Mickey Fulp, the Mercenary Geologist, sits down with Maurice Jackson of ‘Proven & Probable‘ to discuss 1) Current State of the Natural Resource Space 2) Are we out of the Bear Cycle 3) What are the catalyst’s 4) Gold 5) Silver 6) Platinum 7) Palladium 8) Stewardship of Precious Metals 9) How much allocation should investors have in bullion 10) Identifies the difference between bullion and mining companies. 11) Investing Vs. Speculation.
Speakers: Maurice Jackson and Mickey Fulp
Maurice Jackson: Welcome to Proven & Probable. I’m your host, Maurice Jackson. Today, we have an exciting show for investors as we will be discussing the current state of the natural resource space. Joining us today is one of the most respected names in the natural resource space, Mickey Fulp, who is known as the mercenary geologist. Mickey, thank you for joining us today.
Mickey Fulp: Well, thank you, Maurice, and thanks for the kind words.
Maurice Jackson: Mickey, for first-time listeners, please tell us about your body of work on the Mercenary Geologist and how investors can benefit from your services.
Mickey Fulp: Yeah. I run a website called mercenarygeologists.com. I opened the business—well, I was an analyst for about a year in 2007. I opened the business in April of 2008 because I wanted to start at the bottom and I kind of saw the global economic crisis coming. And so, I write a newsletter. It’s a free subscription service. I run a sponsor model which means companies that I am intimately involved with. I’m a major shareholder. They paid to sponsor my website and I published about twice a month, not on a regular basis but on average. There are two products—Mercenary Musings and those are general essays and topics on commodities, markets, macroeconomics, lots of educational stuff for investors and libertarianism, etc., etc. And the other product are my Mercenary Alerts which are my stock picks and those are restricted to subscribers only, but it’s not that hard to become a subscriber. All you have to do is go to my website and below my mug shot, you click and you sign up and you give me an email address and a name. You can fake the name but you got to give me a working email address and you become a subscriber and get my stock picks via email as soon as they are launched.
We also do a lot of video work, audit camera work. I love the camera and it seems to like me, so we do a lot of video work. We do lots of interviews as this interview is done. We have a 24/7 streaming audio internet radio station where—called mercenarygeologist.fm where my audio interviews are archived and played in rotation. And then I speak at a number of events, investment conferences, libertarian symposiums, keynote addresses at luncheons and dinners, etc. Pretty busy, average about 100 products per year.
Maurice Jackson: Well, that’s quite expansive I must say. Thank you for sharing that. And, you know, in reference to speaking engagements, I had the opportunity to meet you in Vancouver in July at Capitalism & Morality hosted by Jayant Bhandari. It was a pleasure meeting you and I enjoyed your presentation.
Mickey Fulp: Well, likewise, it was good to meet you after we’ve talked in exchanged emails. It’s always good to put a face to a conversation and email correspondence.
Maurice Jackson: Well, Mickey, investors in the natural resource space, they truly value your insights because of your body of work, because it’s so, you know, expansive in breadth and depth. So I’d like to begin with hearing your thoughts on the current state of the natural resource space.
Mickey Fulp: Well, I think we’re in the insipient times of a bull market after a 5-year bear market and it’s being led by gold, but that said, all commodities have been stronger in 2016 or at least since January 20th when most commodities in market is at their yearly lows.
Maurice Jackson: Okay. Now, are your comments applicable both to the junior and the senior mining companies? Or is there a bifurcation?
Mickey Fulp: Well, I certainly think your point is well-taken there. There is a bifurcation. First of all, let me say this is all about gold at this point and most of these bear markets are led as the bull starts—or as markets start to turn. They are led by gold and this is what’s happening in my opinion right now. That said, the senior miners and let’s just include the large, mid and small cap gold miners have been very overbought in my opinion versus the juniors, explorers and developers. So, generally what we see is a trickle down and I think that’s what’s happening now as the larger companies start to pull back and correct a bit. We’re seeing a trickle-down effect with financings coming down to smaller and smaller companies down to the micro and nano caps.
Maurice Jackson: Okay. Now, are you convinced that we are finally out of the bear cycle in the secular bull market?
Mickey Fulp: No. I think it’s pretty tenuous right now. It reminds me a lot of what happened in 2002 when we had a run-up in gold in the summer and everybody thought it was game on. It pulled back, the new had a strong gold price for about a year. It took from the mid-summer of 2002 to July of 2003 for the bull really to start again led by gold.
