How low can gold go? Chen Lin expects a probable near-term low of $1,000/ounce. The author of the What is Chen Buying? What is Chen Selling? newsletter says that at that price we can expect a bloodbath of companies, both large and small. Gold cannot be kept down forever, however, and once the bottom is in, those miners that have survived will be in an enviable position, able to buy lucrative assets at bargain prices. In this interview with The Gold Report, Lin identifies several producers and one near-term project uniquely positioned for the next bull market.
The Gold Report: You've discussed in your newsletter Goldman Sachs' plan to "push gold [down] to $1,000/ounce" ($1,000/oz). How do you know such a plan exists?
Chen Lin: I am not a big fan of conspiracy theories, but Goldman published a report in early September calling for $1,000/oz gold by the end of 2014. As I saw it, this call was quite aggressive. Goldman will lead and probably has been leading a group shorting gold aggressively.
Kitco has published a report arguing that should gold fall to $1,000/oz, this would be catastrophic for most gold miners. The shorts, unfortunately, probably don't care about gold mining companies and the jobs of those who work for them. They just want to make money. If the gold miners go under, they'll be very happy.
TGR: We've heard about these short attacks for at least a year and a half. How long can they keep winning this game?
CL: That's a very good question. There is, however, another reason why gold has declined in price: its reverse correlation with the U.S. dollar. The dollar has recently been strong, so gold has been weak. And the shorts are making money on this.
I see the fall of gold from $1,900/oz to be a healthy correction. This creates buying opportunities for long-term investors. As I told my subscribers, I started to underweight gold and gold miners back in 2011–2012. I hope my subscribers took my advice and have survived this nuclear winter of gold miners. We continue to look for the bottom. This year, in particular, I have increased my efforts to visit gold mines and meet with gold mining company executives, so I can be prepared when the gold market turns.
TGR: The U.S. Federal Reserve is tapering quantitative easing (QE), but just recently the Bank of Japan announced an enormous QE plan. Shouldn't this be very good for gold?
CL: It should have been, but what happened was that Japan's QE lowered the value of the yen and strengthened the dollar. So investors sold gold on the QE news. It's a paper-market game. All these funds don't own gold at all. They're basically borrowing gold to short it. They borrow from some other place, maybe the central government, maybe from exchange-traded funds (ETFs), whatever, I do not know. This game will end, but the question is when.
TGR: What are we hearing about physical gold sales in Asia?
CL: Physical gold buying has been quite strong in China, although not as strong as last year, partly because China's economy has been slowing down. Gold buying in India has been very strong, and the Indian economy is actually picking up. These are the two largest gold-consuming countries. I believe that eventually physical demand will gradually absorb all the shorts' positions. Then the gold market will turn. China bought about 1,000 tons (1 Kt) of gold last year. The U.S. claims to have about 8 Kt gold. It's in Europe where there's a large position. So this turnaround will take a few years.
TGR: On Nov. 7, gold fell to a low of $1,130/oz. Then it rose $47 for the rest of the day to finish at $1,177/oz, a 3.15% increase. Was what happened that day a one-off, or does it perhaps suggest the bottom has been reached?
CL: I wish I could tell gold investors the good news that everyone is waiting for, but I'm not so sure. From the macroeconomic point of view, the U.S. dollar will likely be strong for the next two to three years because the U.S. economy is one of the strongest, if not the strongest, in the world. This year, the shorts may not be able to push gold all the way to $1,000/oz ahead of Christmas and the Chinese New Year, which is a very strong gold consuming season, but they may come back again next year in the summer.