Conference and sitting next to me now is a man I like to call the Mad Magician here of the Junior Mining Industry. Mr. John Kaiser, of Kaiser Research. John, thank you for joining us for the first time here on Mining Stock Daily. How's your trip been to the Yukon?
John Kaiser Trevor, this has been a fantastic trip. This is the first time I've been here in 25 years. Seen ten companies--a lot of interesting stuff going on. And the weather's been great. So, this was a really good experience for me.
Trevor Hall So I wanted to have a conversation with you with the premise of the overall market/economy in the U.S. We are seeing precious metals rise finally--silver seems to be moving up. It closed over $16 today, the day of recording. We've seen the majors in the mid-tiers move up--definitely during production announcements as well, quarterly production. But we're still not seeing the juniors really make a move quite yet. So, I thought as a backdrop--let's start off. What are your thoughts on where we are in the overall U.S. economy and what does that mean for precious metals?
John Kaiser Well I think we are approaching a downturn--a reversal in economic growth. It's obviously not reflected in the equity markets, which continue to charge ahead. But the trade war is unleashing disruptions which coupling with a natural slowing within China, could start to cascade to multiply and turn things down in a big way. And as far as the Juniors are concerned, I mean their fate has been linked to gold. Gold had a great run up to $1900 in late 2011, but it spent sideways after retreating. Since then, the move from sort of $1200 to $1400 makes no difference to the Juniors. It does make a difference to producers which is why they are leading this. If gold stays here at $1400, that's great for them, it's not great for the Juniors. You take $400 gold from $1980 and inflation adjusted with the US CPI, to the present--it's $1251. So, we've got a 12-15% real-price increase in gold. That's not enough to move the needle. I think the Juniors need to see gold have a sustained breakout past $1500-$1600 and people start to come up with reasons why it's going to rebase in the $2000-$3000 range. Something similar to what happened in the late 1970s which was only partly attributable to inflation.
Trevor Hall Let me ask you about the technicals of the gold chart. Because about a week and a half or two weeks ago, a lot of analysts on the airwaves and another podcast were saying we could see a healthy pullback to $1350. And there was a little bit of a pullback. But then it almost seemed that that $1400 floor maintained and now we're seeing gold about $30-40 dollars more than that, at the time of recording. In your opinion, do we have a $1400 floor in the gold right now?
John Kaiser The cost of production has been going up up up. And you know everybody is talking about $900 in all in sustaining cost. So that's kind of the floor for gold, where like it doesn't make any sense to mine it on any large scale. With this 90 million ounces a year, added to the existing gold stock and there's 7 billion ounces in existence and with regard to the technicals, we're talking about this itty-bitty trading stuff. But the kind of trend I'm talking about is about the people who own those 7 billion ounces--I think it's only like 15-20% is held by central banks. The rest is squirreled away around the world and these people periodically sell, but there's an inflection point coming where suddenly everybody feels the need to own more gold and everybody who has gold will say I'm not selling. And that's why we could see the sort of shocking breakout that we saw in the late 1970s and most importantly it's a real price. It's not the U.S. dollar collapsing against all these other crappy currencies. It's not because inflation surging to 10-20% or any anything like that it's just a re-thinking of the need to own gold as a hedge against uncertainty. Uncertainty is the really key buzzword with regard to why gold is going to get into a sustainable uptrend.
Trevor Hall Well, we saw a headline today that Ray Dalio, the famous hedge fund manager said, "Dump stocks and buy gold". That's a huge move because he's not just a gold bug or just interested in the sector like a lot of our listeners are very much interested in resources. He has a face in the overall market and helps people decide what to do. I mean, are we going to see more and more of that type of outreach and communication?
John Kaiser Well, I think, even just the other day, George Will who is a conservative who decided not to be a Republican a few years ago, he came out and made some comment to the effect that the way Trump has run the presidency and the track it has taken the whole sort of American discourse, it is a bell that cannot be un-rung. And I use the idea of Humpty Dumpty--we are going through a Humpty Dumpty event where the world order that the United States carefully crafted after World War Two and kind of made themselves look like losers, but in reality, they were the big beneficiary of everything. It's all being undone and thrown into a chaos where the idea that America first and America biggest forever--that's now coming unseen under siege. Trump's very effort to try and reinforce this and prevent this eventual balancing of world power with the rising powers like China, he's actually accelerating the date that that happens. And so you're going to see more and more people come out and say this is unstoppable--this falling apart of rules-based order, of globalized trade, of a world cooperating. It's irreversible and gold is the only refuge that you can go to.
Trevor Hall And I think people on the political scale--people are writing about this. I remember reading Fareed Zakaria's The Post-American World--that book and I think it was published in 2006 or 2007 and that was when the idea of a President Trump was still nowhere near anybody's thought. It couldn't happen, right? So this isn't new. You're saying it's just accelerating.
John Kaiser It is being accelerated. I mean the whole idea was by like 2030, the Chinese GDP would match the American GDP, and they would have done a lot of catch up in terms of military technology. And the whole thing during the Obama administration was "How do we negotiate that?" But one has to concede that Xi Jinping has said no, China's not going to grow into you know at least semi-democratic nation. They've also got a Trump-like vision of they want to be the hegemon that replaces the United States. So we've got this problem with no obvious solution. And it's being brought to a head by the current policies of the U.S. administration.
Trevor Hall And a beneficiary is precious metals and gold and silver right now.
John Kaiser Has to be because where else can you go, you know? We talk about Tina. There is no alternative to the U.S. dollar. It's going to take a long time for the U.S. dollar to become severely diminished. But in the meantime--we have the debt ceiling problem coming back again. Right? And for some reason that doesn't bother gold bugs these days that Trump's policies are cranking. He's working very hard to outdo Obama's record in expanding the U.S. debt during his term. And so Trump's on track to continuing and probably outdoing Obama. And like nobody seems to care, but that narrative of who's going to pay for all this? It's still there, except the usual supporters of it. They have this idea that, well a thumbs up for gold is a thumbs down for Trump. And that's why Ray Dalio, who is not a traditional, you know libertarian-type of conservative. He's part of this--the sort of the liberal half of America, coming out and sort of saying "gold is where you have to be". And can you imagine if that part of America, which has shunned gold because they have seen it as the domain of the gold bugs--the right wing libertarian-types and all of a sudden gold is allowed out of the prison because the guards have started to shun gold. Now suddenly everybody will want gold. And somewhere down the road the entire political spectrum will be embracing gold.
Trevor Hall John, that's all the time we have. I wanted to keep it under ten minutes. Thank you for your time and this is a great conversation. I'd love to have you on again because I think we could literally pick up from this very end and keep on going. And we'll see what happens politically here in the next year.
John Kaiser Yes for sure, Trevor, thank you. Thank you.
Trevor Hall That's John Kaiser, with Kaiser Research.
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