Transcript of Jim Rickards – The Gold Chronicles May 18th, 2016

Jim Rickards , The Gold Chronicles May 18th, 2016

*The West is waking up to Gold
*Gold inflows have exceeded $13 Billion so far in 2016
*Paul Singer, Stanley Druckenmiller, Jeffrey Gundlach, George Soros all recommending gold
*Gold is the best performing asset for both 2016, as well as the last 16 years since 2000
*There has been a change in the conversation and narrative about gold in the West
*Investors are losing confidence in Central Banks which is fueling the awareness about gold
*As we have discussed previously on The Gold Chronicles, the technical set up for gold to rise has been in place for some time, and was only awaiting a shift in Western sentiment
*PIMCO economist suggesting an official re-pricing of gold to defeat current deflation and reach Fed inflation targets
*Discussion of how open market operations by the Fed to raise the official price of gold would work
*Kenneth Rogoff is recommending developing economy countries to increase their gold reserves to 10% to diversify reserves composition
*Chief Economist BIS indicates the world monetary system is lacking an anchor – why we think this anchor could be gold
*Why a gold linked SDR could make sense as an international monetary system anchor
*Any attempts to re-anchor the monetary system to gold would require a non-deflationary USD gold price of $10,000 per troy ounce
*Feasability of using gold as an international unit of account today – even if all goods were measured in gold, it would likely require some kind of digital token to facilitate transactions
*No expectations of a Fed rate hike in June
*Detailing a scenario under which the gold price could go down significantly, and the probability of such an event
*Commentary on China’s gold reserves

Listen to the original audio of the podcast here

The Gold Chronicles: May 18th, 2016 Interview with Jim Rickards

 

The Gold Chronicles: 5-18-2016:

Jon:  Hello. I’m Jon Ward on behalf of Physical Gold Fund. We’re delighted to welcome you to the latest webinar with Jim Rickards in the series we’re calling The Gold Chronicles.

Jim Rickards is a New York Times bestselling author and the chief global strategist for West Shore Funds. He’s the former general counsel of Long-Term Capital Management. He’s a consultant to the US Intelligence Community and to the Department of Defense. He’s also an advisory board member of Physical Gold Fund.

Hello, Jim, and welcome.

Jim:  Hi, Jon. It’s great to be with you.

Jon:  We also have with us Alex Stanczyk, managing director of Physical Gold Fund.

Hello, Alex.

Alex:  Hi, Jon. I’m glad to be here. We have some very exciting topics to discuss today, so I’m looking forward to getting into it.

Jon:  We certainly do. Alex will be looking out for questions that come from you, our listeners. Let me say that your questions for Jim Rickards today are more than welcome. You may post them at any point during the interview. You’ll see a box on your screen for typing in your question, and as time allows, we’ll do our best to respond to you.

Just a word about Q&A:  We want to emphasize that we really value the questions you send us, and we decided to increase the portion of time each month to your questions. Today we will begin with an interview covering some very significant market developments we’ve been seeing since our last webinar.

It seems like the West is finally waking up to gold. Let me quickly list off some of the factors. We’ve seen a roughly 20% rise in the dollar price of gold since the beginning of the year, and we’ve seen a less-reported but dramatic increase in gold buying by institutional investors. From reports I’ve seen, it’s over $13 billion in net inflows this year compared with $2.5 billion net outflows in the last quarter of 2015.

Not only that, there’s been a change in the conversation. We’re seeing big names in the financial world coming out with positive statements about gold including people like former IMF chief economist Kenneth Rogoff and billionaire fund managers such as Paul Singer, Stanley Druckenmiller, Jeffrey Gundlach, and institutions like J.P. Morgan Private Bank and the massive investment firm PIMCO.

We’ll talk about some of their particular pronouncements later in this interview, but to begin with, Jim, stepping back to look at the big picture, what’s driving this turn in the market? I wondered if everyone has started reading your latest book, The New Case for Gold?

Jim:  Jon, thank you for the kind words about the book. We’ve discussed that books don’t come out of thin air, unlike money. Money does come out of thin air – at least central bank money does – but books don’t. They have a very long lead time. We’ve all been working on this book for over a year. There was no way to know a year ago that we would have a publication date in the strongest performing quarter for gold in over 20 years. I cannot take credit for that; it was fortuitous or serendipitous, but certainly the timing has been good, and the book has had a very good reception.

You’re right. There’s definitely been a change in the conversation, a change in the environment, and it’s not just the price. The price action has been good. Gold is up over 20% so far this year and is the best-performing asset class. If you look across stocks, bonds, other commodities, various currencies, etc., gold beats them all this year.

That is not only true this year; it’s true for this century. If you go back to January 1st, 2000, gold has outperformed all the other asset categories I mentioned. Investors are only too aware of the gold drawdown from August 2011 to November 2015 – not a lot of fun – but if you take longer-horizon action, gold has done what it always does. Gold preserves wealth and holds up very well compared to other asset classes.

It’s not just the price; there’s definitely a change in the conversation, as you put it. This goes back to something I wrote a little while ago when I said gold is a chameleon. I think of gold as money, but I said there are times when gold trades like a commodity. It’s in the commodity indices, it’s part of the commodity complex, it looks like a commodity because you dig it up out of the ground in the same way you do copper, iron ore, etc. Although I don’t really think of gold as a commodity, there are certainly times when it trades that way.

Gold is also sometimes considered an investment. It competes in institutional portfolios for an allocation side by side with stocks and bonds and some of the asset categories we mentioned.  But sometimes gold is money. I trace this to late 2014, but it really gathered steam recently.

Investors in general are losing confidence in central bank money. If you think of it as a competition, there are many forms of money. The dollar is money, the euro is money, bitcoin is money, gold is certainly money, silver can be money, and at times in the past, feathers and clamshells have been money. Money can take many different forms based on shared values and the confidence that other people will take it as a unit of exchange.

What’s happening right now is that investors are looking at central banks and saying that almost eight years on from the financial collapse, growth is still well below potential. Debt is still rising faster than growth, and debt-to-GDP ratios are increasing.

It’s true; we have not seen that spectacular collapse in the international monetary system which I do expect. I’m certainly not taking that off the table, and I’ve been writing and thinking about it for a long time. It hasn’t happened yet, but the signs are that the system is under more and more stress.

The central bank policies are not only failing to get economies back to trend growth, but they’re increasingly seen as futile. It’s like the joke about “more cowbell” from that old Saturday Night Live skit; doing more isn’t working. If you’re an investor and say, “We don’t have much confidence in the Fed and their dollars or the European Central Bank and their euros or the Bank of Japan and their yen. Is there another form of money out there?” the answer, of course, is gold.

I think gold is winning the horse race, if you will, among various competing forms of money, and that’s getting some attention and commentary. We’ll spend a little more time in the interview on specifics from some of the names you mentioned.

You had a pretty good list, Jon. Stan Druckenmiller is one of the most successful long-term investors of all time, one of the great hedge fund managers, and protégé of George Soros. He went out on his own with Duquesne Capital management and now runs it as a family office with one of the best-selling track records out there. It’s the same thing with Paul Singer who runs Elliott Capital Management and a few of the other names you mentioned.

But you left out the biggest one of all, which is understandable because it occurred only in the last 24 hours. George Soros didn’t actually make a public statement, but what happens for large institutions is they have to file a form called a 13F. It’s a SEC form that comes out quarterly a certain number of days after the end of the calendar quarter, and if you’re above a certain size, you have to actually disclose what you’re holding.

The Soros 13F came out, analysts had a look, and what they saw was that he had decreased his stock market bets 37% and increased his gold bets very significantly. In particular, he bought a very large stake in Barrick Gold, which is the first or second largest gold mining operation in the world – a Canadian company.

Interestingly, the chairman of Barrick Gold is Jon Thornton, former co-CEO of Goldman-Sachs. He’s very well connected in China, very close to the Chinese, and spends a lot of time in Beijing. Thornton’s an interesting figure. Again, a top guy at Goldman-Sachs, one of the most connected Westerners in China, the chairman of Barrick Gold. That’s the company George Soros is buying into.

When you talk about Druckenmiller, Singer, and Soros, you’re talking about the best. They’re not “flash in the pan” guys. They’ve been doing this for 20, 30 years, and in Soros’ case, more like 40 years. I do think it’s a very, very significant development and a change in sentiment.

We’re also seeing a change in gold mining stocks. I’m not a stock picker, but there are fabulous opportunities for those who can do the analysis and find the right companies. I think sentiment has changed and fundamentals have changed.

On this podcast, going back over a year, we said the technical setup was there. We were seeing physical shortages based on our conversations with people on the physical side of the business. By physical, I mean refiners, vault operators, secure logistics operators, dealers, and entities like Physical Gold Fund where they handle the real stuff. When you deal with Physical Gold Fund, you’re talking about physical gold kept in a vault, not paper gold. From that end of the business, we’ve seen the tightness in supply for a long time.

We’ve also seen the voracious demand coming from China and Russia notably, but also Iran, Kazakhstan, and Mexico. There are many countries around the world acquiring gold, and there are no central banks selling any significant amount of gold. People made a big to-do about the Canadians dumping their gold, which is too bad for Canada. It wasn’t as if they were dumping 30 tons or 300 tons because they only had about three tons left, but they did dump it.

There is no significant selling, a lot of significant buying, and physical shortages cropping up. The paper gold to physical gold ratio is near all-time highs, COMEX warehouse is being stripped practically bare, and open interests relative to physical gold are close to all-time highs. So the setup was there for a big price increase – that’s not surprising – but combine the technical setup with a fundamental setup, which is lost confidence in central bank money, and then smart people coming out with a kind word to say about gold. It’s been a good run.

This is just beginning. Gold could come up or down on any given day. It’s down a couple of bucks today, but I’m not a day trader; that’s not how I think about it. I think about it as a store of wealth, as a way to protect against the storm and coming collapse in confidence in central bank money. It’s not too late to get in as this thing has a very long way to run.

Jon:  Thanks, Jim. Drilling down a bit into what’s being said by some of these smart minds, I mentioned PIMCO in that last question. This is something you’ve written about recently, so let’s take a look at an article they just published.

The article’s a bit coy in tone to my mind, but it floats an idea you’ve mentioned several times in our conversations for fighting deflation, or if you like, encouraging inflation, which of course, we know the central banks want or the Fed wants, anyway.

Here’s the idea:  Very simply, the Fed could jack up the price of gold, which would have an immediate inflationary impact without the downsides of the familiar gambits like quantitative easing and negative interest rates. Of course, to do this, the Fed would be treating gold as money, so I guess they’d have to eat a rather large helping of humble pie. Is this move even remotely possible?

Jim:  I think it is likely, but not only is it likely, it has happened before. Now it’s getting a second life at least in terms of public commentary on this. The specific article you’re referring to had a title referencing Rumpelstiltskin, the old nursery tale or fable. “Rapunzel, Rapunzel, let down your hair that I may climb the golden stair.”

The author was Harley Bassman, one of the top economists at PIMCO. Yes, he was a little bit coy but with good reason. He had reason to be coy because think about what PIMCO is. PIMCO is the largest, most sophisticated bond investment fund in the world. It’s owned by a company called Allianz, one of the largest insurance companies in the world. You can’t get much more institutional than PIMCO and Allianz.

It’s one thing for an author or an analyst – someone like myself – to say these things as I have many times, but when PIMCO comes out and puts their name on it, I consider that a very big deal. As you know, anyone with a kind word to say about gold is inviting ridicule, but here’s an establishment figure saying the same thing.

Bassman was specifically addressing the issue of deflation. Deflation is the central bank’s worst nightmare and the thing they fear most. They actually don’t fear inflation. They want a little bit of inflation, but they’re not getting what they want.

I call this Jaggernomics in honor of Mick Jagger and the Rolling Stones’ song, “You Can’t Always Get What You Want.” The Fed wants inflation and can’t get it although they’ve been trying for eight years. They’ve tried everything under the sun – QE1, QE2, QE3, forward guidance, currency wars, Operation Twist, zero interest rates, and negative interest rates in the case of Europe. They’ve tried everything and it hasn’t worked.

Deflation is their worst nightmare because it decreases the real value of the debt. The US debt burden is already non-sustainable. That’s beginning to sink in. We haven’t seen a debt panic yet, but we’ve seen the elements of non-sustainability, namely that the debt is growing faster than the economy.

If your economy is growing faster than your debt burden, the debt is manageable. People just shrug and say, “The debt is going up, but the economy is going up more, so they can afford to pay it,” so that’s satisfactory. But we have the opposite situation with the debt burden going up faster than the economy. The debt-to-GDP ratio is growing and we’re on the path of Greece. Maybe we’re working that path a little more slowly than Greece, but we’re heading in the same direction. It would be nice if you could grow your way out of it, but the structural setup for growth is not there.

One way to solve that problem is to inflate your way out of it. That’s the American way. That’s the real reason central banks want inflation and want to avoid deflation, because deflation actually increases the real value of the debt. It makes everything I just said even worse, and if we’re already non-sustainable, then deflation would make it even more non-sustainable and hasten the day of collapse of some kind or another. The central banks have to get inflation, but they haven’t been able to get it.

I’ve said on this podcast and written in the past that you can have inflation in 15 minutes. All the Federal Reserve has to do is go into the boardroom down on Constitution Avenue, close the door, take a vote, walk out 15 minutes later, and have Janet Yellen announce in front of the microphone, “Ladies and gentlemen, as of this minute, the price of gold is $5000 an ounce. If you think that’s cheap, come and get it. You can buy all the gold; the doors of Fort Knox are open. If you think that’s expensive, sell it to us; we’ll take it off your hands.”

Well, if you have enough gold – which they do at 8000 tons – and you have a printing press and you make a two-way market, you say, “Our target price is $5000 an ounce. We’re buyers at $4995, and we’re sellers at $5050. If you think it’s cheap, come and get it. If you think it’s dear, we’ll buy it from you.” If they do that, which they’re capable of doing, then the price is $5000 by diktat, if you will. They conduct open market operations and make a two-way market to make it stick.

The purpose would not be to enrich holders of gold. I think a lot of listeners on the call, the clients of Physical Gold Fund, and some of us personally would do fine in terms of the price of gold going up, but that is not the reason to do it. Nothing happens in a vacuum. If you take the price of gold to $5000 an ounce, you’re going to take the price of gasoline to $10 a gallon at the pump. Silver would be $100 an ounce, groceries would go up, coal, wheat, corn, steel and every commodity would go up along with gold.

Using round numbers, going from $1000 an ounce to $5000 an ounce is not a 400% increase in the price of gold; think of it as an 80% decline in the value of the dollar. If you hold an ounce of gold constant as a unit of weight and increase the dollar price 400%, you haven’t changed the value of gold; you’ve destroyed the value of the dollar. That’s almost the textbook definition of inflation. As I said, that’s the way for the Fed to get inflation in 15 minutes. They don’t have to wait through seven years of all these crazy policies when they could do it by order.

By the way, that’s happened before. For those who think that’s highly improbable, it’s exactly what happened in 1933. The longest period of sustained deflation in US history was between 1929 and 1933. The government, desperate to break out of deflation, did it by increasing the price of gold 75%, from $20 an ounce to $35 an ounce. Why did the price of gold go up 75% in a deflationary environment? The answer is that the government wanted to cause inflation, and the easiest way to do that was to devalue the dollar and raise the dollar price of gold. That’s the analysis.

Two things struck me about Bassman’s article. When I read it, I thought to myself, “Gee, that sounds familiar.” I opened to page 244 of my book Currency Wars, which came out in 2011, where I had laid out exactly the same scenario. Slightly different numbers since 2011, but I have written and spoken about that many times.

I don’t know if Harley is going to send me a royalty check, but I just say, “Welcome to the conversation.” When I see ideas like that being copied almost verbatim, I don’t get upset. I think it’s actually good; we’ve added one more important voice to a very important conversation.

Be that as it may, many people could come up with the same idea on their own. What struck me was not the idea, which I’d written about before, but the voice. It was coming from PIMCO, the establishment. This wasn’t Zero Hedge or some fringe player; this was PIMCO talking.

The other article you pointed out was by Ken Rogoff. As you mentioned, Ken was the former chief economist of the IMF (International Monetary Fund). He’s a full professor at Harvard University and the author of one of the bestselling economics books of the last ten years with his coauthor Carmen Reinhart, This Time It’s Different. Ken also happens to be a chess Grandmaster and seriously considered a career as a professional chess player before going into economics. Needless to say, he’s a big brain and also a very nice guy. The reason I’m reciting his resume is to make a point that you can’t get any more establishment than Ken Rogoff.

Word is that he’s on the shortlist to fill one of the vacancies on the Board of Governors to the Federal Reserve. There are seven seats on the Board of Governors, but two of them are vacant right now and have been for a long time. The White House has been very slow to fill those seats, to make those appointments, but there’s some talk that Ken Rogoff might be on the shortlist to fill one of those seats.

The point being you can’t get more establishment and more mainstream than Ken Rogoff. He wrote an article about a week ago recommending that emerging market central banks allocate 10% of their assets to gold.

I almost fell off my chair. I said, “Wait a second. Harvard, IMF? This guy’s saying go out and buy gold?” That’s exactly what he was saying. Of course, the 10% number resonated with me, because I’ve said many times on this podcast that 10% is my recommended allocation. Again, I’m sure Ken thought of that on his own, but it’s interesting how there’s some convergence of ideas here.

The article was even more interesting because he gave some reasons. He said, “You have too many dollars. You need to diversify away from dollars.” He was thinking about gold as money. He wasn’t saying, “Go buy euros, go buy Japanese yen or go buy Swiss francs.” You can buy all those currencies or invest in securities in those currencies. He was saying, “Go buy gold for 10% as the diversification of your reserves, because emerging markets have too many dollars.”

He was referring specifically to the whole very dangerous risk-on, risk-off, hot money dynamic. This happened this afternoon, as a matter of fact. The Fed says, “Maybe we’re more likely to raise rates,” and all of a sudden everyone sells emerging markets like Malaysia, Indonesia, Turkey, and South Africa. They dump all those stocks, dumps those currencies, buys dollars, and get back into US money markets, because they think the rate is going to go up. Then the Fed decides, “Just kidding. We’re not going to raise rates after all,” so everybody shorts dollars, borrows dollars, and goes back into emerging markets. You get these huge swings.

I travel around the world a lot including Malaysia, South Africa, and Turkey. I’ve been to all these countries recently, and this is all they talk about. Their markets skyrocket when it’s risk-on and they crash when it’s risk-off, and their currencies likewise. They say, “Wait a second. We’re not doing anything. We didn’t change policy or our tax rate or central bank policy. The Fed raising or lowering expectations about rate hikes is causing all these crazy hot money inflows and outflows.”

Rogoff’s saying if you had gold, you wouldn’t have to worry about that. People wouldn’t be dumping gold just because the Fed is going to do one thing or the other. It’s a way to diversify your reserves and insulate yourself to some extent from this dangerous risk-on, risk-off dynamic. I agree 100%, but I was just shocked to see a Harvard professor coming over to our side of the debate.

Rogoff said something else that was even more fascinating. This is his advice to emerging markets:  “Don’t worry too much if there’s scarcity of supply, because the price will go up.” That’s exactly what you should expect if you have increasing demand, because emerging markets want to have more gold and you have tight supply conditions. The classic market solution is for the price to go up.

What Rogoff was saying is you’re going to start out with a target. Let’s say you have $1 billion of reserves and you want $100 million in gold. You’ll go out and start buying gold, trying to get it at a certain price, trying to get to that target. You might find that you can’t get any gold, but Rogoff said, “Don’t worry, because the price will go up.”

There are two ways to get to $100 million. One is to buy larger quantities at a fixed price. The other is to not be able to buy it at all but watch the price go up because of the tightness in supply and demand, which is also exactly right. In my book, The New Case for Gold, I said that you never have to worry about running out of gold, because the price will go up. You can support any amount of asset allocation or any amount of money supply or any amount of trader finance with a fixed quantity of gold simply by increasing the price.

Now here’s the recommendation for emerging markets to buy gold because the dollar is dangerous, and don’t worry about scarcity of supply, because the price will go up. That’s the trifecta for gold investors and exactly what we’ve been talking about for a couple of years on this podcast.

Not to belabor the point, but these are familiar arguments to our audience. When Druckenmiller, Soros, Singer, Rogoff, PIMCO, and others come out and say the same thing, you know something is going on.

Jon:  There’s one other voice, but this one’s really demure, and I don’t know quite how to interpret it. Alex pointed this out from a speech just published by the chief economist for the Bank of International Settlements. While addressing the issue of diversification away from the dollar, he basically says that merely diversifying currencies doesn’t work. Then he goes into analysis of the structural problems in the world’s monetary and financial system.

He goes on to say that the system lacks what he calls an effective anchor, but he doesn’t describe what that anchor might be. Is that speech possibly clearing the way for introducing gold as a more central and overt player in the organization of the international monetary system?

Jim:  There’s no doubt about it. You’re referring to Claudio Borio, head of monetary economic research at the Bank for International Settlements or the BIS. For listeners who may not know, the BIS is the central bankers’ central bank. I’ve often referred to the IMF, the International Monetary Fund, as the central bank of the world because they have this money printing function, but the BIS is even older than the IMF. It was created in 1930 and is based in Basel, Switzerland

I call it a tree house for central bankers. Much like a little child wants a tree house to get away from their parents or get away from scrutiny, this is where the top central bankers, the G10 economies, go once a month. They have a nice lunch overlooking a river there in Switzerland. They close the doors. There are no minutes, no records, no statements, no press conferences, and no accountability. Nobody knows what goes on inside that room unless you’re in the room or speak to someone who was.

One of my former partners, David Mullins, Jr., was the vice chairman of the Federal Reserve. He said Greenspan didn’t like to travel that much, and often David was the one who had to go to Switzerland and sit in on these meetings as a representative of the US. At the time, David was the youngest professor in the history of Harvard, so certainly, a very well-regarded figure and monetary economist. That’s how close you have to be to the situation to have any idea of what’s going on there.

Claudio Borio is their chief monetary economist. Just last week he gave a speech in Zurich, Switzerland, and said exactly what you said, Jon; the international monetary system is rudderless and has no anchor. There’s no gold standard and there’s no dollar standard. From 1980 to 2010, the reason things were not more chaotic was because we had a dollar standard. That may not be a strong anchor, but it’s something. The US was committed to a strong dollar before President Obama launched into the currency wars in 2010. Now there’s no anchor at all.

I’ll relate two other conversations I may have mentioned on the podcast before, so I’ll be brief. I spoke to Ben Bernanke, former chairman of the Federal Reserve, in Korea not long ago. Shortly thereafter, I spoke to John Lipski. John is an interesting figure. He was the only American ever to head the IMF, which is odd because the deal at Bretton Woods stated that an American would head the World Bank and a European or non-American would head the IMF. How on earth do you get an American head of the IMF? It’s never happened.

The answer is it happened once when Dominique Strauss-Kahn got arrested and had to resign under dubious circumstances, to say the least. They weren’t ready with a successor, so John stepped in. He was the first deputy managing director, so in effect he became acting head of the IMF.

