Edward Karr is an international entrepreneur, the founder of several investment management and investment banking firms based in Geneva, Switzerland and has been active in the natural resource industry for years. Ed has significant experience in serving as a Board member with numerous public companies. Currently, he is the President, CEO and Director of U.S. Gold Corp, a gold exploration and development company.
In this interview, Ed explains why he believes we are currently seeing a genuine breakout in gold that will be continued in coming years. He reviews the key macro-economic warning signs that will sustain gold’s rise and encourages investors to include a physical gold allocation in their investment portfolios. Ed also discusses what $1,400/oz gold means for the gold mining sector.
Bill: You are listening to Mining Stock Education. Thanks for tuning in. I’m Bill Powers, your host, of course. Well, gold has been on a tear reaching highs of about $1,440 announced. There’s been a pullback as I’m recording this interview. It’s around $1,400, but that is a number we haven’t seen in about six years. So as gold goes on that tear, it gets that recognition on CNBC, and then people become to be aware not only of gold as an investment, but also of the junior gold equities again.
I have a CEO on the line with me. His name is Edward Karr. He’s the CEO of US Gold Corp, but Ed doesn’t just understand the junior mining space and what it means to be a mining entrepreneur, but he actually has an extensive background in private equity and in the financial sector. So I asked Ed to come on so he could share with us his thoughts regarding what’s going on in the gold sector right now. So Ed, welcome to Mining Stock Education.
Ed: It’s great to be here with you today.
Bill: Before you share your perspective on gold and what’s occurring right now, could you kind of bring listeners up to speed as to how you got where you are? What’s a little bit about your financial investment background?
Ed: Sure. I’d be Happy to. I started in the financial industry through a Wall Street career. Worked on Wall Street for one of the big major American wirehouse brokerage firms in the mid 1990s. After that I had an opportunity to move over to Europe to originally run an investment banking asset management firm. And then over the years I’ve founded several firms myself.
So I’m based, Bill, in Geneva, Switzerland, so have a pretty unique perspective from a global macro standpoint. Being based here, you know, as a Swiss citizen, we have a real cultural affinity towards gold. The Swiss Bankers Association, we’ve always recommended to all clients that every client should have a 5 to 10% allocation within one’s overall portfolio towards physical gold. So I’ve really been been in this sector for, you know, the last 30 years and have seen a lot of the different cycles.
Bill: I’m interested to hear what you think is going on right now because I’ve followed gold, I would say, for about a decade. Not as long as you, but long enough to see that you can often have these geopolitical issues, whether it be Brexit or something else, and then gold spikes $60 or even $100, but then over the following months, gold begins to trend back down. With what’s occurring now we have the the trade tensions, people expecting the Federal Reserve to lower interest rates, geopolitical tensions, the US and Iran. Do you think what we’re looking at in gold is just a short-term thing, as in months, or could this be the big breakout that many people are expecting?
Ed: Look Bill, I really think this is a genuine big breakout and we are on the cusp of something very, very major, not only within the gold market, but within the global economies as well. And a lot of times gold can be this canary in the coal mine for kind of a sick patient, which is the global economy. A lot of people might think that everything’s great because the equity markets are approaching or at all time highs. But to tell you the truth, as we all know, this bull market on the equity side, even the bond side, is getting pretty long in the tooth. There are a lot of danger signs and risks really flashing out there right now. And if people start paying attention to these, I think they’re going to be much bigger buyers of gold and have an appreciation for a lot of the risks that are out there in the world today. So I think we’re at the point that gold can really, really take off.
Bill: So would you have the perspective that it’s about time for the general equity stock market to rollover and that we could see a contraction in the economy, and these would be two of the things that would keep pumping gold higher?
Ed: I think you got a little more, probably a little more length in the, in the equity trade. I would say definitely going into the, to the US elections and November next year, certainly politically the incumbent, President Trump, would like to see the stock market and economy doing well. And I think he’ll do everything he can to have that happen. But into 2020, 2021, I think you really got to batten down the hatches. And it’s all going to depend how fast this series of moves happen.
You know, when we look at gold specifically and we wonder “why gold?” What’s the case here today, Bill, to go long gold? And when I, when I talk gold, I’m talking the physical, ounces, real ounces of gold, you know, real kilo bars. I’m not talking the paper contracts, the GLD or the COMEX futures. You know, real physical gold.
And why do you want to go long gold? Well, number one, as you pointed out in your introduction, Bill, geopolitical risks abound around the world. And when we look at the Middle East, the tensions that are going on between the United States and Iran, the US-Chinese trade war. But there’s others. I mean, we’ve seen massive protests in Hong Kong. Hong Kong! A peaceful city state, and you see 2 million people out in the street. You’ve seen the yellow vest movement in France, completely unorganized, and all of a sudden they’re destroying the Champs-Elysees. You see incredible political tensions in Italy, in Greece, throughout the world. In the United States, we just have this bifurcation of politics. These are big things and what it means is there’s a lot, a lot of uncertainty. So I think that’s a number one reason why you want to be long gold.
