Rob McEwen: $5,000 Gold a Possibility?

If Rob McEwen is one thing, it’s consistent. 

McEwen, who founded major miner Goldcorp (TSX:G,NYSE:GG) before moving on to become the chairman, CEO and largest shareholder of McEwen Mining (TSX:MUX,NYSE:MUX), has long been a proponent of gold, and remains so even in today’s tough times. Indeed, he told investors at a luncheon held Wednesday at PDAC that he continues “to believe we’re going to see higher prices in gold.”

That said, he’s not unrealistic — at least not too unrealistic. While he admitted that “it’s not going to be this year,” he does see the price of gold “trending up” — perhaps even to $5,000 per ounce, a number he flashed on one of his slides.

He used three graphs to lay out a number of points that he believes support that idea, first referencing one showing the US monetary base, or the supply of money in the system. The Federal Reserve “pumped a lot of money into the system” after 9/11, and from about 2008 on has expanded money supply “dramatically, without precedent.”

His second graph showed US federal debt. “You can see that it’s getting quite high,” said McEwen, adding, “it’s now over 100 percent of the GDP. And this historically has been a rather dangerous place to have debt, that amount of debt.” Even more alarming, he said, is the fact that “this is basically a proxy for the western world, they’ve all pursued this approach to take on more debt, expand the money supply with the hope of getting people to spend more money.”

Unfortunately, that goal has not been achieved. “All this extra debt, all this money expansion has not produced the spending that the government’s looking for,” noted McEwen, pointing to a graph showing consumers’ propensity to spend. “This suggests to me that we’re going to see those [first two graphs] going much higher — there’s going to be more quantitative easing, there’s going to be higher levels of debt relative to the GDP. And that in turn leads to inflation.”

That said, those aren’t the only factors McEwen sees contributing to gold’s good fortune. He noted that a Gauguin painting was recently sold by Sotheby’s (NYSE:BID) for just under $300 million, while a condo in New York went for $95 million. “To me that’s sending a message that money is not valuable anymore,” he said.

Meanwhile, annual gold production is on the decline, while exploration has been “cut to the bone.” McEwen also seems confident in demand, and referenced the recent news that Apple (NASDAQ:AAPL) plans to produce a watch containing up to 2 ounces of gold. “That watch might become a currency,” he said, “there were all sorts of people running around with estimates that it might take a fifth of the world’s production on an annual basis.”

Amidst all that, McEwen believes that his company is poised to benefit. McEwen Mining’s share price is currently sitting at $1.32 on the TSX, well off its 2010 high of over $8, and he thinks that leaves plenty of upside potential. Ultimately, he said, the goal is for McEwen Mining to make it on to the S&P 500 (INDEXSP:.INX). “You need big goals,” said McEwen, “you want to reach.”

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Related reading: 

PDAC 2015: Notes from the Floor

McEwen Chief Owner Retains Good Humor in Tough Market

Rob McEwen on Why Gold Stocks Remain a Good Bet