Buying Gold for Prudence -

[The Machine]

IT IS so incredibly simple that few investors can actually do it. Buy low and sell high.

According to Louis James, senior editor of Casey Research's International Speculator and Casey Investment Alert, the manic highs and lows of the market are actually good news for those investors who have mastered the discipline of buying low and waiting.

In this interview with The Gold Report, Louis James talks about how not to be fooled into timing the market and how he finds value in precious metals by scouring some knock-out jurisdictions like Mexico and China.

The Gold Report: In a recent Casey Research article you asked investors if they are brave enough to buy low. It's difficult to be a true contrarian and have the guts to buy when everyone else is selling. What guidelines do you give people who need reassurance in markets like these?

Louis James: It's good news and bad news. There really aren't reassurances. No matter how far down something has gone, until it hits zero, it can still go down farther. The good news is that precisely for this reason, markets tend to overdo things. They are volatile. They fluctuate. They get manic and go too high, and get depressive and go too low. But that's actually good for those with the discipline to buy.

So, when's the right time to buy? The answer is that there is no right time. You don't try to time the market. That's the fool's game. You look for value. If something you'd be happy to own at $1/share is now at $0.50/share—that's a great buy. Can it go lower? Yes. But it can also go higher and is a better deal than when you first liked it. If you buy value, you increase the odds of coming out ahead of the game, regardless of whether or not the stock goes down before it goes up.

I hate to say it, but really there's a reason why it's hard to buy low and sell high. It's so logical. It's so simple. But so hard for most people to do.

TGR: Money manager Adrian Day recently suggested in an interview that investors should buy quality juniors and hold them for what could be a painful six months before things start moving up. How long do you think investors have to make the plunge before what you've called "stupid prices" are gone?

Louis James: I just said I wouldn't try to time the market, so the real question, if there are six months of pain ahead, is why would I buy today? The answer is that we don't know if it's going to be six months of pain ahead.

The global economic situation is surrounded by a swirling cloud of black swans. Which one of these is going to land first and upset the apple cart? It could be any of them, and it could happen tomorrow. That's the reason not to wait six months or whatever number of months you think it is. Things could reverse very sharply, sending certain assets upwards again, particularly precious metals.

TGR: You travel the world doing site tours. Are there some countries that are overlooked because of mistaken risk profiles?

Louis James: It's great to buy things in Ontario and Québec where you feel very safe, but you pay a premium for that. That's where everybody else feels safe, too, so it makes it harder to buy low.

However, there is no place in the world, even in Canada, where things can't change all of a sudden. Even Québec increased its royalty a while ago. You have to expect that. When miners are making money, governments are going to want a bigger pound of flesh. It can happen anywhere.

There are countries that are extremely high risk and visibly getting worse. Argentina would be one of those, which is a real shame because it has a tremendous mineral endowment. The good news is that regulation of mining and minerals is largely the domain of provinces down there and some provinces are better than others. Depending on your temperament, that could be an opportunity. If the place crashes, it could be a great opportunity to pick up related stocks cheap. I wouldn't want to buy in advance of that, though.

Another good mining jurisdiction that's turned kind of scary is Peru. There is a lot of anti-mining sentiment. There have been riots and violence; mine camps have been burned down. The government is actively trying to help the miners now with the military and other options.

It is a dangerous world out there, but there are overlooked jurisdictions. I like the Guiana Shield in Venezuela, Guyana, Suriname and French Guiana. The big gold deposits in Venezuela are on the same greenstone belts that stretch from Venezuela to French Guiana. It's the same rocks that have big deposits across the ocean in West Africa. They are making discoveries in the Guyanas. Companies have been able to come in and make progress on various projects. The governments seem quite supportive.

TGR: Are you still a fan of Mexico?

Louis James: I am. The violence in Mexico is real and alarming, but it hasn't turned into a broader predatory war against the civilian population the way it did in Colombia. And it's not government violence; it's private sector violence. It's a risk that companies in Mexico can mitigate, primarily by not operating in the hot areas.

