Thoughts from our recent conversation with well-known exploration geologist Dr. Keith Barron, which can be listened to on the Newshour podcast page here or on iTunes here.
Markets have been heavily roiled since Britain’s vote to leave the European Union, and many investors are turning their attention to gold. This time on Financial Sense, Keith Barron, president and chairman of Aurania Resources discusses gold’s fundamentals and what prospects he sees long-term.
Unexpected Vote Leaves Many Surprised
Few predicted that the UK would vote to leave the EU last week, and the results shocked markets last Friday.
With so many on the wrong side of the trade, we’ve seen a lot of turmoil in the markets, Barron said. A large deciding factor has been the influx of immigrants the UK has experienced in recent years.
“The story that I get from my friends and family there, is that a lot of Brits are very upset with the number of Eastern Europeans that have moved into Britain,” Barron said.
Part of the fear driving markets is the expectation that other countries may hold similar referendums to exit the EU. For instance, a vote is coming up in Holland, Barron said. He can envision scenarios where other countries such as Finland leave, as well.
Barron notes that there is a lot of discontent, and it isn’t just centered on concerns over migrants. Richer countries continue to finance the PIGS countries—Portugal, Italy, Greece and Spain—whose economies are still very poor, and many in wealthier EU countries think their wealth is being squandered.
“I expect to see a lot of volatility coming up for the Euro, and other currencies as well,” Barron said. “I think it’s long-term very bullish for the precious metals, especially gold.”
Uncertainty Is Likely to Drive Gold Gains
The international finance market is quite fragile, Barron noted, and despite quantitative easing and negative interest rates, the powers that be don’t seem to be able to stimulate their economies, he added.
“With interest rates at historic lows … you should see an incredible boom, and unprecedented boom that we’ve never see in recorded history,” he noted. “Instead, we’ve seen deflation—really a bust—stagnation, and I think I’m going to be writing a piece quite soon on the helicopter drop of money, which I expect is going to be the next thing.”
Because quantitative easing doesn’t seem to be working, Barron said, he sees a scenario where governments try to jumpstart the consumer market through direct cash injections into the economy.
This is likely to stoke inflation, Barron stated, and he sees people going to safe havens such as precious metals as a result.
“After the banking crisis in 2008, we saw the gold price shoot up, then go down precipitously,” he said. “Now, we’re in a situation where a lot of countries have negative interest rates, the Germans have it now, and really what do you do?”
Gold Fundamentals Also Bullish for Price
Gold has seen wild swings in recent years, and things appear to be changing.
“We’re at a very interesting juncture right now,” Barron noted. “Since the very first week of January this year, the gold market shares in mining companies have started to take off. We’ve seen incredible gains in the HUI [Gold Index]. We’re even seeing tremendous movement in the juniors, which we haven’t seen in four or five years now. There’s a general feeling out there that we’re heading toward higher gold prices.”
Senior producers have been through a lot of hardship over the last couple of years, Barron noted, and as a result have become quite lean.
We’re also seeing mergers and acquisitions picking up in the space, he added, and he thinks we’ll see even more of this, especially with mid-tier companies that are in good jurisdictions.
Even juniors with proven reserves that look like they’re going to be profitable are likely to benefit, he said.
“What we’re seeing now in the juniors market is very significant,” Barron said. “We’re actually seeing juniors raising money on the market again. This is something that we haven’t seen for four or five years.”
Also, large new finds are unlikely to emerge.
“We’re also at a situation where a lot of the low-hanging fruit has been picked,” he added. “There really is no new technology, and nothing on the horizon, that’s going to allow us to find gold much more easily.”
If inflation kicks in, as Barron expects it will, we’re likely to see the gold market kick into high gear. He sees inflation materializing that’s not really reflected in the CPI, he noted.
The next big driver Barron sees for inflation will be “helicopter drops” of money, though central banks may call it something else. Of course, that’s likely to benefit gold.
“Who knows how they’re actually going to phrase it; essentially they’re going to print money and give it away,” Barron said. “I think the next president will be spending a ton of money on infrastructure. … We are witnessing things in central bank policy—unprecedented things. We’ve never seen anything like this. It’s an incredible time.”
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