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• Roundtable Discussion
• Dr. Leanne M. Baker, Managing Director, Investor Resources LLC
• Dr. Keith Barron, Director, Aurelian Resources Inc.
• John Doody, Editor Gold Stock Analyst
• David and Eric Coffin, Editors Hard Rock Analyst
• Ron Paul, Presidential Candidate

JOHN:  Well, Jim, now we're just getting under way with the real gold interviews for the program.  We've obviously completed the first hour of the program, and now we'll get into what I call the Great Financial Sense Gold Show of 2007.  And it's great because we did it. 

JIM:  We're doing something different this year, as we mentioned.  Normally, I'd do this at the San Francisco Gold Show, but the technical difficulties, the noise background sort of interfered with the conversation.  So what we're going to do in this segment, we're going to start out with what I call the experts in the roundtable.  You're going to hear a roundtable discussion between myself and Dr. Leanne Baker.  Leanne used to be the managing director of Salomon Brothers, their metals analyst.  And of course, the great Dr. Keith Barron. 

And then also something we did this year is I wanted to look at some newsletter writers and I wanted to pick a couple that I believe are some of the best in the business.  They are not biased.  They don't receive warrants.  They don't receive money from companies, so they make their money simply by charging subscribers for the service they provide.  So you're going to hear John Doody of the Gold Stock Analyst and then the Coffin brothers from Hard Rock Analyst.  

And then we're going to complete this segment of this show with one of the main proponents for metals and sound money, and that is Republican congressman Ron Paul who is also a candidate for the US presidency.

So a great segment of the program as we look at the experts, as we discuss the issues of gold mining, picking gold mining stocks etc.  [1:47]

JOHN:  You're listening to the Financial Sense Newshour (www.financialsense.com).  Let's move on to the first roundtable discussion as the Financial Sense Gold Show of 2007 continues right here at www.financialsense.com.

Roundtable Discussion

Dr. Leanne M. Baker, Managing Director, Investor Resources LLC
Dr. Keith Barron, Director, Aurelian Resources Inc.

JIM:  Joining me this year for a roundtable discussion of the gold market and its prospects are Keith Barron, and Leanne Baker of Investor Resources. 

I'd like to start out our discussion in terms of the gold environment and begin with just a few headlines from the day that we're speaking.  And these are just some headlines off Bloomberg:  Fed lowers 08 growth outlook;  Freddie Mac shares plunge after mortgage company posts two billion dollar loss; US building permits fall to the lowest since 1993;  Ericsson expects fourth quarter sales to be at the low end of forecast; Federated Investors bail out clients and money market fund;  Countrywide debt risk soars on speculation;  Crude oil rises a third day; and “at a sub prime survivor's conference it's too early to tell who is going to end up surviving.” 

Why don't we begin with the macro environment with gold because I think it's never been more supportive of gold prices.  Any comments? 

LEANNE:  I would agree with you, Jim.  I think that although I expect that we're going to see a tremendous amount of volatility going forward because we seem to go from worries about inflation one day to worries about recession the next day, wondering whether the Fed will increase rates or decrease rates, and so we're likely to continue to see volatility. But within that, the underlying fundamentals for gold –whether you're looking at supply/demand or the reason for investor demand for gold –continue to be very supportive.  [3:36]

KEITH:  I would completely second that.  I think the picture for gold looks just tremendous, but I think also we're looking at a backdrop not just of problems with subprime, which, you know, are really some of the biggest problems confronting the broad stock markets right now, but these amazing currency gyrations going on right now with the euro, with the Canadian dollar.  And also, you see some kind of quirky things going on, headlines saying that people are jettisoning gold and gold shares because just there's been broad market dumping of equities and people are getting out of everything.  I don't think that's actually true.  I think gold is really coming through as a safe haven, especially in these times.  [4:24]

JIM:  I have a Bloomberg screen and one of the things I've seen this year is accelerated global money supply growth.  In Russia, the money supply is growing over 40%; in India, it's over 20; and Australia, it's close to 19; in China, it's almost 19.  I'm even looking at the BRIC countries: Brazil, 16%.  And we did a study of growing money supply rates and a correlation with inflation, which is rising around the globe; and the other thing that we did is we took the major currencies and we showed them in terms of gold and all of them are depreciating.  And that is one thing that I think gold is signaling in its recent rise is that gold is assuming its traditional role of moving from a commodity to real money.

LEANNE:  I think that's exactly what we're seeing.  And while the road will be bumpy getting there, that is what is going to propel gold, I believe, into the four digits.  I'm not quite sure how soon, but I think it's just a matter of time before they get there.  It's still early in this cycle, even though gold prices have gone from a low of 250-something dollars not that long ago to close to $800 now.  But in all of the headlines that you brought up, there really have not been front page headlines about gold, gold prices and investor demand for gold.  I think we're still in the very early stages of that part of the cycle.  [5:56]

KEITH:  I would say so too.  We are very early in the cycle because gold hasn't become water-cooler chatter yet.  Most of the people are not really familiar with the gold story.  It's not on the news every day; it's not on the front pages every day.  And I think it certainly will get there and that's only a matter of time.  But, you know, with a back drop of an oil price in the $90s now – in the high 90s – how can there not be a massive inflation going forward, and not just inflation in America, but in all countries?  This is going to be something universal because the oil price is something so fundamental to all commerce in the world.  There was a very interesting article in the Wall Street Journal talking again about peak oil and how it looks like it will be...an executive from Total saying that the pumping that's going on now of some geological structures is actually damaging them so that it's really destroying their value going forward of being able to be fully exploited.  So we're going to have maybe shortages of oil.  We're certainly going to have higher prices and lots of higher inflation.  [7:12]

JIM:  I was reading from a headline out of the Financial Times and Ambrose Evans-Pritchard wrote a piece he calls the Perfect Storm For Gold As Mines Left Empty, and the opening sentence is:  “The era of peak gold has arrived.”  I want to talk about, you know, we know there is demand for gold obviously that's driving the price up in terms of where it is today, but let's talk about the supply side of it.  And Keith, I'm going to ask you to weigh in on this because where are the major discoveries in terms of, you know, it's almost a similar path to oil –the last major discoveries were the North Sea and the North Slope of Alaska besides a field in Kazakhstan – but we haven't had any major real discoveries in other than let's say a company you started, Aurelian.  Where are the 10, 15, 20 million ounce deposits that they’re finding?   And I think of the Ralph Bullis story where he said, “there just aren't that many elephants out there.”

KEITH:  Yes.  I really do think that the low hanging fruit has been picked.  You know, you alluded to the Aurelian story and Aurelian has found a deposit with an inferred resource of 13.7 million ounces of gold.  Now, that's the largest that's showing up now between 15 and 20 years and really quite incredible that there haven't been more discoveries like that given that the gold price has become quite [robust].  There are a lot of people doing exploration in all of the countries in the world and yet they are not charting up these things, so what's the reason for this?

