St. LOUIS (ResourceInvestor.com) -- Formerly labeled as the Wall Street whiz kid, Peter Grandich sounds off about today’s gold market after yesterday’s horrific events in London in an exclusive interview with Resource Investor. Grandich is founder and managing member of Grandich Publications, LLC, which publishes The Grandich Letter, North of the Border and The Blue Chip & Income Report.
JON NONES: Yesterday morning, gold rocketed by about $5 after the terrible news in London and then plummeted throughout the day. Why the sudden rise and fall?
PETER GRANDICH: The immediate reaction after news like [yesterday] is to seek out safe havens until the dust clears. However, the plunge in gold prices with less than an hour to go was very suspicious given there wasn’t any new news at the time.
JON NONES: You commented yesterday after the events in London that, “Sadly, terrorism is once again a factor to the gold equation.” Can you elaborate on this?
PETER GRANDICH: One of my major concerns here in the U.S. is that most Americans have become complacent again about terrorism. I have stated that an attack here is in my mind a question of when, not if. Gold buyers have not considered the terrorism factor for quite a while but now can’t ignore it for the foreseeable future.
JON NONES: What are the short- and long-term implications of terrorist attacks on the market?
PETER GRANDICH: That all depends if and when this attack is followed up with another. If another couple of years pass, complacency is likely to return. However, if another similar attack occurs, especially on U.S. soil, I believe the fears and actions seen right after 911 can return and have far more reaching effects.
JON NONES: If concurrent attacks continue, what would that do to the gold market?
PETER GRANDICH: Believing such an unwanted scenario unfolded, I believe gold would become the currency of choice and rise against most other currencies, including the U.S. dollar.
JON NONES: Should gold investors be worried about this? What’s the worst-case scenario?
PETER GRANDICH: Gold is not normally a “feel good” purchase. One wants to own it not because “all is well.” While it’s not the #1 reason, and not a popular subject to spend time on, I personally believe it’s not a coincidence that gold bottomed around the time of 911. The world’s landscape changed forever after 911 and like it or not, gold does benefit from the change.
JON NONES: If not terrorism, what should gold investors be concerned about right now?
PETER GRANDICH: Gold has more positive fundamentals now than any other time in nearly 25 years. Among the key factors are:
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A much improved supply vs. demand picture. The World Gold Council recently reported very strong investment and jewellery demand for the 1st quarter of 2005. Hard to imagine when you look at the junior resource sector, but the major gold producers are struggling to keep up their production levels and need significant new discoveries like yesterday, or they are going to have to consider acquisitions and/or mergers.
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While the U.S. dollar is currently in the midst of a significant counter-trend rally, the belief is after it runs its course, the numerous economic woes facing the U.S. will still be acute and the dollar can go to new lows in 2006 and beyond.
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Americans have been robbing Peter to pay Paul and Peter is tapped out. The real estate bubble has been the last place for these debt mongers to feast, and that bubble will burst no ifs buts or ands.
JON NONES: After reading your newsletter, it seems you may be joining the “gold is manipulated” group. Can you further comment on this?
PETER GRANDICH: While I have had great respect for the work of GATA and Bill Murphy, I just couldn’t blame a “mysterious group” for when I felt un-natural forces cause a decline in gold that otherwise shouldn’t have taken place. However, last Friday July 1st, gold was literally attacked and not a drop of news could be found to explain it. I first started monitoring gold back in 1985 and I can honestly say the only explanation is a “bear raid.”
I further became concerned when gold again nearly fell out of bed shortly before, and just after, COMEX gold began trading today. The final straw was within minutes of COMEX closing when again, without any news event or even some technical factor being hit, gold was attacked again and lost all its gains to close unchanged.
You may not see a smoking gun but you can sure smell one.
JON NONES: Last month, gold seemed to be rising unconnected to the dollar/euro correlation. How linked do you think gold really is to this relationship?
PETER GRANDICH: As much as that correlation worked for the last several years, it also didn’t for many others. I think if enough so-called experts state a market is moving one way or another, that belief will become the accepted reason. Once it does, its hard to go against it until enough time passes and it becomes apparent it’s no longer valid. Such should be the case going forward. Europe meanwhile is among the weakest economically so I don’t see the euro significantly rebounding until the house of cards here in the U.S folds - an event I see within the next 6-2 months. Then the euro won’t so much rise against the dollar as it will not be as poor a choice.
JON NONES: The past few sessions saw gold falling back a bit. Is the rally over?
PETER GRANDICH: I believe gold is in a secular bull market that should have three phases. We’ve only begun the second whereupon gold should rise against most other currencies. The third phase is when your neighbor tells you how they’ve sold their tech stock to buy some mining company they can’t spell or pronounce.
JON NONES: Summer months are usually pretty tame for the bull market. What do you predict?
PETER GRANDICH: Gold is now in its most seasonally weak period. September through early December is its best period historically.
JON NONES: Where do you see gold at the end of the year?
PETER GRANDICH: Higher! Seriously, I think we can get above the old highs around $455 this summer and still don’t rule out $500 this year.
JON NONES: Will higher oil prices affect the gold price?
PETER GRANDICH: That relationship has been seriously beaten up in that the gold/oil ratio is at its most stretched point in years. Personally, I think oil is likely to top out in the next 1-3 months so I don’t think it will be a big factor.
JON NONES: How will the Fed increasing interest rates affect the price?
PETER GRANDICH: The thought is higher rates translate into a higher U.S. dollar, which one is told is bad for gold. First, I think gold is bigger than that. But I also think the bulk of interest rates increases are now behind us. Deflation is more of a worry for me going forward than inflation. The debt crisis in America is acute and the Fed knows it.
JON NONES: What other catalysts should we look for?
PETER GRANDICH: Believe it or not, supply versus demand is one of the most bullish factors. As we go forward, the market is going to realize how much more favorable this factor is and price gold accordingly. I’ll answer your next question by stating gold would be fairly priced in my mind somewhere around $700 an ounce.
JON NONES: Is gold a good investment right now?
PETER GRANDICH: Absolutely. For no other reason than as insurance. Most people don’t want their car stolen or house burned down but if that happens, they want insurance to cover their losses. Gold is minimally an insurance policy for most. And for people like me who speculate (gamble) with it, the bullish factors haven’t been this good for over two decades.