I spoke to both of them, head of the Fed and head of the IMF, 9000 miles apart, in two separate conversations. They both used the same word to describe the international monetary system. They said it’s “incoherent.” I knew they didn’t rehearse that for my benefit. I knew that that was in the air. Incoherent just means no anchor, no rules to the game, and that’s exactly what Claudio Borio said last week.

Basically, the whole world wakes up and every day is jump ball. We don’t know what currencies are worth. We don’t know who’s up or who’s down. Part of the reason there’s a flight to gold is because at least with gold you have a little bit more confidence in it. They’re not printing any more of it and mining output is only about 1.6% a year, so the physical supply doesn’t go up that much under the best of circumstances.

Borio also said effectively that the international monetary system is incoherent, there’s no anchor. He referred to the SDR (Special Drawing Rights) which is the world money issued by the IMF. This was an all-day monetary conference with other speakers including William Dudley, president of the Federal Reserve back in New York.

Borio made reference to the fact that some of the speakers were referring to SDRs. He said, “Why is the SDR any more of an anchor than anything else? What is the anchor for the SDR?” I think it’s a very good question. He just raised it rhetorically and didn’t answer it, but of course, there is no anchor. Left hanging in the air is gold. Gold has been an anchor.

Special Drawing Rights is a misleading name. Just think of it as world money and it’s really easy to understand. SDR is world money printed by the IMF. The IMF has a printing press and can print these SDRs and hand them out, so don’t let the funny name or the initials SDR throw you off. It’s world money printed by the IMF out of thin air, is handed out to the members, and gets used like any other kind of money. It’s not that hard to figure out.

Interestingly, when the SDR was invented in 1969, it was convertible into gold. The definition of an SDR was a fixed weight in gold, and they actually called it paper gold. It was meant to expand reserves at a time when the US was still on the gold standard. Well, they got rid of that within two years. When the US abandoned gold in 1971, the IMF abandoned the gold linked to SDRs very shortly thereafter sometime around 1972 or so. Now the SDR is just another fiat currency.

I’ve hypothesized this in my books and in particular chapter 11 of The Death of Money. You could have a gold-linked SDR with some reference to gold. That would address Borio’s argument, and obviously, once you do that, if you want to avoid deflation, you’re talking about much, much higher prices for gold.

I’ve said publicly that I expect gold to go to $10,000 an ounce, which I do. When I say that, it’s not a number I pull out of the air just to attract attention or to be provocative. It’s actually the implied non-deflationary price and the lowest price gold would have to be in a gold standard to avoid deflation. Any lower dollar price for gold would be deflationary and a blunder. It would throw the world into a recession if not a full-blown global depression that you couldn’t get out of. I’m not saying you have to have a gold standard; I am saying that if you have a gold standard, you have to get the price to at least $10,000 an ounce.

Going through all these hedge fund mavens, professors like Ken Rogoff, economists like Claudio Borio, and others, this is very much front and center in the elite conversation today.

Jon:  Thanks, Jim. Now over to you, Alex. What questions do you have today from our listeners?

Alex:  Thanks a lot, Jon. We thank everybody for sending their questions in. There are a lot of very good questions here, so it’s hard to choose from them with the time we have allotted, but we’re going to do our best to get some of these answered.

As a brief comment, in my time in the physical gold industry, which has been almost a decade now, the whole idea of using gold to back the currency or to talk about gold in any legitimate fashion as money has been pretty much laughed at and ridiculed by leading economists and central bankers, etc. Not only is this happening now, but the sea change that’s currently occurring and is still underway that’s being discussed in some of the highest circles is also starting to filter down into other people’s consciousness. I’m talking about people who don’t make monetary policy, but just the typical person who’s concerned about their savings and protecting their wealth.

For example, as you know, Jim, you met with the governor of Texas and talked to them about a gold vault they’re going to be building soon. Tennessee has just introduced a new bill to build a similar gold vault there. It’s also been mentioned in the recent presidential race by several of the candidates, so it’s leading to where people who didn’t necessarily think about these kinds of things in the past are starting to maybe wake up a little bit.

This leads me to our first question coming from Michael W. I’ll read some of his introduction where he says, “Jim, I enjoy your blogs, interviews, and books.” He likes the simplicity of your explanations. “After reading Currency Wars, my first reaction was what at the time seemed obvious, and that was to simply eliminate competitive devaluation by requiring the pricing of all goods and services everywhere to be quoted in one currency internationally: ounces or grams of gold. In other words, eliminate country names such as marks, yens, pounds, dollars, etc., and make it some kind of internationally mandatory system.”

I’m paraphrasing a little bit, but essentially Michael wants to know your view of that, and is it something that is realistic?

Jim:  I think it is possible to denominate every good or service in the world in units of gold. I don’t think that would be that difficult, but then it begs the question, “What are we going to do? Are we going to walk around with bags of gold in our pockets? How are we going to get paid on payday? How are we going to pay our rent or mortgage or buy a new car, etc.?” The reason for paper money, which is really just bank notes or promises, was partly convenience just as the reason for digital money is partly convenience.

We always say that the Federal Reserve is printing money. That statement conjures up a printing press with ink and paper. That’s the way they used to do it, and there is still paper money in circulation, but not much in relation to the total money. Your money is mainly digital now.

If you think about it, you may have a few bucks in your wallet. I stopped at the ATM on my way over to do this podcast, so I have a couple of $20s in my wallet, but basically, you get paid digitally. You pay your bills online, you use your debit card, your credit card, you check your bank account online, etc. It’s all digital. That leads to other issues, such as your digital wealth, being wiped out by hackers, but let’s leave that aside.

Even if you denominate everything in gold, you’ll still have some kind of token to pay for things whether it’s a digital token or paper money. At that point, we must ask, “What’s the relationship between my token and the gold? Do I still have a dollar bill? Does it take me 5000 of those dollar bills to get one ounce of gold?” Or you could have a banking system where you combine a digital system and a gold numéraire. You would look at your bank account and instead of so many dollars, you would have so many ounces of gold. If you wanted to go buy a new car, it would cost ‘X’ ounces of gold, and you’d just use your debit card. That is possible.

The thing it confronts is this:  Think of central bankers as having a monopoly on central bank money, which they do. If you had a monopoly on anything and you had all the power, what’s more powerful than printing money? If you control money, you control price levels, wealth, whether people have jobs or not, politics. You control pretty much everything if you control money.

Right now that’s in the hands of a bunch of PhDs from Harvard, Yale, MIT, Chicago, Stanford, Oxford, and a few other schools around the world, but not many. It’s a pretty short list of schools. As an interesting exercise, go look at the resumes of the heads of the top ten central banks around the world. It’s not hard to find online. You’ll see that they all went to three or four schools, mostly MIT.

It’s a club. They’re in control, so why would they give up that control? Who voluntarily gives up power? The idea of saying, “Okay, now we’re going to price things by weight. That’s the universal benchmark. That’s the universal numéraire. We can use 21st century digital technology to hold our accounts. There’s some gold somewhere behind the system, maybe in a vault or something, but my share of it is represented by gold units in my account, and that’s how I pay for things.” That’s a feasible system, but you’re never going to get buy-in from any central bank in the world. When you own gold, you’re fighting every central bank in the world.

What could cause the system to move in that direction? Two things. A political earthquake, and maybe we’re seeing one right now with the rise of Bernie Sanders, the rise of Donald Trump, and the Brexit vote in the UK backed by some flamboyant and charismatic politicians like Nigel Farage and Boris Johnson. Maybe we’re seeing something like that, so let’s watch that space.

The other thing – and I think the more likely path – would be collapse with a panic much worse than 2008. A massive destruction of wealth, a completely dysfunctional system, an emergency response, borderline neofascism, money riots, and state power designed to suppress the money riots. In that world, maybe the leaders of the international monetary system would realize they’ve completely lost credibility and be pushed into something that restores confidence, and that could very well be gold.

Alex:  I’m glad you mentioned the part about digital money, because we’ve actually had a lot of questions coming in regarding some form of digital currency backed by gold. I think your comments answered some of those, as well.

Moving on, we have a number of different questions about the Fed and potential rate hikes for June. One in particular from Jim L. says, “Is there any reason, with the exception of a purely political move to support Clinton, for a rate hike in June? Most reliable sources point to a failed recovery.”

Jim:  I don’t think the Fed is unaware of politics, but if you want to help Hillary Clinton, you would not hike rates in June, and that is what I expect. I know there’s a lot of buzz today because the minutes of the April FOMC meeting were released. Those minutes included comments by some of the regional reserve bank presidents to the effect that if data were stronger, growth were higher, and inflation were a little higher, the Fed should raise rates in June. We saw an immediate reaction. Gold and stocks went down a little bit.

I don’t get too excited one way or the other about developments like that, but I certainly pay attention to them. I’m not saying to ignore it. I’m enough of a geek, I read those minutes and the speeches and a lot else besides, but I don’t think you necessarily should react day to day. The Fed doesn’t.

We talked about the conference in Switzerland where Claudio Borio gave a speech concerning the anchor. Bill Dudley gave an interview to the New York Times and was talking about the difference between an FOMC meeting with a press conference and a meeting without a press conference and whether the non-press conference meetings were live in terms of raising rates and changing policy, etc.

He was trying to make the point that they were. Markets should not completely discount the possibility that they could raise rates at a meeting where there was no press conference. But in the same breath he said, “On the other hand, what difference does a month make?” He was being completely relaxed about it:  “If you’re going to do something in June, July, or September, does it really matter?” He said, “No, not that much. It matters in the aggregate, but one meeting versus another doesn’t matter that much.”

There was all this talk and a couple of data points recently that look a little hotter. The Atlanta Fed GDPNow tracker is showing some strength. One of the inflation readings was a little bit hotter. You’re going to have to see more than that to get the Fed to move.

Going to the political aspect of the question, about a month ago, the President summoned Janet Yellen to the White House. I use the word “summoned” by design. It’s not unusual for a Fed Chairman and a president to chat. They’ll have breakfast or lunch periodically. Alan Greenspan and George W. Bush used to meet once or twice a month for breakfast. The fact that they talk is not unusual.

What is unusual is that this was very short notice and very public. They invited in the press and also had Vice President Biden in the room. A lot of people wondered what they talked about. I got a lot of calls from the press asking if I knew what they talked about. I said, “It doesn’t matter what they talked about. It was all in the body language. It was the sight of the President sitting next to Janet Yellen in the Oval Office. In effect, the body language said, ‘Don’t you dare raise interest rates.’”

They did raise interest rates in December – that was the famous liftoff – and what happened? The US stock market almost collapsed. It fell over 11% in five weeks from January 1st to February 11th. It was a meltdown that scared them to death. That’s why they backed off all the rate hikes and the four hikes per year every other meeting. All that stuff they laid out in December was completely blown up by the end of February, but they put the final nail in the coffin with Janet Yellen’s speech before the New York Economic Club on March 29th, 2016. That completely went by the board.

The reason was that the US economy was fundamentally weak. Raising rates would be enough to tip it into a recession that could destroy the Democrats’ chances of winning the White House. Generally speaking, it doesn’t matter what party is in and what party is out; if you have a recession in an election year, the out party wins. It’s as simple as that.

With the Democrats being the in party and the Republicans being the out party, if you have a recession in 2016, that’s really going to help the Republicans and give them a significant boost on the way to the White House. The last thing the White House wants is for the Fed to raise rates, so that’s what that was about. It was just a little bit of an intimidation, a body language kind of exercise.

I think the hurdle is quite high for a rate hike this year. Last December, I was one of the ones who made the mistake of believing the Fed. I actually believed what the Fed said, and I was expecting a rate hike in June, but it was very clear to me by February that that was not happening. Now I don’t see enough signs the other way to suggest that they will raise rates in June. You’d have to see some off-the-charts data by then. It is possible, but I think it’s very unlikely.

One more reason they won’t raise in June is because the meeting is six days before the Brexit vote. This is the referendum in the UK to leave the European Union. All the elites are lined up on the side of staying. Everyday people and some politicians – Boris Johnson and Nigel Farage are two I mentioned, but a lot of others including some former cabinet ministers in the UK – are in favor of leaving the EU.

The polls right now are very close. I don’t know which way it’s going to go, but I do know it’s extremely close. I think we’re sadly maybe one terrorist attack away from a leave vote. In a 50/50 contest where it is right now, it wouldn’t take much to tip that into leaving.

The markets have not priced that in. The markets expect on balance that they’ll stay. If they leave, what does that mean? I think if the UK leaves the EU, you’ll see Scotland leave the UK. Scotland, at that point, will need some kind of money, so they’ll probably join the euro, and the euro could actually get stronger.

The UK has a conditional, one-step-removed call option on the Eurozone’s gold, which is 10,000 tons of gold. The UK could join the euro, and once you’re in the euro, in theory, you share in that 10,000 ton gold reserve. If you leave the EU, then you have no chance. You give up your option to join the euro and are on your own. The UK doesn’t have that much gold, so they’d be completely cut off.

There’s already a bidding contest for replacing London as a financial center. Dublin, Monaco, Paris, and Frankfurt are getting their real estate agents ready to move all these bankers to some other financial capital. Maybe it goes to Glasgow or Edinburgh in Scotland. We’ll have to see.

The point being, that’s an earthquake the market hasn’t priced, and we don’t know how that’s going to come out. Do you really think the Fed is going to raise interest rates, which is a mini shock, six days ahead of what could be a mega shock that the markets haven’t priced? Now you’re back to the January scenario. Worse yet, you’re back to the August 2015 scenario when China did a Pearl Harbor with that shock overnight 3% devaluation of the Chinese yuan.

I ask investors, “Where were you on August 31st?” Maybe you were taking your kids back to school or on a nice vacation, but if you weren’t at the Grand Canyon, you probably thought you were staring into the Grand Canyon as far as the stock market is concerned. US stocks were crashing at the end of August, but that was all because of the Chinese devaluation.

That’s how fragile the global economy is. You can’t throw too many shocks at it without the whole thing breaking down, and they know that because they’ve had it twice, once last August that I just referred to, and again in January. They don’t want to do that again. I can’t rule it out completely, but I give it a very, very low probability.

Also, the politics come in. Janet Yellen is a liberal Democrat. That’s not casting aspersions; it’s just a fact. She wouldn’t mind probably being reappointed by a Democratic president. What President Obama was saying to her was, “You need to do your part here for the party and not raise rates.”

Forget September. I don’t expect they’ll raise rates in September because now you’re talking literally five or six weeks before the election, so it would be way too close, and the Fed’s in the political crosshairs to begin with. They certainly don’t want any political trouble. What if they cut rates, for example, and the Republicans somehow win? They’d probably go burn down the Fed.

They might not raise rates at all until December at the earliest. I don’t read too much into those minutes that came out today.

Alex:  We still have a number of very good questions in the queue and a limited amount of time left, so we’re going to try to get through some of these quickly if we can.

Before we go to the next question, we’ve had some inquiries regarding if people will be able to access these webinars after the fact. The answer is yes; we record these and post them at PhysicalGoldFund.com/podcasts. We will send out a notification to everybody who’s here on the webinar to let you know when that’s available. In addition to that, it’s also available on iTunes.

The next question is taking the other side of the analysis of gold. Peter W. from Germany asks, “Can you outline the most likely scenario in which the gold price would go down substantially in most currencies, and what probability would you assign to such a scenario?”

Jim:  The likely scenario is obviously a deflationary scenario, but when you talk about it going down, you have to distinguish between nominal dollar prices and real dollar prices. Right now, gold is about $1270 an ounce although it obviously fluctuates daily. Let’s say gold went down to $800 an ounce. That would be a 35% or slightly higher decline from where we are today, which would be a major drawdown.

What does that mean? Nothing happens in isolation. If the nominal price of gold were to go from $1270 to $800, that means the price of everything else is going down more which is a hyper-deflationary scenario.

I once said to one of my clients, “I might like $500 gold better than $5000 gold.” That puzzles people, but I say, “The world of $500 gold is the world of 500 on the S&P and 2000 on the Dow, and a complete destruction of financial wealth, and 10% unemployment, and a collapse of the economy worse than 2008.” In other words, gold doesn’t just go to $800 or $600 on its own; it goes there because you’re in a hyper-deflationary, depressionary, panicked environment. In that world, I might want my gold even more than I do today.

It’s a little simplistic to talk about the dollar price going up or down. First of all, I don’t even think of it that way; I think of the dollar price of gold as just a cross rate. You can say the euro is worth $1.09 or there’s 105 yen to the dollar, whatever it is. Those are all cross exchange rates. I just think of the dollar price of gold as another cross rate between two kinds of money – dollars and gold.

When someone says gold went up or down, I think, “No, the dollar went up or down.” A higher dollar price for gold means the dollar is going down, and a lower dollar price for gold means the dollar is going up. In other words, the value of the dollar is going up, which is the definition of deflation. You get more stuff for your dollar. In a hyper-deflationary world, there’s probably so much disruption and so much wealth has been wiped out that you might want your gold even more.

Gold is not a stock; it’s money. Yes, an individual stock can go down. You can have a situation where the stock market is going up and an individual stock is going down, because it’s Lending Club or Tesla or something happened to a company. Stocks are idiosyncratic, but gold isn’t. Gold is a form of money, and if one form of money is going down relative to another form of money, that’s just a form of deflation.

It’s important to understand that nothing happens in isolation. Distinguish between nominal and real. Don’t get too euphoric if gold goes up a lot because it means that your dollar is worth less, and don’t get too depressed if gold goes down a lot because that means that everything else is probably going down, too.

This is a debate you hear from people like Harry Dent and Michael Armstrong. They’re out there with their blogs and speeches and newsletters talking about $800 gold. I completely disagree, but if it were to happen, there would be so many other bad things happening at the same time that you’d be glad you had the gold.

Alex:  Our last question is coming from Anthony K. “Now that China has acquired some 2000 tons of gold, are they now on par with the United States?”

Jim:  China is officially approaching 2000 tons of gold. I don’t know if the latest monthly update came out today or recently so it’s possible they hit that level. The last time I looked, it was around 1800 tons, but that’s close enough for government work, as they say. They’re certainly closing in on 2000 tons officially, but that’s a lie. They have a lot more gold, and you can demonstrate why they have a lot more gold.

I talk about this in my books The New Case for Gold and also The Death of Money. Those gold figures come from the central bank, but they have another sovereign wealth fund called the State Administration of Foreign Exchange (SAFE) where they keep most of the gold.

They acquire gold through SAFE but don’t reveal it. Periodically, they move the gold over from SAFE to the People’s Bank of China. It’s just like taking gold out of one pocket and sticking it in the other pocket. Then the People’s Bank of China publishes the new number and everybody says, “Oh, China got some more gold.” No, they didn’t. They had the gold all along. They were just keeping it in a place you couldn’t see and chose for political and market manipulation reasons to be transparent about how much more gold they added to the People’s Bank of China.

That said, the actual Chinese number is closer to 4000 tons. No one has the exact number because we have to use estimates from various sources, but they’re probably around 4000 tons, perhaps a little bit more.

In terms of closing in on the United States, there are two ways to think about that. One is absolute tonnage. If that’s your measure, they’re only halfway there since the United States has about 8000 tons. My estimate is that China has approximately 4000 tons, so they have about half the amount of gold as the United States has.

The other way to think about it is a gold-to-GDP ratio, and I think this is useful. Take your gold at the market and divide it by your GDP. The reason for that is if GDP is the size of your economy and gold is real money, then you’re asking yourself, “How much gold do we have to back up the economy? How much gold do we have to support a certain quantity of goods and services, a certain quantity of output? What’s the real money supply relative to the size of the economy?”

By that measure, China has caught up to the United States. They have about half as much gold as we do, but their economy is about half the size. On a gold-to-GDP ratio, those numbers are around 2%. They fluctuate because economies grow and the amount of gold changes, at least in the case of China. The numbers bounce around a little bit, but they’ve caught up to the US at about 2% of GDP.

Remember, the Chinese economy is growing a lot faster than the US economy, so it’s a moving target. Even if you caught up, you have to keep buying. If you stand still, you’re going to fall behind because your economy is growing faster, which means you have to buy more and more gold just to maintain the ratio.

Certainly if you want to catch up in tonnage and get to 8000 tons, which they probably do because they expect their economy will overtake the US in the not-too-distant future, they have to keep going and buy another 4000 tons, maybe more.

This is part of the scarcity dynamic we talked about earlier. There’s only so much total mining output in the world at about 2000 tons a year, give or take. With the Chinese out to buy 2000 tons a year, that’s 100% of the mining output in the world. There are a lot of other buyers out there not to mention jewelry, Indian brides, wedding rings, watches, and a lot of other things, so I think that tightness will continue.

The short answer is that China has caught up in gold-to-GDP but they have not caught up in absolute tons. It’s a moving target because their economy is growing faster, so they have to keep buying.

Alex:  From your experience and our experience in talking to and having conversations with the refineries over in Switzerland, we already know the huge amounts of gold that have been going over to China in recent years. In a yes-or-no answer, do you think the pace at which they’ve been buying is going to keep up?

Jim:  Yes.

Alex:  Very good. Jim, thanks so much for your time. We always appreciate it. Thank you to everyone who has participated in the webinar. We thank you for your questions and apologize that we couldn’t get to the rest of them. We encourage you to send questions in to info@PhysicalGoldFund.com. We’ll put them in the queue and hopefully get them answered in the next webinar. With that, I will turn it back over to Jon.

Jon:  Thank you, Alex, and thanks to you, Jim Rickards. I have to acknowledge the shortest ever Jim Rickards answer there! But we love your long answers – it’s always a pleasure and an education having you with us.

Most of all, thank you to our listeners for spending time with us today. Let me encourage you to follow Jim on Twitter. His handle is @jamesgrickards. Goodbye for now, and we look forward to joining you again soon.

 

Listen to the original audio of the podcast here

The Gold Chronicles: May 18th, 2016 Interview with Jim Rickards

 

Learn more about Jim Rickards new book, The New Case for Gold at http://thenewcaseforgold.com/

You can follow Alex Stanczyk on Twitter @alexstanczyk

You can follow Jim Rickards on Twitter @JamesGRickards

You can listen to the Gold Chronicles on iTunes at:
https://itunes.apple.com/us/podcast/the-gold-chronicles/id980027782?mt=2

You can Listen to the Global Perspectives on iTunes at:
https://itunes.apple.com/ca/podcast/physical-gold-fund-podcasts/id1056831476?mt=2

You can access transcripts of our interviews at:
http://physicalgoldfund.com/category/transcripts/

You can subscribe to our Youtube channel to access these interviews and more at:
https://www.youtube.com/channel/UCXRWzw0vaNgCwo7nTMEAwkA

 

By listening to this podcast or reading its associated transcript (collectively, this “Podcast”), you agree with the following.

