Michael Berry predicts $1,700 gold by year-end

Gold is once again hitting new highs, closing at $1,589/oz. on July 14. In this exclusive interview with The Gold Report, Dr. Michael Berry, principal of discoveryinvesting.com and editor of Morning Notes, predicts $1,700 gold by year-end and points to the juniors that could bask in the enhanced glow of all the metals, including Copper and zinc.

Companies Mentioned: Canamex Resources Corp. - Freeport-McMoRan Copper & Gold Inc. - GMV Minerals Inc. - Grande Portage Resources, Ltd. - Guyana Goldfields Inc. - Quaterra Resources, Inc. - Redhawk Resources - Sacre Coeur Minerals - Sandspring Resources Ltd. - Southern SilverExploration Corp.

The Gold Report: Dr. Berry, you are going to go before the Federal Reserve and meet with Congressional representatives on July 18. Could you give our readers a Coles Notes version of what you plan to say?

Michael Berry: I go before the Federal Reserve twice a year. In this presentation on Monday, I'll talk about the geopolitics of growth in emerging countries and issues related to the dollar, gold, convergence of the rest of the world and the weak global recovery.

Monday afternoon, I'll head over to the House and meet with the Chairman of the House Natural Resources Committee and Senator Lisa Murkowski's (R-Alaska) natural resource staff to discuss extractive resource policy, natural resource exploration in the U.S., critical metals and what's really happening in the rest of the world regarding resource nationalism.

I also believe I'll be meeting with Senator Murkowski's natural resource policy representative, McKie Campbell. I'm trying to educate the Congressmen and Senators and their staffs on how important natural resources are to the U.S. and what's going on in the world with respect to critical metals, metals supply and demand and what policies we need to enact in this country.

TGR: Do you feel you've made progress toward legislation that's a bit more pro-mineral development or metal development?

MB: Yes, I think we've made some progress. It's a long education process and it's difficult to do because you have to be consistently in front of them. Congress has three bills pending now—two in the House and one in the Senate—that relate to natural resource development in the U.S. for critical metals. Not just rare earth elements, but a number of others as well. They also relate to exploration and development policy. I think we're making some inroads with Congress and others in Washington. It's very important that we keep that pressure up.

TGR: On Thursday, the price of gold for delivery in August flirted with $1,600/oz., going as high as $1,594.90/oz. before closing at $1,589.30. What is causing this continued upward climb and what does it mean for juniors going forward?

MB: There is just a tremendous amount of uncertainty regarding the debt ceiling and the U.S. credit rating. That is pushing gold and silver prices higher, which is positive for gold miners and exploration stocks. Look for $1,700/oz. gold by the end of the year.

TGR: What happens if there is no third round of quantitative easing and our elected officials come to an agreement on the debt ceiling? Does the gold price climb lose its momentum?

MB: Nothing is standing in the way of gold and silver going higher. There will be some accommodation on the debt ceiling and something will be done to try to keep the economy moving just because no one wants to see higher interest rates. In the meantime, investors have come to the realization that precious metals play an important role in the portfolios of individuals, institutions and countries, which are now buying large quantities of gold. It will continue to hit new highs as the 250-day moving average is increasing beautifully.

TGR: In the second quarter, we witnessed a significant sell-off in speculative positions in both gold and silver. Do you believe a portion of that speculative money could find its way into copper?

MB: There's tremendous pent-up demand for copper around the world because of emerging economies. It is also much more difficult to make world-class discoveries today. I think copper prices will be very strong. Metals like Zinc are also really starting to look very attractive to the exploration industry. There's a lot of potential for discovery investment flows into some of the base metals, including copper and zinc, and some of the special metals such as manganese, vanadium and graphite.

TGR: Any discussion about Copper has to include China. Beijing recently raised interest rates to fight inflation, but the economic indicators in China continue to improve and that ultimately means greater demand for copper there. Will supply disruptions converging with greater demand push the copper price above $5/lb. this summer?

