In the fall, an investor’s fancy returns to the market. Michael Curran of Beacon Securities believes that the end of the summer doldrums could result in gold (NYSEARCA:GLD) reaching a high of $1,500/oz this year. In this interview with The Gold Report, Curran argues that investors should pay particular attention to speculative plays with modest potential downsides and exciting potential upsides.
The Gold Report: The Federal Reserve decided last week against tapering its quantitative easing. Gold rose $55/ounce ($55/oz)—over 4%—as a result, and silver (NYSEARCA:SLV) was up 6.5%. Were you surprised by how robust this one-day rally was?
Michael Curran: Not really. We had already been out with our call in early July for a potential 25% recovery in the gold price in H2/13, which is the average fall recovery seen over the past four years. As such, we saw potential for gold to reclaim $1,450–$1,500/oz over the next few months, so we viewed the Fed tapering news as just another “quiver in the bow” to see our recovery scenario come to fruition.
TGR: Now that tapering is off the table, can we expect an end to the downward pressure on gold and silver?
MC: Our view is that with tapering off the table, short-term prospects for gold and silver are materially improved.
TGR: To what would you attribute gold’s spectacular fall earlier this year?
MC: I think it was a stock market malaise leading investors to liquidate gold to cover other losses.
TGR: We’ve been hearing about liquidation bringing down the price of gold for some time. Is there a point at which investors have done all the liquidating they need to do?
MC: That would be our view. In prior pullbacks in the gold price, we didn’t really see much liquidation in gold exchange-traded funds (ETFs). But this year, for the first time, we saw meaningful selloffs, and these investors redeployed their assets elsewhere. I think we’ve seen the bulk of that. August was the first net positive month for gold ETFs since the spring.
TGR: Small- and micro-cap explorers have suffered terribly in the last 18 months. Can we now expect a resurgence of these stocks?
MC: I think we’ve seen the bottom, but it’s the quality juniors that are going to be the beneficiaries. Not all boats will rise. Investors need to be more selective than in past recoveries.
“With tapering off the table, short-term prospects for gold and silver are materially improved.”
Our recommendation is to focus on early exploration or discovery plays. We’re also looking beyond gold. We like select base metals and uranium, and we have a few favorites there as well. Diversification is our focus for investors right now.
TGR: There are a great many low-price metal stocks today, but how do we find the real bargains?