This Podcast is not an offer to sell, nor a solicitation of an offer to purchase, any security. This Podcast is intended for general education and information purposes only, and may include broad discussions of markets, geopolitics, monetary policy, and geoeconomics. Nothing in this Podcast constitutes investment, legal or tax advice, nor an evaluation of or prospectus for any particular investment or market, including gold. This Podcast should not be relied upon to make any investment decision. You are encouraged to seek the advice of qualified financial, legal and tax advisors before making any investment decisions.

This material is provided on an “as is” and “as available” basis, without any representations, warranties or conditions of any kind. In particular, information provided by third parties in this Podcast has not independently evaluated or confirmed. Furthermore, we take no responsibility to update this Podcast to reflect any changes in any of the information presented. Physical Hard Assets Fund SPC and Physical Gold Fund, its officers, directors, employees or associated persons will not under any circumstances be liable to you or any other person for any loss or damage (whether direct, indirect, special, incidental, economic, or consequential, exemplary or punitive) arising from, connected with, or relating to the use of, or inability to use, this Podcast or the information herein, or any action or decision made by you or any other person in reliance on this information, or any unauthorized use or reproduction of this Podcast or the information herein.

 

The Gold Chronicles: May 18th, 2016 Interview with Jim Rickards

Jim Rickards, The Gold Chronicles may 18th, 2016

*The West is waking up to Gold
*Gold inflows have exceeded $13 Billion so far in 2016
*Paul Singer, Stanley Druckenmiller, Jeffrey Gundlach, George Soros all recommending gold
*Gold is the best performing asset for both 2016, as well as the last 16 years since 2000
*There has been a change in teh conversation and narrative about gold in the West
*Investors are losing confidence in Central Banks which is fueling the awareness about gold
*As we have discussed previously on The Gold Chronicles, the technical set up for gold to rise has been in place for some time, and was only awaiting a shift in Western sentiment
*PIMCO economist suggesting an official re-pricing of gold to defeat current deflation and reach Fed inflation targets
*Discussion of how open market operations by the Fed to raise the official price of gold would work
*Kenneth Rogoff is recommending developing economy countries to increase their gold reserves to 10% to diversify reserves composition
*Chief Economist BIS indicates the world monetary system is lacking an anchor – why we think this anchor could be gold
*Why a gold linked SDR could make sense as an international monetary system anchor
*Any attempts to re-anchor the monetary system to gold would require a non-deflationary USD gold price of $10,000 per troy ounce
*Feasability of using gold as an international unit of account today – even if all goods were measured in gold, it would likely require some kind of digital token to facilitate transactions
*No expectations of a Fed rate hike in June
*Detailing a scenario under which the gold price could go down significantly, and the probability of such an event
*Commentary on China’s gold reserves

 

 

Learn more about Jim Rickards new book, The New Case for Gold at http://thenewcaseforgold.com/

You can follow Alex Stanczyk on Twitter @alexstanczyk

You can follow Jim Rickards on Twitter @JamesGRickards

You can listen to the Gold Chronicles on iTunes at:
https://itunes.apple.com/us/podcast/the-gold-chronicles/id980027782?mt=2

You can Listen to the Global Perspectives on iTunes at:
https://itunes.apple.com/ca/podcast/physical-gold-fund-podcasts/id1056831476?mt=2

You can access transcripts of our interviews at:
http://physicalgoldfund.com/category/transcripts/

You can subscribe to our Youtube channel to access these interviews and more at:
https://www.youtube.com/channel/UCXRWzw0vaNgCwo7nTMEAwkA

 

By listening to this podcast or reading its associated transcript (collectively, this “Podcast”), you agree with the following.

This Podcast is not an offer to sell, nor a solicitation of an offer to purchase, any security. This Podcast is intended for general education and information purposes only, and may include broad discussions of markets, geopolitics, monetary policy, and geoeconomics. Nothing in this Podcast constitutes investment, legal or tax advice, nor an evaluation of or prospectus for any particular investment or market, including gold. This Podcast should not be relied upon to make any investment decision. You are encouraged to seek the advice of qualified financial, legal and tax advisors before making any investment decisions.

This material is provided on an “as is” and “as available” basis, without any representations, warranties or conditions of any kind. In particular, information provided by third parties in this Podcast has not independently evaluated or confirmed. Furthermore, we take no responsibility to update this Podcast to reflect any changes in any of the information presented. Physical Hard Assets Fund SPC and Physical Gold Fund, its officers, directors, employees or associated persons will not under any circumstances be liable to you or any other person for any loss or damage (whether direct, indirect, special, incidental, economic, or consequential, exemplary or punitive) arising from, connected with, or relating to the use of, or inability to use, this Podcast or the information herein, or any action or decision made by you or any other person in reliance on this information, or any unauthorized use or reproduction of this Podcast or the information herein.

 

Transcript of Jim Rickards – The Gold Chronicles April 15th, 2016

Jim Rickards, The Gold Chronicles April 15th 2016:

*The New Case for Gold has hit #1 in Business for Amazon Hard Cover, Soft Cover, and Audio – has hit #6 On the Wall Street Journal National Best Seller list
*What specifically makes gold best suited to be money from a physical and chemical perspective
*All forms of money are subject to the laws of physics, when measured side by side gold is superior
*Federal Reserve Bank of New York had $100M stolen from its accounts by cyber theft
*Details of the Shanghai Accord and its impact on Currency Wars and gold
*Deutsche Bank settling silver rigging charges will have little impact on prices
*Should citizens of countries with little or no gold reserves be concerned, and how should they factor this into personal wealth protection
*China is about to launch their Yuan denominated gold fix, this is a positive development and provides another venue to help China float the Yuan, and may have some impact on the physical market in the conversion of standard good delivery bars into the new kilo bar 999.9 fine standard

Listen to the original audio of the podcast here

The Gold Chronicles: April, 15th 2016 Interview with Jim Rickards

 

The Gold Chronicles: 4-15-2016:

Jon:  Hello, I’m Jon Ward on behalf of the Physical Gold Fund. We’re delighted to welcome you to the latest webinar with Jim Rickards in the series we’re calling The Gold Chronicles. Jim Rickards is a New York Times bestselling author and the Chief Global Strategist for West Shore Funds. He’s the former general counsel of Long-Term Capital Management and is currently a consultant to the U.S. Intelligence Community and Department of Defense. He’s also an Advisory Board Member of Physical Gold Fund. Hello, Jim, and welcome.

Jim:  Hi, Jon. How are you? It’s great to be with you.

Jon:  It’s good to be with you, too. We also have with us Alex Stanczyk, Managing Director of Physical Gold Fund. Hello, Alex.

Alex:  Hello, Jon. I’m glad to be here. These are exciting times we’ve got going on right now.

Jon: Indeed! Alex will be looking out for questions coming from you, our listeners, so let me say that your questions for Jim Rickards today are more than welcome. You may post them at any point during the interview. You’ll see a box on your screen for typing in your question, and as time allows, we’ll do our best to respond to you.

By the way, I’ll be announcing a special Q & A webinar with Jim at the end of this broadcast, so stay tuned for that.

Jim, your book, The New Case for Gold, has just been published, and you’re already garnering great reviews. What’s more, you’ve hit the number one spot of the money category on Amazon for all three formats:  hardback, Kindle and audio. Congratulations! And I believe you have some breaking news about the book for us.

Jim:  First of all, Jon, thank you very much for these kind words. As an author, I hope most of all that people read the book. I write it and hope it gets out there, and that seems to be exactly what’s happening. We’re getting good traction, good uptake. Amazon is about half the market. Independent booksellers are still a big part of the market, and we have really good relations with them in terms of distribution, but Amazon is the 500-pound gorilla. They break the books down by topic, fiction, non-fiction, and then many subcategories. There are a number of subcategories, specifically one called commodities, one called economic policy, another one called money and monetary policy, etc., and we hit number one in every one of those categories.

You can see those lists by going to the home page for The New Case for Gold on Amazon and scrolling down a little bit to see these rankings we’re talking about. Click on them if you’re interested, but we’re up against very heavyweight competition with other books out there in the categories I mentioned. For example, Mervyn King, for many years the governor of the Bank of England, has a new book. George Gilder, a brilliant thinker, a veteran of the Reagan revolution, and a very forward-leaning writer and analyst, has a new book on the current malaise in the international monetary system. Another heavyweight is Thomas Piketty with Capital in the Twenty-First Century. These are great authors and great books we’re up against, so to see The New Case for Gold ranked number one not just on the hardcover but for Kindle and the audiobook is very gratifying.

For fans of audiobooks – and I’m one of them since I do a lot driving – it’s nice to pop an audiobook on the Bluetooth and listen to it on the drive. This is the first one of my books where I’ve actually read the book myself. The other books, Currency Wars and The Death of Money, are available in audio versions, but they were read by professional voice actors. One of the things I’ve learned in this process is that these voice actors have their own fans and following, and people like certain readers over others, but this book is in my own voice

Reading this book myself was a very interesting experience. I spent two days in a studio with a really talented voice director – I call him the Stanley Kubrick of voice directors. He stopped me probably a thousand times and said things like, “Jim, I’m not hearing the ‘d’ in ‘started.’” He’s very big on enunciation, so I learned a thing or two in that process. I know that when I buy audiobooks, I like ones that are read by the author. Assuming they are able get through the recording process, I think only the author can get all the inflection and nuances just right, so that’s a nice plus.

Having said all that, yes, we do have some breaking news. I just learned an hour ago from my publisher that we have debuted on the Wall Street Journal business bestsellers list, and we’re number six for our first week, which is very gratifying. There’s a whole art or culture in the publishing industry. A lot of people throw the word “bestseller” around loosely, so it could simply mean they made one of the little subcategories on Amazon. That’s a great accomplishment for any author, but when you talk to the big publishers, as far as they’re concerned, there are only a couple of lists that matter. The Wall Street Journal is the largest circulation newspaper in the United States, possibly the world, and they’re very rigorous about how they monitor these things. This is not a subcategory; this is all the hardcover non-fiction in the world. To come out number six on the business list is very satisfying and makes us a national bestseller in addition to all the Amazon kudos.

I’m very pleased that Amazon allows peer review as well, so anybody can log on and say, “I liked the book,” or “I don’t like the book,” or whatever. They have a five star scale, and we have 4.7 stars. If that doesn’t sound like an A report card, trust me, it is, because nobody gets five stars. It only takes one negative voice to knock you off of a perfect 5.0. If you look at a lot of really well-known authors, celebrities, and others, many of them are in the two- to three-star category, which is good, but we’ve got 4.7 stars and a lot of five-star reviews on Amazon. This is coming from the voice of the everyday reader, not the book reviewer of the New York Times or the Wall Street Journal. It’s the people who actually buy the book, read it, and take the time to express their views, so we’re very happy with that.

Good traction, good sales of over 40,000 copies already sold in all editions – hardcover, Kindle, and audiobook – which is extraordinary. And we’re just getting started. The book has only been out a little over a week. April 5th was our launch date, so we’re just getting results from the first week of sales. That’s why all these announcements we’re talking about are coming in right now.

As an author, I’m very happy to see it, and I hope the readers enjoy The New Case for Gold. I know they are because of the feedback we’re getting. Again, I can’t thank you, Alex, and the Physical Gold Fund team enough, because this was a team effort. The book started from the podcasts like we’re doing now. Earlier episodes were the origin of the book, and we’ve put some new material in, because we always want to make it really fresh for the readers. There’s some new writing and new material in it, but it has its roots in this Physical Gold Fund podcast series, so I’m very happy with that as well. I could just say if it wasn’t for you, Alex, and the Physical Gold Fund team, this book wouldn’t exist, so thank you. I hope the readers enjoy it.

Jon:  Thanks, Jim, and congratulations again. The latest news from the Wall Street Journal is really fantastic. Those of you listening probably have your copy by now, but in case you don’t, go ahead and enjoy the book. It is very readable. We want your honest review, so add your voice to Amazon. It’s good to have that community there.

Jim, I’d like to ask you about one of the fundamentals you discuss in The New Case for Gold. It’s something you’ve talked about here several times, and that is your strongly held view that gold is not a commodity, not an investment; that gold is money.

For a moment, I’d like to take that principle as understood. My question is this:  There are lots of valuable commodities in the world we could use as a store of wealth and token of exchange and presumably as a unit of measurement. What is it about gold in particular that makes it suitable to serve as money, not just today, but indeed for the past several thousand years?

Jim:  It’s a great question, Jon, one of my favorites, and I get that question in many versions. I was a guest on CNBC’s Squawk Box one time on the set with Joe Kernen and Becky Quick. There’s nothing like live TV, because you’re really out there on the high wire! The anchors get a teleprompter, but I don’t, so I just have to sort of go with the flow.

I think Joe Kernen is a really good guy, a smart guy, but he has a reputation as a bit of a curmudgeon or someone who likes to play devil’s advocate. That’s probably good journalism, and it certainly makes for good TV. On this occasion I was talking about gold, and he said to me, “My wife collects ceramics.” I guess she is a potter who makes pottery and has a pottery collection. He said, “Why can’t we have a pottery standard? Why can’t my wife’s pottery be the monetary standard of the world?” In other words, a variation of the question you’re asking. I thought to myself, “Well, I hope you don’t drop it because then it breaks, and I hope it doesn’t rain because then it dissolves, and it wears out over time!”

There are lots of reasons why I think gold is money. To put a finer point on it, many people disparage reference to gold as a monetary standard almost because of it attractions. Gold is pretty attractive, it is a nice color. An interesting chemical fact I learned is that there is no substitute for gold if you want a true gold color, meaning if you want to gild or decorate something and you want it to look gold, you actually have to use some real gold because there’s no substitute. The logo on a Lexus automobile looks gold, but it’s really just anodized aluminum, and a lot of things that purport to be gold are really kind of a mustard color.

You cannot imitate the true color of gold without using a little bit of gold. It says something there that we find it attractive. That’s a plus to me, but that’s not the reason gold is the best form of money. To go back to the beginning of the question, why I say gold is not an investment:  gold is money, it’s as simple as that. My view happens to be the same as Pierpont Morgan’s who testified before Congress around 1908 and said, “Money is gold and nothing else, period.” To him, money was gold – or gold was money if you apply a transitive law – and he didn’t want to hear anymore about it. Everything else was sort of a token or a substitute, but gold was the only form of money, and I agree with that.

It’s one thing to have a view, but we have to live in the real world and make our investment decisions and portfolio allocations based on the reality we face. The truth is a lot of people think about gold as a commodity. It trades on commodity exchanges. When you hear about gold on Bloomberg, CNBC or Fox Business, they’re reporting from the commodity pits right next to sugar, cocoa, iron ore, copper, and other kinds of commodities, no question about that.

Gold is also frequently referred to as an investment. Although most investment advisors don’t like it, some do like it.  Our friend, Warren Buffet, one of the most successful investors of all time, never has a good word to say about gold. He doesn’t like it because it doesn’t have a yield. As I have explained, it’s not supposed to have a yield, because money doesn’t have a yield. If you want yield, you have to take risk. If I have an ounce of gold, I put it in a drawer, I go away for a year, I come back and open the drawer, I still have an ounce of gold. It didn’t go up, it didn’t go down, it didn’t shrink, it didn’t expand; it’s just there.

Take a dollar bill out of your wallet or purse and hold it out in front of you. What’s the yield? It’s zero. In other words, you’re holding a form of money. A dollar is money, certainly, and it has no yield. Bitcoin is a form of money and it has no yield. So Bitcoin, dollar bills, and gold have no yield. They’re not supposed to have a yield because they’re money. If you want a yield, you have to convert it into something else such as a bank deposit. People say, “I have money in the bank,” to which I reply, “You don’t have money in the bank. What you have is a bank deposit, which is an unsecured liability of an occasionally insolvent financial institution, so it’s not really money.”

I’m not saying pull all your money out of the bank, and I’m not saying don’t trust the system. What I am saying is don’t fool yourself. Anything other than physical possession is not money. Gold is money; that explains why it has no yield. Your question is, “Why gold? Why not copper, iron ore, other precious metals or other things that could possibly be money?”

I talk about this in chapter two of The New Case for Gold, and I quote the word of Professor Sella from the UK who did a fascinating interview. He’s a chemist who went through the periodic table of elements. I’m sure we all remember from our high school chemistry classes that the periodic table of the elements is a list and a chart that has every known element in the universe.

You might be outside, you might be at your desk, you might be at work, you might be home or you might be having a cup of coffee or looking up in the sky. Everything you see is composed of an element from the periodic table of the elements. They sometimes combine into molecules, the molecules take different forms and so forth, but it all comes down to the periodic table of the elements. There is nothing in the material world that’s not on that chart.

Professor Sella went through the chart and said, “Let’s just ask ourselves, could any of these things be money?” He said, “There are a bunch of gases like argon, oxygen, and hydrogen. Those are all elements, but they also float up in the sky.” Do you want money in the form of gas? Not very practical.

He then found another cluster including sodium and other elements that dissolve on contact with water. It’s bad enough that the central banks dissolve our currency, but we certainly don’t want our currency to disappear when it rains, so he said that whole category is not really suitable for money. Joe Kernen’s wife’s clay pots would fall into this category. Then Sella found a large category of elements that were radioactive including uranium, plutonium, radium and other elements. Well, we certainly don’t want money that has radioactivity and is going to give us cancer. The point is he systematically went through the entire periodic table of the elements.

I think there’s a new element they just discovered, by the way. When I was ready to send The New Case for Gold to the publisher, you have what’s called author’s page pass. It’s a last call like, “Okay, if you want to change anything, if there are any facts wrong, fix it now because this thing is going to the printers. Last call.” You can’t do big rewriting in that circumstance; you can only really do a little fact checking, change a word here and there. Literally a couple of days before I was doing the author’s page pass on The New Case for Gold, I saw some physics announcements that they had discovered new elements, so I had to go back to that page. I think there were 109 or so, and all of a sudden it was 118, so the book is completely up to date. When you get the book, you’re going to learn about the 118th element that was just discovered. A lot of them are super rare and can only be created in the colliders. The point being, you like your money to be rare, but not that rare. You don’t want the kind of money that only exists one time in the history of the universe and inside a Super Collider, so that’s no good.

It’s the same with base metals; copper corrodes, iron rusts – again, you don’t want money that’s going to rust, corrode, turn funny colors, or is exceedingly rare. Arsenic is another one that’s my favorite. Arsenic is poisonous, so for money, you don’t want things that are poisonous, radioactive, gaseous, or can only be found in Super Colliders. Through a process of elimination, he said there are just four elements that are really suitable for money given the fact that you don’t want it to rust or corrode, etc. They’re are called the noble metals:  gold, silver, platinum, and palladium. Those are the only four that don’t have all the disabilities we just mentioned.

Silver is a precious metal, but it does corrode a little bit on contact with air. You have to polish it every now and then, because it does corrode some. Gold does not. Gold is actually really hard to destroy. You can blow it up with dynamite, but all you do is scatter the gold molecules all over. They fall to the ground and eventually come back in the form of flakes or nuggets. You can’t get rid of gold, it’s literally impossible to destroy.

Gold is the only noble metal that’s golden in color. Silver, platinum, and palladium are kind of silverish or grayish depending on your pick. Platinum and palladium are almost too scarce. Again, you want it to be scarce, but not so scarce that you wouldn’t have a fairly steady increase. Although silver has a corrosive element to it, I’m not a silver-basher. I do have some silver although obviously I’m an advocate for gold. To me a box of 500 one-ounce American silver coins is like having flashlight batteries for a hurricane. If the power grid goes out and you can’t get to ATMs, gas station pumps don’t work, and credit card readers don’t work, etc., in that event, having a bunch of silver dollars in your pocket – pure silver, not the kind of fake silver dollars the U.S. government circulates, but real silver one-ounce coins from the mint – is a good type of emergency money to have.

Having said that, Professor Sella basically disqualified every single element except gold. The reason I am spending so much time on this is to make the point that gold-bashers like to disparage gold. They like to say, “Joe Weisenthal and Bloomberg say that gold is a shiny pile of rocks.” It’s not rocks, it’s metal, so you ought to get that right. You hear phrases like that all the time. They’re probably meant half in jest, but they’re very ill-informed, and I thought this survey of the periodic table shows why.

Basically, everything in the universe is not suitable for money, except for gold. It’s no coincidence that gold was money beginning 5,000 years ago in civilization. Beginning 2,500 years ago, rulers in the Middle East and present day Turkey (the Hittite Kingdom at the time) began to mint gold coins and put them into circulation. Even further back, in pre-history during a stage where humans existed in communities, we find gold ornaments. So it has always been valued, it has always been money, and it’s not a coincidence. There are very good reasons for it.

One last footnote:  People say, “Okay, fine, Jim. I hear you, but we used to drive around on horses and buggies, we used to travel on foot, we used to travel by sail, and today we have motorized ships, the Internet, automobiles, and airplanes, so maybe something was useful once upon a time, but get with it, this is the modern age. Things change and gold is really not suitable as money. We have central bank money, what’s wrong with that?”

I point out that that’s an interesting rhetorical flourish, but we still live in the material world, so what is your money in the bank? What is the money market fund? What is a share of stock traded on the New York stock exchange? It’s electrons. It’s essentially electrical charges stored on silicon chips. By the way, silicon is one of the elements in the periodic table of elements, so you haven’t escaped the material world.

Going digital or electronic does not mean ethereal; it just means you’re actually in a physical form on a server. You’re in the physical form of electronically charged particles stored on silicon chips and processed on silicon chips. Your so-called money, your money in the bank, your money market fund exists in physical form as electrons on silicon chips. Those can be hacked, erased, degraded, wiped out in power surges, and can be inaccessible in power outages. In other words, maybe in your imagination you think this is money, but you have not escaped the laws of physics.

On the other hand, gold cannot be hacked, erased or wiped out by North Korean, Russian, Iranian, Syrian, and Chinese cyber brigades, which do exist.

When I say things like this, people say, “Oh that will never happen.” Well, it was only a couple of weeks ago that the country of Bangladesh saw $100 million of its reserves disappear. Bangladesh is one of the poorest countries in the world, but they do have some reserves that are principally the country’s savings from some trade surpluses. Where did they put this money? It was on deposit with the Federal Reserve Bank of New York. It wasn’t some off-the-run, cheesy bank in Sri Lanka, Bangladesh, or India that we’ve never heard of. It was on deposit at the Federal Reserve Bank of New York, arguably the safest bank in the world.

The board of governors in Washington is just a board. There is no bank in Washington. The Federal Reserve System is organized as 12 privately owned regional reserve banks, and the Federal Reserve Bank of New York is the biggest and the strongest. I’ve been there many times, and their offices are in a renaissance-style fortress. If you go to the Federal Reserve Bank of New York between Maiden Lane and Liberty Street in Lower Manhattan, it’s a fortress that looks like something out of the Medici era. It’s the strongest, richest bank in the Federal Reserve System, which arguably is the most powerful central bank in the world. That’s where Bangladesh had their money, and $100 million disappeared. If Bangladesh had had gold, it would still have the money.

I get it when people say, “Hey Jim, what’s wrong with you? Are you a technophobic? Aren’t you with the modern age?” but I also understand the fact that no matter what you say, you cannot escape the material world. When you look at the material world – as I explain in chapter two of The New Case for Gold – gold still looks like the best form of money.