MB: That is certainly possible. I can remember when copper was $0.65/lb., so obviously there is real upward momentum. Copper is a "quality of life" metal. Infrastructure can't be built-out without copper. I think that prices are going to be quite strong as we approach the fall season.

It is interesting to note that the Chinese started buying again as the price of copper fell in the last couple of months. Their demand is crucial. They are also bidding for copper companies around the world. I think we're in the third inning of a very long commodity supercycle in the world. Copper rightly will take its place in that cycle. Copper miners in Indonesia and Chile are experiencing labor problems as well.

TGR: Recently, China's Jinchuan Group trumped a $1B bid for the African-focused copper company Metorex Limited (JSE:MTX; LSE:MTX). Do you expect Chinese firms to take more runs at companies as a means to lower the cost of copper?

MB: I do, but I think the primary motivation of the Chinese is going to be infrastructure build out. It's a huge country with a growing middle class. Somewhere around $4 copper is probably very cheap to the Chinese.

But it will be more than just the Chinese that come into this game. Companies like Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) are going to get involved because there just hasn’t been a lot of new high-grade discoveries that have been turned into reserves. It's a very interesting game that's being played. Africa is in play in terms of natural resources. No doubt.

TGR: Given the jurisdiction risk in Africa, could there be a bit of a premium on western copper plays?

MB: The Murkowski Bill, which passed in a unanimous, bi-partisan vote but hasn't been signed by the president yet, should help ease exploration in U.S. Some of the discovery progress in Arizona and Nevada now is going to become increasingly sought after by companies like Freeport, Rio Tinto PLC (NYSE:RIO; Paris: RTZ.PA), even Barrick Gold Corp. (TSX:ABX; NYSE:ABX), and of course some of the smaller copper companies. I think there's going to be a premium on what's happening in the U.S., Canada and, to a lesser extent, Mexico.

TGR: Which companies do you think could benefit?

MB: One that I've followed for years and in which I own a big position is Quaterra Resources Inc. (TSX.V:QTA, NYSE.A:QMM). It just exercised its option to acquire the Yerington Mine, which was mined from about 1952 to 1978 by Anaconda. It's the most significant land position in the Yerington District. Adjacent to it is Nevada Copper Corp. (TSX:NCU), which has a huge skarn find. Rio Tinto has a 13% position in Entree Gold Inc. (TSX:ETG), which acquired the Anne Mason Property in Nevada, also adjacent to the Yerington Mine.

Yerington is the newest and safest copper district in the U.S. It could realize 50 Blb. to 60 Blb. of copper. Anaconda mined 1.7 Blb. during its 25-year life. Quaterra went through the rigorous process of taking this mine and property out of bankruptcy. It now controls water rights and about 8 Blb. of copper. No one understands this story, so the QMM stock is very cheap. I estimate that Yerington, the Bear Deposit and its nearby open pit MacArthur mine are worth $3 to $4 per share of Quaterra.

Another company that I follow closely is Redhawk Resources (TSX.V:RDK; Fkft:QF7; OTCQX:RHWKF). Redhawk sits in the Copper Creek area of southern Arizona, actually Pinal County, where several big copper porphyries are located. It is drilling a huge defined copper and moly resource there.

The stock is trading around $0.50, so companies like Freeport, BHP Billiton Ltd. (NYSE:BHP; OTCPK:BHPLF) and Asarco Grupo Mexico, whose Hayden smelter is just a few miles away by road, are likely to take a big interest in Redhawk.

TGR: That property has been thoroughly explored before. Is it getting a second look because of where copper prices are right now?

MB: There has been a lack of new high-grade discoveries lately, so companies are coming back and readdressing some of the properties where maybe $0.65/lb. copper didn't work, but $4/lb. copper works beautifully. These are places that already have a lot of infrastructure and safety isn't a risk as in Africa or Indonesia.