By Dr. Allen Alper, PhD Economic Geology and Petrology, Columbia University, NYC
Dr. Alper interviews Mickey Fulp, The Mercenary Geologist, at PDAC 2016
Dr. Allen Alper: This is Dr. Allen Alper, Editor in Chief of Metals News, talking with Mickey Fulp. He's The Mercenary Geologist, and he knows what's going on if anyone does in this industry. Tell me, Mickey, what are your thoughts? What's happening? What's your impression of what's going on? What's the mood of PDAC 2016 and our mining community?
Mickey Fulp: The mood at PDAC is better than expected, and that has a lot to do with the buoyant rise in commodities since February 29. Gold's up significantly. It went above $1270 before it's fallen back a bit, but it looks solid in the mid-1,200 level. Copper's up over 10%. Oil’s up 30% from its low several weeks ago.
The conference itself has shrunk considerably. Company exhibit booths that used to occupy three different halls are now in one. It seems to me aisles are wider and there's one row that's largely unoccupied. That's to be expected as we're now into the 5th year of a bear market. Arguably the top of the bull market was the first day before PDAC in 2011 and everything went south from there.
There's perhaps some light on the horizon, and we haven't seen that in quite some time. Let's hope that this rise in commodity prices has staying power. There's obvious hedge fund buying of gold out of New York. The gold market has been off in Asia and up during the day in New York. Let's hope the hedge funds have called bottom and are starting to move into commodities again.
Certainly short squeezes have been a part of the rise over the last week. About a month ago, Goldman Sachs came out with a very bearish report on gold. Some of the other analytical houses and financial institutions were fairly bullish on gold at the time. It seems certain that Goldman had a bunch of shorts in the market and they were trying to create a down market before they got squeezed.
Dr. Allen Alper: Could you give our readers some kind of feel for, first of all, the areas and then maybe even some companies that they should consider looking at for investment?
Mickey Fulp: You want to be a contrarian, so I think you need to look at gold companies. The GDX, the gold miners index, is the best return on investment since the 1st of the year up about 30% to 40%. You can never hope to get in at bottom, or if you do you're just lucky. I think the gold sector stands to benefit at this point. I'm always looking for good copper companies and have my eye on one that’s not quite ready quite roll out with their story, but they have catalysts pending. This is what I'm focused on now.
We got into uranium in a big way last year, and now we're just going to sit on those stocks till the uranium market comes around. I never really thought it was going to happen until 2017, 2018, or maybe even into 2020. That said, if you don't have positions in good uranium companies, they're beaten up right now, and this may be a time to move. But realize that's a longer-term idea.
Dr. Allen Alper: Could you tell me what companies you think investors should look at?
Mickey Fulp: I not ready to talk about companies just yet as it's still a little early. Suffice to say, I'm evaluating new plays. I can tell you that I'm putting very little new money into the market at this stage, i.e., as things go up, I'm taking profits. Then I will generally turn around and put that money into new ideas that haven't made a run yet.
Dr. Allen Alper: Do you think this is for real or do you think that it'll back off?
Mickey Fulp: Time is the only thing that will tell. The price of gold is up about 17% here from its low in mid-December. That's a really strong rise. Something fundamental has changed. There's lots of physical buying now.
I would expect a slow rising market, two steps forward, and one step back. That makes for a healthier rise We haven't seen those sort of step backs yet in the gold market. If you look at the chart it's steadily gone up over the last 6 weeks. We would expect some corrections or momentary pauses.
It appears that gold's been going up despite what the US dollar is doing. We usually expect a strong negative correlation with the US dollar in a rising market. So gold has decoupled from the US dollar a bit, and that's good for the market.
Dr. Allen Alper: What meetings are coming up that you're looking at?
Mickey Fulp: I'm looking at a meeting in April in London called 1-2-1 Investment and may be speaking there. I'm speaking at the Capitalism & Morality symposium, a free-thinking, individualism, libertarian seminar in Vancouver at the end of July. The number of shows in this business has shrunk considerably, as you well know.
Dr. Allen Alper: Right.
Mickey Fulp: In the past, where there were 5 or even 10 of a group's shows, now there are 2 or 3. Several of the shows I’ve regularly spoken at, are bankrupt or simply cancelled, gone. There are fewer opportunities now.
Dr. Allen Alper: Yeah. Do you think any of those are coming back?
Mickey Fulp: Well, there are niches being filled. Mines and Money is adding a conference in Toronto in September; Cambridge House has moved into San Francisco; still no big mining investment show in New York that I'm aware of. But what else would you expect in a 5-year bear market? It's tough for everybody.
Dr. Allen Alper: Any other thoughts of wisdom you would care to share with our readers, our wounded investors?
Mickey Fulp: Commodities and stocks are for high-risk venture capitalists and speculators. Bull or bear markets don't last forever. The cure for low prices is low prices because supply comes off. Growth and demand is still intact for many metals. We were very successful and put too much copper into production. Gold mining was never profitable and did not reward shareholders even during the bull market.
Demand continues to go up for oil, but supplies have exceeded demand. With such low oil prices we thought a lot of production would come off. That didn't happen. Of all the significant oil producers in the world last year, the only one I know that decreased production was Libya, and that was due to a civil war. Go down the list of countries: US production, all-time high; Russia increased production; Saudi Arabia increased production; same for China, Canada, Nigeria, Algeria, Iraq, Iran, Indonesia, and Venezuela; the list goes on and on.
Especially in some of the OPEC countries and Third World producing countries, they increased production because of need to generate revenues. So as net backs (margins) decrease, they just open the chokes and produce more oil. I don't think the oil price is going to turn around for some time and don't see it happening in the short term.
Dr. Allen Alper: What do you think will drive the gold market?
Mickey Fulp: What's driving it now is physical demand, lots of money pouring into the ETFs and safe haven buying of physical gold by Americans has been very strong lately. The Asian gold market is the weak link right now, which is quite unusual. I think strong physical demand is both speculators who are trying to play a rising gold price and safe haven demand coming from the States. General queasiness and trepidation in financial markets is always good for gold.
The American dollar has been a safe haven the last couple of years. But gold is real money. Not to denigrate the US dollar, it remains the world’s reserve fiat currency, but we are seeing a more fundamentalist approach and a move back into gold.
Mickey Fulp: That said, I think oil remains an important part of the equation. The world’s economy runs on oil, and that will continue. When you look at the hard commodities downturn over the past year and a half, it can be argued that it was largely a contagion from the crash in oil. I called the bottom of oil at $26 and change and the bottom for copper at $1.96 in late January. I trust the worst is over.
Dr. Allen Alper: Well, thank you for sharing your news and insights with our audience.