The following article by Eric Jackson was published by Forbes.com on August 20th, 2013.
The CEO and Chairman of US Gold Corporation and Minera Andes Inc., Canadian Rob McEwen, speaks during a round table on the gold mining perspectives, in the framework of the Tenth International Gold Symposium, in Lima on May 14, 2012. (Image credit: AFP/Getty Images via @daylife)
industry for being innovative and being a champion of an “owner’s mentality.” He owns 25% of McEwen Mining and pays himself neither a salary nor a dividend.
He started Goldcorp in the late 1980s from nothing after formerly running a securities company. By 2006, the company was worth over $30 billion. In McEwen Mining, he sees the potential to take another junior miner to the big leagues. The company’s stated goal is to become a member of the S&P 500 within the next few years.
Like all miners, McEwen Mining has been sold off in the last 6 months and especially in the last few weeks as gold prices have dropped precipitously.
McEwen has seen plenty of booms and busts over the course of his career. I was interested to hear his perspective on what was going on in the markets when we chatted last week at his Toronto offices. Here’s an edited transcript of our conversation:
Question: How do you explain the gold carnage of the past couple of months?
When the news that Cyprus was going to sell some its gold assets to cover its debt, the market got nervous believing other weak European economies would also be forced to sell their sizeable gold holdings. Then when the big banks [like Goldman Sachs] recommended selling and shorting gold soon thereafter, it accelerated the selling.
Take a step back from this and ask: “What’s really changed here?” The problems of Cyprus aren’t gone. They’re just obscured. Moreover, Cyprus’ issues hint at far larger financial problems within the European Union. The politicians and bureaucrats don’t want you to focus on look these problems. Rather their actions are designed to entice you to spend your money on risky assets and consumption.
A dangerous policy shift has occurred. We now have governments willing to seize their citizen’s assets. We now have currency controls on the table which we haven’t seen since the late 1960s/early 70s. We have continued debasement of currencies. And the economies of the western world remain stagnant despite enormous monetary stimulation. All these facts to me are bullish for gold and make me believe the price of gold will bounce back relatively soon.
Question: The Fed has now hinted that it might end QE in a few years and that also seemed to spook the gold market. Some commentators have started to say gold is going to go in another downturn like we saw from 1982 to 1999. What do you think?
Answer: Again, I don’t believe it. The gold price will consolidate this summer then trend higher in the fall. Most market commentators appear to be ignoring the economic reality of the western world. Unemployment remains persistently high, large long term capital investment is not happening despite record low interest rates, government debt is at alarming levels and still growing and there is a shoving match going on in the currency markets for the title of the world’s reserve currency.
Question: Is the mining industry different today from 20 years ago? There’s been more consolidation. What’s that meant for a junior like you?
Yes, the gold industry has changed in several ways from 20 years ago. First, western world Central Banks were selling their gold holdings then and today Russian, Asian and other non-western world Central Banks are buying.
Second, the precious metal ETFs didn’t exist 20 years ago. The large holders of gold were the Central Banks. Today the collective gold holdings of the ETFs are a big price variable in the market. This is a new element of demand that contributed to the upward climb of gold price and recently there has been a large source of selling pressure. Twenty years ago only Central Banks had that power.
Click here to read the rest of the article on Forbes.com.