Well, the reason for this is these things are as scarce as hen’s teeth.  You have to spend more money to find them, you have to go deeper, you have to buy techniques like geophysics and geochemistry to peer much deeper in the sub-surface in the earth.  You don’t bump into these like the “miners, 49ers” did way back when.  Case in point, the mines are getting much, much deeper and harder to sustain, harder to pump, you have to pump water to keep these mines free of water.   And there has been a series of accidents, not just to gold mines but to pit mines, as well, in South Africa.  At some point you almost reach a finite point of how deep you can  pull on these things.  So looking forward, we really do have a situation where the gold supply is going to be constrained by the lack of new discovery.  [9:44]

LEANNE:  And I'd like to point out something else as a sidelight to this.  When I first started looking at gold companies and the gold industry in the late 1980s, a large gold company was one that was producing 300,000 ounces, on its way to 500,000, and then up to a million ounces.  You know, today, nobody is satisfied until they have on their plate something that is going to be able to get them to that million ounce production status.  And so they are looking for discoveries that just may not be possible.  There just will not be enough 10 to 15 million ounce discoveries that are made.  This week I was listening to a conference call by the new head of Newmont who is talking about that; that they are going to be looking not only at the big deposits but also looking at the most profitable deposits, and starting to go back and say, “well, perhaps we'll be looking at some smaller deposits for development but ones that will generate better cash flow.”  And I think that's going to be a theme that we'll be hearing from other majors and intermediate producers as well, because the reality has been that getting up to becoming a big producer is a very, very difficult proposition for value creation for investors.  [11:00]

JIM:  You think, Leanne, what we're seeing here –and Keith weigh in on this as well – is I've heard talk over the last couple of years from the majors “we're not going to touch anything unless it's five million ounces.”  Do you think we're going back to the 1980s model where, you know, if you could get 150-, 200,000 ounces deposit that you can mine economically that you'll not only see that at the major level, but you'll also see it from other companies, let's say the intermediates as well?  

KEITH:  I think we're going to see a return to that stuff.  It's inevitable, but we're going to need much higher gold prices to sustain that kind of stuff.  Now that the gold prices are approaching this all time high of 850 bucks, you see it all over the media saying “oh, yeah, well, 850 bucks in 1980 dollar terms it should be $2000.”  Well, yeah, you know, there has been escalating costs in the gold business; the cost of getting an ounce of gold out of the ground has gone up commensurately with inflation since 1980.  So even if the gold price is spiking through its all time high, it's going to have to go a considerable bit higher to be able to exploit a lot of those smaller deposits.  That being said, I think that Leanne’s spot on with this.  The mining companies are going to have to start going after quality ounces rather than just going for quantity.  And there are a lot of scenarios around the world where there are some very, very high grade deposits that could be taken out quite lucratively, but the mining companies have tended not to look at these things because they say they are too small to affect their bottom line.  Well, they might end up being the only things available to exploit.  [12:48]

JIM:  I want to bring up another obstacle in addition to the difficulty of finding these ounces.  You take a look at political environments today whether it's Russia or Latin America, but also something that many companies didn't have to contend with in the 70s and that's environmental opposition.  Let's assume that a company makes a discovery and it's a large deposit.  That doesn't necessarily guarantee that they could bring it into production in three-to-five years.  You may have environmental opposition that keeps you at bay for a long time.  I'm thinking of, Keith, the Glamis deposit in California, which is what, going on 10 to 15 years now trying to get that permitted.

KEITH:  Yeah.  I don't even know if that's still on the radar.  It might have just fallen completely away.  Yeah.  We've seen a number of things in the States; Canyon Resources had a project they wanted to get permitted in the state of Montana and because of the cyanide initiative it was shut down.  Northgate wanted to put the Kerness North deposit in British Columbia into production and that shut down because of a dispute with the aboriginals.  It may get back on track.  Nobody knows at this point.

But, you know, personally in America, things can get very litigious.  You can find yourself satisfying all of the requirements with your feasibility studies and all of the rest of it and having to wade through six or seven years of court actions to actually put a shovel in the ground.  You know, my personal opinion – and I've done a lot of work in the Third World;  as you know, I'm working extensively in Latin America right now – you have to go where the gold is.  And I've never been a person to shy away from some of these jurisdictions just because of politics.  If it's big enough, they usually find a way of making it work.  That being said, there are certain places on my list like Venezuela I wouldn't touch right now.  [14:48] 

JIM:  Yeah.  Especially too there is a big mine down there, Crystallex and whether they will bring that into production; or if they do, whether it will be profitable for shareholders given what Chavez has done to the oil companies. 

KEITH:  Yeah.  That's correct.  And there has just been a press release recently their projected cost for that deposits have gone up quite considerably.  Yeah, you have to weigh up all of these factors.  Unfortunately we can't pick up the deposits and put them into a country jurisdiction that we like.  So it's a fixed asset.  You have to find a way to make it work.  [15:26]

JIM:  As the price of precious metals go up, governments tend to get more rapacious.  You can see it in the oil industry going on in the Third Word right now.  Even our own government is trying to renegotiate leases in the Gulf of Mexico.  We've seen in Alberta renegotiations of the Canadian oil sands; and more recently, here in the United States.  Comments from either of you on this mining law that they are trying to get passed where they would get an 8% royalty?

LEANNE:  Right.  No.  That, I think, is always the case when you have a bull market or when you end up with a very successful property, that governments would like to come in and be able to renegotiate terms of the agreement, or else the law changes so that newer projects in the same jurisdictions have a lot more hurdles to overcome.  You know, that's one reason why the companies would prefer to find very large deposits because then they know it will be worth their while to sort through all of the issues as they come up and deal with them –as they come up – in a way that hopefully remains win-win for both the companies and their shareholders, as well as the countries and localities where the mining is taking place. 

And in that regard, I think a company like Freeport has been a role model.  If you look at the fact that they got started with their first project in Indonesia in the 1960s, and then found a really big deposit in the late 1980s.  And that's one that's going to be in production for a long time.  They've been able to weather many, many storms and they've been through terrible bear markets and during bull markets and they've still managed through thick and thin to generate great shareholder returns and to make a lot of people in the country very happy with the fact that they’ve been in production.  So that's what you would like. 

That's not always the case.  What you also find is that over time things change.  And as Keith mentioned, if you're someone who sticks in a country and they know you're there even if there is a change of government or a change of legislation, if you maintain good relations with those people over long periods of time, you tend to be able to work things out.  That's not always the case in countries like Venezuela, right now, for example; but in most countries in the world, I think you can still bring a mine into production if you make a successful discovery.  [18:00]

JIM:  I want to move on to something in this bull market and ask both of you to comment and contrast how this bull market stands to let's say the bull market in the 70s.  One thing that comes to mind from my perspective is in the 70s, I think there were a lot more people that understood the root causes of inflation, which is excessive money creation.  Today, you even have people like Bill Gross, who runs the largest bond fund, talking about government coming in and intervening, propping up mortgages.  I think there is less of an understanding of monetary history or what causes inflation today.  But comments from both of you.

KEITH:  I would certainly say that there is a lot of folks out there that are 20-somethings who are in control of a lot of money.  The subprime debacle, I just kind of sat back and did my armchair economics and saw this thing completely unfold.  But it seemed to me just looking at the thing on the face of it that how could you give loans to people who can't make a declaration on their income?  How can you give loans to people who don't have any equity in their houses, they don't have any money to put in?  It's like an accident waiting to happen.  And we're dealing now...the gold price hasn't been this high since 1980.  Really, it's a brand new generation out there largely in the money markets, in the banks who are looking at this thing and haven't had to deal with it before.  I can remember when the gold price spiked up back then.  And in fact I even had a little gold – not too much.  But yeah, it's been a long time coming.  We've seen kind of a generational difference here and we're dealing with a bunch of people who’ve grown-up under the Clintons and haven't had to experience some hard times really.  [19:54]

JIM:  Leanne? 

LEANNE:  I would add to that.  I totally agree with you that the level of economic ignorance is very high, both among politicians as well as the man on the street.  And so people really don't understand the cause and effect of what is affecting their day-to-day economics.  But what we do have going for us today that we haven't had in the past is the internet:  The ability of people who want to try to figure this out who go to the sources of information where they can.  And we also have a situation where gold is actually legal in almost every single country in the world right now.  So anyone who makes the connection between excessive money supply growth among all these governments around the world, and the fact that gold has been a store value for millennia, they can make that connection and they can take action for themselves and their families to protect themselves over the long term.