Jon:  Thanks, Jim. Let me turn our attention for a moment to the currency wars. You have written recently about the so-called Shanghai Accord. As I understand, it’s a deal put together on the sidelines by the G20 at the end of February this year. It seems that this was an attempt to help China devalue the yuan without panicking the world’s stock markets. Would you tell us about the Shanghai Accord and what it means for the currency wars?

Jim:  I’d be glad to. It’s one of my favorite topics, and I’ve been writing and speaking quite a bit about it. I’ll be speaking to an investor conference here in Carlsbad, California, in a couple of hours on this.

The G20 operates at several levels. They have what they call the Leaders’ Summit where President Obama, President Xi of China, Angela Merkel as Chancellor of Germany, and actual heads of state or leaders, as the case may be, would show up. That’s taking place in Hangzhou, China, on September 4th. They also have meetings throughout the year for central bankers, finance ministers, and what they call sherpas who are technical experts who brief the central bankers, etc.

The G20 central bank and finance ministers’ meetings were held on February 26th in Shanghai, China. They have a formal agenda and a final communiqué that are publicly available, but the real action at these meetings is on the sidelines – private dinners, private conferences, maybe a chat in the back seat of a limo, etc. I’m in California now, but I just arrived here last night from Washington DC where I attended the IMF (International Monetary Fund) spring meetings. The IMF have two big meetings in the year, one in the fall and one in the spring, and this was their spring meeting. The G20 meet on the sidelines of the IMF, so the IMF is almost a clubhouse or a platform for the G20.

For those who don’t know, the G stands for ‘group,’ so G20 is a group of 20 nations including the major developed economies such as the United States, Germany, France, Italy, UK, Australia, Canada, and some others. It also consists of the major emerging markets or developing economies including all the BRICS:  Brazil, Russia, India, China, South Africa, Argentina, and some others. The funny thing is it’s not quite the G20. I call it “the G20 and friends,” because they usually invite a couple of other nations to join them, so it’s kind of like a floating G23 or G24, but they call it the G20.

They’re really running the world right now as the board of directors of the international monetary system, but they don’t have any permanent secretariat or staff, so they use the IMF as their platform. The G20 meets, but then they turn to the IMF and say, “Look, we need you to do this research, we need you to do this policy, we need you to do this program,” etc. They work together hand-in-glove. The IMF spring meeting this week that I just left includes G20 meetings on the sidelines. There’s going to be a G20 press conference tomorrow, Saturday, that’s probably worth a look.

The February 26th meeting in Shanghai was central banks and finance ministers only, and they cooked up what I call the Shanghai Accord. That’s a reference back to the Plaza Accord. For aficionados of the currency wars and international monetary system, the Plaza Accord was a 1985 meeting that took place at the Plaza Hotel in New York (hence the name) designed to weaken the dollar.

Back in 1977, the dollar was so weak that nobody wanted it, so weak that the United States Treasury – believe it or not – issued treasury bonds denominated in Swiss francs. Can you imagine that? Nobody wanted dollars, so the Treasury had to borrow money in Swiss francs, because people said, “Yes, I’ll trust the Swiss franc. I don’t want your cheesy dollars.” That’s how bad things were in ’77.

By 1981, things had completely reversed. This was the era of King Dollar orchestrated by Paul Volcker and Ronald Reagan. Volcker said, “We’re going to defend the dollar, whatever it takes,” and he took interest rates to 20%. He said, “You don’t want dollars at 10%? How about 11%? How about 12%? How about 13%? How about 15%? How about 16%? 18%?” He kept going until he got to an interest rate where people said, “Yes, I’ll take some dollars at 20%. Bring it on.” In 1980, you could buy 30-year treasury bonds that yielded 15%. Can you imagine if you had gone out and bought a 30-year treasury bond in1980? From 1980 to 2010 (30 years), you would have had a 15% annual return on a treasury bond. We’re not talking about junk bonds here. Some smart people did that.

That’s how bad things were, but Volcker turned it around. And then Reagan cut taxes, cut regulation, and the U.S. economy took off like a rocket. Well, mission accomplished. The dollar completely turned around from the lows of 1977 to an all-time high. The all-time high for the dollar on major indices was 1985. By then James Baker was the Secretary of the Treasury and the dollar was too strong. It was killing exports, killing corporate earnings, etc.

At that time it was the G7. In 1985, emerging markets were not on the radar screen. China had potential, but Russia was still under communism that didn’t end until 1990. And so it was the G7 – really the European countries, Canada, the U.S. and Japan. They orchestrated a decline in the dollar, and it worked. It was a coordinated, foreign currency market intervention by the major central banks to weaken the dollar because they felt the dollar was too strong, and it worked. Flash-forward to 2016 to when something very similar happened in Shanghai, so I call it the Shanghai Accord. Again, a reference back to the Plaza Accord.

I’ll get to the solution in a minute, but first I want to describe the problem. What problem were they trying to solve? The evidence is everywhere that the Chinese economy is coming in for a hard landing. I don’t want to turn this into a presentation on China economics, and I think you have seen that their GDP continues to decline, but it’s worse than that. For the first time they have a serious unemployment problem, so GDP is not the main event. The main event is jobs, jobs, jobs, because they’re communists. What legitimacy do they have? The answer is none, but if they can create jobs, then people will go along with the system. The minute the job machine starts to stall, people become discontent. They lose what’s called the Mandate of Heaven, a thousands-year-old Chinese concept. Even communists can lose the Mandate of Heaven, consequently things are pretty bad over there. They’re the second largest economy in the world, so if China goes down, they take the world with it.

That was already happening, so China needed some relief in the currency wars by cheapening the currency. Now the last two times China tried to cheapen the currency, they sank the U.S. stock markets. We came very close to a global financial panic and meltdown of the order of 2008. What were these incidents? On August 11, 2015, China did a shock devaluation – 3% overnight. What happened between August 11th and August 31st last summer? The U.S. stock market sank like a stone. It crashed. Just ask yourself where you were on August 31, 2015. Maybe you were on vacation or taking the kids back to college. You could have been doing a lot of things, but we were staring into the abyss. Remember how scary it was? That was the reaction of the U.S. stock market to the Chinese devaluation.

Although the Fed had originally hoped to raise rates in September, they came out and decided not to raise rates in September. They started the happy talk and the dovish talk, and they were turning things around, so the market said, “Okay, they’re not raising after all.” The markets rallied and came back, but that was a very scary episode.

The next time China tried to devalue, they didn’t do the overnight 3% thing, they did it in baby steps in December 2015 and early January 2016. What happened? The U.S. stock market crashed again. From January 1 to February 11, 2016, we had a full-blown correction, down 10%. Again, it looked like we were staring into the abyss and again the Fed came to the rescue with happy talk. When Dudley gave a speech, the Fed made it clear they weren’t going to raise rates in March even though the market had expected it to. The market came back, but we had two death-defying plunges of the stock market rollercoaster in response to two Chinese efforts at devaluation. China needed to devalue to boost their economy, but every time they devalued, the U.S. stock market sank. So how could China devalue without sinking the U.S. stock markets? That was the problem.

What they came up with is a very clever finesse and it turns on the fact that there are more currencies in the world than the Chinese yuan and the U.S. dollar. Everyone focuses obsessively on the cross-rate between the Chinese yuan and the US dollar – the trading symbol CNY/USD – that’s Chinese yuan/US dollar. When the yuan goes down against the dollar, U.S. stock markets crash, so what they said was, “Let’s do the following:  Instead of the Chinese doing anything, let’s have the Chinese do nothing and let’s strengthen the euro, strengthen the yen, and weaken the dollar but keep the yuan/dollar cross-rate unchanged. That way, nobody will notice.”

Europe and Japan together have a larger trading relationship with China than the U.S. In other words, if you could cheapen the yuan against the euro and the yen, arguably you would get more relief than cheapening it against the dollar. Furthermore, if you could cheapen the dollar and maintain the peg, China would go along for the ride. You would get a weaker yuan without changing the cross-rate, because the dollar itself is getting weaker. The playbook was to strengthen the euro, strengthen the yen, cheapen the dollar, China does nothing, no one notices, the cross-rate’s unchanged, but China gets a major devaluation. That is exactly what happened.

I mentioned this meeting was February 26th, so what was the timeline or sequence of events? Literally a matter of days. On March 10th Draghi tightened European policy. People say, “Wait a second. He pushed interest rates 10 basis points further into negative territory and did 10 billion more of euro QE. How is that tightening?” The answer is, that’s exactly what the market expected. In fact, that was the low end of what the market expected. The market was expecting 10 and 10 or 10 billion of more QE and 10 basis points of more negative rates. That was already priced in, but then Draghi shocked the markets by saying, “I’m done,” i.e., “I’m doing 10 and 10, but I’m not doing any more.” That was not expected. The way central banks manipulate behavior these days is not by changing rates or QE but by changing policy relative to expectations. In other words, if expectations are for more ease and you say, “No more ease,” then that’s tightening relative to expectations, and that’s what Draghi did.

Four days later, Kuroda (Governor of the Bank of Japan) comes out. People expected more easing and didn’t get it because he didn’t tighten. It’s not like he reduced the money supply, but they were expecting him to increase the money supply and he said no. That’s tightening relative to expectations. So we had a tighter European policy, the euro went up, tighter Japanese policy, the yen went up, then March 16th was Yellen’s turn. The Fed did not raise rates, but the markets expected that. Then she gave a very dovish press conference, and the market said, “It looks like you’re not going to raise rates for a long time, and that’s called forward guidance.”

Come ahead to March 29th when Yellen gave a full dove speech to the Economic Club of New York. I mean she sprouted wings and was flying around the room like a dove. She completely reversed her position from 2015 where she had fought with Charlie Evans, the President of the Federal Reserve Bank of Chicago. Evans is the author of the asymmetric theory that said, “Look, we don’t really know what we’re doing,” which is a pretty honest evaluation. I’ve spoken to a lot of Fed insiders, and privately they say, “We don’t know what we’re doing with this, it’s just an experiment.” Evans said, “We don’t know what we’re doing, but the risks are asymmetric.”

To put it another way, if we don’t raise rates and we’re wrong, it’s easy to raise them in the future. He was saying that if we get a little inflation, we know how to snuff out inflation, but if we do raise rates and we’re wrong and we create deflation, we don’t know how to cure that. We know how to fix inflation, but don’t know how to fix deflation; therefore, if we do nothing and we’re wrong, we can fix it, but if we raise rates and we’re wrong, we can’t fix it. The risks are asymmetric in favor of doing nothing.

Yellen fought him intellectually all of 2015. Her position was, “No, I’m looking at the Phillips Curve. When labor markets get tight, inflation’s right around the corner. Monetary policy acts with a lag. We have to look over the horizon. We don’t want to be behind the curve. I want to raise rates.” There’s another concept called NAIRU – the non-accelerating inflation rate of unemployment. She was using her models to say you’re supposed to raise rates, while Evans was using a very sophisticated but easy to understand risk model that said you shouldn’t raise rates, and they fought all year.

All of a sudden on March 29th Yellen adopts Evans’ position and actually used the word “asymmetric” in the speech and gave him a footnote. (At least she gave him some intellectual credit!) So Yellen goes full dove, full Evans, and the dollar just crashed, and the yen is screaming, the yen’s going up, the euro’s going up, the dollar’s going down.

This whole time China maintained the peg to the dollar, but with the dollar going down and the euro going up and the yen going up, what’s happening to the yuan? It’s devaluing, it’s depreciating a lot. This was a great finesse. China got the devaluation, nobody noticed, and U.S. stock markets did not crash. This is the Shanghai Accord.

The significance of it is that this is going to continue. This is a major shift in the currency wars. When these things happen, they’re not day trades; they go on for two or three years. We had the weak yen from December 2012 when they announced Abenomics, and a weak yen was one of the arrows of Abenomics, that lasted until March 2016. That was not quite three and a half years of weak yen. The weak euro started in June 2014 with negative interest rates and then got a boost in January 2015 with euro QE, so that’s almost two years of weak euro.

That’s now turned around. We’re going to the strong euro and the strong yen. This is what currency wars are all about. They don’t have any logical conclusion, they just go back and forth and back and forth. It’s like two kids on a seesaw – one’s up and one’s down. They push and the one that was down goes up and the one that was up goes down, but they can’t go anywhere, they can only go up and down. That’s the thing with currencies, they don’t go to zero until you end up like Zimbabwe, which we’re probably heading for but we’re not there yet. Meanwhile, they just go back and forth and back and forth. We can see the yen going to 100, we can see the euro going to 1.20, and we’re in for a period of weak dollars. The weak dollar phase is going to persist.

What does that have to do with gold? It has a lot to do with gold. The all-time high for gold was August 2011 at $1,900 an ounce. August 2011 was also the all-time low for the dollar. I said that early 1985 was the all-time high and that gave rise to the Plaza Accord, but August 2011 was the all-time low. It’s no coincidence that gold hit an all-time high in dollar terms the same month that the dollar hit an all-time low on the index. After all, the dollar price of gold is just the reciprocal of the dollar. If you have a weak dollar, you have a high dollar price for gold and if you have a strong dollar, you have a low dollar price for gold .

If we’re at a stage where the dollar has peaked, which we are, and the dollar is going to get weaker, which it is as I just explained because of the Shanghai Accord, then that means the dollar price of gold is going to go way up. This is an excellent technical set-up for gold. There are some physical shortages as well. My advice to investors is to get your gold now. Don’t wait until it starts to scream, because you may go out at that point to get gold and realize that you can’t find it.

Jon:  Thanks, Jim, for a very full answer to that question. Now over to you, Alex. What questions do you have today from our listeners?

Alex:  Thanks a lot, Jon. I’d like to make a couple of quick comments. First of all, Jim, regarding the discussion we had just a moment ago about physics and chemistry reasons as to why gold makes sense as money. I’ve been in this industry, and when I say “this industry” I mean the physical gold industry, for approaching a decade now, and that is perhaps the best explanation on the issue that I have ever heard. Thank you for that.

Secondly, we have someone asking about the audiobook version. As you have already mentioned, it’s available on Amazon. I ordered that myself and am looking forward to listening to that on the plane while going over to New York next week for the book launch celebration.

Third, there’s a question coming in from C.M. about Physical Gold Fund’s version of the book. “Will Physical Gold Fund’s version be the same as the Strategic Intelligence version?” The answer is no. The Physical Gold Fund version is going to be unique in that it contains an exclusive entry from Jim and material from myself.

For those of you who are submitting questions, we’re always very thankful for your questions. You may send them by e-mail to info@physicalgoldfund.com, you can ask them directly live on the webinar if you like, and you can also use Twitter with the hashtag #askJimRickards. If you’re going to send them by e-mail, try to send them a couple of days early so we can properly sort through these.

Our first question is coming in live from Elizabeth M. who asks, “As you may know or have heard, Deutsche Bank has agreed to settle the lawsuit against them for rigging the silver benchmark along with a couple of other banks. Do you have any comment on this bank silver rigging settlement, and what impact do you think this might have on prices in the short and long term?”

Jim:  It’s really newsworthy and is an important admission. I don’t think by itself it’s going to have a big impact on prices, and let me explain why. First of all, there’s no doubt that the gold and silver markets are being manipulated. I talk about this in the book The New Case for Gold and explain how and why it’s done, who’s behind it, etc. There is absolute manipulation going on, but this particular manipulation that Deutsche Bank admitted to is not the same manipulation I describe in the book. What I’m focused on are sovereign nations like China and the United States occasionally slamming the market and manipulating the price lower for geostrategic reasons. China is out to acquire 3,000 more tons of gold. That’s a huge amount,  almost 10% of all the official gold in the world. Anyone who’s been involved at all with the physical side of the gold market, as you have, Alex, knows how it is. Good luck buying 100 lbs of gold let alone 3,000 tons, which is what we’re talking about.

China has a big interest in keeping the gold price low because they’re still buying. If you were buying, you would want a low price also. Ultimately, the price would go much higher, but in the short run they want to keep it under control so they can keep buying up behind the scenes. The kind of manipulation Deutsche Bank did was really just frontrunning or good old-fashioned stealing from customers, which banks are very good at as we know. If I’m sitting there on the phone fixing the price of gold or silver – it was silver in this particular case – and I know what my customer order book is and what the wholesale market is, and I buy some for myself, bid up the price, then fill all my customer orders at the higher price, and then I dump my own silver at a higher price and make a quick garbage trash profit, this is not about stockpiling gold and cornering the market or other kinds of things that a lot of commentators dwell on ad nauseam.

I’m not saying that doesn’t go on with silver, but it’s much less important than what goes on in the gold market. I’m glad that justice was done and that Duetsche Bank paid a fine. I think it’s illuminating about the lack of ethics by banks which is one more reason to have physical gold and not rely on the banking system. It is a good development, but it was kind of known a year ago and it takes a year to settle these cases. Of course, they always settle them on Fridays because they figure everyone’s getting away early for vacation or whatever, so I don’t think it’s that big of a deal. It’s not as if it’s the end of some big conspiracy. The conspiracy still lives, and as I say, this is more of a frontrunning case, kind of small potatoes. I’m glad this happened, but I don’t think it’s going to have that big of an impact on the price.

Alex:  I happen to agree with you from our view. While they may be able to impact the price on a short-term basis, the overall forces in the market that we’re looking at moving forward are absolutely tremendous. I don’t think any bank is going to be able to stand in the way of that. It’s going to be like trying to stand on a railroad track stopping a freight train if they attempt to.

The next question is coming in by e-mail from Chris S. This person is Canadian, so they’re asking from a Canadian perspective, but the question may also apply to citizens of any country that has very little gold. It is a two-part question:  “How exposed are Canadians to the future of the monetary reset considering the Bank of Canada has no more gold? And in light of this, should Canadians consider allocating more than 10% of gold in their portfolio?”

Jim:  I would separate the status of countries relative to official gold from the investment or allocation decisions of individuals with regard to their specific portfolios.

I stick to the 10% but want to make it clear, that’s a judgement. I write about this and talk about this all the time, and I take my responsibility seriously. If I say something or recommend something and people follow it, I may not know who they are, but I really take it to heart. I would not be able to sleep at night if I thought I was proposing something and somebody was hurt or disadvantaged by it. We all know that gold can go up and down. I could give you some scenarios where it could go down a lot, but that’s the origin of the 10% allocation. If you have 10% of your portfolio in gold and it goes down 20%, which I don’t expect, but just say it does, the portfolio impact is 2%. In other words, it’s 20% of 10%, which is 2% of your entire portfolio. With a 10% allocation and a 20% crash, you’re going to take a 2% hit on your portfolio. At two percent, no one is going to get hurt by that, because it also probably means that other things are going up so your portfolio is just fine. If you put 100% in gold and it goes down 20%, now you’ve lost 20% of your wealth. That’s what happened to people who were in stocks in 2008, they lost 50% of their wealth because that’s how much the markets went down.

A lot of commentators and bloggers and, candidly, trolls, love to put words in your mouth. They say things like, “Jim Rickards says sell everything and buy gold and look what happens and all that.” I’ve never said that and I don’t recommend that. That’s why I stick with my 10% because if I’m wrong, nobody is going to get hurt badly and if I’m right, it’s going to go up two, three, four, times and you’re going to make a significant amount of money. That is your insurance on what else is happening in your portfolio which may not be good depending on your allocation. That’s where I get the 10%.

Having said that, it’s a judgement that’s subjective. There’s no iron law of allocation. I have clients who have 50% of their assets in gold. I tease them and say, “Look, you didn’t get that from me, but it’s a free country. If that’s your comfort level, then good for you.” Some of these clients are very wealthy, so it’s not as if they’re hardship cases, so to speak.

I leave it to each individual. I respect individuals’ allocations, but to the extent I’m going to recommend anything, I stick with the 10% because that’s the level where I know investors will do well when the price skyrockets and I know they won’t get hurt if it goes the other way. I would stick with that whether you live in Canada, Switzerland, the U.S. or Singapore.

As far as Canada is concerned, it’s an interesting case. It’s kind of a little nutty, because officially they have no gold. By one report they were down to 77 ounces. I know lots of people who keep that much in a desk drawer. It’s $100,000 at current prices, so it’s not pin money, but it’s not as if we’re talking about billions of dollars here. Canada essentially has no gold officially, but they are one of the five largest gold producers in the world. The private sector in Canada produces approximately 200 tons a year, which is a significant amount of all the gold that’s produced in the year which is a little over 2,000 tons. And they have a lot of gold reserves in the ground, so I guess the government of Canada could always expropriate that. They could always seize it if they ever needed the gold.

To me, the real impact of it is considering when the international monetary system collapses. I do expect that, and it’s not some out-of-the-blue dire forecast. It has collapsed three times in the last 100 years. These collapses do happen every 30 to 40 years, so the major powers have to sit down around a table and reform the system. Canada is not going to have a seat. It’s going to be like one of those board rooms where the powerful directors sit at the table and the minions sit against the wall in little chairs. Canada is going to be against the wall. The people at the table are going to be the United States with 8000 tons, Europe led by Germany with 10,000 tons, Russia with now approaching 2000 tons, France and Italy at 2000 tons each included in the European 10,000 tons, and China with some number we have to estimate but probably 4000 tons, maybe a lot higher when all is said and done. They’re going to have the seats at the table while countries like the UK, Canada, Australia, Brazil, and many others are going to be sitting against the wall.

It just means that Canada will be tagged along with the U.S. They’re going to have to rely on the U.S. to cut a good deal. Of course the U.S. will cut a good deal for the U.S. and it may or may not be a good deal for Canada, but Canada’s just not going to have a seat at the table. Canada’s official weakness doesn’t change my view as to what individuals should do.

Alex:  I think a lot of people are going to appreciate that answer, Jim. Our next comment is coming in from Chris M.:  “Just to let you know, Mr. Rickards, I just ordered your book from Amazon.” So thanks, Chris.

Jim: Thank you very much!

Alex:  Next we have another question that is going to be the last one because we’re running out of time. This comes in from HBK Bangalore, and the question is, “China is about to launch a yuan-denominated gold fix. What impact do you think this is going to have on the physical supply/demand scenario?”

Jim:  I think it’s a very big deal. By itself, is that the end of the U.S. dollar? No. That story has some ways to run. There are many, many developments around the world and this is one of them. It’s not the only one when I look at Russia’s acquisition of gold, China’s acquisition of gold, and even the physical gold standard. Alex, you know this very well as we have been to Switzerland in the vaults and hefted those 400 ounce gold bars in our hands. They’re beautiful to look at, but they’re heavy. It’s like lifting a 35 lb. free weight.

China has changed the standard for what physical gold is. Prior to China’s emergence, it was a 400-ounce good delivery bar of 99.9% purity. The new Chinese standard is a 1-kilo bar of four nines quality – that’s 99.99% pure – so smaller at 2.2 lbs. instead of 35 lbs. In that sense it’s more mobile and maybe more practical. A lot of the refining in Switzerland today consists of taking these old 400-ounce bars of  two-nine quality, melting them down, and turning them into 1-kilo bars of four-nine quality. That’s the new gold standard.