TGR: Where have you been traveling recently?

Louis James: I just returned from China. The jurisdiction is actually quite solid. The Chinese have not expropriated any foreign companies that have invested in mineral resources. Foreign companies have been able to build mines and some of them are even making money doing it.

The problem with China now is that while the government welcomed Western companies to explore and build mines in the past, it seems that was for technology-transfer reasons, and lately, China has not been giving new mineral concessions to foreign companies.

It's still a stable jurisdiction, but there aren't a lot of opportunities for new companies going into China.

TGR: You mentioned that the market is ignoring good news.

Louis James: A market turning bearish for a time is not a reason to be out of the market. It's a reason to invest differently. Even in a bear market, a takeover or drill results, for instance, can add value.

TGR: Could low stock prices encourage more mergers and acquisitions?

Louis James: You would think that. The producers, by their nature, are depleting their assets and needing to replace reserves. Yet, companies have essentially gone on sale and there's very little buying out there.

TGR: Why do you think that is?

Louis James: Majors are much more cautious than junior explorers. Those cautious majors don't really care if something goes on sale because the market is down. They care about making sure that they mitigate risk and make no mistakes. "Blue light specials" aren't going to attract the majors.

What's interesting is that there could be more buying from Asia. When I was in China, I got a lot of questions from Chinese investors about projects that they could buy and countries that they should be investing in. They're very keen on South America, in particular. If Asian investors start picking up assets the Western majors have their eyes on, they might get off their collective rears and start acting to secure assets before Asia grabs them.

TGR: Are there are still bargains to be had in jurisdictions like Canada, the US and Europe?

Louis James: Yes, but investors have got to be very careful. They have to do due diligence, because sometimes there's a reason why something cheap is on sale that may not be readily apparent. If you don't research beyond just the numbers, you can miss fatal flaws—some not even all that hidden.

TGR: Are there some established areas, like Nevada or the Abitibi in Canada, where there are fewer risks, but still are companies that aren't overpriced?

Louis James: Yes. This is a good market to go shopping for those. I'm not sure there's one that I can give you as an example. There are some on my radar screen, but I need to do more due diligence of my own before I discuss them. They have significant discoveries in hand in solid pro-mining North American jurisdictions, but are completely discounted by the marketplace. I'm doing my own homework on those, but they're certainly there in the Yukon, Québec, Ontario and Nevada.

TGR: What's your feeling about silver versus gold right now?

Louis James: Silver is an industrial metal, as well as a precious metal. If there's a big economic correction, such as in 2008, silver will get hit harder than gold and it will take longer to come back.

On the other hand, silver does move with gold. If there is a big breakout in gold, silver will move as well. If you're bullish on gold, you have to be bullish on silver. And these silver companies are making money. The best can even handle lower Silver Prices.

TGR: You have forecast a pretty dire economic outlook for the future. How can investors take advantage of any opportunities that might come out of this, or at least protect what they already have?

Louis James: That's a short question with a long answer. If things really go off the deep end, the transition to something new is going to be messy. That doesn't mean you just throw up your hands and go home because there's nothing you can do. For financial assets, gold is without question the way to play that. It's the safe-haven metal and the best way to protect yourself.

But don't Buy Gold as a speculative vehicle. That's what gold stocks are for. Buy gold for prudence. Buy Gold because it is gold. Whatever happens in the world, gold remains gold, whereas gold stocks or the pieces of paper in your wallet issued by the government may not remain what you hope they would.

The other thing is that it's extremely important to diversify internationally. There are crazy things going on in Greece, for example, but the trouble is global. Who knows how various governments will react as the crisis deepens? What will it be like in Spain if they leave the Euro? Or if the whole Euro ceases to exist? How do you protect yourself against that? Well, having investments outside Europe would be one way.

The more extreme the crisis gets, the more governments will tighten the thumbscrews on anybody who has anything they can tax. Finances aside, for personal reasons, it's important to diversify internationally and have the option to be elsewhere if things get very unpleasant wherever you were.