Brien Lundin: Fed May Not Raise Rates Until 2016

Brien Lundin is a well-known voice in the gold space. He’s president and CEO of Jefferson Financial, publisher and editor of the Gold Newsletter and CEO of the New Orleans Investment Conference. 
With this year’s New Orleans Investment Conference just around the corner — it will take place from October 28 to 31 — the Investing News Network got in touch with Lundin to hear his latest thoughts on the gold market, and of course what’s in store at the conference. In the interview below, Lundin also discusses a few gold stock picks and a tech company he believes has promise.
INN: You’re a well-known commentator on the gold space, and of course the issue that’s been hanging over the gold market this year is the anticipated US Federal Reserve rate hike. Can we expect a hike by the end of the year, or do you think it will be 2016 at this point?
BL: I think we’re looking at 2016, and well into 2016. There’s even a chance that we won’t have a rate hike for the foreseeable future if the signs we’re now seeing of a nascent economic slowdown begin to pile up — the Fed really cannot raise rates in the current environment because there are some indications of a potential recession looming. This I think will be very supportive of gold, and will help boost gold prices going forward.
I am in somewhat of a minority, however, in believing that gold would get a boost if the Fed were to begin hiking rates. I think that western speculators have piled on shorts in anticipation of the Fed beginning rate hikes, and that the actual start of that process would mark the end of that trade and force a lot of speculators to begin to cover.
INN: Besides that, what other factors are helping you retain your confidence in the gold price?
BL: That’s the primary factor. Gold has shown a reluctance to go down any further. Given the pervasive negative sentiment for the metal, and given the cyclical nature of the market and the global economies, I think we’re right around the bottom. The timing of a rebound is something we really can’t determine, but I think the fact that generally we are at long-term lows is apparent.

INN: One thing that’s been on my mind lately is production cuts. Glencore’s (LSE:GLEN) zinc/lead cuts lent positive momentum to those markets (plus nickel, etc.) — why do we tend not to see output cuts like that in the precious metals space?
BL: There’s an all-in sustaining cost estimate of gold production that’s come into fashion over the last few years. It is a more accurate estimate of the true cost of production; however, it includes capital costs and administrative costs, etc. that aren’t necessarily real-life production costs that will be paid in times of extreme circumstances.
So if a mine has an all-in sustaining cost of around $1,100, but an operating cost of around $900, it’s still going to produce gold until the gold price drops below that $900 level. They’re not going to cut production while there’s still a bit of a buffer left that allows them to make some money to pay, for example, their front-office salaries, even at today’s low prices.
INN: Let’s talk a bit about stocks you currently like. You recently recommended Avrupa Minerals (TSXV:AVU) — is it the prospect generator model that drew you to the company?
BL: Yes, it is. I like the prospect generator model, and there are some smart people involved in the company from a financial backing standpoint, a management standpoint and a geological standpoint.
I also like the company because they’ve made a couple of very interesting discoveries. They’re exploring in Europe, which is considered a new frontier for gold and base metals exploration [despite the fact that it] has for time immemorial hosted gold and base metals projects.
INN: Overall, does your approach to finding good companies change during downturns like the one we’re in?
BL: Yes, it does. I like the prospect generator model for any market because it maximizes the odds of making a discovery that could have a significant impact on a company’s share price. But in a market like we’re having right now, there’s another category of company that I really like, and that is companies that have already made discoveries — in some cases, world-class discoveries that have been delineated and perhaps have demonstrated economic value at the current gold price.
The idea is that these companies are now trading at fractions of what they would be selling for in a better gold market, and at levels that grassroots exploration companies were selling for just a few years ago. So there’s really no need for investors to take on the exploration risk — they can just buy companies with proven deposits that still offer the chance to multiply three, four, five times over as the overall markets improve.