The second reason is flashing economic risks, and we’ve got some warning signs happening out there in the world right now, Bill, that your listeners have to be aware of. Number one, the biggest thing that I see from a global macro standpoint is liquidity risk. We have declining liquidity around the world and especially in the bond market and even the junior equity market. Liquidity is drying up. And we saw this, Bill, going into 2008. This was the warning sign of the financial crisis and the collapse. In 2008, you had BNP Paribas that actually shut down one of their money market funds six months before October, before the collapse even started.
Well in the last year around the world, what have we seen? Here in Switzerland, GAM, Global Asset Management, one of the biggest fund managers, one of their funds collapsed. About a month ago out of the UK, Woodford, major money manager. He has a fund that has some illiquid investments and bonds in it. He had to close the gate because of redemptions. People are getting nervous. They want their money back. He could not sell these securities because there are no bids. His Fund has collapsed. Just recently we saw it in Natixis with a big investment in H2O, another major European fund. The fund has collapsed. Why? Because there are long, high yield bonds and there is no bids for these.
So Bill, the first thing that goes in any financial crisis or difficult economic times is liquidity. The liquidity just evaporates and these fund managers will sit on all these positions they can’t sell. This is a major warning sign in my opinion right now.
Warning sign number two, global bonds. Look at the global bond market as to what’s been happening in the last six months. Global bonds around the world, any government yield curve, any currency, are collapsing. What happens when bond yields collapse? Obviously the price of bond goes up, the yields go down, but when a bond rallies, bonds are actually predicting either a recession or a depression. That’s what it means to have that collapse. So very, very kind of precarious, scary things. We’ve got about $13 trillion of government sovereign bonds trading at negative yields right now, so the world is really, really getting nervous.
I think also, Bill, what we’re starting to see, the US dollar topping out, and several reasons for that. Looks like the Fed is definitely on hold for tightening interest rates. Jerome Powell has come out and said they see a lot of risks out there, so they’re on hold. They have not loosened yet, but the next moves will definitely most likely be a Fed easing.
Finally, President Trump would like a weaker US dollar. We’re starting to see the US dollar roll over. He’s moving into an election next November. Certainly a US dollar, the thought I believe in Washington, DC, would make US exports more competitive, so the administration is kind of jawboning the dollar down. And when we combine all that, Bill, we’re looking at some amazing technicals right now. Gold recently has just broken out of this seven-year base. I mean on my charts, above $1,396.90, that was the breakout level. Today we’re about $1,412 on the August contract. It looks like it really, really wants to go. Gold has been outperforming all other commodities, and when you look at it, gold is really approaching or at all time highs in several currencies. The South African rand, Aussie dollar, Canadian dollar, euro, et cetera.
And you know, we’ve got this massive imbalance in gold. It’s very unique in that between the actual paper gold and the physical gold, when you look, Bill, and your subscribers should go do a little research and look at the COMEX warehouse statistics. You know, they’ve got like 322,000 ounces of gold available for immediate delivery, and about 7.6 million total ounces of gold at COMEX. Well, the open interest in gold today is about 572,000 contracts. That’s 57.2 million ounces of gold. So you’ve got eight times the amount in paper gold outstanding as is available in the COMEX vaults, and is one of the few commodities that have that sort of multiplier. So ultimately, we could get into a massive short position and have a really, really big run.
And kind of finally all your subscribers and listeners, I’m sure they know that gold is a currency. It is real value. It’s a currency. When I look around the world today, I advise my wealth management clients, we look at which currency do we want to hold. And I look at all the fiats. The US dollar? Well, no thank you. $25 trillion in debt outstanding with probably $100 trillion of notional. I think it’s going lower. The euro, it’s a disaster. Politically, it’s probably going to disintegrate. GBP, the British pound? No way. They’ve got to get through Brexit. They’re going to have a rough sailing for a while. Don’t want to really go near it. RMB, you know, Chinese renminbi, the yuan? No thanks. I think the central government there can just deflate me forever. Japanese yen? No way. Country’s bankrupt. My own country. The Swiss franc’s supposed to be a stable, conservative currency. No thank you. The Swiss National Bank has blown the country’s balance sheet through the roof since 2008.
Now some of the other smaller currencies, the Canadian dollar, Aussie dollar, New Zealand dollar, even Norwegian kroner, they look decent. They’re commodity backed currencies, but they’re small. I think you really want to own gold. It is real money. It is not debt. If you have an ounce of gold, that is real money in your pocket, and ultimately you’re going to have some purchasing power parity. When we look at countries like Venezuela, their currency has imploded. Zimbabwe, in 2008 their currency imploded. If you held gold, you still maintained a pretty decent portion of your net worth. So owning gold is like having car insurance. You don’t plan to go out in the morning and get into an accident, but if the accident comes, you’re very, very glad you have it. So I think everyone should have gold in their portfolio, and it’s going to be a real, real good time over the next several years.