Unfortunately, I believe we are not going to see the answers and the honesty coming from our elected officials and even our regulators.  We don't see the testimony in front Congress by the Chairman of the Federal Reserve and others, you know, who really can sit there and explain what's going on, how difficult it's going to be for people when all of this unravels; and it is going to continue to unravel.  But there are other ways of finding out that information and that is what I think ultimately will propel gold prices much higher because people can figure it out.  They are figuring it out now, and it's going to be that much more obvious as we go forward.  [21:34]

KEITH:  I might add to Leanne, that what we're seeing now is a huge growth of the precious metals markets in both India and China.  And a lot of economists and bankers and such have really disregarded the people in what they call the Third World saying that they are not very sophisticated investment-wise.  But I think you're really going to see that these people are actually very, very super savvy and they are avoiding all of this great fallout in the subprime.  [22:06] 

JIM:  I want to move onto something in this bull market.  We all agree that we think gold prices are going higher and along with that will be gold mining shares, but I want to talk about the industry itself.  And one thing that we have seen over the years, at least in the last three or four years, in terms of the financing cycle, a lot of companies tend to over-dilute, they are poorly financed; and if you look at shareholder returns, the mining industry is not known for delivering high return to shareholders.  As the bull market took off, we saw a lot of miners that were overly hedged in their production, so as the price of gold escalated they didn't benefit from that.  In fact, a lot of them have had to unwind their hedges.  And very few companies...I mean you had Goldcorp, as the price of gold rose when Rob McEwen was running the company, he held back production and sat on it in inventory because he believed prices were [going] higher and that was a benefit to shareholders.  You’ve had Silver Standard which accumulated assets when the price of silver was low, and felt it was not to the benefit of shareholders to mine it at a loss.  Let's talk about the mining industry itself.  Leanne? 

LEANNE:  The mining industry has always been very difficult, a very difficult one for investors to make money.  And I've been following it now for about 20 years.  And during bear markets, even when you are able to call the price of the metal correctly, you get bullish, you think prices are going to go up, you run your models assuming that prices are going to be higher, and no matter what kind of price escalation you put in for on the cost side of it, you still manage to over estimate just what these companies are going to earn in the way of margins.  They, as a rule, tend to disappoint.  And part of that is because in the gold sector, as we alluded to before, it's very, very expensive to continue to replace reserves.  And as things start heating up, the company starts spending more on G&A.  They start spending more on exploration.  As we mentioned, taxes tend to go up and there may be new royalties that are added; labor costs go up; other input costs go up.  And it's always a disappointment. 

This has been a somewhat different cycle on the base metals side because base metals tended to rise so much above their previous peaks that for companies that were already in a production mode, they've been able to generate very strong cash returns.  For the most part, that has not been the case with the gold companies unless the gold companies tend to have mines where they have significant byproducts credit.  And that's just the way it is.

And now we're getting to a point in the cycle where I think some of the larger companies that have done a lot of leg work the last few years in terms of getting a handle on cost and getting their pipeline of projects put into place –and some intermediate companies that have done the same thing – if gold gets to $1000, $1500, $2000, the companies already in production are going to be generating very great cash flows and good returns for shareholders. 

But what is also difficult at any point in the cycle is making investments in the exploration side of the business and that's where the concerns about over-dilution often come in because there are many managers of these companies that may be great geologists and very solid on the technical side, but they end up being vulnerable to the different financing mechanisms that are made available to them;  and they can find themselves greatly diluted in a few years without even realizing what's going on.  [26:02]

KEITH:  I think going forward, the gold mining business is going to become more profitable.  We've had a period here of quite a few years where the gold price has been artificially suppressed because of central bank sales and the gold carry trade.  Now, the gold carry trade has pretty much come to an end, even though gold lease rates are quite low; but the risk of borrowing gold and selling it to invest in other securities and then being able to buy back that gold at a reasonable price is very high and this is what's killed the trade.  Central banks are becoming a lot less reluctant to liquidate their gold holdings.  I think you’re going to see more central bank buying, from countries like China, like Russia, to prop up their currencies and get a healthier currency; and you’re going to see some offloading of dollars from economies like Taiwan, South Korea and China and redirecting those dollars into gold purchases.  So I think we're going to see healthier gold prices for that.

You've also seen pretty much an end to hedging; and this was where people would sell their production forward – in some cases for many, many years.  It's a mechanism that was developed about 20 years ago – started by Barrick really to give you a guaranteed revenue stream.  It's kind of rebounded back on people because in a lot of cases the gold prices moved higher than the hedge books, so the hedges are under water.  The major mining companies have been busy trying to offload their hedge positions as quickly as they could, and that's pretty much done now.  I think for those reasons you’re going to get more profit in gold mining going forward.  [27:56]

JIM:  What about upcoming trends?  If you take a look at there has been a lot of money that's gone into exploration over the last five or six years, record amounts that have been raised.  But if you look at industry, a lot of exploration work being done by the juniors, it's almost like there are too many juniors.  What about the idea of consolidation of juniors, either at the late stage development level, or even intermediates; or let’s say, junior producers, merging together?  Let’s say you have one producer whose production profile may be 50,000 ounces, they merge with another junior producer and the next thing you know, you have 100-, 150,000.  What about consolidation of the industry?  Do you think that's part of our future.

LEANNE:  Well, it's already happening.  Last week we saw a merger announced between Canyon Resources and Atna, two companies that have been doing a lot of work in Nevada and other areas of the US.  And I think that consolidation, even at the level of smaller companies, is likely to continue in part because of the shortage of qualified manpower, if you will.  It's very hard to find good people who can run your companies and run your exploration effort; and that could well be an impetus or a catalyst for continued consolidation among the juniors.  [29:20]

KEITH:  Yeah.  I think we have a real shortage out there historically of mid-tier companies.  There aren't really many of them around anymore.  They've been taken out by the Barricks and by the Newmonts of this world.  So I think there is a lot of space for that kind of stuff to happen, two companies merging or even three companies coming together.  If there are synergies, if they are in the same part of the world, even in the same countries, it can often make a lot of good sense.  [29:51]

LEANNE:  And something else that I think we'll see going forward:  A lot of exploration company effort is working towards the goal of finding something that’s big enough for a major company to become interested in, and buy from you –you know, take out the whole company.  I think that...in fact, I've talked to some people in the industry who are thinking of, you know, in their next round of building companies to try and build companies that actually can bring a mine into production with the goal of replacing what had been the mid-tier level in the industry (the companies that are producing from 100,000 to 500,000 ounces of gold);  and maybe be geographically targeted.  So I think there will continue to be a lot of different trends that will start to take us back to where we were in the late 80s and early 90s as well.  People are going to be trying different ways to make it all work and to make money for themselves and for the investors who invest in their companies.  [30:56]

JIM:  Yeah.  It seemed to me that there is a great opportunity here at the intermediate level because if you look at...one time...the intermediate companies whether you're looking at Agnico which is going to be going over one million ounces of production, you had Goldcorp which is a multi-million ounce producer now, Glamis which got gobbled up, so it seems like there is a lot of room there for these smaller companies to move up to the intermediate level of 200-, 300- or maybe 500,000 ounces of production because there are not many of those companies left.  

LEANNE:  That's absolutely right.  You know, and that's not only happening among the North America-based companies but we're seeing it with Australia-based companies as well, you know, who tend to operate more in that part of the world.  A company like Sino Gold, for example, which has its first gold mine in production and is looking to add to that.  I think it's turning out to be a very successful model that other companies will try and emulate.  [31:57]

KEITH:  Yeah.  I would agree.  I think we're going to see a lot of growth of those kinds of stories going forward.