Maurice Jackson: Okay. Now, for the next leg up, what are some of the catalysts that investors should be looking for?
Mickey Fulp: Well, I think that gold needs to remain strong. It’s been very range-bound for the last 3 months or so, somewhere between 1305 and 1365. It’s tested very strong resistance on both ends of that. So, down resistance would be around 1290, 1300 and the upper resistance, let’s say, 1370 to 1380. Has it been able to get to those points, so I think we want gold to remain strong and we need copper and oil to move and in particular oil because the world runs on oil as energy. But also copper because copper is what you would call leading economic indicator and we’ve seen a very depressed copper price. Both these commodities at this point have supply-demand issues. Demand continues to grow for both but supply has overwhelmed that. It’s going to take a while before that’s worked off I think.
Maurice Jackson: Well, thank you for sharing that. In price points, are there any particular price points on copper and oil that you’re looking for?
Mickey Fulp: Well, I like to see a $3 price of copper. Significant amount of production is not economic at current price of, what, $2.15, $2.20. And for oil, I’d like to see a $60 price because at that price, we’ll start getting a bunch more drilling in the U.S. Shale oil producers will come on strong. You know, they are generating netbacks even at the current oil price because as times get tough, they cut their cost. What we’ve seen right now even with the rebound in number of drill rigs, we’re still about 25% or 30% of the number of rigs that were drilling in November of 2014 to high 1900 rigs. We’re significantly below that still. And what’s happening is a lot of wells, even the wells that are being drilled are not being completed. They’re basically being drilled and shut. So, $60 oil will solve that problem.
Maurice Jackson: Thank you for sharing those insights. Switching gears, give us your thoughts on gold, silver, platinum and palladium.
Mickey Fulp: Well, this is the season that we’d expect gold to increase in price. Gold has a very well-determined seasonality and I’ve worked on that and written about that and documented that over a 45-year period, in fact. So, since Nixon took us out the gold standard, we would expect gold to increase this month and it has not to this point. We would have expected a seasonal low in July or August and that didn’t really happen. So, gold is acting a little contrary to usual seasonality factors. The reason we would expect gold to increase this time of year is the Indian festival season and wedding season which are coming up or in effect right now, and as we all know, India has the largest demand for physical gold on Earth. So, that’s a bit puzzling.
Other takes would be on silver price lagging behind at the gold/silver ratio which we pay particular attention to these precious metal ratios is very high at 68. Some point, that will normalize back down to the +/-50 range. So that becomes a buying signal for silver over gold. The one that really stands out right now is platinum to gold ratio at 0.78. Its historic low is 0.75 and that’s only occurred twice since 1971, in 1982 and this summer. So, that price would give a very strong—the most bullish and strong signal for platinum buy that you’ll get in precious metals, and even the platinum/palladium ratio is very depressed right now at 1.5. That’s usually well above 2.
Maurice Jackson: You know, when we last spoke, Mickey, in May, I think platinum was offering the best value proposition. Is that still the case of the four precious metals right now?
Mickey Fulp: Oh, absolutely. No doubt in my mind. So, when I bought precious metals over the last couple of years, I’ve been buying platinum and not gold.
Maurice Jackson: All right. With that being shared as well, how about the platinum junior mining companies? How do they fit into that?
Mickey Fulp: Well, there’s not very many of them and they’re not very good companies for the most part. The problem is we don’t have enough good platinum deposits anywhere in the world except South Africa and perhaps Russia. And so, there is one particular company run by Friedland that has a very good deposit in South Africa, but from my point of view, the geo-political risk of South Africa is something I don’t want to deal with. So, there is—you know, platinum geology is very unique in effect. There’s not very many places on Earth where you have the right kind of rocks to host attractive platinum deposits. So, mainly from South Africa and that’s not going to change anytime soon.
Maurice Jackson: Well, thank you for conveying that because I hear a lot of investors, they inquire with me. They say, “Hey, can you find out what’s a better play? Is it better to get platinum the bullion or the platinum junior mining companies?” That’s the one you alluded to and I think you’re referring specifically to the Platreef there, but yes. So thank you for sharing that. Now, Mickey, please share with—
Mickey Fulp: Let me interrupt you there.
Maurice Jackson: Sure.
