TGR: History, as far as the Kondratieff cycle goes, seems to be on your side.

IG: I've been able to go back and map this all the way from 1790 to the present to show that these things are quite repetitive. When you can see that repetition, we know that following that big bull market peak we're going to go into the depression stage of the economy. We can anticipate that. We've made that anticipation and have been invested in gold since 2000. That has been the right decision.

TGR: Based on that logic, though, another spring will come. How far off is that?

IG: The stock market bottomed in 1932, but we say the spring of the present cycle didn't start until 1949. The Second World War essentially took the United States out of the Depression. She wasn't out of the Depression until the war started because you basically had a big manufacturing buildup for the war. So many people were employed in the war that people started saving. As a means of saving, servicemen would put part of their paycheck into war bonds. That's really how an economy starts; it grows on savings, it doesn't grow on debt. The catalyst that got the Chinese and the Japanese economies moving was the huge savings that those people have. I think in China they save 40% of what they earn.

TGR: Given these dire predictions, what sort of investment strategy are you recommending?

IG: Well, there are really three things that we feel make sense in this kind of environment. One is to be long on gold, which we have been since 2000. Two is to be short on the market. We buy the inverse ETFs, the ones we think make more sense in that kind of environment. We like the inverse financial ETF stocks to short or we'll short the growth stock ETFs—the Russell Financial Bear 3x (NYSE:RGUSFL) and also the ProShares Ultrashort Russell 2000 Growth (NYSE:SKK), which is a double. We feel that growth stocks in a bear market are most likely to fail both first and fast.

TGR: And the third part?

IG: I also have bought the Sprott Physical Gold Bullion Trust (NYSE.A:PHYS; TSX:PHY.U). I'm generally a bit nervous about having a paper claim on gold, but I know Eric Sprott pretty well and I'm absolutely sure he has a gold backing for that fund.

TGR: What percentage of your portfolio would you recommend having in terms of gold equities?

IG: In terms of my portfolio, a small portion is in cash, probably about 5%, probably about 15% in the Sprott Gold Fund. Then maybe 30% is in these inverse ETFs. I see my short position as a hedge against a 2008 kind of melt down for these equities that I'm in. About half my portfolio is gold equities. In most cases I'm in junior equities. I have one senior gold equity in my portfolio.

TGR: What are some of the junior equities that you're excited about?

IG: My biggest position is in a company called Timmins Gold Corp. (TSX.V:TMM). I think I recommended that the last time we talked. I have a significant position in a company called Golden Goliath Resources Ltd. (TSX.V:GNG; OTCPK:GGTHF). Then a company called Millrock Resources Inc. (TSX.V: MRO) in Alaska. Millrock has a really good relationship with Kinross Gold Corp. (NYSE:KGC; TSX:K) so I'm fairly heavily weighted in Millrock. I've got a position in a company called Lincoln Mining Corporation (TSX.V:LMG). Their main assets are in Nevada, but they do have a great asset in Mexico.

TGR: Let's go back to Timmins. It has the San Francisco Gold Mine in Mexico that's in production, but their mill throughput is a bit lower than it was earlier in the year.

IG: You're always going to have some slight hiccups when you go into production. I've basically financed Timmins from the seed capital days. The management of this company has always delivered to shareholders essentially what they've promised that they're going to do. There have been some delays in the production process, but I'm very confident that they're going to get it right. Their goal is ultimately to produce 100,000 ounces a year.

Their cash costs are in the lower $400 an ounce range. It's going to be extremely profitable. The key for Timmins, as I see it, is to expand that resource at the San Francisco mine from about 700,000 ounces to something considerably more than that. I think that the drilling that they've done to date would indicate that they are doing that. We don't have a new resource calculation yet, but the drill results that they've been producing are similar to the results that they had in their previous resource calculations.

I think we can comfortably estimate that we're going to see a resource calculation come out that's going to improve that 700,000 to something significantly better than that. If you can get above a million ounces, then we've got a 10-year mine life. If Timmins can generate a multiple of that, the mine life just increases. I think this company is actually very undervalued; it's about $1.40 a share.