JIM:  You know the one thing that kind of strikes me is, and this goes back to something that we were discussing earlier, taking a look at the macro environment today – whether we're talking about headlines, accelerating money growth, depreciating currencies – it's always surprising to me to see how the market reacts.  You'll have on a day like today where you had all of these credit problems that are in the headlines, gold is up $16; but just as well, Leanne, as you refer to volatility, the gold market could have gone just the opposite.  We had a day a while back where there was bad credit news and I kid you not, gold went down, oil went down, and people moved into the financials and bought Google.  So I mean, you know, I still don't think that the vast majority of investors really get this story at this time.  

LEANNE:  No.  And I think it's important, because if you don't really get it, if you're just looking for short term returns, you're likely to be disappointed.  But I have been reading Richard Russell since the beginning of the cycle and he's just been so strong on the message of jumping into a bull market and holding on with both hands no matter how much bucking there is going on.  And I think that's what, you know, if you believe in gold as an asset that's going to hold its value and whose value is going to go up relative to the alternative currencies out there, if you understand a bit about the underlying supply-demand fundamentals, then I think it's easier for you to hold on during the periods of volatility (or to step up to the plate and buy more if you've get a big correction when you're not really expecting it) than you will if you get disillusioned every time things go down when you don't understand all of the underlying liquidity drivers, for example, that can make that happen.  And it's going to get worse because going from $800 to $1500 or $2000 or higher, it's likely to be very, very volatile for the shares especially as we move up to those kind of levels in the metal.  [34:14]

KEITH:  That's exactly what you can expect.  In fact, Jim, you sent me a report the other day, a report by Cheuvreux in the UK, and it was entitled Remonetization of Gold: Start Hoarding.  But it was dated January 2006, so, you know, you can't get into this market and just think that everything is going to happen in the next week and you're going to do very well.  You've got to be in there for the long term.  People have been talking about what we're seeing unfolding now, people have been expecting it for many, many years – five, six years now – and it's coming to pass now.  It's not ended.  We're going to see the gold prices, in my opinion, go a lot higher.  But you have to have the stomach for it and you have to have the stamina and you can't act like a day trader.  [35:06]

JIM:  This is one reason why I think it's so important –as we've been discussing here – to understand the fundamentals of gold because as we have seen here, you can wake up one morning and see gold spike up $40 out of the blue.  And I don't think that any technician could sit there and look at a gold chart and predict those kind of events; just as two weeks ago when on a Monday we saw gold drop nearly 30 bucks.  Those are the kind of things that are just par for the course in this kind of market.  But if you own this stuff, when you have those days and gold pops 40 bucks an ounce or we go over a thousand, I think Bill Murphy from GATA has a saying, “you've got to be in it to win it.”  And I think probably the best kind of strategy, and I don't know if you would agree with this, is if you want to accumulate gold is to do it on a consistent basis:  Dollar cost average, quit worrying about whether the price is 800 today or 850 or 750, but keep accumulating.  You have people like James Turk that has said, you know what, “until gold hits 1500, keep buying.”  [36:16]

LEANNE:  I would agree with that strategy, certainly as it regards the metal itself.  I think that’s a very wise way to accumulate either actual physical gold, or physical gold through an entity like GoldMoney, or even for some investors just buying the ETF, which do have an impact on physical gold hoarding and physical gold demand.  I think as a strategy for buying shares, you're probably better off trying to maintain a discipline with the companies that you're interested in, and on the days when there is blood in the streets and it's a company that you like and maybe you own it at a higher price, you're willing to step up to the plate and say if I look like it and I believe in it maybe now is the time to add to the positions.  [37:06]

KEITH:  I would say so too.  But I wouldn't go out buying a boat load of juniors as a proxy for buying gold.  You have to examine the stories very critically and you have to be very prudent in your investments.  I'm also a big believer in having at least some bullion, having some physical – either coins, bars or what have you.  And it's got a lot easier to be able to make those kinds of purchases.  But, you know, as it was said, you should be accumulating this stuff over time.  Look on it as a nest egg, as emergency money, as something that's going to be there for if we see a real turmoil in the markets and the money markets and the banks.  You know, if we had a situation with Northern Rock all over the place and bank runs like you saw in the UK recently, then precious metals is obviously the place to be.  And a lot of bright people have been forecasting this kind of activity for a long time.  We’ve seen it historically in the Weimar Republic, we've seen it in France in the French Revolution.  You can name dozens and dozens of countries where the currency has ended up being worthless, and really the only thing that you had to put groceries on the table would be precious metals.  [38:27]

JIM:  And finally, if you were speaking before a group of investors, any parting comments or advice that you would give.  Leanne? 

LEANNE:  Well, my parting advice would be to stay the course, understand as much as you can about the underlying fundamentals of the metals, to know that if you're buying gold you're buying it as an alternative to the fiat currencies that continue to decline; and if you are going to take the plunge into gold equities, make sure you're diversified and you are willing to hold for the longer term.  [39:04]

JIM:  Keith? 

KEITH:  Yeah.  I would say as well, I would be skeptical of some of the things that you're going too hear on Bubblevision from some of the funds and the merchant banks.  There are a lot of people out there who have talked down the gold story; and they have been talking it down all of the way up.  You'll still hear people saying that gold is no good and it's a barbarous relic and so on and so on.  I think you should also be very circumspect about what your politicians are saying as well.  I love the message that Ron Paul gives out, and I hope he does get elected.  I'm Canadian and I don't get to vote in the US elections.  I wish I did, because I'd vote for the guy.  Some of the comments coming out of the US Fed and from George Bush about strong dollar policy, well, all you've got to do is pick up a copy of the Wall Street Journal, open it up and take a look at US dollar value against a whole bunch of currencies there year-to-date and you'll see a lot of minuses.  And I think the politicians have got a lot to answer for for that.  It's a very, very sad state of affairs.  Gold – that's the reason why gold and silver are up.  It's not because there has suddenly been this huge, huge massive demand that's driven the price of gold and silver up.  It's fundamentally because the value of the dollar against precious metals has gone down.  And this is a very important thing to understand.  You have to understand it perfectly because this is really our future.  [40:41]

JIM:  Well, listen, I would like to extend my thanks to both of you for joining us for this year's annual gold show and I want to wish Leanne a Happy Thanksgiving with your family; and Keith, all of the best to you as well. 

John Doody, Editor Gold Stock Analyst

JIM:  My next guest is familiar if you've been listening to this program, he often joins us in our Expert Series in the first hour of our radio broadcast.  He's John Doody.  He's editor of Gold Stock Analyst.  And as pointed out the newsletter writers that I have invited on the show this year were based on track record, objectivity, and the fact that they do not take any payments from companies which keeps them objective. 

John, let's talk about your newsletter.  You cover about sixty companies, actually more today because you've added a silver component to the report.  Talk about these companies, a lot of them are mainstream companies, up-and-coming producers, a few exploration plays or development play, talk about the companies that make your universe. 

JOHN:  All right.  Well, let me tell you to start off with, Jim –and again, thanks for having me on the show –but let me start off by telling you how I got into the business because I think that that sort of leads into to the nature of how I write and do the research for the publication.  And as you know, I was a professor of economics for about 20 years.  I got interested in gold in the 80s, really, because of a distrust of politicians.  I came to realize that the real business that politicians are in is to get reelected and that means that they are always trying to get nine slices out of an eight slice pizza.  So they are always trying to get more, to promise more to voters and try to deliver, and that means you've got to spread the pizza pie around further than it really wants to go.  And how do you do that in economics?  You debase the money supply.  And whether it's getting Federal Reserve governors appointed who are going to have loose monetary policies; you know, a little inflation is always good in economics to grease the economic wheel, so to speak, and deficit financing is essentially just a different way to print money.  There is no difference between a thousand dollar Treasury bill and a thousand dollars worth of currency.  And so whether it's fiscal or monetary policy, they are always going to be debasing the money supply and as you know, that's partly why gold is at $800.  It's not that gold went up.  It’s the dollar has gone down. 