China’s taken that several steps further with a physical gold exchange, a gold futures exchange, and are now going all the way to nominating it in yuan. So where does that go? The next step would be for the yuan and the SDR to become benchmark currencies for gold and not the dollar. If you want to manipulate the gold market, where do you go? Do you go to New York? Do you go to Shanghai? Do you go to London? It just gets more and more difficult to use the dollar and to use a single market, namely the COMEX closing price, every day to manipulate markets.

The more exchanges, the more venues, the more currencies, the more standards you have, it gets to be like herding cats. The cats run in all different directions and they don’t listen to you. It’s all part of China’s understanding that gold is money, which is where we started the podcast, gold is money. If you want to control money, you need to control gold. They’re taking very large steps in that direction, so I think it’s a very important development. By itself, is it the end of the dollar? No, but it’s a big step in that direction.

Alex:  Outstanding. Thanks a lot, Jim. That wraps up our time for today. We want to thank everybody for their questions. We’re going to be doing an all Q & A webinar the next time around coming up in May, and Jon has some more details for you. With that, I’m going to turn it back over to Jon Ward.

Jon:  Thank you, Alex. We’ve heard from you listeners that you’d like to do more Q & A with Jim, so we’ve set aside our next podcast on the 18th of May to do that. We’d love to have your questions. To make the most of this, we ask you to send your questions in advance. As Alex mentioned, you may e-mail us at info@physicalgoldfund.com. We’d like to give the session a bit of a focus, so we’re especially looking for your questions that arise from Jim’s latest book, The New Case for Gold, so grab a copy and send us your questions at info@physicalgoldfund.com.

Now let me say thank you to Jim Rickards. It has been another really extraordinary conversation with you. It’s always a pleasure and an education having you with us. And most of all, thank you to our listeners for spending time with us today. Let me encourage you to follow Jim on Twitter. His handle is @jamesgrickards.

Goodbye for now, and we look forward to joining you again soon.

 

Listen to the original audio of the podcast here

The Gold Chronicles: April, 15th 2016 Interview with Jim Rickards

 

Learn more about Jim Rickards new book, The New Case for Gold at http://thenewcaseforgold.com/

You can follow Alex Stanczyk on Twitter @alexstanczyk

You can follow Jim Rickards on Twitter @JamesGRickards

You can listen to the Gold Chronicles on iTunes at:
https://itunes.apple.com/us/podcast/the-gold-chronicles/id980027782?mt=2

You can Listen to the Global Perspectives on iTunes at:
https://itunes.apple.com/ca/podcast/physical-gold-fund-podcasts/id1056831476?mt=2

You can access transcripts of our interviews at:
http://physicalgoldfund.com/category/transcripts/

You can subscribe to our Youtube channel to access these interviews and more at:
https://www.youtube.com/channel/UCXRWzw0vaNgCwo7nTMEAwkA

 

By listening to this podcast or reading its associated transcript (collectively, this “Podcast”), you agree with the following.

This Podcast is not an offer to sell, nor a solicitation of an offer to purchase, any security. This Podcast is intended for general education and information purposes only, and may include broad discussions of markets, geopolitics, monetary policy, and geoeconomics. Nothing in this Podcast constitutes investment, legal or tax advice, nor an evaluation of or prospectus for any particular investment or market, including gold. This Podcast should not be relied upon to make any investment decision. You are encouraged to seek the advice of qualified financial, legal and tax advisors before making any investment decisions.

This material is provided on an “as is” and “as available” basis, without any representations, warranties or conditions of any kind. In particular, information provided by third parties in this Podcast has not independently evaluated or confirmed. Furthermore, we take no responsibility to update this Podcast to reflect any changes in any of the information presented. Physical Hard Assets Fund SPC and Physical Gold Fund, its officers, directors, employees or associated persons will not under any circumstances be liable to you or any other person for any loss or damage (whether direct, indirect, special, incidental, economic, or consequential, exemplary or punitive) arising from, connected with, or relating to the use of, or inability to use, this Podcast or the information herein, or any action or decision made by you or any other person in reliance on this information, or any unauthorized use or reproduction of this Podcast or the information herein.

The Gold Chronicles: April, 15th 2016 Interview with Jim Rickards

Jim Rickards, The Gold Chronicles April 15, 2016

*The New Case for Gold has hit #1 in Business for Amazon Hard Cover, Soft Cover, and Audio – has hit #6 On the Wall Street Journal National Best Seller list
*What specifically makes gold best suited to be money from a physical and chemical perspective
*All forms of money are subject to the laws of physics, when measured side by side gold is superior
*Federal Reserve Bank of New York had $100M stolen from its accounts by cyber theft
*Details of the Shanghai Accord and its impact on Currency Wars and gold
*Deutsche Bank settling silver rigging charges will have little impact on prices
*Should citizens of countries with little or no gold reserves be concerned, and how should they factor this into personal wealth protection
*China is about to launch their Yuan denominated gold fix, this is a positive development and provides another venue to help China float the Yuan, and may have some impact on the physical market in the conversion of standard good delivery bars into the new kilo bar 999.9 fine standard

 

 

Learn more about Jim Rickards new book, The New Case for Gold at http://thenewcaseforgold.com/

You can follow Alex Stanczyk on Twitter @alexstanczyk

You can follow Jim Rickards on Twitter @JamesGRickards

You can listen to the Gold Chronicles on iTunes at:
https://itunes.apple.com/us/podcast/the-gold-chronicles/id980027782?mt=2

You can Listen to the Global Perspectives on iTunes at:
https://itunes.apple.com/ca/podcast/physical-gold-fund-podcasts/id1056831476?mt=2

You can access transcripts of our interviews at:
http://physicalgoldfund.com/category/transcripts/

You can subscribe to our Youtube channel to access these interviews and more at:
https://www.youtube.com/channel/UCXRWzw0vaNgCwo7nTMEAwkA

 

By listening to this podcast or reading its associated transcript (collectively, this “Podcast”), you agree with the following.

This Podcast is not an offer to sell, nor a solicitation of an offer to purchase, any security. This Podcast is intended for general education and information purposes only, and may include broad discussions of markets, geopolitics, monetary policy, and geoeconomics. Nothing in this Podcast constitutes investment, legal or tax advice, nor an evaluation of or prospectus for any particular investment or market, including gold. This Podcast should not be relied upon to make any investment decision. You are encouraged to seek the advice of qualified financial, legal and tax advisors before making any investment decisions.

This material is provided on an “as is” and “as available” basis, without any representations, warranties or conditions of any kind. In particular, information provided by third parties in this Podcast has not independently evaluated or confirmed. Furthermore, we take no responsibility to update this Podcast to reflect any changes in any of the information presented. Physical Hard Assets Fund SPC and Physical Gold Fund, its officers, directors, employees or associated persons will not under any circumstances be liable to you or any other person for any loss or damage (whether direct, indirect, special, incidental, economic, or consequential, exemplary or punitive) arising from, connected with, or relating to the use of, or inability to use, this Podcast or the information herein, or any action or decision made by you or any other person in reliance on this information, or any unauthorized use or reproduction of this Podcast or the information herein.

Transcript of Jim Rickards – The Gold Chronicles March 15th, 2016

Jim Rickards, The Gold Chronicles March 15th 2016:

*Cyber financial warfare is a new factor that did not exist in 1980
*Fed balance sheet has a foundation of marked to market gold
*The Fed has a gold certificate issued to it by Treasury that is valued at the entire US Treasury gold position calculated at $42.20 per ounce
*Audio version of the new book read by Jim will be available on Amazon
*Expecting gold price to rise in all currencies
*Major central banks are acquiring gold, which will be the chips at the poker table when the monetary system is re-negotiated. Japan, UK, Australia will rely on the US position
*The non-deflationary price of gold under a new gold standard would be $10,000 per ounce or higher
*Expecting near zero interest rates for an extended period of time
*Windfall tax on gold would require an act of Congress – no expectation this is likely, if it happened there would be plenty of advance warning and time to reposition a portfolio

Listen to the original audio of the podcast here

The Physical Edge Episode 3: March 2016 Interview with Alex Stanczyk

 

The Gold Chronicles: 3-15-2016:

Jon:  Hello, I’m Jon Ward on behalf of Physical Gold Fund. We’re delighted to welcome you to the latest webinar with Jim Rickards in the series we’re calling The Gold Chronicles. Jim is a New York Times bestselling author and the chief global strategist for West Shore Funds. He’s the former general counsel of Long-Term Capital Management and is a consultant to the US Intelligence Community and the Department of Defense. He’s also an advisory board member of Physical Gold Fund.

Hello, Jim, and welcome.

Jim:  Hi, Jon. How are you?

Jon:  Just great, thanks. It’s good to have you on board here. We also have with us Alex Stancyzk, Managing Director of Physical Gold Fund.

Hello, Alex.

Alex:  Hi, Jon. It’s great to be here for another Physical Gold Fund Gold Chronicles podcast.

Jon:  Alex will be looking out for questions that come from you, our listeners. Let me just say that your questions for Jim Rickards today are more than welcome. You may post them at any point during the interview. You’ll see a box on your screen for typing in your question, and as time allows, we’ll do our best to respond to you. By the way, we’re making an effort today to create a little bit more time than previously for your questions, so look forward to that.

Jim, as I said, I’d like to keep our conversation today a bit shorter to allow more time for questions from our listeners. First, let’s briefly check in on the current monetary situation. The March Federal Open Market Committee meeting is taking place today and tomorrow. I’m wondering if you expect any surprises from the FOMC this month.

Jim:  There is one thing in play. Clearly, they are not going to raise the interest rate. If they did, I would be shocked and so would everybody else. As you know, Jon, I’m not shy or averse to being out of consensus. I’ve made a number of out-of-consensus forecasts and have never been troubled by that. If my analysis points me in a certain direction, that’s where I go. I don’t do it just to be contrary; I do it because that’s where the analysis takes me. But there are times when I think the consensus has got it right, and this is one of them.

I’m not expecting a rate increase by the Fed, and I don’t know anyone else who is. I saw that something like 97% – 98% of economists surveyed, plus other indicators such as the Fed funds futures market, all agree. The Fed’s not going to raise interest rates in March. The problem is that they go from meeting to meeting, and when they take a certain action, the debate is never over. It’s only moved to the next meeting. Well, what are we going to do then?

Just to give a little background, after seven years of zero interest rates, the Fed did achieve what they called “lift off” last December. They raised interest rates 25 basis points. This is the target Fed funds rate. But they laid down a path and said, “We want to raise interest rates 300 basis points, to 3%, over three years. We want to do it slowly, not to shock the markets and not to be too tight too fast.” Logically, this would be 100 basis points, or 1%, a year for three years to get their total of 3%. The minimum increment, to all intents and purposes, is 25 basis points, or one-quarter of 1%. They could do less, but there wouldn’t be much point in that, so let’s assume 25 basis points.

If you say, “I’m going to do 100 basis points a year, in 25 basis point increments, and I have eight meetings a year,” which they do, it suggests that at every other meeting, you would do 25 basis points. That would achieve the target. The last meeting when they raised rates was December, so skipping January, they were on track to raise rates in March.

Now, it’s data dependent. They always put in disclaimers and caveats, “This is data dependent. We’re going to see how the markets do,” etc. Based on its own criteria – this is not to say I agree, because I say that they blundered by raising rates in December – they should not have raised rates in December. They raised into weakness. The Fed’s job is to ease into weakness and tighten into strength to try to modulate the extremes of the economy. The Fed had no business tightening in December, as far as I was concerned, but my opinion and my vote don’t count. It’s the Fed that counts, and when I do this analysis, I try to think about it from their point of view.

What they were saying is labor markets are tight, job creation is strong. Some early signs of inflation recognized as monetary policy act with a lag. They wanted to stay ahead of inflation. GDP was on track to get to their targets. That was barely the case in December, but you could argue it. A lot of those things have actually gotten stronger since then. In other words, fourth-quarter 2015 growth was fairly positive, but first quarter of 2016, at least according to the best data as measured by PCI core year-over-year, looks like it’s coming in over 2% or maybe 2.2% inflation. It ticked up a little bit and got closer to the Fed’s goal. Job creation has continued to be strong as indicated by a very strong February jobs report.

Using the criteria the Fed says they use (growth, jobs, and inflation), they should raise rates at this meeting tomorrow, but they’re clearly not going to. Then the question is, “What happened? Why did they back off?” We know the answer, which is market volatility. The Fed was spooked by the market drawdown, correction, and then borderline bear market, steep, scary drops in January and early February in the markets around the world, the US stock market in particular. They felt that to raise rates in that environment could cause further market meltdown. There’s a lot of systemic instability, and they don’t want to be the cause of another panic, so they backed away.

That’s an interesting thing. In December they go to great lengths to lay out a path, and signposts along the path say they should be raising rates in March, at least as the Fed sees it. Yet they get spooked by the market. This is like a game of chicken where the Fed is behind the wheel of the car that swerves out of the way at the last minute or you can say the Fed blinked in a staring contest; describe it any way you like. The problem now is, how does the Fed get back on track?

Just to put that 300-basis-point-per-year program in perspective, the Fed doesn’t see a recession although I do. I think the US economy is setting up for a recession. The Fed does not, but that’s not unusual because they never see a recession. The Fed staff, using Fed models, have never forecast a recession. They just never see it coming. But there is some other research Larry Summers pointed to recently in which he said that when a recession does hit, it takes 300 basis points of cuts on average to get the economy out of the recession. That’s how much interest rate policy has to do to get the economy out of a recession.

If a recession is coming, even though the Fed doesn’t see it, they’ve got to raise interest rates 300 basis points in order to cut 300 basis points in order to get out of a recession which is probably on the way. They’re not going to get there, because we’re going to have a recession long before they get to 300 basis points. They’ll be lucky to get to 75 or 100 basis points, maybe a little higher, before the US economy goes into recession.

They’re in this absolutely impossible situation. They need to raise rates so they can cut them when the recession comes, but the act of raising rates makes the recession itself more likely, and we’ll probably have a recession before they ever raise rates enough to cut them enough to get out of the recession. That’s a mouthful, but that’s where we are. The Fed waited too long to raise rates; they should have started years ago. That’s pretty obvious at this point. Not only did they wait too long, they waited so long that they raised them not only too late but probably at the exact wrong time in terms of business cycles. I do think they’re going to try to play catchup.

The other problem they face is the difference between their own intentions and market expectations. This was the key to concluding that they’re not going to raise rates this time, which again at this point is fairly obvious. Looking back to December, which was not that long ago, markets expected the path I just laid out, and they believed that there would be a rate hike in March.

After the turmoil of January and February, markets adjusted expectations and priced in almost zero probability of a rate hike in March. If the Fed wanted to hike rates in March and the market wasn’t expecting it, and they actually went ahead and did so, that would be a shock. When the markets don’t expect it and you do it anyway, that’s the kind of shock that can sink the stock market. It’s the Fed’s job to steer the expectations where they want them to be so they can pursue policy without causing a shock.

They didn’t do that; they did the opposite. Speeches from Bill Dudley in early February and Lael Brainard more recently (a week or so ago) were very dovish. The only quasi-hawk was Stanley Fischer, and even he wasn’t that hawkish. The Fed did nothing to signal the market that they were going to raise rates, and it’s quite certain now that they won’t.

If they want to raise rates in June, which I do expect and will get them back on the track I described, and the markets don’t expect it – right now markets are pricing in about a 50% probability, a little bit less – the Fed’s going to have to get expectations up. The Fed’s will have to tell the markets that they plan to raise rates, so I expect they will do so probably in speeches and leaks to key reporters like Jon Hilsenrath at The Wall Street Journal and some others over the course of April and May.

As the markets reprice for further Fed tightening, and as the dollar strengthens based on that, look for more volatility and more drawdowns in the stock market, because the markets are  priced for this Pollyanna world where the Fed never hikes rates again. If the Fed actually does proceed to hike rates, that will not only be the actual rate increase but also the change in expectations that will probably cause US stock markets to go down. There’s more volatility in store, Jon, so just fasten your seatbelt.

Jon:  Thanks, Jim. I’d like to turn to a different topic:  your latest book, The New Case for Gold, and I’d like to focus briefly on the word new. There are several insights in this book that really are unique to the present-day situation. Would you share with us one in particular that casts a new light on the role of gold today?

Jim:  I’d be very glad to do so, Jon. The book is available for preorder right now on Amazon by the title The New Case for Gold. I’m very happy to say that Physical Gold Fund has worked with my publisher to come out with their own special edition. You’ll be hearing more about that in the weeks ahead.

There are two aspects to the word new in the title, one backward looking and one forward looking. The title itself is a play on an earlier book from the early 1980s. From 1933-1975, it was actually illegal for American citizens to own gold. As with drugs or any other contraband, you could be put in jail for the mere ownership of gold.

In 1975, under the President Ford Administration, that law was changed. Suddenly it became legal for Americans to own gold, and a lot of them did so. Although America has the American Gold Eagle coin now, they didn’t have a gold coin at the time, so people bought Krugerrands and Maple Leafs from Canada, and others.

Nixon went off the gold standard in 1971. It was only nine years later in 1980 when Ronald Reagan was running for President. While we were in the thick of a presidential campaign, as we are today, there was a lot of pressure among Reagan supporters and conservative Republicans to go back to the gold standard. Reagan did what a lot of politicians do when there are two sides to a story. He said, “Let’s appoint a commission.” After being sworn in in 1981, he appointed a blue-ribbon commission consisting of a lot of prominent economists and public figures to study a return to the gold standard.

The commission voted in favor of not going back to the gold standard, but like a lot of commissions of this type where the members are divided, there was a minority who felt strongly that we should go back to the gold standard. They were permitted to write a minority report. As a public commission, their report recommending a gold standard was a public document in the public domain. An enterprising publisher took the minority report, put it in book form, and called it The Case for Gold. That’s kind of a legendary cult classic, if you will, among gold aficionados and people who like financial history.

When my book was in the works and I worked with my publisher on the title, they said, “Why don’t we call this The New Case for Gold,” just to hark back to The Case for Gold by echoing that old title a little bit. I think some of the readers familiar with The Case for Gold will appreciate that.

But there’s more to it than nostalgia. There is substance behind the word new. There are 21st century arguments in favor of having gold that simply were not part of the debate in the ‘80s, ‘90s, and even in the early 2000s. A number of them are in the book. The one I think is probably the most important is cyber financial warfare, i.e., the ability to wipe out digital wealth.

I happen to live not far from Greenwich, Connecticut. It’s a pretty wealthy town, and I’ve got some friends who are in the billionaire category and some pretty well-known names in the hedge fund world. They say, “Well, I’m very wealthy. I’ve got that.” I say, “Really? Tell me about it.” They say, “I own stocks. I own bonds. I have these money market funds,” and whatever. I say, “No, you don’t. What you have are electrons. Your wealth is all in digital form. You get online statements. You might get a paper statement in the mail.”

That’s nothing more than a representation of wealth, if you can call it that, which is stored in digital electronic form on the servers and hard drives of brokerage firms, stock exchanges, and the Depository Trust Corporation (DTC), which is the main record-keeper for all the book-entry securities. All of the market wealth in the developed world and certainly the United States is in digital form.

Our friend Vladimir Putin has a 6,000-member cyber-brigade outside of Moscow working day and night to be able to hack, infiltrate, and ultimately destroy Western financial markets. I’m not saying he’ll do that tomorrow, he might never do it, but they have that capability, and that digital wealth can be wiped out in a heartbeat. If you don’t have some tangible wealth, your so-called wealth is extremely vulnerable to hacking, erasure, destruction, disruption. They can shut down exchanges, shut down banks, wipe out records, and make them impossible to restore.

When I say things like this, this is not 22nd century science fiction. This is 21st century reality. These things are happening. There are financial wars being fought now. If you notice, the stock exchanges have been closed, NASDAQ and New York Stock Exchange, at various times for unexplained reasons. They always say it’s some technical computer glitch or reconfiguration problem. Well, every computer problem is some kind of configuration problem.

The other thing that troubles me a lot is not so much intentional warfare, although that is a real threat, but accidental warfare. In other words, if you’re going to try to infiltrate a stock exchange, you have to probe it. You have to launch sleeper viruses and get your viruses implanted. What if something goes wrong in that process? You’re not intending to shut down the stock exchange that day or wipe out some bank records, but you do it anyway by accident.

People who remember the Cold War and nuclear war-fighting scenarios recall that the two most famous movies about nuclear war were Fail Safe and Dr. Strangelove. One was an accident, a computer glitch that gave a B-52 nuclear attack bomber the orders to drop nuclear weapons on Moscow. They couldn’t call it back because the pilots had been trained to ignore any callback orders for fear of Russian infiltration. The other was Dr. Strangelove about a rogue general who ordered an attack. These kinds of accidents are probably more likely.

You have to have some tangible wealth. It doesn’t have to be gold, but gold would be my first candidate. It could be silver, land, fine art or a number of things, but if you’re 100% digital wealth, you’re vulnerable to 100% wipeout. I recommend about 10% of your invisible assets in tangible wealth, hard assets, and I would make gold my number-one candidate in that category.

Gold has been around as a form of money for thousands of years. It has been debated hotly at least since the 1970s when President Nixon suspended the redemption of dollars for gold. The arguments in the ‘70s, ’80s, ’90s, and even early 21st century are the ones I referred to earlier. The gold commission report, the minority report, and the original Case for Gold never mentioned cyber financial warfare because it didn’t exist. The Internet barely existed, certainly not the way we know it today, and these attack viruses didn’t exist at all.

There are new arguments and new reasons to have gold that were not part of the classic debate. These are the ones I include in my book and why the word new is in the title, The New Case for Gold.

Jon:  Before I pass it to Alex, there’s one other particular observation in your book that struck me as really new. It was a revealing comment on the Federal Reserve’s balance sheet. It’s probably a big story and too long to tell in detail, but would you give us a glimpse of what was going on there before we hand over to Alex?

Jim:  As a bit of background, I am an advocate for gold ownership for the reasons I just described. I’m not someone who’s been sitting in his basement for 35 years counting gold coins. My experience is in the bond market, derivatives, hedge funds, and government securities markets primarily, but also a lot of derivatives from that. I’m a lawyer in addition to being an economist. That’s all my training and background in this area.

I have occasion to speak to Fed officials, not necessarily about gold, but about monetary policy. I’ve spoken to members of the Board of Governors, regional Reserve Bank presidents, senior staff from the Monetary Research Division of the Fed, and I’ve had a lot of colleagues of mine at Long-Term Capital Management with 16 PhDs who are the leaders of modern financial theory, so I have a pretty strong immersion in that world.

I’ve had occasion to speak to Fed officials about Fed solvency. In my book, I put it as, “Is the Fed broke?” That’s actually the first sentence in Chapter 1. The way I get at that is to look at the Fed balance sheet. This is all publicly available. You can go to the Federal Reserve System website and find the balance sheet, find the consolidated balance sheet, and its broken down by regional Reserve Banks.

