When Gold Escapes The Pork Belly Trap, Casey’s Louis James Wants To Own These Seven Companies

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When is gold more than a commodity? When it is recognized as the last safe haven in a volatile world. In this interview with The Gold Report, Casey Research Senior Analyst Louis James warns that “there are so many fragile points around the global economy today any jolt can cause follow-on crashes, collapses—all the volatility we have come to know and love since 2008.” To prepare for the inevitable, James shares the seven advanced junior names that he thinks could move up fast when the hard reality of gold’s value starts hitting the bottom line.

The Gold Report: You recently observed in your newsletter that gold has been acting more like a commodity, like pork bellies, than like a currency. That misclassification has discounted the value of precious metals, depressing the price. Why do you think that is?

Louis James: Commodities, as a group, tend to move together. We see it with copper and other industrial metals, and we see it in other commodities, including pork bellies. The commodities index is not just an average line. It actually is fairly representative of the sector as a whole. That matters right now because the trend for commodities is downward, plus the fundamentals are. . .scary. China’s slowdown is accelerating, for example. If gold were just another commodity used to make jewelry or fillings, it would be logical to lump it in with iron ore—and therefore be bearish. But it plays another role that is much more valuable. It is the currency of choice in an uncertain world.

The good news is that the perception seems to be changing. When China’s stock market tanked and the rest of the world hemorrhaged a month ago, gold prices jumped. Gold acted as a safe haven asset; it acted like money. It was where people went when they were scared. That was an important validation. That doesn’t mean everything is hunky dory now. But it is a reminder that with sufficient provocation, gold still does its job.

TGR: What are some of the things that cause the fear-o-meter to jump? Is it the Federal Reserve? Is it ISIS? Is it Russia? You mentioned the Chinese stock market. I know a lot of people think a presidential election is a scary thing. Are we going into a season of fear?

LJ: Financial fear trumps political fear when it comes to impacting precious metal prices. The China stock market crash was indicative of what we can expect in the future. Wall Street doesn’t really pay attention to what’s going on in Eastern Ukraine and President Putin’s macho posturing. Those sorts of events are important, and they certainly have financial consequences, but the markets react more to immediate stimuli. They tend to be pretty shortsighted about what is going to affect the bottom line this quarter.

TGR: The market seems hyper-focused on every twitch from the Federal Reserve and what it plans to do about interest rates. Brien Lundin recently said an interest rate increase is already priced in, and the actual event could be a good thing for gold because people can put that behind them. Do you agree with that?

LJ: The Fed may raise rates by some nominal amount, just so it has the option to lower them again later. Brien’s right that that’s largely been priced in, but the reality often comes as a shock to those who don’t believe it. Even a nominal change can have dramatic results. There are so many fragile points around the global economy today. Any jolt can cause follow-on crashes, collapses—all the volatility we have come to know and love since 2008.

I understand why some investors are largely in cash right now. I can’t blame them. But people going long things that do well in a crisis—like gold—are playing it smart. They should not panic: hold on. People who want to make new speculations need to be sure they know which way the Fed will go to go to place a bet. My general advice is to wait and see what happens. If you are absolutely convinced you know what the Fed is going to do, there might be some interesting options you can try, but don’t kid yourself about the nature of your gamble. For most investors, that’s just not wise.