So I started playing around with gold stocks, as a way to protect my own personal investment monies, scarce as they were then as a college professor; and I had a hard time figuring out which ones to buy.  I was never interested in the “stories stock” part of the business –and even though there are a lot of good exploration stories out there – because I'm not a geologist and I didn't have really any great intuition on which exploration stock was going to hit it, and which not.  But I thought that the – there was a unique industry in that you had a bunch of producers then (and even more now) who produce exactly the same product.  An ounce of gold is an ounce of gold.  It doesn't matter whether Barrick got it and mined it or Newmont or anybody else.  And I thought with that as a common denominator there ought to be ways to compare the valuations of one company versus another company to try to figure out whose ounces are overvalued and whose ounces are undervalued, then, to come up with market-wide industry wide valuation metrics.  And it turned out there was a metric (I didn't invent it, but I think I probably popularized it) and that's the concept of market cap per ounce where you take a company's stock market capitalization – [the price of the shares] times the number of shares it has outstanding – and that's the total value of the company that the stock market assigns to it.  And then you divide that by their forecast production for the year.  So that gives you a market cap per ounce of production.  And right now the average market cap per ounce of production is running around $5000 industry wide and you can also look at their reserves – their proven and probable reserves.  These are the reserves that the SEC says companies can count because somebody – an independent engineering firm – has looked at the drill data and the information and says “yes, those ounces are probably there,” because, as you know, drills may be 50 feet or 25 feet apart, so you have to make an interpolation as to what the kind of grade is between those drill holes.  So the closer the space the drilling is, the more confidence you have.  That sort of gives rise to these whole different classifications of resource ounces:  Mineralized ounces, indicated ounces, inferred ounces and so forth.  The SEC says you've got to have close enough spacing to be quite confident the ounces are there, and either be in production with those ounces or have a feasibility study where somebody has run the economics on the deposit and said “yes, if you spend this amount of money, and you build a production facility and mine you're going to make money.” 

So those are proven and probable reserves.  And you can take those numbers, which companies report, and divide that into the market capitalization and you get an average valuation across the industry for reserve ounce.  And right now the average value for an ounce of proven or probable reserves industry wise is about $260.  So with those two metrics in hand, I could begin to start looking at who is overvalued and who is undervalued in the industry.  And I still do that.  And as you point out, I cover about 60 gold mining companies and about 15 silver mining companies. 

The gold miners have evaluations that really run all over the board from as low as 50 bucks an ounce versus an industry average for an ounce of reserves of 260, to double that, $500 an ounce.      So you have to begin to then look deeper in the company and figure out, well, are these valuations justified?  Now, we know that some ounces are cheaper to produce because the grade is high and other factors, maybe the labor costs are low and so forth; other factors are important.  And so an ounce that can be produced from maybe $150 cash cost is more valuable than an ounce that can be produced at $500 cash cost – even though at $800 gold would be profitable.  So you begin to make subjective valuations or evaluations of the relative values of the ounces that a company produces and so forth.  And once you understand the company and, you know, a lot of people have called me the Joe Friday of gold stocks, “nothing but the facts, ma'am, nothing but the facts” and as you know, the detailed analysis I go into about the company and its mines and so forth.  So it sort of lets me in my own brain come up with some kind of  a subjective evaluation and say, yeah, these ounces are undervalued or these ounces are overvalued.  And overtime...in fact, since we started the newsletter in the beginning of 1995, the top 10 portfolio, and that what we end up with this analysis, of a list of the top ten.  It's kind of like a personal mutual fund:  The average of these top ten stocks through the end of last month through October has been an average gain – if you take the gain over the whole period and divide it by the length of the period – it’s average gain has been 37% a year. 

And part of my whole philosophy in this is you can't simply identify one or two stocks.  The risk of one or two stocks is just too high.  You never know when there is going to be an underground mining problem or political problem or whatever, so you have to have a group of 10.  And I suggest companies that people buy all ten of the stocks that I recommend and they all sell for well under their target prices.  And we make as you know, three or four changes a year,  or more if necessary to keep the, you know, when companies get closer to their targets or something happens that we don't like, we may take them off the list.  And in a general sense, we're always focused on the whole industry, the whole sixty –roughly sixty – producers and that is almost all of the producers.  When something happens to a stock, it falls out of bed or makes some kind of a – some kind of a deal that really changes the nature of the stock, we can be ready too add it to the buy list. 

We made three changes this year that come to mind.  One where the stock fell about 30% below where it had been trading in the prior past and had made a company changing move that let us put it on our top ten, and that's the company called Royal Gold (RGLD); it trades on the NASDAQ.

And then another company that made a dramatic move was Silver Wheaton where they have been buying royalty streams – income streams of silver – and they've been paying in the beginning mostly with shares. But they made a huge purchase of Penasquito (which is Goldcorp's new mine in Mexico that I visited and wrote about in the October issue) but they bought 25% of that silver production for debt, without needing to hedge it or anything.  They borrowed the money and gave it to Goldcorp and they are now going to own roughly 7 million ounces a year of silver ounces and for that they are going to pay $4 an ounce and as you know, silver is around $10 an ounce now.  And this is going to be a huge mine.  It's got almost a billion ounces of silver reserves.  And so Silver Wheaton bought 25% of those, or 250 million –and more ounces, I believe, to be discovered – and they'll be paying $4 an ounce for them and earning $10 minimum on a profit, and higher as silver goes up.  So those are two companies we added to the top ten. 

One company we took off the top ten, partly because we're a little confused by a move that they made and that's Yamana which has been a top ten stock from $2 when we started covering it in 2003, and we rode that all of the way up to around $12 a share.  And we took it off because they made a deal and bought Northern Orion and Meridian at the same time.  Now, the mines they bought aren't bad.  What scared us was the shares that they issued.  And we're still apprehensive when we think of the selling that may come by year end or early next year as people want to take their gains that own Meridian or Northern Orion and we think the gains which are now translated into the Yamana shares may drive Yamana back down in price and create a new buying opportunity.  And I'll be visiting three of Yamana's mines by the end of this month and be writing about it in the December update.  You know, we put out – we speak to, I call it speaking anyway – to subscribers twice a month and a major issue that comes out at the beginning of the month, 16 plus pages; and then an update that comes out sometime between the 10th and 20th and that's anywhere from two to six pages.  We just put the November update and that was the six pages went up about – I guess it was last night on the website.  [51:54]

JIM:  So in the case of Yamana where it was on your top ten list, if a company either pursues a strategy that might be over-dilutive or, for example, it becomes overvalued, you're not afraid to take it off the list until –

JOHN:  No.  We're in this to make money.  People often criticize me and say why don't you like this stock.  And I mean people sometimes fall in love with stocks and this is a money making proposition.  It's not a love affair.  We like stocks.  When we think we're not going to make any more money, we change.  And if a stock falls back and we took Yamana off once before; and it fell back 30% and we put it back on.  Goldcorp has been on the top 10 list three or four times over its life history and you know, it's always price driven and we don't hesitate to take profits.  We know the stocks well enough and we know that nothing goes up forever and you have to take profits in this business to be able to really make money.  [52:49]

JIM:  So at its current price, what would make you interested in the company again, where would you look for...? 

JOHN:  In Yamana?

JIM:  Yes.