The Fed balance sheet today looks like a really bad hedge fund. If you look at the assets, they’re predominantly US Treasury securities at different maturities. If you look at the liabilities, it’s money. That’s what the Fed prints. Whenever I talk about the Fed being insolvent, people say, “Oh, that can’t be a problem. They can just print the money.” People don’t understand that when the Fed prints money, that’s not an asset for them; it’s a liability.

If you pull a dollar bill out of your wallet and read it, right across the top it says, “Federal Reserve note.” Where I went to law school, a note is liability, and indeed it is. What we call money is actually a perpetual non-interest-bearing liability of a sometimes-insolvent central bank. That’s the liability side of the balance sheet.

Their capital right now is down to sliver. It’s about $45 billion. Their total assets are in excess of $4 trillion. The Fed has leveraged about 100:1. I repeat 100:1. A normal broker dealer or bank is leveraged between 8:1 and 15:1, and that’s considered pretty high leverage in the financial institution world. The Fed is leveraged 100:1, which means that on a mark-to-market basis, it only takes a 1% decline in your assets to wipe out your capital.

If you’re leveraged 100:1, your capital is 1% of your assets. Assuming your liabilities are constant, which they would be because it’s money, and you take your assets down 1%, your capital has been wiped out. Just to be clear, this is on a mark-to-market basis meaning take the assets, price them not where they’re held on the balance sheet, but at actual market prices, and see what you get.

This is something hedge funds, mutual funds, and banks to some extent do every day. Mark-to-market accounting is pretty widespread. To be clear, the Fed does not use mark-to-market accounting. You can stare at the Fed balance sheet all day long or look at it every day and you’re always going to see a solvent institution, because they hold their assets at cost, not at market.

My thought experiment, or my exercise and research, was, “What if we did mark-to-market? What if we treated the Federal Reserve like any other financial institution that has mark-to-market? Would they be insolvent?” The answer I came up with is that from time to time, using the bond portfolio only – in other words, marking the bond portfolio to market – they would be insolvent.

Not today, because, again, you have to say, “When did they buy the bonds? What was the original maturity? What was the coupon? What’s the market price today? Do you have a ten year note that you’ve had on your books for three years? — That makes seven years left.” That would be how you would compute the duration of the bonds. There’s a lot of technical bond math in this, but cutting through all that, they have been insolvent from time to time if you just reprice the bond portfolio.

Over dinner I asked one of the Fed Governors in a nice way about it. This individual took offence when I said, “I think you’re insolvent on a mark-to-market basis.” The individual said, “No, we’re not.” Then I pressed a little bit, and the person said, “No one has done that math.” I said, “I’ve done it, and I think others have. That’s the conclusion I’ve reached.” Then the person kind of sheepishly said, “Well, maybe,” and then finally said, “Well, if we are, it doesn’t matter.” The person went from, “No,” to, “Maybe,” to, “Yes, it doesn’t matter,” in a matter of a minute over the course of dinner. Then our topic changed to skiing and wine. I dropped it, because I had made my point.

I had occasion to speak to another Fed official. This person was not on the Board of Governors, but was even more connected, more inside Bernanke and Yellen’s right hand, on a lot of very important policy issues. This individual is a PhD and a lot more rigorous than the Governor I was speaking to. I pressed him as well because, like a dog with a bone, I just didn’t want to let go of it. This guy was a lot more adamant. He said, “We’re not,” period, full stop. “Look at the balance sheet.” He didn’t say, “You don’t know what you’re talking about,” but he was very clearly pushing back on this point. I have a lot of respect for this individual, and I had done the bond math. I knew that if you reprice the bonds – not always, but at certain times when interest rates had gone up – when these bonds were worth a lot less, the Fed was insolvent on a mark-to-market basis applied to the bond portfolio. But this individual was adamant that this was never the case.

I went back and said to myself, “Maybe I’m missing something.” I looked at the balance sheet. Lo and behold, the first thing I saw was the gold account. The Federal Reserve does have a form of paper gold. The Federal Reserve used to have all the gold, and then the Treasury took it and gave the Federal Reserve a gold certificate to replace it. If you think about it, that was probably necessary because the Federal Reserve is private and the Treasury is public. When a public entity takes property from a private entity without compensation, that’s a violation of the Fifth Amendment. You’re not allowed to take property without compensation.

It looks like the Treasury gave the Fed this gold certificate as compensation, but theoretically it must be worth something. It must give the Fed at least a moral claim, if not a legal claim, on the Treasury’s gold. Interestingly, that’s one they carry at a historic cost of $42 an ounce. Of course, we all know gold today is around $1,230 or so. It’s volatile, but way north of $42 an ounce.

If you take the certificate of value on the Fed’s balance sheet, which isn’t very high, divide it by $42 an ounce, and multiply it by $1,200 an ounce to see how much gold is represented by that certificate, what you discover is that the certificate represents about 8,000 tons of gold at today’s market. That’s almost exactly the amount that the Treasury has.

The Treasury had 20,000 tons in 1950. It then lost 11,000 tons to our trading partners in the ’50s and ‘60s during Bretton Woods. By 1970, it was down to about 9,000 tons. That’s when Nixon closed the gold window in 1971. Between 1971 – 1980, the US dumped 1,000 tons in an effort to suppress the price. This is just a continuation of the London gold pool, except now the US had to do it on its own. We twisted the IMF’s arm, and the IMF dumped 700 tons.

Between 1971 – 1980, the IMF and the United States together dumped 1,700 tons of gold on the market to suppress the price of gold. That failed. It can last for a while, but it always fails in the end. The price of gold went from $35 to $800 an ounce over that time period. But one question has always bugged me. Why did the Treasury get to 8,000 tons in 1980 and stop? Why didn’t they sell another thousand tons, and then another thousand, and another thousand? That was always a bit of a mystery to me.

Look at what the US did. In 1999, we got the British to sell their gold. In stages between the ten-year period 1999 – 2009, there was the Central Bank Gold Agreement. We got France, Italy, and others to sell some gold. In 2010, we got the IMF to sell 400 tons of gold. Poor Canadians, they sold the last of their gold just the other day, just a couple of tons. The Swiss sold thousands of tons of gold in the early 2000s.

Look around, add it all up, and you’re talking about upwards of 10,000 tons of gold that was sold by these central banks and multilateral institutions since the ‘90s to suppress the price. Why did the US not sell any?

Suddenly I connected all these dots and a light bulb went on. I said, “If the Treasury dipped below 8,000 tons, they wouldn’t have enough gold to back up the Fed, which has 8,000 tons on its books.” Furthermore, when you take the 8,000 tons, valued at $42 an ounce, and revalue it at $1,200 an ounce, lo and behold, Fed becomes very solvent and is only leveraged about 12:1, which looks like a normal bank.

In other words, the answer to the mystery is that the Fed is not insolvent. The Fed is well capitalized not because of the bonds or the money it prints, but because of the gold. The gold is the Fed’s hidden asset. Gold is what’s propping up the balance sheet of the Federal Reserve. I’m pretty sure this hasn’t even occurred to a lot of the Fed officials.

It’s one of those deep, dark secrets of the United States financial system that’s kind of hiding in plain sight. You can look at the balance sheet and do the math I just described. Look at the Treasury reserve position and see the 8,000 tons. That’s exactly how much the Fed has on their books, and if you add in that gold, then it comes to about $400 billion. With $400 billion on $4 trillion, now you’re leveraged 10:1 and look like a normal bank.

The good news is that the Fed is not insolvent. They have a hidden asset that if you mark-to-market, they would be just fine. The bad news for the Fed – and maybe the good news for investors – is that the secret asset is gold. Gold is still propping up the Federal Reserve.

I use this to illustrate the fact that we’re still on a gold standard; I don’t care what anyone says. It’s a shadow gold standard that’s not acknowledged publicly or spoken about, but I do write about it in the book. There’s a lot more in The New Case for Gold along these lines.

The world is on a secret shadow gold standard. When I say that, it’s not a deep, dark conspiracy. Like I say, it’s there in the numbers. We know what China is buying. Why does the IMF have 3,000 tons? Why does Germany have 3,000 tons? Why does the United States have 8,000 tons? Why is China on the road to acquiring 8,000 tons to match the United States? Why has Russia doubled their gold reserves in the last six years? Why are all these countries buying gold if it has no role? The answer is it does have a role. If it’s good enough for the Chinese, Russians, the Fed, and the Treasury, it’s good enough for me.

Jon:  Thanks, Jim. A note to our listeners, this is an example of the kind of insights you’re going to find in his latest book. It really does validate that term, new, in the title, The New Case for Gold.

Now, over to you, Alex. What questions do you have today from our listeners?

Alex:  Thanks a lot, Jon. Jim, the entire time you were talking about the gold on the Fed balance sheet, I couldn’t help but smile. I was thinking back to the episode where Ron Paul was questioning Ben Bernanke about the role of gold, and Ben basically said, “The reason we hold it is just out of tradition.” I thought that entire thing was pretty funny.

Jim:  Right. I’ve testified before Congress a few times. If you have an investigatory subcommittee – and I did that once – you’re under oath. You have to raise your right hand and take an oath, but I don’t think Ben Bernanke was under oath during that particular exchange.

Alex:  We’ve got a lot of different questions coming in from different parts of the world. Some of these are obviously non-US. I’ll mention a couple of quick items. One is, we’re getting questions about the special edition of the book. That special edition is being produced by Physical Gold Fund in combination with Penguin. It’s going to have an extra chapter, part of which is going to be written by myself. Also, there’s a special part of it that’s written by Jim that doesn’t exist in any other version of the book.

This version will be available sometime after the standard edition is published. If you want more information about it, I recommend going to the PhysicalGoldFund.com website where you can subscribe for more information. If you’ve registered for this webinar, you’re already on our mailing list, but if there’s anybody else that you know of who might be interested, they can go there and enter their information.

A question that’s coming from Amir A. is asking about the book audio version. “How can I purchase the audio version? I drive a lot and would love to listen to it.”

Jim:  Thank you for that question. Yes, there will be an audio version. It might not be up on Amazon yet, but it will be by the publication date. The reason I know that is because I actually recorded the audio version. This is my third book. I had Currency Wars in 2011 and The Death of Money in 2014. I’m very happy to say that both books continue to sell very well. They’re timely, because currency wars are not over, and threats to the international monetary system are not over. Those books are still selling well.

I did not read the audio versions of those since my publisher sold them to a producer. I understand the people who did read them were great voice actors, and they have their own fans and their own following. I think they were good audiobooks, but I didn’t hear them.

Like the caller, I drive a lot and listen to audio books a lot. I always like the ones read by the author, because I think there’s no one other than the author who can give it just the right nuance in the right places, because he or she is the person who wrote it. With The New Gold book, I was happy to hear my publisher say they were going to produce the book themselves in-house and not sell the rights to another production company. I immediately raised my hand and said, “I’d love to read it.” They said, “You really don’t want to do that, do you? You’ve got to sit in the studio for days.” I said, “I would love to do it.”

It was an interesting experience of literally two days in the studio with earphones on reading the book. I had a world-class voice director, a great guy, and we got along very well. He was sort of the Stanley Kubrick of voice directors. The standard was perfection, and he was so tough on me with the number of times we had to do things over. He was always friendly, never got acrimonious, but he would say, “You know, Jim, I’m not hearing the D in connected.” I just had to enunciate my consonants a little more clearly. I tried to talk in a relaxed way, but this was holding my feet to the fire!

We got through it, and it’s being edited as we speak. It’ll be an unabridged version with nothing cut out other than my mistakes. So there will be an audio book read by the author available on Amazon. I don’t think they put those out for presale because it’s an instantaneous download, so there’s really no point in doing that. It’ll be up on the Amazon site soon under The New Case for Gold, so check back.

Alex:  Excellent. I’m looking forward to that as well. We have a question coming in from HBK, Bangalore. The question is, “What will be the impact of decisions of the central banks of the Western world, such as the Bank of Japan, the ECB, and the Fed, on gold prices in emerging market currencies like India, Russia, and countries that are net importers of gold?”

Jim:  The one sure impact is that the gold price is going to go up in those local currencies. Of course, I expect it to go up significantly in all currencies in the fullness of time. On any given day, I think of gold as money, not as a commodity. I don’t even think of it as an investment in the classic sense. I think of it as money, and if you want money, you should have some gold because of the vulnerabilities of other forms of wealth that we talked about earlier.

I said that the Fed is not going to raise interest rates this week, and they’re not, but that ease is already priced in. This was something that was signaled, partly through Fed inaction, as early as late January and certainly increasingly through the month of February. If you originally thought they were going to raise, which everybody did, and then you came to the conclusion that they’re not going to raise, which is the conclusion, that actually represents a form of ease in terms of expectations. If you have expectations for a hike and they don’t hike, that’s a form of it.

This accounts for the stock market rally since February 12th. The rally we saw even through Friday, which was pretty significant from the February 11th lows, was all based on this idea that the Fed was not going to raise rates. The problem is, we already got our pop or our market benefit out of this. Again, the Fed is not going to raise, but the benefit of that is already priced in.

Now the market is saying, “What’s next? What else have you got for us, Fed?” I think what the Fed is going to say is, “What we’ve got for you is a rate hike. We’re going to hike in June.” That’s going to, at the margin, obviously be a form of tightening and make the dollar a little bit stronger.

The ECB also tightened. When I say, “tightened,” I should be clear what I mean. It’s tightening relative to alternatives and relative to expectations. On March 10th, the ECB actually lowered their interest rates. They’re already into negative territory and went further into negative territory. I think they’re now about -40 basis points.

That’s a form of easing except that Draghi, in the same breath, came out and said, “We think that’s as far as we’re prepared to go.” He was signaling that they’re not going to take interest rates lower. If markets have priced in lower rates and Draghi is saying they’re not going to take them lower, that’s a form of tightening relative to expectations. Indeed, the Euro rallied on that news.

The same thing with the Bank of Japan. There was some expectation they would get out the bazooka, and they didn’t. They did nothing.

All three major central banks – US, Japan, and Europe (ECB) – are in a tightening frame relative to alternative courses, relative to expectations. That’s going to make all these developed-economy currencies a little bit stronger relative to emerging-markets’ currencies. It looks like risk off, in terms of the emerging markets. What that means is the price of gold in your currency goes up faster than the price of gold in dollars, euros or yen.

The currencies of Bangladesh, India, and Malaysia have strengthened recently based on all this ease coming out of Japan, US, and Europe. But it looks like, literally, as of the last few days and as of tomorrow, that easing is over. It’s now into tightening mode. That’s into risk-off mode, which is going to weaken the emerging market currencies and make the price of gold go up higher in your currency than it will in dollars.

Alex:  This next question coming in from Dale H. I personally find really interesting. He asks, “Why isn’t Japan concerned about obtaining gold to the same degree as China?” I would add to that:  Why are, for example, Japan, Canada, and UK different than, say, China and Russia at accumulating gold?

Jim:  Economically, they’re not different. The question is, why have they dumped gold? Japan has about 700 tons. It’s significantly low relative to their GDP, but it’s not nothing. The UK has completely inadequate gold. The guys who are completely unprepared who have gold relative to GDP that you can’t find under a microscope are Australia, Canada, and a few others. Even those who still retain significant gold have sold a lot. Switzerland is a good example. They still have over 1,000 tons, but they’ve sold over 1,000 tons in the last several years.

The question is, if Russia and China are acquiring gold and the US is sitting tight keeping the gold it’s got, why are some of these countries selling gold? I think the answer is that they don’t understand what I’ve been describing now and in my book, The New Case for Gold, and elsewhere – namely that we are still on a shadow gold standard.

If confidence in paper money is maintained forever, then you don’t need gold. But the history of fiat money is that confidence is not maintained. There are panics from time to time. The international monetary system has collapsed three times in the past 100 years, and it will collapse again. When it does, probably sooner than later, we’re going to need to take steps to restore confidence.

I’m not saying there will automatically be a gold standard although there could be. But even if gold is used as a reference point, or even if it’s just a matter of the major economic powers sitting down around a table and rewriting what they call “the rules of the game,” in other words, reforming the international monetary system. Think of it as a poker game. When you sit down at a poker game and win a big pile of chips, in the scenario I describe your chips are going to be gold.

The gold powers are going to decide the future of the system, as happened at Bretton Woods. The gold weaklings are going to be sitting not at the table, but against the wall, and not have very much to say. If you’re the UK, Australia, Canada or even Japan to some extent, you’re just going to tag along with the US and accept whatever deal the US cuts, because you don’t have enough gold to stand up for yourself.

Conversely, countries like Russia and China are going to have a very big voice, because they’re going to be in a position to say, “You know what? If we don’t like the deal the US or the IMF is proposing, we’ll just go our own way, start our own currency, use gold to restore confidence, and set the price of gold at what would be maybe 500% higher than what it is now.” That’s where this $10,000 figure comes from.

If you have enough gold, you can “start the game over” on your own. Gold is going to be your chips in the poker game. The gold powers are going to dictate the future of the international monetary system, whether it’s a gold standard or not remains to be seen. It might be an SDR standard (that’s IMF world money, Special Drawing Rights), it might be a hybrid or it might even be a gold-backed SDR, which actually makes a certain amount of sense.

The one thing I can guarantee is that any reference to gold will be at prices of $10,000 per ounce or higher. The reason I say that is any lower price is deflationary. In other words, any gold standard – it doesn’t matter how you design it – is some relationship between gold and paper money. That’s all it is.

You might say, “Okay, what’s the dollar price of gold in the standard? How much paper money do I have? How much gold do I have? How much trade and commerce do I have? What does the price have to be to be non-deflationary?” The problem is that gold right now in the market is approximately $1,200, a little higher than that, but we’re not on a gold standard. Gold can be wherever the market wants to take it, taking into account manipulation and other factors.

If you were going to have a gold standard and you did want to cut the money supply by 80%, which is comparable to what happened to the UK in 1925, you’d have to set the price of gold high enough so that the amount of gold you had could support enough money to run the financial system.

This is one of the canards I talk about in the book. I not only give all the arguments for gold, but I list the arguments against gold and knock them down one by one kind of like sending a bowling ball right down the middle of the alley and knocking down the 10-pin. I hope the readers enjoy that part of it also.

Just to give an example of what I’m talking about, when you’re on TV, in a debate, at a cocktail party or whatever and say something about gold, the gold bashers will come out and say, “You can’t have a gold standard, because there’s not enough gold to support world finance.” That’s nonsense. There’s always enough gold; it’s just a question of price. At $1,200 an ounce, no, that would be extremely deflationary, but at $10,000 an ounce, it works just fine.

When I talk about $10,000 gold, it’s not a made-up number I pull out of a hat to get some attention. It’s actually the result of a calculation using gold-to-money ratios without having to destroy the money supply. There’s always enough gold at the right price. That would be one way to reform the international monetary system, but the gold weaklings, as I call them, are just not going to have a voice in that.

Alex:  That’s a very interesting answer. When you say that any price for gold under $10,000 an ounce is deflationary in any kind of a gold-backed system, a lot of people would say that’s a pretty big number.

The other day I was watching a wealth manager for JP Morgan on CNBC. He was almost insulted that gold was even $1,200 an ounce, as if there’s this resistance to the idea that gold should not be higher than a certain amount. I think a lot of people are going to be shocked if it gets out of that range.

Jim:  I won’t be shocked, because I’ve talked about it a long time. Actually, if you go to my second book, The Death of Money, I think it’s chapter 9 or 11 – one of the chapters towards the end of the book – where I talk about gold, there’s a quote from Paul Volcker.

Again, I’d like to emphasize the fact that when I talk about these scenarios – cyberwarfare, stock exchanges being closed, the price of gold going up, deflation and inflation – they’ve all happened. They’re all documented.

The quote I found from Paul Volcker was exactly what I just said. He said, “You don’t have to have a gold standard, but if you do, the price of gold would have to be,” I mean, he just kind of rolled his eyes and used some strong language. I won’t repeat his exact words, but he said it would have to go to the moon. It would have to be sky high for that system to work. He’s right, so I quoted him. But again, I did the math myself just to put a finer point on it.

By the way, $10,000 is the low end of the range. It assumes that you want to back up M1 (one measure of money supply) with 40% gold. If you wanted to back M2 with 100% gold, which is another way to do it, the price is $45,000 an ounce.

Alex:  To get into some other questions we have here, this one is coming in from Arthur S. He’s talking about the equity markets, and his question is, “If the S&P falls to, say, 1,300-1,400, what do you expect the response is going to be from the Fed? Will it have any kind of an effect long term?”

Jim:  At that level, assuming it’s precipitous, which I assume is what the question implies, they would, first of all, obviously not raise rates. One of the questions I ask myself when thinking about the Fed’s rate-hiking path, is what would it take for the Fed not to raise rates? That’s one of the scenarios.

I don’t think we would even have to go that low. If the S&P dropped from around 1,900 or so down to 1,650 in a matter of a few weeks, that would be enough to put the Fed on hold.

Beyond that, what would the Fed do if it continued to fall or if we were clearly in a recession? When I say, “clearly,” I think we’re going into a recession based on the data I see. If it were so clear that even the Fed saw it, they would, first thing, not hike rates. The second thing would be to cut rates.

I said that they wanted to get them up to 300 basis points in order to cut them 300 basis points. They may get to 75 or 100 basis points when the recession hits, in which case they would cut 75 or 100 basis to get back down to zero. We’ve heard this a lot:  “They will get to zero before they get to 1%,” meaning they would have to turn around and cut and go back down to zero before they ever got far enough along. I think that’s probably right. At least it’s a pretty good estimate.

Beyond that, first you stop hiking and then you cut. What else could they do? They could use forward guidance and basically say, “Not only are we not raising, not only are we at zero, but we’re going to stay there for a considerable period.” Pick your adjectives. Pick your phrase. “We’re going to be patient.” Remember all these famous buzzwords? Take the period of forward guidance from about 2010 – 2015 when they finally ended it. They said extended period, considerable period, patient, you name it. They could get the thesaurus out and come up with some new phrases, but that would be next.

The toolkit contains currency wars, QE4, and negative interest rates. There are a lot of things they could do, but they’ll certainly be easing heavily if the stock market falls that much.

Alex:  We are getting close to the end of our time, and we have a ton of questions left, so we’re going to try to lightning-round a couple of these. One particular question is coming from multiple people including Vince W. and Michael K. I’m going to paraphrase it, because they asked it in a slightly different way.

The question essentially is, “What do you think the likelihood is of some kind of massive windfall profit tax on gold? Is this a likely event? What could anybody do to mitigate such a risk? Should you still buy gold?”

Jim:  I’m certainly not going to give tax advice, but I would say that a windfall profits tax would have to be an act of Congress. The President is not shy about using executive orders and emergency powers. When gold was confiscated by FDR (Franklin Delano Roosevelt) in 1933, it was by executive order, not an act of Congress. Later on after the fact, Congress did pass a law that ratified what the President did, but it was an executive order the day he did it.

You may ask, “What was President Roosevelt’s statutory authority for giving an executive order confiscating all the gold in America and making it a felony to own gold?” It was the Trading With the Enemy Act of 1917 that was enacted during World War I so the United States could seize German assets in the United States, which we did. That’s how we got Bayer aspirin. Bayer AG was actually a major German chemical and pharmaceutical company, and we seized their US affiliate in World War I under the Trading with the Enemy Act.