TGR: Golden Goliath is also in Mexico. You seem to be a believer in Mexico. You also mentioned that Lincoln had a project there. What is it about Mexico that you like?

IG: It's been a huge producer since the Spanish discovered gold and silver there. All of these properties, like the one Timmins has, are past-producing mines. There are several past-producing mines on the Golden Goliath properties. It's a maze of tunnels. The old mine was worked without any exploration expertise. They simply followed the veins. Golden Goliath was an extremely rich mining camp; so rich that there was a mint introduced in the local town to mint Mexican coinage from the ore being produced from local properties, most of which are now owned by Golden Goliath.

TGR: Agnico-Eagle Mines Ltd. (NYSE:AEM; TSX:AEM) holds about 9% of Golden Goliath. Is it anywhere near Agnico's Pinos Altos gold mine?

IG: It's a little south but not that far from Pinos Altos. Agnico-Eagle is also represented on the Golden Goliath board through their vice president for project development, Marc Legault. This is very positive, because I think he's been instrumental in getting Golden Goliath focused. They were property rich before and they didn't spend enough time on any one of the properties to do each of them proper justice. He's got them focused on Las Bolas, and I think we're starting to see some interesting results on that property.

TGR: That's generally Agnico's modus operandi. They take a stake in a promising junior, get a seat on the board, have a look at the geology and eventually take the company over. They did that with Cumberland Resources and its Meadowbank Gold Project. Agnico bought Cumberland in 2007 and Meadowbank just went into commercial production.

IG: I was actually instrumental in getting Agnico-Eagle to invest in Golden Goliath in the initial public offering. I knew Sean Boyd who's now the CEO. I phoned him and he sent down his geologist to take a look. They came back and said, yes, they would put money into Golden Goliath's IPO. That was in 2000.

TGR: You mentioned Millrock a bit earlier. Tell me about Millrock.

IG: Basically the company's main focus is in Alaska. They've worked very closely with the native bands in Alaska so they have a very good relationship, and the natives control much of the land.

TGR: Is this a pure exploration play?

IG: Yes, it is, but Kinross has recently financed Millrock at a premium to its share price . Kinross liked the properties that they have. Millrock has a really good gold property called Estelle, which they are joint venturing, again with Kinross. They're looking at doing other things with Kinross in Alaska, too. In some ways you could say Kinross is using Millrock as its exploration arm in Alaska.

TGR: Can you comment on Lincoln Mining? That's another one you mentioned.

IG: I like Lincoln very much. Paul Saxton, Lincoln's president, has put, probably, five mines into production in his lifetime, so he knows how to put a mine into production. They've got a fairly small deposit in Nevada. There's about half a million ounces there. Right now, they're trying to drill it up to a million ounces, but they're going to put the half a million into production.

TGR: You're talking about the Pine Grove project?

IG: Yes, Lincoln has another property in California, which scares a lot of people, but that had been permitted and had actually been in production. Paul is hoping to get the mining permit grandfathered and be able to put that back into production. He really likes this La Bufa property in Mexico. He's surrounded by Gammon Gold Inc. (NYSE:GRS; TSX:GAM). Gammon has always tried to do some sort of deal with them, but they feel they haven't done the property justice to do any sort of deal with any company yet. They think this has the potential to be a fairly significant discovery. It is early stage, but you know how much I like Mexico. I'm a big Lincoln fan simply because of Paul Saxton's ability to put these things into production. He's done it before.

TGR: Do you have some thoughts you would like end our talk with?

IG: I think we're heading down into the next stage of the bear market in stocks. I've always counseled people that if we're in a bear market, then we're going to make lower highs and lower lows. Well, we've seen the lower high below the DJIA's 14,200 in October 2007. And we can expect the next low to be below the 6,547.05 Dow low in March 2009. The next low should be below that. It's not going to be a fun time. I would counsel everybody to be out of stocks. Everything that is, except gold stocks.

By arrangement with: www.theaureport.com

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