JOHN:  I'm going to know a lot more after my five days with the company and management in late November, early December, because I want to get a better handle on where it's going.  They've got five or six mines to build over the next couple of years.  It's a huge cash generator because it's a company-making mine, Chapada, that they have in Brazil.  It's a terrific mine.  But you know, I think back in the single-digit range Yamana is going to look very attractive.  And we may...selling at the end of the year or early next year because of the nature of the owners of Northern Orion, certainly, which was an exploration-oriented company, not a production-oriented company.  Those people are going to want to sell the shares they got from Yamana and probably go back into other exploration plays; and Meridian is probably a different subscriber base too to some extent.  So if we get some price weakness, we'll put it back on and we'll be fresh up to date with everything going on in the company.  I was at an analyst day meeting in October with the company in Toronto and, you know, we definitely...It's not that we don't like the company.  We don't  like the price at the moment.  [54:06]

JIM:  Well, John, if our listening audience would like to get more information about your newsletter, tell them your website and how they could find out more information.

JOHN:  Sure.  Well, you just have to let your fingers do the dialing and turn their computer to www.goldstockanalyst.com.  It's all one word, www.goldstockanalyst.com,  and they'll find on the site they will find information about the newsletter, sample issues; we post the front page of the last, three or four years on the site.  You'll learn lots about it.  You’ll get somewhat of a repeat of what I said earlier about how I got into the business.  You'll find a very nice quote from a pretty well-known hedge fund guy, Bill Fleckenstein, who has been a big supporter of us over the years.  And we have a pretty professional subscriber base of about 25% are money managers and professionals of one form or another from Fleckenstein to Fidelity to Tocqueville to US Global, all of the big funds subscribe.  But there is a lot of very interested retail people who don't have the time and energy to figure out which stock to buy and they understand they need some help.  As you know, there is not a lot of help available from the big brokerage firms anymore.  So they need people like me or others to get information that's usable and not biased, because the most a company can do is subscribe.  We're not – we don't take any options or payments or any of that kind of stuff that other people might.  [55:44]

JIM:  That's why you're on the show, John, and excellent work that you do. 

David and Eric Coffin, Editors Hard Rock Analyst

Joining me next are two brothers, David Coffin and Eric Coffin.  They are editors of the Hard Rock Analyst.  Gentlemen, both of you guys grew up in a mining town and you were raised in the industry.  David and Eric, why don't you tell our listeners a little bit about your background because it's a wonderful combination.  One of you comes from the geology side and the other comes from the financial side. 

DAVID:  My background is in the exploration side of the business.  I went to a mining school in Ontario and worked various places mainly in the western Cordillera of North America.  The work evolved into a consulting firm that Eric ran with me; starting almost 20 years ago now and then into the newsletter almost 12 years ago now.  [56:44] 

JIM:  Both of you come at the mining side – most of the companies that you cover on your list are juniors.  Tell me why the junior sector versus, let's say, there are some newsletters out there that follow the gold sector, but they are mainly large cap companies.  Why the junior sector?

ERIC:  I think that one of the strengths that we have because of our background, we're used to and fairly experienced when it comes to looking at data off the projects.  And we felt that gave us a leg up and would in turn give our readers a leg up in terms of following and finding stories early.  I mean, like anyone else, we think management is obviously very important.  And I usually look quite hard at how the companies are being put together in terms of financing and share structure, but if you can get a selection of stocks run by people who are capable of discoveries on projects that are permissive for it and make some of those discoveries, that's where a lot of the really large gains are.  Although I would add that a number of discovery- and development-level stocks that we’ve followed have gone through to production.  We don't have a huge number of producers on the list right now largely because so many companies we followed have been taken over in the last couple of years.  [57:57]

JIM:  When you guys are looking at a prospective company that you're going to list in your newsletter, take me through, what are the things that you like to see in a project? 

DAVID:  It basically does come to that – the leverage offered by exploration companies is that they grow from negligible (essentially, cash in the bank) assets to, when they’re successful, assets that can be worth in the hundreds of millions of dollars range; and in a few cases a billion dollar range.  They have higher risk, but a higher potential gain. In a nutshell that's why we focus on that sector.  That said, as indicated, if we see a producer that's looking undervalued on a cash flow basis we will talk about that as well.  And early in a cycle we've been successful at doing that.  At this point, after five years of a large bull run, we're somewhat more focused on the exploration stories, on the asset growth potential of the sector.  [58:55]

JIM:  Now, there has been a lot of money that's been poured into the resource sector, especially with exploration.  You're seeing a lot more juniors out there, they are getting financed, there is a lot more exploration work that's being done.  What do you like to see in a company?  If you were to look at a new prospect name, if you would, some key characteristics that you would look for before they would get mentioned or let's say put on your recommended list.

DAVID:  The geology and the targeting, which is a combination of geology plus usually geophysical and geochemical surveys, have to indicate that there is potential for a deposit of sufficient scale to develop it.  That's point number one.  There are two areas where you can do well as focuses.  One is to look at companies that are working in established districts and who may be able to take a relatively small deposit and sell it to a company in the area that has infrastructure if they discover it.  The other one (and the one that I personally like better, I suppose in part because of my background, but also because it has the bigger upside potential, though also the bigger risk) is companies that are working in areas where there has been very limited exploration in the past or at least very limited exploration in a modern sense, so that when they make a discovery, they are offering up to the market the potential to be in a new district rather than simply an asset gain.  They have an ongoing blue sky potential.  That type of story has been prevalent and a big part of the Canadian mining scene for the last hundred plus years.  In this cycle, although there has certainly been several discoveries of that type, they are getting harder to find for the simple reason most of the potential belts in the world have had a look.  [1:00:51]

JIM:  What about political risk today?  Certainly, you know, you make a major discovery, have a very rich deposit, but we're seeing resource nationalization or nationalism around the globe whether you're looking at Latin America or Asia.  What are your views on that? 

ERIC:  The reality is something that we talked to readers about this really fairly early in the cycle was...you know, the good news, I guess you could say, was we think we're going into a super cycle for reasons we won’t bore people with during this particular interview, but the downside, if you will, of a long period of historical high prices is that there is going to be people in all sorts of jurisdictions that are going to want their pound of flesh, if you will.  And that's certainly something that we've seen happening and it's not really that surprising. 

The oil business went through the same thing in the 70s and 80s when the oil price went from a couple of dollars a barrel to 30 or 40; a lot of governments decided they wanted to re-do some deals and there has been some of that.  And we expect, you know, there is going to be some continued uncertainty and it’s going to vary from place to place depending on where the industry and the government is in the process of negotiating new mining laws and mineral acts.  We have found in the past that we can often do quite well for readers by picking the right uncomfortable area, because as Dave mentioned there hasn't been a huge number of real world-class discoveries this cycle.  And that’s forcing companies –whether they want to or not, really – to go into a lot of areas that might have seemed a little bit too risky politically in the past.  So I mean we’ve...some of those companies we have followed into those areas. 

There are a few places – Russia is one – where we really don’t follow anything because we just don't feel there is... there is really no predictability to what is going to happen.  And there are a number of jurisdictions where either we can’t identify any one as a government in the true sense of the word, or the government clearly allows people to expropriate legally or legally at will; and we stay away from areas like that.  But in other areas that are a little bit dodgy, we do lay out the fact that they’re in that kind of your jurisdiction to readers.  But sometimes that’s where the best deals are as long as you go in with your eyes open and you realize what you're up against.  [1:03:11]

JIM:  In your mind, what makes a company attractive as a take over candidate, let's say for a major or intermediate producer?

