Page 13 - NG_AR_2014

Were you bullish on gold prior to 2007?
Dr. Kaplan: Yes. I started Electrum Ltd. in 2001, when gold was around $300 per ounce. The Bank of England’s selling of gold was a classic capitulation. At that point, I went from being bullish only on silver to being bullish on both monetary metals.
What is your view on gold now?
Dr. Kaplan: My positive view on gold hasn’t wavered. In fact, it has only grown stronger over time.
As John Hathaway has put the point so succinctly, “The bubble today is in paper, not gold.” Simply look at how gold performed during its rst leg up. It did not just rise. It busted a few myths as well, if one wishes
to acknowledge them. For 12 years gold ended each year higher, even during periods of in ation fears and de ation fears, a strong dollar and a weak dollar, strong commodities and weak commodities, war and peace, prosperity and crisis. That resiliency is impressive.
Where are we in the gold cycle?
Dr. Kaplan: My view is that what we’ve seen over the last few years is a correction within a bull market. Perhaps it was time for a rest. Despite the retrenchment, gold is far and away the best performing asset class that I have followed over the last decade. Many of the same people who deride gold for retracing its steps back to $1,300 per ounce hated it from $300 to $1,900 per ounce. I’m reminded of Jim Grant’s wonderful expression: “A ‘bubble’ is a bull market in which the user of the word ‘bubble’ has not fully participated.” Most people hate to love gold, and love to hate it. It’s classic capitulationism. So while gold could have another sentiment-driven spike down before its next move to new highs and beyond, for an investor I don’t believe it matters a great deal. During the 1980s if one bought the DJIA at 1,100, 1,200 or 1,300, it really didn’t have a material impact on long-term returns. It was a great buy.
You’re comparing gold to the DJIA?
Dr. Kaplan: Yes. As a secular trend, I see a great many similarities between the DJIA in the 1980s and where we are now in gold.
Do you have a short-term view on gold?
Dr. Kaplan: I don’t think about it. If I get the short term right, it will be a function of luck. I’m con dent about the long term and have expressed my position most notably in NOVAGOLD as I don’t need to have a short-term view – at least not now, and not at these share prices! NOVAGOLD gives me all the leverage I could wish for to multiply our returns when higher gold prices return and is located in a place where I get to keep the fruits of that leverage. Yet it is simultaneously in the great position of having no need to raise capital until it and Barrick make a construction decision on Donlin Gold. This is something that we would only do when gold prices have resumed their uptrend as our equity is more precious than even the metal itself. So the downside and upside are both secure, and time is clearly on our side to have an extraordinary return.
Would you wish to build Donlin Gold if gold returned to, or surpassed, the levels we saw just a little while ago?
Dr. Kaplan and Mr. Lang: Basically, we and our partners will evaluate the project’s economics when the permitting is through and we are in a position to make a construction decision. As that is a couple of years away, we have time to think about strategy. In principle, when gold has embarked on the next leg of its bull market, Donlin Gold should look incredibly attractive to both partners.
Here’s the bottom line as we see it: When gold moves up, Donlin Gold will be built. If gold goes down for a while, nobody will be building new projects – nor should they be. Basically, we’re pragmatic, shareholder- oriented gold bulls!
NG : 11