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Was silver drastically overpriced or not able to keep up with gold?

Investors focused on picking the next ailing economy have reinforced Gold as the ultimate refuge if all the financial juggling fails. In this exclusive interview with Chen Lin talks about the effects of risk aversion on the performance of gold stocks. While it has been a tough year for precious metals stocks, there are some very promising stories smart investors should be looking at as others decide to clean house for tax purposes.

Companies Mentioned: Coeur d’Alene Mines Corp. – Majescor Resources Inc. – NovaGold Resources Inc. – OceanaGold Corp. – Pretium Resources Inc. – Prophecy CoalCorp. – Prophecy Platinum Corp. – Romios Gold Resources Inc. – Stillwater Mining Company

The Gold Report: When you last spoke with The Gold Report in August, the gold:silver ratio was about 40:1. Today it’s about 53:1. In August, you were looking for a lower gold:silver ratio that you thought would probably be more reasonable under the circumstances. Yet it seems to have gone the other direction. What do you think has happened here? Was Silver drastically overpriced or not able to keep up with the gold?

Chen Lin: In the last interview, I was pretty evenly bidding between gold and silver. I don’t have a particular preference. At that time, there were some major funds buying silver. Historically it has been lower—as low as 10:1 a very long time ago. But, right now, it’s in a reasonable range. So, I’m not saying that one is overvalued and the other is undervalued. Silver has some industrial components to it while gold is mainly monetary. I’m personally looking for the silver:gold ratio to go lower over the long run. Right now, the financial crisis has pushed central banks to actually start buying more gold in the past quarter. So, that’s probably keeping the gold price higher.

TGR: So, what you’re saying is the European debt crisis is the thing that’s really driving the gold price higher.

CL: Two or three of the central banks have put a historical amount of gold on their books, which tells you there’s more focus on gold because of the European crisis.

TGR: What do you think is going to happen with metals prices if this Eurozone situation deteriorates further?

CL: That’s a hard question. I think it’s in the hands of the policymakers. When Greece said we’re going to do the referendum and that Greece could be kicked out of the Eurozone, the Greek people were rushing to their banks to get the euro out. If the euro starts falling apart, I think gold could be one of the hard assets people in Europe will try to get their hands on. That could be very positive for gold.

I can see Germany give in to the other euro countries and basically agree to use the European Central Bank to print money. That’s probably the most likely outcome. That would delay the crisis and investors would focus on other countries such as Japan and the United States. Then Europe may quiet down a little bit. But, that would be very positive to gold as well. Gold can potentially have a very explosive move on the announcement.

TGR: You’ve had pretty spectacular performance since you started your portfolio with about $5,000. In August, it was down about 10% for the year. What’s happened here in the last three or four months?

CL: It’s been down between 10% and 15% so far, it has been quite flat this year. Considering that I own a lot of junior stocks, those stocks can be very volatile.

TGR: It’s been a tough year for everybody and not easy to show any spectacular gains in 2011. How about some of the individual stocks in your portfolio; do you have some nice winners that you’d like to talk about?

CL: Prophecy Platinum Corp. (NKL:TSX.V; PNIKD:OTCPK; P94P:Fkft) was a spectacular winner. The rest have been holding on. However, I’m quite optimistic because some of the stocks have some major news coming in the next few months.

TGR: You mentioned platinum, which always used to trade at a pretty substantial premium to gold. It’s obviously a lot rarer than gold. Yet somehow, it’s faded into obscurity in the last few years. Do you have any opinions on why that might be the case?

CL: In fact, I was out telling everybody that I’m loading up on platinum. Platinum is less than 10% of the global production of gold. Some 75% of global production comes from South Africa, which is having problems with electricity, labor disputes and other issues. Right now platinum is trading at a discount to gold.

It’s almost unheard of. It used to be platinum was twice as much as gold. There could be hedge funds that may be long platinum and short Gold and are having some problems and may be unwinding some positions. Over the long run, I think platinum is probably a very good investment.

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Posted by on Dec 6 2011. Filed under Silver Analysis. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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