ERIC:  There is really two or three things.  One is a project that's capable of a high production rate.  That’s usually going to be the most attractive thing to the really large companies.  They are all having a great deal of trouble growing organically at the rate they'd like to, and most of them have and will continue to grow through acquisitions.  They’re like anyone else, they'd rather not pick up twenty projects when they could pick up five and get the same increase in production.  So the capability for a project that produced at a high scale is important.  A low cash cost is also important.  You know, we've seen a few things that look like they'll be expensive producers get picked up by companies because they have very large resources in the ground and those companies obviously want to add them to inventory.  But I think really even though metal prices have gone up so much, and gold and silver are moving now, companies that are looking for acquisitions are always going to start at the top of the heap.  They are always going to look for the top quartile ones in terms of potential return, and bottom quartile in terms of cash cost per ounce or per pound or whatever the unit is for a given deposit.  So when you're looking at companies that are close to a feasibility study or are developing properties, you want to be looking for ones that have a combination of, say, ease of access, good infrastructure or a place where infrastructure is not going to be expensive to build out, high enough grades and good recovery so they can generate the metal at a low cost per unit, because those are the first ones to go. 

Another set that the really big guys don't usually go for, but we think you’re going to see more and more medium and small companies going for, is the smaller deposits that are too small in terms of size for the really big guys, but which also have those attractive economics; especially ones where you have high grade resources that can produce at a really high profit.  I think you’ll see a lot of mid-sized companies of which there are really fewer and fewer these days going after those.  And we think if you can find companies that have those and can bring them along themselves where the capital cost isn’t that big, we’re expecting to see more and more situations where two or three or four of these small companies merge to sort of create a mid-size because there really isn't much of a mid-size in the mining business anymore.  Most of it has been taken out.  [1:05:32]

JIM:  You know, one thing that we are seeing and certainly with gold  prices over 800 and silver over 15, I would suspect, guys, we're going to see a lot more acquisitions because, you know, you take projects for example like Dolores with Minefinders that maybe three or four years ago when gold was around 300, the economics of the project might not have looked that attractive to an acquirer, but today when you take a look at $800 gold or $15 silver that certainly make it's more attractive.  Do you expect to see more takeovers as the price heads higher?

DAVID:  There will be.   The issue for the precious metal producers has been that they’ve had difficulty with getting their own share prices up.  The ratios, or the extent that they want to put into acquiring some of these producers – and Dolores is a good example – they haven't seen.  When that changes is now.  So I think, if you keep an eye on the bottom line of gold/silver producers who should have pretty strong Q4 for the most part this year (because the gold and silver price is finally rising faster than costs) you'll start to see more acquisitions early next year.  The theme so far has been (as Eric pointed out) to acquire projects which are large rather than necessarily high quality.  As these deposits go into production – and we have, I think, five on our list right now of companies that will go into production of various commodities, not just gold and silver, between now and the middle of next year –  we're expecting those to become targets as they start to put out their first quarters of actual cash flow.  At that point the final piece of analysis will be in the bank and they will start seeing offers based on their cash flow potential.  [1:07:31]

JIM:  I don't want to get into a lot of the fundamentals of the gold market, but one thing that stands out to me is number one, the companies are having a harder time replacing their reserves; there is almost a similarity that I see to the energy industry where you have the big behemoths – the Exxon Mobils, the Chevrons and Texacos – today, you have the Newmonts, the Barricks and others.  But one thing that really stands out, and I'd like to hear your comments, is it's not just that, you know, good projects are getting harder to find, reserves are harder to replace, but you know, getting people, equipment – the human aspect of the money industry – is also in short supply.  I mean, I don't know of development people who wanted to go to school to become a geologist in the 90s. 

ERIC:  That's still the case from people that I've talked to that are trying to hire people.  I mean there has been some increase because I guess the guys in the MBA faculty are walking around slack-jawed when they find out what the people graduating in geology are getting offered out of the gate – well, they’re actually getting offered six to eight months before they graduate so the companies can tie them down.  I mean, I don't know about David, I mean we get called individually, but I would say at least just in the last 10 days half a dozen of the companies I’ve talked to, put a bug in my ear and said, “if you know of anybody who can ride a drill rig or anybody who knows these kinds of rocks, let us know.  We'll hire him or her in a heart beat.”  It’s really tough.  And that's going to be an ongoing problem.  

And the human resource one, again, it's something we’ve talked about a few times over the last three or four years, that's something that we see as a real headache.  It's going to be a really, really big problem especially on the exploration side, where you really need experienced people.  Sure you've got a geology degree, but knowing how to  actually find stuff in the field is very much a learned discipline that needs 5 to 10 years on top of university.  A huge number of the people in that part of the sector are within five to 10 years of retirement age.  And a lot of them are way, way up on their option packages.  And I'm sure more than a few of them are saying, “you know, I can cash out right now, put a couple of million bucks in the bank off my options, and actually be able to see my kids from one week to the next.”  It's going to be a really big problem.   [1:09:50]

JIM:  Well, guys as we close, why don't you tell our listeners about your newsletter.  And secondly, if they would like to find out or get more information about the work that you both do, tell them how they can do so.

DAVID:  We publish basically three publications.  There’s a monthly newsletter, a sort of a mid-month publication that just has sort of updates in it, and an alert service that’ll go out 20 or 30 times a year – it’s basically event driven.  We’re actually in our 13th year of publishing, now.  If you want to get some details and get a pretty good idea of what our track record is and actually see what the publications look like, you can go to www.HRAadvisory.com or www.hardrockanalyst.com.  Both of those end up in the same place. And there is contact information there if you want to get more info.  And you can take a look at some of the free articles, and we have a free mailing list where we send out notifications and when we send articles on third-party publications and things like that.  And there’ll probably be one about this interview.  And that’s probably the simplest way to kind of get a look at what we do.  [1:10:58]

JIM:  I want to extend my congratulations to both of you for being chosen by Bob Bishop to take over his newsletter.  That was quiet an honor and I want to congratulate both of you on achieving that.

ERIC:  Thanks very much.  It was.  

JIM:  I want to say another thing that in choosing you for this year's Annual Gold Show, when I was looking at newsletters, one thing that's very important to me is looking at a newsletter that is completely objective.  In other words, they don't get paid by stock options or warrants with the companies they follow or they don't get a fee or retainer.  And I might just add that hard rock analyst is strictly subscription[based.  You do not take money from companies.  You do not get paid in options and very honorable, I think. 

DAVID:  That's correct.  I mean that's always the way we've done it.  We get asked on a regular basis what do we have to do to show up on your newsletter and our answer is always: we have to like you.  It's no mystery. 

JIM:  Well, listen, David and Eric, I'd like to thank you for joining us on this year's Gold Show.  And once again if you'd like to find out more about David and Eric Coffin’s newsletter, you can simply do so by going to the web at www.HRAadvisory.com.

Ron Paul, Presidential Candidate

JIM:  The presidential election in the United States is in full swing with every candidate out there promising everything from the moon to the stars with the exception of one of them.  Joining me on the program is the Republican congressman from Texas, representing the 14th district, congressman Ron Paul.

Congressman, I want to begin our interview with a question:  In a time when the US economy is slowing down, businesses are cutting back,  why do we never hear in the debate about government cutting back?

RON PAUL:  Well, the people running, excluding myself, have been born and bread with the idea with the idea that government is supposed to run everything:  Run the people, run the economy and run the world. So that doesn't even cross their mind.  And I think the media is about the same.  So they never really ask the question.  Now, there are times when they'll talk about cutting back but that's when they talk to a smaller crowd and trying to appeal to some of their instincts.  There was a time when we were supposed to make government smaller and balance the budget.  But most people that I'm talking to now that are sympathetic toward what I'm doing when they hear the candidates even pretend, they just don't come across as believable.  [1:13:40]

JIM:  Some of the candidates are talking about that it's time for Americans to make sacrifices.  The one thing that strikes me Congressman is the government makes a mess of running things and then they turn around to the citizens and ask them to pay for the clean up.  It just doesn't seem right. 

