By Allen Alper and Aaron Hoos

Precious metals investors (and "wannabe" precious metals investors) love to talk about whether or not we're in a gold bubble right now and when they should time the market to buy or sell. Additionally, the summer has traditionally been a time for gold prices to soften slightly.

For these reasons, gold prices could start to dip… but Peter Grandich doesn't think so. Recently, we spoke to Mr. Grandich about gold and what he sees as the near-term and long-term prospect for gold.

"Gold has taken its rightful place in leading precious metals prices higher," Mr. Grandich said. "Most investors in gold seem to have forgotten that jewellery demand is still the single-most usage of gold. This is the period of time when fabricators either close down or greatly limit their business, so gold has had a tendency in past years to weaken during the June-to-August timeframe."

But this year is different. Gold hasn't weakened. Mr. Grandich said: "The fact that gold is hovering within a couple of percentage points of its all-time nominal high suggests that physical demand outside of jewellery fabrication is exceptionally strong and bodes well for what I think will be a very, very credible and strong move into the fall. [This fall, we'll see] a new nominal high, well into the $1600's."

Mr. Grandich explained further why gold typically softens at this time: "Gold had reasons to soften because jewellery fabrication demand falls off during this period. The fact that it hasn't fallen off strongly suggests that regular physical investment demand is making up for jewellery demand. The excuse to sell off (because of the shocking decline in silver) suggests that gold has strong underpinnings. When a more seasonably favorable period comes in August, it looks like it's fully prepared to move substantially into the $1600's and more or less drag silver back up to higher $40's during that time."

So, why is gold so high, we asked. What factors contributed to the rise in price? Mr. Grandich explained a few reasons: "Until the invention of ETFs, institutional investors had little choice if they wanted to have exposure to metals other than mining shares. It was difficult for them to buy physical bullion because of storage costs and high premiums and liquidity concerns. Gold and silver ETFs created a phenomenal way for institutional investors to address those concerns, and then aided the bull-run in the metals themselves because the ETFs had to go and buy the physical bullion. So those investors who used to trade mining shares now use ETFs. Another problem is: The producers are having a hard time replenishing their reserves. They built up such a high yearly production level that it's difficult if not impossible to replenish those reserves and produce them at such a high level."

Mr. Grandich spoke recently at the World Resource Investment Conference about this very topic. His talk was entitled "Why the gold permabears have it wrong about the gold price". Here are the additional reasons he gave at that conference about the rise in gold price: "There are three critical factors that radically changed the gold market from ten to twenty years ago. The first is: Central banks used to be such aggressive sellers. That stymied the price from going anywhere. But they aren't sellers anymore; they've become net buyers. The second point is: The producers hedged the very thing they hoped would go up in value. Barrick, for example, was really more of a futures-trading company than it was a gold-producer. [And the third reason is:] When you look around the world, it's hard to put money into paper currencies. Therefore, gold becomes an extremely attractive alternative. All three of those factors have a net-positive impact on the gold market."

Gold may be seeing rising prices in a period of typically softening prices, but Mr. Grandich also reported on something else: "The general malaise in the overall equity markets is spilling over to equities in mining and exploration shares. I believe we are going to see a selling peak before July 4th. That will mark one of the more important bottoms in mining shares that we'll have seen in a decade or more."

This might sound like a dire warning and Mr. Grandich even goes on to say "I think it's too late to sell. Those who are selling now are selling to relieve the mental anguish rather than anything. One has to have the courage to hold through this, but if their finances allow them, they should be a buyer in this."

Mr. Grandich gave the following reason why investors should hold or even buy: "I'm anticipating one of the major lows in mining exploration sector between now and the July 4th long weekend, and then – this fall – one of the best rallies we've seen in years among producers and explorers."

With that in mind, we asked Mr. Grandich for a few companies that he thought might be a valuable investment. He gave us three.

The first investment would be investing in the potential for a merger: "Alderon Mining (TSX-V: ADV). It's a premier iron ore play. Iron ore prices remain strong. Inevitably, this whole play in Newfoundland-Labrador is serious and real and we can expect takeovers and mergers there."

The second investment might catch people by surprise because it's a big project from a company that is not well known: "The world's largest undeveloped copper-gold project, owned by Northern Dynasty Minerals (TSX: NDM). It was above $20 just a couple of months ago and is now under $10. Over the last two or three months the company has made multiple statements that they expect the company to be in play in a major transaction this year. I can't see how someone can have a significant gold or precious metals portfolio and not have Northern Dynasty Minerals in it."

The third investment Mr. Grandich shared with us is another stock that might be considered an underdog – it's undervalued and not a headline grabber: "Sunridge Gold Corp (TSX-V: SGC) is a classic example of true undervalue in the junior market right now. Where can you find a junior that has more than two advanced-stage projects that are either in prefeasibility or feasibility? I call it the 'Mama Mia stock'. Any and all of their projects can be a homerun for them. The stock is 50% below its 52-week high."

As we wrapped up our conversation, Mr. Grandich brought it back to gold and told us about his long-term outlook for the market for this precious metal: "This is 'the mother of all gold bull markets'. It has greatly out-performed almost all other asset classes – even the general equity markets – and yet it's hated by the mainstream media; and it's under-owned. The upside is still very bright. As I've said before, I can't see this bull market coming to an end until after the year has a 2 in front of it – 2020 and beyond. Gold needs to be at $2300 to $2400 to be at its inflation-adjusted price."

Mr. Grandich delivers surprising, sometimes unconventional, and always compelling ideas about the markets. According to him, it's a good time to get into precious metals and the gold market is expected to climb for years to come!

REFERENCES

Peter Grandich www.grandich.com

Alderon Mining http://www.alderonmining.com/

North Dynasty Minerals http://www.northerndynastyminerals.com/

Sunridge Gold http://www.sunridgegold.com/