BNN Trading Day Interview With Rob McEwen (November 12, 2007)

Interview Transcript:

(Click here for video interview.)

MR. CEJ: When bullion traded around $400 an ounce, Goldcorp founder Rob McEwen predicted it would soon double to its current $800 plus level. Now he's talking about $2,000 gold. Rob, always great to see you.

MR. McEWEN: Thank you, Marty.

MR. CEJ: I'm looking at the live price of gold right now, $834 an ounce. How far do you see it going?

MR. McEWEN: By the end of '08, I was predicting $850, but we are within shooting distance of that. I think by the end of '10 we'll be north of $2,000 and could be as high as $5,000.

MR. CEJ: What, first of all, is going to take us to $850 by the end of the year? Because there are a lot of analysts out there, a lot of people who have been bullish on gold for quite some time, saying the speculative long position in the market is getting a little bit heavy, people are saying perhaps the run, while justified by others, might be a little bit too fast, a little bit too far.

MR. McEWEN: Well, I was saying the end of '08, $850, so that's a year off. But what's moving right now, moving gold is the U.S. dollar falling. And then people are starting to appreciate that it's money. Gold's always been money, but people haven't really viewed it that way and thought about it in their portfolio for the last 20, 25 years.

The subprime issues are causing concern in the financial markets, and you say, "Well, where do I put my money?" The focus is shifting from what do I make on my money to how do I protect my principal. And that's where gold plays its biggest role.

The U.S. dollar is slipping because U.S. interest rates are lower, because China, the Middle East and other parts of the world are saying, "Why should I hold a dollar when it's falling 20 percent in a short period of time, I better get out and go into other currencies".

MR. CEJ: How should we be valuing the price of gold right now? Because every time we mention, "Well, gold is pretty close to its record high, we're sitting at $834, it's intraday, I think, $875 back in the 1980s", somebody quickly responds, "On an inflation-adjusted basis, we have to be well over $1,000 an ounce".

MR. McEWEN: Closer to two.

MR. CEJ: Closer to two? Well, what is the best way to value gold right now? If you are an investor looking at the price of gold, thinking of it as historic value, should you be looking at it, $850 an ounce in today's dollars or should you actually be thinking, you know what, it's not even near that $1,000 and $800 that we saw back in the eighties in inflation-adjusted terms?

MR. McEWEN: You should think about the risk out there and wonder, has the world changed. And if it has, is it getting better or worse. And right now, the financial system with Merrill and GM and Citibank and all these major corporations taking giant hits to their balance sheet, it's saying something's wrong in the financial system, that money's getting a lot cheaper, it's becoming worth less in terms of what it can buy, and gold's holding that value.

Our government's coming out and saying they're going to mint a $5 coin. What, is the twoonie going to become the equivalent of the quarter ten years ago?

So how do you value gold? It's valued internationally, you can buy and sell it 24 hours a day, all the world puts that price on it.

MR. CEJ: M'hmm.

MR. McEWEN: So...

MR. CEJ: Well, how is it going to get to $2,000? That's the number that, from our discussion here, a lot of people are going to take with them. What could possibly justify an ounce of shiny metal it, doesn't have a lot of industrial use, it's ductile, fine, 10 percent of it globally gets used in industry, for this rock...pretty rock...to be worth $2,000 an ounce?

MR. McEWEN: Well, it's been used for the millenniums as a medium of exchange, it functions as money. It's a lot of value in a small quantity, small mass, and it can travel.

So why is it going to go to $2,000? Because people are going to lose confidence in financial assets, in paper, in real estate, in the banking system. They're going to get nervous about their money. And we've seen it happen twice in the
last 110 years.

MR. CEJ: So that's the reason, there's a fundamental reason that it's going to actually be a safe haven, that ultimately will be what drives it to $2,000. It sounds to me like you have a very dark prognosis for the U.S. economy. Do you see a recession coming?

MR. McEWEN: I see a lower dollar coming. It won't come in a straight line, it's going to go down and bounce and go down again.

But you have an economy encumbered by a huge amount of debt, both at a government level, a corporate level and a consumer level. And there's not a lot of resilience in it right now.

So it's a stressed economy and we're in a flexion point in world history, in the world economy. For the first time since 1944, the U.S. dollar is being challenged as the reserve currency of the world, by China, by Russia, by the Euro.

MR. CEJ: Rob, let's talk about how to best play it. Not everybody wants to go out and buy the actual stuff. What are your suggestions? You've been a gold investor, a gold executive, for decades now.

What to you, looking across the market, ETFs, gold stocks, what to you is a smart way to play gold if you are a retail investor?

MR. McEWEN: I'd go in...well, what I've done is I've bought bullion and I've bought securities. You often see gold will run up 10 percent and the stocks will run 30 percent. We're not seeing it right now, there's a lag, but over the long term you'll see something like that.

So to split it up and buy it over time, don't go in there all at once to buy it. If you have a large appetite for risk, or what is perceived to be risky, you go into the junior area where you get more leverage.

The industry is consolidating, the seniors and the intermediates are buying juniors and intermediates, so if your junior makes a discovery or has a good deposit, it's likely someone's going to come along and buy it.

MR. CEJ: Rob, always great to have you in.

MR. McEWEN: Marty, pleased to be here.

MR. CEJ: I've been speaking with Rob McEwen, Chairman and CEO of U.S. Gold and Lexam Explorations. Stick with us, we have one last look at your markets, as your trading day winds down. That's coming up right after this