INN: Can you give some examples of companies like that?
BL: Yes. Kaminak Gold (TSXV:KAM) is one of them that I really like. Sabina Gold & Silver (TSX:SBB) is another one. And I would say that one that is similar to that would be First Mining Finance (TSXV:FF).
INN: Those seem to be companies with projects in stable jurisdictions. Is that also an important factor for you?
BL: Yes, that’s another good point. Good companies with proven resources in safe political regimes already offer enough upside potential at current price levels. To that end, a speculator has no need to take on either the additional risk of exploration, or riskier political regimes.
INN: What about producers? Are there any you like?
BL: Agnico Eagle Mines (TSX:AEM,NYSE:AEM) is not an official Gold Newsletter recommendation, but I recommended it in my Alert service this summer. I also like Newmarket Gold (TSX:NMI). It’s picking up high-quality assets that are undervalued in the current market environment, but it’s focusing on producers.
INN: On a different note, I’ve heard you’re involved with Natcore Technology (TSXV:NXT), which seems like a breakaway from the companies you usually recommend. Are you looking at other companies outside the resource space?
BL: Natcore is really the only one that I’m involved with outside of the resource industry — it was just an exceptional opportunity that presented itself to me. Literally as the tech boom was ending in the late ’90s, I invested in it and started it with the idea of having a quick flip in the tech boom. I then realized the extraordinary potential it offered, and now we’re on the verge of realizing that potential with some very disruptive new solar applications that we’re getting ready to commercialize.
INN: Right — Natcore’s solar cell totally eliminates silver from the production process. Given that solar has been identified as a source of rising demand for silver, should those in the silver space be worried?
BL: Silver is an exceptional metal. It has a number of properties that make it particularly suited for high-tech applications, and because of those properties it’s been very difficult to replace it in solar cells. We’ve developed a way of using lasers to make very affordable solar cells, and to make certain ultra-high-efficiency cell structures mass manufacturable for the first time.
One of the things we’ve done in is to adapt proven, ultra-high-efficiency cell structures so that we no longer need silver — we no longer need those very fine grid lines that silver was used to create. So our cells will not have those grid lines on the front of the cell, and there will be more light hitting the face of the solar cell, creating electricity; we’ll also have an innovative internal structure that will enable us to replace silver with aluminum.

INN: While some stocks are clearly doing well, overall it’s getting tougher for companies to get financing and move forward. Are we starting to see some fall off the grid?
BL: The cream is rising to the top, but unfortunately the dregs aren’t necessarily falling out of the cup. Over the last five or 10 years, the Venture Exchange in particular has made it very easy for new companies to come into being. Unfortunately, there isn’t a method of killing off the diseased or weaker companies, so they hang around out there. We’ve seen some of them combine assets and merge to maintain some semblance of financial endurance, but we really haven’t seen many just fall by the wayside and totally disappear.
INN: Would you want to see reforms from the exchange to fix that?
BL: I think it would be good if they found a way to kill off some companies, but they seem to be finding ways to keep them around so that they keep paying fees. Years ago, shareholders in a company that essentially failed still had the hope that a new deal and new management would come along and revitalize the company, albeit with a share rollback. But now it’s so easy to do an IPO or pick up a shell company or CPC that there’s really little hope that most of these failed companies will find a white knight to come in and reorganize. So they are, like they say, “zombie companies.”
[That said,] I find that it’s really kind of irrelevant. There is an argument that they do distract and eat up some investor capital, which then cannot flow to the better companies, but an investor needs to be able to just ignore those kinds of ventures and very quickly figure out which companies fit into that category.
INN: In closing, can you tell me a little about the upcoming New Orleans Investment Conference? What mix of companies will be in attendance? Are you seeing a theme emerge in the talks that are scheduled?
BL: We are seeing a bit of a different mix in companies. We’re still primarily resource oriented with the companies that are participating, but we are seeing more general small-cap opportunities, and we’re seeing more technology companies. And we’re seeing some other tangible asset investments — in particular real estate and forestry because those sectors have a lot of appeal to our audience. The people that attend our conference are affluent, active investors who direct their own investments, and they’re very information hungry. They’re also very independent minded, and they’re looking to discover and capitalize on the latest trends.
We’re in our 41st annual event this year, and we have a particular focus on experts who can tell investors how to take advantage of this cyclical market bottom. So we’ve got people like Doug Kass, Marc Faber, James Rickards, Peter Schiff, Dennis Gartman, Doug Casey, Rick Rule. And dozens more, particularly in the resource arena, who are going to give investors their top strategies and their best picks to take advantage of this market bottom. We’re also going to have Charles Krauthammer and Mark Steyn to handle the geopolitical end.

 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
Avrupa Minerals is a client of the Investing News Network. This article is not paid-for content.