Bill: Ed, regarding the junior gold sector, there’s been several companies that announced financings for a certain amount this year and then had to close off the financing because there wasn’t enough interest. Or there are some companies that announce and then they end up stopping the financing at a number less than what they would’ve liked to raise. If we do see $1,400 gold and above sustained over the second half of 2019, what does this mean for the junior gold miners and even the major gold producers?
Ed: The major gold producers, Bill, will probably get the immediate benefit because they have production, they have cash flow, and as the price of gold goes up, globally, mining all in-sustaining costs right now are about right around $1,200 I believe. $1,190. So at $1,400, globally the industry is making $200 an ounce margin, so it’s starting to become healthy and profitable. That’s very positive.
On the junior explorers and miners, the traditional source of capital has been the big major gold funds. And gold has been in a pretty nasty bear market since the end of 2011. So we’ve been in this seven-year, sideways to down bear market. A lot of the gold funds have had negative performance. They’ve had redemptions. They don’t have a lot of free cash, so I think gold’s going to have to really run for a little while, probably the second half of 2019, before the retail investment public starts to subscribe to general gold funds again. And once they do, and they will, then this sector, these bull markets, you know they tend to be seven, eight-year bear markets, and then they can go on a three, four, or five-year-tear bull market. So I think we’re in the first inning of a nine inning ballgame right now.
Bill: U.S. Gold Corp is a junior gold explorer and developer. A few years ago when you put together the business plan for this company, how did the future expectation of the price of gold factor into how you developed your business plan?
Ed: I tell you what, Bill, everyone in the industry, we’re all unfortunately a little biased because we’re all gold bugs. We all believe in gold. We believe in the fundamental reasons for owning gold. And this has been a real, real difficult junior exploration environment over the last three, four, even seven years. We’ve literally just bounced along the bottom. A lot of these companies, you know, underfunded, undercapitalized, starved for capital, and the liquidity of their shares has really dried up as well. So it’s been a tough time.
We kind of thought like most people did that this run could have happened a couple years earlier, but it hasn’t. It just seems like it’s upon us today. I think at U.S. Gold Corp, we’re very fortunate because we’ve been able to raise money. We’re traded on the Nasdaq, a senior, major exchange, and we’re pretty well funded today with no debt. So hopefully this, this market has some legs. Gold continues to go, and I think as it does, you know the generalist investors are going to start to realize the fundamental value in this sector, and a lot of capital will come into this sector.
When when you look at it, Bill, the entire gold mining sector, the capitalization of the entire industry is less than Apple computer. It’s less than Microsoft. Microsoft is a trillion dollar market cap. Apple, almost a trillion. The entire gold industry is less than that. So all we need is a little bit of institutional money. 1% of the pension funds, insurance funds, flow into gold, and this sector can double or triple.
Bill: Ed, you referenced earlier at the outset of our interview that you are based in Geneva, Switzerland. I’m curious, what advantage do you feel like you have being based there versus in Vancouver, Toronto or New York? How does being there add value to your perspective regarding gold and and junior mining sector?
Ed: Well certainly on the gold front, as I mentioned earlier, Switzerland has a culture of physical gold. A lot of banks in Switzerland. A lot of vaults. A lot of special mountain vaults for storing gold. So for hundreds and hundreds of years the country has dealt with and been very comfortable dealing with physical gold. So that gives us a pretty unique perspective.
Geneva, as well as a private banking and financial capital, it really gives us a window on the world because we’re used to dealing in multi-currencies, with multiple different nationalities, through multiple different time zones. So maybe that would give us a little more of an international perspective than a person based in North America.
But from a mining standpoint, a lot of mining companies and a lot of CEO’s are based either in Vancouver, Nevada, you know, you cannot beat the technical knowledge and know how of the Canadians. You know, it’s really one of the, one of the top mining jurisdictions in the world.
Bill: Well, joining me today was Ed Karr, president and CEO of US Gold Corp. If you’d like to learn about the company, you can go to www.usgoldcorp.gold. Ed, I appreciate you coming on Mining Stock Education and sharing your insights with us.
Ed: Bill, we really appreciate it. And I tell you what, I’d love to come back six months or so down the road. We’ll continue to watch these gold market trends. And ultimately, you know, this is, I really believe deep down in my soul, Bill, this is the best way to protect yourselves, your family, your loved ones, by getting your hands on some physical gold. It is real wealth. It’s real insurance. It’s the best thing you can do for your future financial survival.
Bill: Absolutely. I agree 100%.