JIM:  Yes.  You know, that is endless.  And it sort of reminds me about the way they think property should be taken care of.  They tell us we own the property, but if we use it, we have to ask permission and get all kinds of permits, and then we have to pay taxes on it; and then if they need it they take it from us through eminent domain.  And yet they tell us that we own our property, but we really don't.  So there is a lot of pretending that's going on there.  But I just think there is more and more people starting to see through some of this.  [1:14:27]

JIM:  Another issue on the campaign trail this year is Social Security, and they are talking about fixing it.  It seems like we're always fixing it.  We had programs in 1984 with the Greenspan Commission to fix it; it was going to make it secure for a gazillion years.  Here they are with some candidates talking about taking off the cap.  Wouldn't it be better off if they just let the funds accumulate rather than spend them?

RON PAUL:  That's been the fallacy of it all is the theory was they would take a little bit, save it up and then return it to the people in retirement.  But they really spent it all.  Even the fund that they claim is getting smaller really doesn't exist, because they are just holding a fiction, that they are holding a computerized Treasury bill – which is just another claim on the tax payers.  So there is really no real money there.  And I think the most important thing is that we admit the truth about this.  And my plan isn't so much that we can all of a sudden have a lot more wealth, but I would like to change the whole system.  I would like to let young people to get out of it and put the responsibility on them to do their own savings and that they have to take care of themselves.  At the same time coming up with a plan where we don't have to quit making these payments to the elderly.  And the only way we can do that is to change our foreign policy and save a lot of money elsewhere.  If we don't, people say “well, that still sounds impossible, and harsh.  And how are you going to change foreign policy?”  If we don't do something what we’ll have is a financial crisis and no matter how much they send the elderly the money won't buy anything.  And they realize this already.  They claim that the cost of living last year was up just over 2%, so that's what they increased the benefits by.  At the same time the real cost of living for most Americans was 10% or more.  Unless we do something and strengthen our dollar in the real sense of the word by living within our means, there is no way we can help the elderly, or anyone else become dependent on government.  [1:16:29]

JIM:  You know, another issue coming up on the campaign trail is balancing the budget.  And of course they are talking about raising taxes.  Congressman, it seems for the last three decades we've been talking about balancing the budget and every time we talk about it, we're always talking about raising taxes, but the budget has never been balanced.  Is this really making a lot of sense: to go to Americans and say, you know, we just can't control spending in Washington so in order to balance our books we want you to pay more taxes, but as we know, as we increase taxes, we still don't balance the books?

RON PAUL:  There is still a lot of people that argue that.  And I guess deep down in their hearts they believe it because they think they can get it maybe from 3 or 4 or 5 percent of the people.  And the people who are voting for candidates like that might even believe “well, yeah, we'd better raise taxes on somebody else.”  But the plain truth is that if we don't recognize it's not the taxes as much as the spending, and if we spend money and we don't have it and we print it and then people’s prices go up, that is a tax in itself.  So the regressive tax is the inflation tax.  This is why I concentrate on cutting spending and never trying to solve the problem by increasing taxes; or somebody will have a more convenient way of raising taxes.  Some will say:  “If we cut the tax rate.  the economy is going to boom and government is going to get more money.”  I don’t buy into that.  If we cut rates and the government gets more money, that means we haven't cut taxes enough.   Or some will say, “well, we need to get rid of the income tax” – which I agree with, but they want to replace it with a national sales tax, which I think is just opening up for disaster because we'll probably end up with an income tax and a sales tax.  And so taxes are very important and we need to understand it and we can't solve our problems with more taxes.  What we have to do is address the subject which is more difficult and that is the spending side of the equation.   [1:18:28]

JIM:  Congressman, one thing that I've always seen when we've had the Fed chairman on Capitol Hill and questions are given:   You seem to be the only one that understands the inflation consequences of monetary policy.  Are there any others like you in Congress that understand that and if there aren't, aren't we in big trouble?

RON PAUL:  I think so and there aren't very many.  And it’s not so much that my colleagues are enemies of sound money.  They just really haven't thought that much about it.  I mean they think about staying in office and if it requires spending here and there, yes, they are going to vote for it.  They'll call themselves conservative but they'll cut something – some other program that doesn't affect their district.  It's always one of those things.  They easily rationalize.  But from really studying the issue there is just not a whole lot of interest in it.  And some who have studied it have a misunderstanding and they do not accept the point that I make continuously that inflation is really a monetary issue and doesn't have to do with business people making profits or unions demanding higher wages.  Those are consequences, but that's not the cause of the inflation.  Inflations and the bubbles all sounds from Federal Reserve monetary policy.  [1:19:48]

JIM:  And then a final question, Congressman, that I think is deeply disturbing and we've seen this progressively over the decades is more regulation coming in from government.  And they seem to be moving in the direction of stripping away or doing away with the Bill of Rights, whether it’s having control over the property that you own, free speech. I mean you just go right down all of the elements of the Bill of Rights and it seems like they are doing an end run around it. 

RON PAUL:  It's endless and the Republicans didn't do a very good job in economic terms after the Enron scandal.  They decided it came because they didn't have enough regulations.  So the Republicans led the charge on Sarbanes-Oxley.  And then when it came to 9/11, they said, “well, there must not be enough regulation on the American people and that's why that happened.”  Instead of looking toward monetary policy and looking toward border security and a few other things, they said that what we need to do is make sure the American people aren't secure.  And there had already been major attacks of 30 years on financial privacy.  That's been expanded.  Now they talk about national ID cards and warrantless searches and sneak-and-peak searches in our homes, and secret courts and the elimination of habeas corpus.  There are so many things where – you’re exactly right – there has been a vicious, systematic attack on our civil liberties.  And to me, civil liberties is the important point.  And I think once you understand the true nature of civil liberties it means the right to own property and the right to keep your wealth.  So civil liberties to me means personal privacy and personal liberty as well as a market economy.  [1:21:31]

JIM:  And one final question, I think that is a major concern as we look at oil prices at $95 a barrel, we had a discussion here a couple of weeks ago on political candidates and on their policy on energy.  Congressman, what is your policy on energy? 

RON PAUL:  On energy, the first thing is when government gets involved and thinks they have the answers, you'd better watch out because part of our current energy policy is that they think we have to protect oil resources.  They are sort of mercantilistic in that we have to go out and protect our natural resources and that's why we're in the Middle East.  Even Alan Greenspan admitted that.  And since we've been over to the Middle East, energy prices, oil, has tripled in price.  Then they say,  “well, the prices are going up and there is going to be a shortage, so we need an energy policy.”  So then they collect billions of dollars of tax payers money and then they start handing that out for R&D to their special friends that develop alternative energy.  We need to just get out of the way.  We need to get the government out of the way from developing nuclear energy.  I think as prices go up, there will be alternative fuels.  But prices have to determine what kind of alternatives we have.  Today we subsidize things like ethanol from corn and I think it's pretty clear that that’s not the most economic way to solve our energy crisis.  [1:22:52]

JIM:  Well, Congressman, if our listeners would like to follow your campaign or make contributions, I'm going to give out your website, if I may.  It's www.RonPaul2008.com.  And I just want to tell you, Congressman, I'd like to thank you for joining us on your program and you definitely have my vote and I would urge our listeners to give their vote to you as well.

RON PAUL:  Thank you very much for having me on.  [1:23:19]

JIM:  You're welcome. 

JOHN:  So as the voice of Congressman Ron Paul fades into the distance, we conclude the second hour of the great Financial Sense Gold Show of 2007 with Jim Puplava.  Coming up in the next hour, we'll look at voices such as William Pincus, Mark Bailey, Allen Ambrose, Keith Neumeyer, David Miller and Keith Barron.  It's going to be an exciting two hours remaining here in the program.  Don't forget you’re at www.financialsense.com.  On behalf of Jim Puplava, I'm John Loeffler.  We will be right back.

PART 2

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