I’m not sure who the enemy was in 1933. It must have been the American people! But FDR never let statutes stand in the way of a good executive order. However, taxation is a step too far. The Constitution is crystal clear that tax bills have to originate not only in the Congress, but in the House of Representatives specifically.

What I would say to investors is I find it unlikely. I’ve written about that, and as an analyst, I think it’s my job to point out all the risks. That’s not one you could rule out. I don’t rule it out, but I think it’s unlikely because it would have to be approved by Congress. Even if it somehow got through the Congress, you’d see it coming. The unlikely prospect of a windfall profit tax is not a reason to not own gold.

It’s amazing. I remember talking to people not that long ago about gold when it was $700. I’d say, “You really want to have a little gold in your portfolio, 10% or whatever.” The person would listen to me and say, “You’re right. I should do that.” Then I’d see them six months later and ask, “Did you get the gold?” They’d reply, “Oh, no.” Then six months after that, “Did you get the gold?” “No.”

Even people who are intrigued by it, people who are persuaded by the argument, people who see the benefit of having gold in their portfolio don’t actually go out and get any. To take it a step further, they look for excuses not to get it. People are lazy. They hate to do anything. There’s a lot of behavioral science to back that up.

I’m not saying the questioner is one of them. I’m simply using this as a platform to make the point. You run into people who say, “Yes, gold will go up a lot, but the government is just going to have a windfall profits tax. I’m not going to get the profit, so I’m not going to buy any gold.” That is not a reason to not buy gold.

Again, the profits tax is unlikely, and even if it did happen, you would see it coming. In theory, there will be plenty of time to swap out of gold and get into land, fine art or some other hard asset. I think the more likely outcome is that even if somebody thought that was a good idea, it wouldn’t go anywhere. But it is certainly not a reason to not own gold.

Alex:  For those of you who have been on this webinar and like this format where we’re allowing more time for people to ask questions, we’ve been considering doing a full hour entirely of Q&A or something along those lines. If you would be interested in that, please give us feedback. Email us or message us on Twitter so we know what everybody would like to do in regards to that.

We have time for just one more quick question coming from Michael M. He wrote quite a bit, so I’m going to summarize it down into a short question. “How possible is a scenario where there is no major crash and we all may avoid pain and misery?”

Jim:  First of all, it is possible. I’ve never ruled it out. The question you have to ask yourself is, “It’s not going to be mystical, so what set of public policies would it take to help the economy grow and get it out from under our debt burden not through inflation or default, but through legitimate growth with price stability where the dollar value of gold would not change very much because we had a monetary anchor and a stable international financial system and price stability?” That’s the happy outcome. “What would it take?”

The problem with the economy – and this has been true since 2008 or maybe going all the way back to 2001 – is structural. We have structural problems. Everything the Fed has done is monetary, but you cannot solve a structural problem with monetary solutions. That’s why we still have lousy growth, why we have 50 million Americans on food stamps, why, despite job creation, we can’t get wages up, why we can’t get aggregate demand up, etc.

What are structural solutions, and what would they be? I would suggest how about zero capital gains tax? How about a reduction in the income tax? What about less regulation, more liberal labor laws? In Europe, you would look for labor mobility. In Japan, you would look for more inclusion of women, more liberal immigration. Let the Filipinos, who now go to the Middle East, go to Japan to take up a lot of jobs and help that economy overcome a demographic hurdle.

There is a long list of very positive things you could do to generate real growth. Then the next question is, “What’s the likelihood of any of them?” The answer is pretty close to zero. I don’t see the political will, the political leadership or the consensus to do any of these things. What I see is delay, denial, overreliance on central-bank voodoo, and an unwillingness to confront the problems, which leads me to conclude that the system will collapse.

Alex:  With that final rosy remark, I guess we’re done! Jim, I really appreciate it and always enjoy these conversations with you. With that, I’m going to turn it back over to Jon.

Jon:  Thank you, Alex, and thank you, Jim Rickards. It’s always a pleasure and an education having you with us. Most of all, thank you to our listeners for spending time with us today. Let me encourage you to follow Jim on Twitter. His handle is @jamesgrickards. Goodbye for now. We look forward to joining you again soon.

 

Listen to the original audio of the podcast here

The Physical Edge Episode 3: March 2016 Interview with Alex Stanczyk

 

Learn more about Jim Rickards new book, The New Case for Gold at http://thenewcaseforgold.com/

You can follow Alex Stanczyk on Twitter @alexstanczyk

You can follow Jim Rickards on Twitter @JamesGRickards

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https://itunes.apple.com/us/podcast/the-gold-chronicles/id980027782?mt=2

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Transcript of Alex Stanczyk – The Physical Edge March 2016

Dear friend and client of Physical Gold Fund,

We are pleased to release this next episode of the Physical Edge with Alex Stanczyk. In this episode, Physical Gold Fund’s Managing Director explains the importance of jurisdiction choice for vaulting, as well as why vaulting outside the banking system is a prudent safe-guard in today’s financial environment.

Please enjoy with our compliments.

Topics include:

  • According to the IMF, gold is the only Case of a financial asset with no counter party liability
  • Gold will not default like some other financial assets could during a liquidity crisis
  • Over 30% of the bond market is now negative interest rate bearing, with over $7.9 Trillion at negative yield and gold is looking more attractive
  • The meme that gold is a bad investment because it produces no yield does not stand up under scrutiny, all forms of money generate no yield unless invested
  • A modest allocation of a portfolio to gold acts as a diversifier and a truly non-correlated asset
  • Gold is not subject to hacking or cyber warfare
  • Gold is truly non-correlated
  • There is a physical market for gold, regardless of what financial markets are doing
  • Gold protects against sovereign risks such as rapid currency devaluations, examples Russian Ruble, Brazilian Real
  • It’s a hard asset with no counterparty risk, and it has excellent liquidity compared to other hard assets, such as real estate. Gold has almost a 24-hour, very deep, and highly liquid market
  • Criteria when evaluating vaulting jurisdictions
  • Political stability, economic stability, rule of law, history of confiscations, precious metals industry infrastructure, strategic defenses
  • Switzerland as a vaulting jurisdiction
  • Long standing relationships in the precious metals industry in Switzerland
  • Switzerland is the core of the precious metals industry, and is a solid foundation for liquidity globally
  • Reasons for electing non-bank vaulting
  • Rule of Law matters regarding gold as a financial asset or physical property

Listen to the original audio of the podcast here

The Physical Edge Episode 3: March 2016 Interview with Alex Stanczyk

 

March 2016

Jon:  Hello. I’m Jon Ward on behalf of Physical Gold Fund. We’re delighted to welcome you to the third podcast in a series we’re calling The Physical Edge.

In these interviews, I’ll be talking with Alex Stanczyk, Managing Director of Physical Gold Fund. Our focus will be the fund itself and related questions about the physical gold market. This series is primarily for non-U.S. investors who are considering participation in Physical Gold Fund.

Alex Stanczyk has been involved in Physical Gold Fund since its inception by providing core aspects of the fund design and structure as well as coordinating strategic relationships required for launching the fund.

Prior to this, Alex played a key role as designer and advisor to the world’s first non-bank, private-custody precious metals fund, the Luxembourg Precious Metals Fund. For the past eight years, he has served in a range of capacities for the Anglo Far-East group of companies focusing especially on the logistics of gold acquisition, transportation, and vaulting.

Throughout this time, Alex Stanczyk has lectured globally to family office, institutional, and government audiences on the role of gold in a portfolio, and the international monetary system.

Hello, Alex. Welcome.

Alex:  Hello, Jon. It’s great to be with you again.

Jon:  Today we’re going to discuss a critical aspect of the physical gold market, and it’s the question of jurisdiction; that is, the location you choose to purchase and store your gold. Would you first explain why jurisdiction matters when an investor or institution is dealing with significant amounts of physical gold?

Alex:  Let’s begin by laying a foundation for what gold is. According to the IMF, gold is the only case of a financial asset with no counterparty liability. In other words, gold is not going to default on you like some other financial assets could or might under situations like a liquidity crisis, institutional failure or anything of that nature.

Another aspect of gold that investors are finding interesting, especially at this time, is that in a negative interest rate environment – right now some $7.9 trillion in government bonds is giving a negative yield – gold is looking more and more attractive. Some argue that gold has no yield, so it’s not a good investment, but the particular argument that gold has no yield is actually true of all forms of money including the USD.

However, as I just mentioned, in this negative interest environment, owning gold is now no different than cash or bonds for many people around the world, only it doesn’t have the risk of default.

In our view, a modest allocation of a portfolio to gold acts as a diversifier and a truly non-correlated asset. I’ll explain what I mean by that in just a moment. It acts as insurance versus paper and digital assets in the portfolio.

Here are some reasons why gold makes sense as insurance:

First, it’s not subject to hacking, cyberwarfare, and disruptions in a particular exchange. Any kind of financial asset a person or institution might possess, obviously if they want to have liquidity, they must be able to buy and sell and trade that instrument on an exchange, unless of course they’re dealing directly with a fund like ours.

Second, during a liquidity crisis, gold is not going to fail as an instrument holding value. It will maintain its liquidity, because there’s a global market for physical gold regardless of what’s happening in financial markets. Gold is truly non-correlated. What I mean by that is it protects against failures in banking or financial services counterparties because it ensures liquidity even when other things may become locked up or perhaps are crashing in value.

For example, if we look back at the 2008 global financial crisis, there were many hedge funds that were completely unable to trade because their primary broker or primary dealer had stopped trading. Gold is not correlated to financial systems at all. There is a physical market for gold regardless of what financial markets are doing. If you’re dealing with the right counterparties, as Physical Gold Fund does, you may not be subject to those kinds of things.

Most gold funds are buying and selling their gold directly through banks. Under a liquidity crisis, the banks could have those kinds of problems. If you’re dealing directly with refineries, as Physical Gold Fund is, then you’re bypassing banks and bypassing that potential risk.

Thirdly, gold protects against sovereign risks, for example, changes in currency values. Recent examples are the Russian ruble, which basically crashed in value. If a Russian citizen or institution had invested a portion of their portfolio in gold, it would have protected their position, because the value of gold in that currency went up substantially as the currency crashed. The Brazilian real is another recent, similar case where exactly the same thing happened.

In summary, gold is in an asset class all its own because of its physical properties and use. It’s a hard asset with no counterparty risk, and it has excellent liquidity compared to other hard assets such as real estate that may take you a while to sell. Gold has almost a 24-hour, very deep, and highly liquid market.

Some jurisdictions provide a better framework than others to take advantage of gold attributes, and that’s what we’re going to talk about today.

Jon:  The question of jurisdiction is clearly important for Physical Gold Fund, of which you are Managing Director. The fund has choices about where it manages its gold operations. What criteria have you used to select the optimum jurisdiction, and which location did your review of those criteria eventually lead you to?

Alex:  We have looked at a number of different jurisdictions and have chosen Switzerland as our primary jurisdiction for vaulting as of now. We also reserve the ability to add additional jurisdictions in time if it becomes warranted to do so.

The criteria we used when evaluating the jurisdictions we could choose from included, first of all, political stability. Obviously, we wanted to make sure there was a stable government system in any jurisdiction we were considering, that it had longevity, and that it wasn’t subject to continual regime change and those types of things.

Next, we looked at the economic stability of the jurisdiction. This was clearly an important criterion. Another thing that we looked at was the proximity of the jurisdiction to global precious metals markets for refining, transport, security, etc.

Next we looked at the precious metals infrastructure and history in that particular jurisdiction to determine what they had in place in terms of financial markets supporting gold, physical markets supporting gold, and physical operations supporting gold.

Further, we looked at the rule of law. Does the law in practice in a particular jurisdiction provide for the protection of assets and provide for recourse? In particular, we looked at how that works when it comes to gold, because gold is looked at differently depending upon where it’s stored whether in a bank or not and whether it’s considered a financial asset or physical property by a particular country.

The next thing that we looked at was if the jurisdiction had any kind of history of confiscation of gold. A lot of people think this may not be that important or they don’t take it very seriously. While we don’t necessarily think the likelihood of something like that is high, it is something we weighted into the equation nonetheless. We tried to take as many factors into consideration as possible. Some jurisdictions have a history showing a willingness to confiscate gold, so that was something that concerned us and was part of our criteria.

Finally, gold is a strategic asset. This means that during wartime, gold actually becomes the money of sovereigns. I’m not talking small, perhaps regional wars. I’m talking about in a world war scenario. Countries typically stop accepting each other’s paper and go to gold. In that kind of situation, countries start looking at gold as a strategic asset. There’s a reason that the CIA fact book listing of strategic reserves of a country talks about cash reserves and gold. For any jurisdiction we were considering, we wanted to look at its defensibility during wartime.

Jon:  In that context, let’s talk about Switzerland itself. What are the attributes of this jurisdiction that make it especially attractive for a gold investor?

Alex:  The values of the Swiss people regarding freedom and ownership of private property were very interesting to us. This stems from their history as a fiercely independent and free people. Switzerland, in particular, is politically stable. The Swiss have resisted efforts to bring it under the euro system. Many Swiss feel that doing so would jeopardize their freedoms and sovereignty.

Switzerland is economically resilient. It has done fairly well considering the morass of debt and solvency issues facing much of the euro system today. Aside from gold, Swiss currency is still considered globally as one of the safest assets a person can own. It retains a strong rule of law. We consider this to be extremely important for the protection of physical private property such as gold.

Finally, although not everybody knows this, Switzerland is the global hub of precious metals refining. Unlike some other jurisdictions that are new to gold, Switzerland has a substantially developed precious metals infrastructure. They have over 200 years of experience doing it, the largest refineries in the world reside there, and they handle a tremendous amount of precious metals flow.

Speaking of gold as a strategic asset, I want to emphasize this to highlight the way the Swiss think since it became part of our consideration. As I mentioned before, during large-scale war, gold becomes money between sovereigns, so we looked at this from a gold-as-a-strategic-asset standpoint. What many do not know is that the Swiss have a longstanding military history and have not been successfully invaded for almost 700 years. They have maintained neutrality through several world wars.

There’s a story about a German military attaché during World War II who approached the Swiss Chief of Staff right after the surrender of France and basically said to him that it was time to accept a German-led Europe and that the Swiss should allow German troops access to Switzerland to come through.

The story goes that the general looked the attaché up and down and simply said, “No one comes through here.” Then he went on to explain to him that if Germany invaded, the first thing they would hear would be the simultaneous demolition of every strategic rail system leading into the country.

This belligerence to invasion and determination in resisting affronts to their freedom is really deeply rooted in their culture. To this day, in Appenzell, Swiss men still carry swords when they turn out to vote to symbolize their willingness to fight for their freedoms. They have a very martial or military culture. National sports that are highly revered in Switzerland are things like wrestling and rifle marksmanship. They have hundreds of years of experience in military science. They were known to field the best soldiers available. This goes back all the way to the 1300s.

There’s another story from 1315 about 2,000 heavily armored Austrian knights that tried to invade Switzerland through the Morgarten Pass with the intention of imposing taxation and territorial control, etc. The Swiss peasants defended that pass versus these 2,000 heavily armored Austrian knights. As these knights came through the pass, the peasants came down on them with tree trunks, halberds, axes, used rock slides, and basically destroyed these knights almost to the last man.

Today there’s a saying: “The Swiss don’t have an army; the Swiss are an army.” What that means is that every Swiss citizen is part of a standing civilian army in which they’re required to serve for 30 years. Every military-aged male is required to keep a well-serviced military grade firearm in their home and are trained in how to use it. All 650,000 members of the army are prepared to mobilize for war and be at their mobilization points in less than 24 hours.

One Swiss army officer is quoted as saying, “The foremost battle is to prevent the war by making the price of victory too high. You must understand that there is no difference between the Swiss people and the Swiss army. There is no difference of will. The people are prepared to fight, even against their own government if the government where to capitulate.” This tells us something about the Swiss mentality, and these types of things were part of what we looked at.

There are some other things that are interesting to know about Switzerland. While doing our research on Switzerland and other jurisdictions we looked at, one of the books we came across talked about geographical, tactical, and strategic considerations.

Switzerland, in particular, is basically ringed by mountains that form a natural geographic defense system. All of the roads, bridges, rail systems, and valleys leading into Switzerland are intentionally pre-staged with explosives. The reason they do this is that if Switzerland were to ever be invaded, it allows for the Swiss to intentionally destroy all access moving into the country. They will blow up every road, every bridge, and every mountain pass if necessary in order to prevent anyone from invading. The officially printed number is over 3,000 points of demolition, although some experts think this number is higher, possibly even twice as high.

There are over 12,000 pieces of artillery stationed in the mountains around Switzerland that are manned around the clock. These pieces of artillery are actually aimed at their own infrastructure such as tunnel mouths, bridges, rail systems, etc. All of these guns are pre-gridded for fire. For example, if they did demolish bridges or rail lines coming into the country and anyone were to try to repair them, these guns are aimed, pre-gridded, at those locations, so you can’t approach them anymore.

Whole mountains in Switzerland have been hollowed out and can hold entire divisions of soldiers. They store munitions to fuel and supply a fully mobilized army for over a year. Every public building in Switzerland doubles as a bomb shelter or a fortified military facility and over 95% of the population has access to bomb shelters designed to withstand nuclear blasts.

I’m emphasizing these points to highlight the way the Swiss think and the way they approach matters of security. It’s simply a part of their culture. The vaulting security for valuable property, such as gold, diamonds, and art, in Switzerland is considerable.

When reviewing other popular jurisdictions for vaulting, none of these jurisdictions come even close to comparing to these factors. For example, Hong Kong is a very popular destination for people vaulting gold and so is Singapore. While there’s nothing wrong with these jurisdictions – we may in fact vault there at some point in the future – the point I’m trying to make is that none of these countries have a history of defending against invasion and they’re very close to, for example, China. If I’m going to store gold, Switzerland stands head and shoulders above the other options.

Jon:  Thank you. That’s an extraordinary portrait of the country. I’m curious now to know if there are any particular advantages of Switzerland as a jurisdiction for Physical Gold Fund in particular.

Alex:  Yes, there are. For Physical Gold Fund in particular, we have longstanding relationships we’ve developed in Switzerland with some of the largest refineries in the industry and with what we consider to be some of the best vaulting operators in the industry.

Another thing that is important as far as Physical Gold Fund is concerned is that the vaults and refineries are very close to each other, so we can transport metal back and forth between them in very short distances. One reason why this may be important, which many people don’t realize, is that these Swiss refineries process around 70% of the world’s annual metal refining capacity. We consider Switzerland to be at the core of the precious metals industry, and it’s a really solid foundation for liquidity globally.

What stands on the other side of these refineries are all of the bullion banks and largest jewelry manufacturers in the world. Because of that, regardless of what’s happening in financial markets, there’s demand on the other side of these refineries. That’s a really important aspect to us, because it gives us an extra degree of resilience to potential crises in terms of liquidity crises or fluctuations in market stability. Finally, it also helps us reduce cost of operations.

Jon:  One last question. Whenever we discuss the vaulting of gold, I notice you and your colleagues at Physical Gold Fund always place a huge emphasis on vaulting outside the banks. Why is this so important?

Alex:  This is a great question and something we’ve emphasized in the way we’ve structured products for many years now. There was a time when we said that it was important to vault outside of the banks to protect against liquidity crises, and people would look at us without really understanding what we meant by that.

It has become more and more clear today that if you have your assets held with the bank and there is some sort of a liquidity crisis, then there may be some issues in terms of those assets being locked up or unable to be traded or whatever the case may be. We saw that in 2008.

Another important reason for this is that, in many jurisdictions around the world, bail-in legislation has already been passed. This allows banks to seize assets of depositors to recapitalize the bank in the event of a failure. While this may or may not apply to physical gold now, it’s still a really disturbing trend and something we are concerned about.

In Switzerland, in particular, gold in banks is considered a financial asset versus physical private property. That’s a really important distinction for us.

According to the Swiss Bank Act and Swiss Bank ordinances, banking business activities are defined in the Swiss Bank Act. The Swiss Bank Act does not govern private storage of gold bars. We’re talking about non-bank vaulting in Switzerland. Private property, including precious metals that are stored with private security storage companies, is protected under the Swiss Private International Law Act and also the Swiss Civil Code.

Under Swiss law, there is no difference regarding what physical property is stored. It could be precious metals, fine art, wine, etc., but those things are not considered financial assets. They’re considered private property, and that is one of the key reasons to store outside of a bank.

This is one of many things we’ve looked at that in our view makes Physical Gold Fund a leader and innovator among the gold funds and ETFs in the world today.

Jon:  Thank you, Alex Stanczyk, Managing Director of Physical Gold Fund. And thank you to our listeners. We look forward to joining you again soon.

 

Listen to the original audio of the podcast here

The Physical Edge Episode 3: March 2016 Interview with Alex Stanczyk

 

Learn more about Jim Rickards new book, The New Case for Gold at http://thenewcaseforgold.com/

You can follow Alex Stanczyk on Twitter @alexstanczyk

You can listen to the Gold Chronicles on iTunes at:
https://itunes.apple.com/us/podcast/the-gold-chronicles/id980027782?mt=2

You can Listen to the Global Perspectives on iTunes at:
https://itunes.apple.com/ca/podcast/physical-gold-fund-podcasts/id1056831476?mt=2

You can access transcripts of our interviews at:
http://physicalgoldfund.com/category/transcripts/

You can subscribe to our Youtube channel to access these interviews and more at:
https://www.youtube.com/channel/UCXRWzw0vaNgCwo7nTMEAwkA

 

By listening to this podcast or reading its associated transcript (collectively, this “Podcast”), you agree with the following.

This Podcast is not an offer to sell, nor a solicitation of an offer to purchase, any security. This Podcast is intended for general education and information purposes only, and may include broad discussions of markets, geopolitics, monetary policy, and geoeconomics. Nothing in this Podcast constitutes investment, legal or tax advice, nor an evaluation of or prospectus for any particular investment or market, including gold. This Podcast should not be relied upon to make any investment decision. You are encouraged to seek the advice of qualified financial, legal and tax advisors before making any investment decisions.

This material is provided on an “as is” and “as available” basis, without any representations, warranties or conditions of any kind. In particular, information provided by third parties in this Podcast has not independently evaluated or confirmed. Furthermore, we take no responsibility to update this Podcast to reflect any changes in any of the information presented. Physical Hard Assets Fund SPC and Physical Gold Fund, its officers, directors, employees or associated persons will not under any circumstances be liable to you or any other person for any loss or damage (whether direct, indirect, special, incidental, economic, or consequential, exemplary or punitive) arising from, connected with, or relating to the use of, or inability to use, this Podcast or the information herein, or any action or decision made by you or any other person in reliance on this information, or any unauthorized use or reproduction of this Podcast or the information herein.