Mickey Fulp: People that confuse owning precious metals with speculative precious metal stocks, that’s not a very good comparison. So, I think we’ll probably address that later on in this interview a bit more.
Maurice Jackson: Well, actually, that was my next question to you. You know, please share with investors the virtues of owning precious metals in how that is different from owning mining companies.
Mickey Fulp: Well, that’s to say that gold is real money in my opinion. It’s been money as far back as we have written history and even further than that with I think the Sumerians first minted gold coins. But gold being real money and the only real money in my opinion, it serves strictly as an insurance policy hedge or safe haven against financial calamity. So, there’s a saying, “He who owns the gold makes the rules” and that still holds. So you want to own physical gold, but to protect yourself against what I consider a humpty dumpty economy, if you will, with negative interest rates and negative interest rates do not work in a capitalistic economy for very long. So, from that point of view, I own physical gold. I have it in my physical possession. It’s not an investment nor a speculation. As I’ve said, it’s simply an insurance policy, a hedge against economic collapse and calamity. Whereas gold stocks or any kind of precious metal stocks is simply a speculation, those aren’t investments either. I look at the returns of the gold companies during the time of the major gold miners from the biggest bull market we’ve ever seen in gold from 2003 to 2013 and all those gold miners failed to reward their shareholders. They basically took on debt and issued equity to pay dividends. And those dividends are not very big. So an investment is something that you acquire because it’s going to continually generate profits for you and precious metal stocks absolutely do not do that. They are pure speculation.
Maurice Jackson: Thank you for conveying that. You know, there’s a lot of ambiguity there when someone that’s new to the natural resource space, they believe that owning mining companies is equivalent to owning the bullion and I share with him, you do not own gold. This is a company and you’re in a partnership with the company. So, again, thank you for conveying that because there’s a lot of ambiguity there. And another thing I’d like to give you credit for as well is you’re advocating a position in precious metals, in this case, as you just aforementioned, gold. But you didn’t—you referenced it as an insurance policy in essence, not that you’re using it for speculative investment that it’s going to go through the roof. It has the potential to do that, but that’s not what you’re advocating. So thank you for sharing that. Now, with that being said, how much of an allocation to precious metals do you believe is sufficient?
Mickey Fulp: Well, as you know, I refuse to use the word “belief” or “believe.” It’s not part of my vocabulary. Mark Twain famously said, “Faith is believing what you know ain’t so.” I have no belief. But that said, I can tell you what I do. At all times, I keep 10% to 20% of my net assets in physical bullion in my physical possession. Most of that is in gold. I do own platinum and I do own significant amounts of silver, but those latter two are basically designed when—especially silver when the gold/silver ratio will get skewed to the other side and silver looks overbought. Then, what I would do would be to sell my silver and turn it into gold, which is once again, the only real money and I can’t emphasize enough how strongly I feel that a person with net assets should keep a significant amount of physical bullion in his physical possession. The reason to own gold is it has no counterparty risk. If you buy an ETF, you store your gold in one of these offshore banks or holding companies or vaults, you’ve immediately introduced third-party counterparty risk and that’s not the reason to own gold. So, owning an ETF, a gold ETF is not owning gold because unless you are a major investor and have more than 400 ounces, they will not redeem your ETF shares in physical bullion. You get it in some fiat currency.
Maurice Jackson: You know, Mickey, again, thank you for that clarification. I know a lot of investors are most appreciative of you sharing that. We’ve covered a lot of ground today. In closing, Mickey, what did I forget to ask?
Mickey Fulp: Well, I don’t think you forgot to ask anything, you know. You sent me a few questions to kind of spur my thoughts and I think we’ve just about covered everything there, Maurice. And thank you for your time on that.
Maurice Jackson: Well, thank you again. And before we leave, if an investor wants to get more information regarding the Mercenary Geologist, what is the best way to contact you?
Mickey Fulp: I can be reached at email@example.com. I can also be reached through my Twitter feed @mercenarygeo. We are very rapidly approaching 55,000 Twitter followers. And once again, this interview will be up at Mercenary—or excuse me, mercenarygeologist.fm in our rotation there.
Maurice Jackson: Mickey Fulp, the mercenary geologist. Thank you for joining us today on Proven & Probable.
Mickey Fulp: Thanks a lot, Maurice. My pleasure.
Maurice Jackson: All the best to you, sir.
Mickey Fulp: Thank you. You too.
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[End of transcript]
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