The Physical Edge Episode 3: March 2016 Interview with Alex Stanczyk

Dear friend and client of Physical Gold Fund,

We are pleased to release this next episode of the Physical Edge with Alex Stanczyk. In this episode, Physical Gold Fund’s Managing Director explains the importance of jurisdiction choice for vaulting, as well as why vaulting outside the banking system is a prudent safe-guard in today’s financial environment.

Topics include:

  • According to the IMF, gold is the only Case of a financial asset with no counter party liability
  • Gold will not default like some other financial assets could during a liquidity crisis
  • Over 30% of the bond market is now negative interest rate bearing, with over $7.9 Trillion at negative yield and gold is looking more attractive
  • The meme that gold is a bad investment because it produces no yield does not stand up under scrutiny, all forms of money generate no yield unless invested
  • A modest allocation of a portfolio to gold acts as a diversifier and a truly non-correlated asset
  • Gold is not subject to hacking or cyber warfare
  • Gold is truly non-correlated
  • There is a physical market for gold, regardless of what financial markets are doing
  • Gold protects against sovereign risks such as rapid currency devaluations, examples Russian Ruble, Brazilian Real
  • It’s a hard asset with no counterparty risk, and it has excellent liquidity compared to other hard assets, such as real estate. Gold has almost a 24-hour, very deep, and highly liquid market
  • Criteria when evaluating vaulting jurisdictions
  • Political stability, economic stability, rule of law, history of confiscations, precious metals industry infrastructure, strategic defenses
  • Switzerland as a vaulting jurisdiction
  • Long standing relationships in the precious metals industry in Switzerland
  • Switzerland is the core of the precious metals industry, and is a solid foundation for liquidity globally
  • Reasons for electing non-bank vaulting
  • Rule of Law matters regarding gold as a financial asset or physical property

Learn more about Jim Rickards new book, The New Case for Gold at http://thenewcaseforgold.com/

You can follow Alex Stanczyk on Twitter @alexstanczyk

You can listen to the Gold Chronicles on iTunes at:
https://itunes.apple.com/us/podcast/the-gold-chronicles/id980027782?mt=2

You can Listen to the Global Perspectives on iTunes at:
https://itunes.apple.com/ca/podcast/physical-gold-fund-podcasts/id1056831476?mt=2

You can access transcripts of our interviews at:
http://physicalgoldfund.com/category/transcripts/

You can subscribe to our Youtube channel to access these interviews and more at:
https://www.youtube.com/channel/UCXRWzw0vaNgCwo7nTMEAwkA

 

By listening to this podcast or reading its associated transcript (collectively, this “Podcast”), you agree with the following.

This Podcast is not an offer to sell, nor a solicitation of an offer to purchase, any security. This Podcast is intended for general education and information purposes only, and may include broad discussions of markets, geopolitics, monetary policy, and geoeconomics. Nothing in this Podcast constitutes investment, legal or tax advice, nor an evaluation of or prospectus for any particular investment or market, including gold. This Podcast should not be relied upon to make any investment decision. You are encouraged to seek the advice of qualified financial, legal and tax advisors before making any investment decisions.

This material is provided on an “as is” and “as available” basis, without any representations, warranties or conditions of any kind. In particular, information provided by third parties in this Podcast has not independently evaluated or confirmed. Furthermore, we take no responsibility to update this Podcast to reflect any changes in any of the information presented. Physical Hard Assets Fund SPC and Physical Gold Fund, its officers, directors, employees or associated persons will not under any circumstances be liable to you or any other person for any loss or damage (whether direct, indirect, special, incidental, economic, or consequential, exemplary or punitive) arising from, connected with, or relating to the use of, or inability to use, this Podcast or the information herein, or any action or decision made by you or any other person in reliance on this information, or any unauthorized use or reproduction of this Podcast or the information herein.

The Gold Chronicles: March, 15th 2016 Interview with Jim Rickards

Jim Rickards, The Gold Chronicles March 2016:
*Cyber financial warfare is a new factor that did not exist in 1980
*Fed balance sheet has a foundation of marked to market gold
*The Fed has a gold certificate issued to it by Treasury that is valued at the entire US Treasury gold position calculated at $42.20 per ounce
*Audio version of the new book read by Jim will be available on Amazon
*Expecting gold price to rise in all currencies
*Major central banks are acquiring gold, which will be the chips at the poker table when the monetary system is re-negotiated. Japan, UK, Australia will rely on the US position
*The non-deflationary price of gold under a new gold standard would be $10,000 per ounce or higher
*Expecting near zero interest rates for an extended period of time
*Windfall tax on gold would require an act of Congress – no expectation this is likely, if it happened there would be plenty of advance warning and time to reposition a portfolio

 

 

Learn more about Jim Rickards new book, The New Case for Gold at http://thenewcaseforgold.com/

You can follow Alex Stanczyk on Twitter @alexstanczyk

You can follow Jim Rickards on Twitter @JamesGRickards

You can listen to the Gold Chronicles on iTunes at:
https://itunes.apple.com/us/podcast/the-gold-chronicles/id980027782?mt=2

You can Listen to the Global Perspectives on iTunes at:
https://itunes.apple.com/ca/podcast/physical-gold-fund-podcasts/id1056831476?mt=2

You can access transcripts of our interviews at:
http://physicalgoldfund.com/category/transcripts/

You can subscribe to our Youtube channel to access these interviews and more at:
https://www.youtube.com/channel/UCXRWzw0vaNgCwo7nTMEAwkA

 

By listening to this podcast or reading its associated transcript (collectively, this “Podcast”), you agree with the following.

This Podcast is not an offer to sell, nor a solicitation of an offer to purchase, any security. This Podcast is intended for general education and information purposes only, and may include broad discussions of markets, geopolitics, monetary policy, and geoeconomics. Nothing in this Podcast constitutes investment, legal or tax advice, nor an evaluation of or prospectus for any particular investment or market, including gold. This Podcast should not be relied upon to make any investment decision. You are encouraged to seek the advice of qualified financial, legal and tax advisors before making any investment decisions.

This material is provided on an “as is” and “as available” basis, without any representations, warranties or conditions of any kind. In particular, information provided by third parties in this Podcast has not independently evaluated or confirmed. Furthermore, we take no responsibility to update this Podcast to reflect any changes in any of the information presented. Physical Hard Assets Fund SPC and Physical Gold Fund, its officers, directors, employees or associated persons will not under any circumstances be liable to you or any other person for any loss or damage (whether direct, indirect, special, incidental, economic, or consequential, exemplary or punitive) arising from, connected with, or relating to the use of, or inability to use, this Podcast or the information herein, or any action or decision made by you or any other person in reliance on this information, or any unauthorized use or reproduction of this Podcast or the information herein.

Transcript of Jim Rickards – The Gold Chronicles February 18th, 2016

Jim Rickards, The Gold Chronicles February 18th 2016:


*Negative Interest Rates leading to a fresh round of currency wars
*Fed on the path to raise interest rates in March and again in June
*Markets are currently assuming the Fed is not going to raise rates
*The S&P would have to be sub 1650 and the jobs report would have to come in under 100k for the Fed to not raise rates
*Still seeing consistent below trend growth
*Inconsistency in policy is causing a loss of confidence in the Fed
*Gold is currently acting like money, similar to USD, Yen, Euro
*In Jim’s new book he addresses common falacies and myths in regards to Gold
*The New Case for Gold can be pre-ordered on Amazon at http://www.amazon.com/New-Case-Gold-James-Rickards/dp/1101980761
*What a move to a cashless society looks like
*May see negative interest rates in the US in 2017

Listen to the original audio of the podcast here

The Gold Chronicles: February, 18th 2016 Interview with Jim Rickards

 

The Gold Chronicles: 2-18-2016:

 

Anglo Far-East’s Global Insider is pleased to be able to make available the following transcript. AFE has used this transcript with permission from the copyright owner. Copyright Physical Gold Fund © 2015 all rights reserved. AFE would like to thank Physical Gold Fund for making this transcript available.

Jon: On the behalf of the Physical Gold Fund, we’re delighted to welcome you to the latest webinar with Jim Rickards in the series we’re calling The Gold Chronicles.

Let me remind those of you who know Jim Rickards and introduce him to those of you who are new to the webinar. Jim is a New York Times bestselling author and the chief global strategist for West Shore Funds. He’s the former general counsel of Long-Term Capital Management, a consultant to the US Intelligence Community, and to the Department of Defense. He’s also an advisory board member of Physical Gold Fund.

Hello, Jim, and welcome.

Jim: Hi, Jon, how are you?

Jon: Very good, thanks.

We also have with us Alex Stanczyk, Managing Director of Physical Gold Fund. Hello Alex.

Alex: Hello, Jon. It’s great to be here.

Jon: We’ll be looking for questions from you, our listeners, so let me say that your questions for Jim Rickards today are more than welcome. You may post them at any point during the interview, and as time allows we’ll do our best to respond to you.

Jim, I’d like to begin with a recent statement made by John Paulson. He’s highly respected and well known within the financial community as a hedge fund manager. Mr. Paulson said pointedly that we are not facing an imminent financial crisis. Obviously, he had a reason for wanting to say that in the current climate. Let me contrast this statement of John Paulson’s with a recent bulletin from the Royal Bank of Scotland advising its clients to “sell everything.”

My question to you is simple: How near are we to a really cataclysmic breakdown in the world’s financial markets?

Jim: I’m certainly one of those who see a cataclysmic breakdown coming, but I would say not yet. I’m with John Paulson on this as I look at the landscape today.

1987 was an example of a financial panic with no recession, 1990 was an example of a recession with no financial panic, and 2008 was an example of both in which we had a very severe recession, the worst since The Great Depression, and a very severe financial panic. The point is they’re different things; they can run separately or they can run together.

While I certainly anticipate a financial calamity in the years ahead, I don’t see that happening right now. However, I do see a recession and a stock market decline, and that’s the way to reconcile a lot of what we’re hearing. So, when Paulson says we’re not facing an imminent financial crisis, I agree, but that’s not the same as saying we’re not facing a slowing economy or a recession or a declining stock market. I think we are facing all three of those things.

When an entity like the Royal Bank of Scotland sends an advisory to clients saying sell everything, they’re really commenting on the markets and the recession, not a financial catastrophe.

To expand on that, we could talk about the Fed, monetary policy, the impact on gold, and some other things. Basically, I would say we’re not facing a calamity, but we are facing recession, further declines in stock markets, and a lot of volatility in exchange markets and gold. There is a lot going on, but not quite the big one, as they say in California.

Jon: Let’s look at one aspect that is purely financial but, of course, has economic implications. I want to talk about negative interest rates.

Negative interest rates have become something of a craze among the world’s central bankers. We’ve got the European Central Bank, Japan, Switzerland, and Sweden among others all piling in with this strategy. By some estimates, that’s about $6.5 trillion in sovereign debt trading below zero.

Even in the United States, the Fed has asked banks to test the possibility of negative rates, and yet at the same time, Janet Yellen continues to insist that the Fed is on course for raising rates. This all seems a little bit like Alice Through the Looking Glass.

Can you help us make sense of the signals here?

Jim: Yes. When you say Alice Through the Looking Glass, that’s a very good metaphor, because once you cross zero, you’re really through the looking glass in more ways than one.

There are several reasons for negative rates. The main reason is to try to manage exchange rates of currencies. In other words, this is an extension of the currency wars.

Central banks will say this is for stimulus. The theory is with the negative rate. Let’s say I’m the central bank. I’m actually charging banks to have a deposit with me. Banks in my system – in the case of the European Central Bank, we’d be talking about Deutsche Bank, Credit Suisse, UBS, and other large European banks – deposit money with the European Central Bank. The ECB is saying, “Fine, you deposit with us, we’re going to give you less at the maturity of your deposit. We’re going to take away part of your deposit.” That’s a negative interest rate. Instead of paying you interest, we’re going to take something away.

Superficially, they say this is an incentive to go out and lend. That is, you can do one of two things with your money:

1) You can lend it to some business or enterprise or do trade finance, commercial finance, any commercial loan, or anything you like, or

2) You can leave it with us, and we’ll take it away from you little by little in small increments. Therefore, that negative rate is an incentive to go out and lend.

In fact, that’s really not different in kind than the incentives we’ve had in place for the last eight years. In other words, if I could lend money at 1% or 1.5%, how much does it matter to me if the rate is zero or negative 25? I guess if you go negative 25 or negative 50, negative 1% at some point might matter. Maybe we’ll get there since things certainly are moving in that direction, but the reason banks haven’t loaned out the money is because nobody wants to borrow it.

Take corporations or regulators imposing strict credit standards. The big ones have plenty of cash and the small ones are perhaps not creditworthy or they’re looking at below-trend growth and saying, “Why would we want to borrow money to buy a plant and equipment or expand our capacity? Why would we want to do any of those things? We’re worried about growth, we’re worried about leverage, we’re worried about a new recession. We don’t want to borrow.” It’s the same thing with consumers. When they get their hands on money, the tendency is not to spend it but to either save it or pay down debt.

We have an excess of savings over investment. We have deleveraging in the form of paying off debt. We have banks that don’t want to lend and consumers and businesses that don’t want to borrow or spend. The system is jammed up, the transmission mechanism between central bank money and commercial bank money and lending and spending is very badly broken. Going down another 25 or 50 basis points isn’t going to change that.

The impediments are psychological, they’re structural, and they’re long-term. It’s not because interest rates are too high and they need to be lower. Interest rates have been very low – too low – for a long time. As I said, the impediments are elsewhere, and lowering rates is not going to change that.

On the surface, they will say the purpose of negative interest rates is designed to have a stimulus, but there is no stimulus. If zero didn’t do it, 25 basis points negative won’t make much difference. However, there is a reason – at least in the minds of central banks – for lowering rates, including negative rates, and that’s to fight the currency wars. It is designed to cheapen currency.

If you are a major institution, a sovereign wealth fund, or a very large asset allocator like BlackRock or PIMCO, or even a bank, or the aggregate of all the savings in the world and you’re deciding where to park your money, you have several choices. You can park it in Europe or the United States or Japan, et cetera.

At the margin, you’re going to park it where you can get the highest rate. If the US is positive 25 or maybe soon to be 50 basis points and slightly higher for banks, and Europe is negative, then you’ll put your money in the United States. This means that at the margin, you’ll be selling yen, selling euros, and buying dollars. That has the tendency to cheapen the euro.

There is an agenda, if you will, but the agenda is not normal stimulus through lending and spending; it’s a backdoor stimulus to currency wars, cheaper currencies, and importing inflation. That’s why Europe is doing it, Switzerland has done it, and others are doing likewise – Japan, Sweden, and the other countries you mentioned.

The US is not doing it. In fact, the US is moving in the opposite direction. The US is in a tightening cycle. This combination of tightening in the US and negative rates in Europe has driven the dollar at this point close to ten-year highs and has driven the euro quite low.

That’s the dynamic going on. The question is where do we go from here? What’s next for the Fed, what’s next for Europe? If you’d like, Jon, I can expand on that and do a longer-term central bank forecast.

Jon: I think it would be helpful, because the sense of “What’s the future of this?” is a question on all our minds.

Jim: The Fed is still on a path to raise interest rates. I expect the Fed will raise interest rates by 25 basis points in March and again in June. I’ll watch June carefully and may update the forecast between now and then. In fact, I update my forecast on a regular basis.

You hear that the Fed is suddenly going dovish. They did one rate hike in December, and the markets nearly collapsed in January. We went well into correction territory, or depending on the market, into actual bear market territory. It wasn’t quite as bad as the drop last August, but almost as bad.

The Fed came out with a statement released at the end of January, and then the minutes from that meeting were released yesterday. These were taken by the market to strike a very dovish tone.

The market has now formed an expectation that the Fed will not raise interest rates in March. I’m saying that they will, so that’s a bit contrary and outside the consensus. Let me explain my view and what it looks like the market is thinking.

When I say “the markets,” it shows up in the Fed funds futures markets. Based on where they’re priced, the markets are showing that they don’t expect any rate hikes in 2016 at all, with only a very small probability perhaps of one rate hike late in the year, and stock markets have started to rally.

By the way, go back to December when the Fed raised rates. I said earlier that they would not raise rates until December, and by the time they did, the market certainly expected it. I don’t know anyone who did not think the Fed was going to raise rates in December. The rest of the year is history, but by December it was clear that they were going to raise rates. It was very well advertised.

I also said that would be a blunder. I was not in the group who said, “A 25-basis-point hike is not a big deal. It’s only 25 basis points. Who cares?” I said at the time that they would raise rates but that it would be a huge blunder on par with what they did in 1929, and it would produce very average results. That’s exactly what happened in January. We all know what the stock market did in January and early February – it went down quite a bit.

The market was saying to the Fed, “Look, you have made a mistake. You’ve tightened in a weakness.” The Fed is not supposed to do that. They’re supposed to tighten when things are strong, labor market conditions are tight, and inflation rates are ticking up. That’s when they’re supposed to tighten. When you’re in economic weakness, you’re supposed to ease.

But here was the Fed tightening in weakness, because there was a lot of weak data from trade and manufacturing output, credit losses, a strong dollar, energy prices, commodity prices, shipments out of major ports, retail sales, inventory skyrocketing. It was a long list of data that said the US economy looked like it might be in a recession or heading for a recession. Why on earth would you tighten in that environment?

The Fed was tightening based on models that told them growth would be okay and inflation was right around the corner. Meanwhile, the real world was seeing weakness all around and seeing the Fed tighten and believed that was a blunder, so the stock markets collapsed over the course of January. But then, a funny thing happened in the last couple of weeks. The January minutes came out, as I mentioned, and were interpreted by the market as striking a very dovish tone.

What was the basis for that? If you look at the language, the Fed acknowledged the financial stress we were all seeing in the month of January. They said Chinese markets are going down, the US market is going down, markets are volatile, financial conditions are tightening, growth appears to be slowing. They listed a litany of things that would indicate they recognized that the US economy is fundamentally weak.

So the market said, “Good, the Fed got the message. They tightened in December which was a mistake, the markets went down, but the Fed heard us, and now the Fed is acknowledging that the economy is weak, and they won’t tighten in March.”

Here’s where I disagree with the markets. Markets are wonderful price signals, they’re wonderful aggregators of information – I follow them very closely – but they’re pretty bad forecasters. I don’t rely on them for forecasts, but I do rely on them for information. Of course, the art of the exercise is to interpret it correctly.

When the market looked at first the Fed statement, then the minutes, and went down this list of weak factors, I think they ignored something else the Fed said. The Fed said, “Yes, we have weakness here, volatility there, tightening financial conditions. We’re watching it very closely.” That was the key phrase, because “watching it” means they haven’t changed their minds.

They set out on a path to raise rates, certainly in March, but some unexpected things happened. They acknowledged the unexpected things and said they’re watching it, but that tells me they haven’t seen enough yet to change course. If they had, they would have said that, but that’s not what they said. They said, “We’re watching it, we’re going to keep thinking about it.” That means they’re not changing course, and whenever you answer one question, it should always pose another question.

What I said to myself was, “Okay, the Fed is still on course to raise rates.” The market has kind of looked at the dovish part of the statement, but I looked at the part that said, “Yes, there are some dovish factors out there, but we still haven’t made up our minds.” That tells me they’re still on course to raise rates. Then I said, “What would it take? If they’re watching this data, what would it take for the Fed not to raise rates? They said it’s not bad enough yet, but how bad would it have to be?”

We do have some information on that, which is the collapse last August, particularly the last week of August, and the fact that the Fed did not raise rates in September of 2015 when they were widely expected to do so. Certainly all year by a lot of commentators, but in the run-up to September 15th, it was very widely expected, until the last two days, that they would in fact raise rates, but they didn’t.

That is an example of when the Fed did change course based on market. Now using that, applied to today’s markets, where would the S&P have to be for the Fed not to raise rates? That was the question I asked myself.

The answer is about 1650. That’s an estimate, and it could be a little bit higher or lower, but you would have to see the S&P crash from where it is now – around the 1920 level as we’re speaking – all the way down to 1650 for the Fed not to raise rates.

What about jobs? We’re going to get the February jobs report on March 4th. That’ll be the last big piece of data before the Fed has to make their decision on March 16th. The January jobs report that came out in February was decent. It wasn’t huge; it looks like monthly job creation actually peaked in November of 2014 right around the time the stock market peaked, by the way. That’s when the trouble began. There was a delayed or lagged reaction to the Fed tightening, beginning in the spring of 2013. Anything above 100,000 is not a blockbuster report, but it’s good enough.

My estimate for the Fed not to raise rates would be a February jobs report on March 4th of less than 100,000 new jobs, and you’d have to see the S&P tumble down to the 1650 level over the next couple of weeks. If both of those things happen, the Fed would not raise rates in March, but I don’t see either one of those things happening. I think the jobs report will be okay – not huge, but good enough – and there will be counter-rallies in the stock market. Even 1700 would be a shock, but I don’t see it hitting 1650.

With 1650 on the S&P and sub-100,000 jobs in the February jobs report being my benchmarks and neither one of those things happening, I don’t see the Fed being deterred from raising rates in March.

Beyond that, the market has made the Fed’s life easier because of what’s called a recursive function. That’s just a fancy name for a feedback loop. Go back to the December-January-February sequence. The Fed tightened in December, the market decided the economy was weak, that tightening in weakness was a mistake, the market went down, the Fed acknowledged the market’s concerns, the market interpreted that as being dovish, and the market rallied.

The irony is that the market rallying makes it easier for the Fed to raise rates. Because of a statement, markets are rallying in anticipation that the Fed won’t raise rates, but the market rally itself makes it easier to raise rates, because it eases financial conditions. It’s the exact opposite of what the market may be expecting.

All of that is a setup for possibly a shock on March 16th where the Fed tightens as I expect, but the market is looking for no action. Certainly nobody thinks the Fed is going to ease, take back the 25 basis points they raised, but even doing nothing would be sort of dovish from the market’s perspective.

If the market expects the Fed to do nothing and the Fed tightens, that could be a shock. We could see much bigger declines in the stock market between now and then and perhaps even very much concentrated on March 16th if the Fed actually does tighten, which I expect.

Jon: Thanks, Jim. Let me take a moment to ask a broader question about investor confidence. I’m not talking about confidence in the market or in companies, but confidence in the monetary system. Do you see any kind of erosion of trust in the financial elites and in central banks in particular – not only the Fed, but central banks around the world?

Jim: I do. In 2008, central banks rode to the rescue, bailed out Wall Street, bailed out the banks, bailed out the economy, monetary market funds, bank depositors, you name it. There were tens of trillions of dollars of rescue packages put together. It did have the effect of preventing something much worse than what happened, but unfortunately it did not solve any of the root problems, and those problems have manifested themselves in two ways.

Number one, persistent below-trend growth. I think most economists would have said, “We went through a bad patch in 2008 and 2009, but maybe by 2010 or 2011 at the latest, we should have seen the economy getting back to consistent 3%, 3.5%, and occasional 4% growth.” That never happened. There were some individual quarters where that happened, but on the aggregate, no and certainly not globally, not in the United States, and not for any sustained period of time.

That being the case, just the passage of time itself would be enough to cause some loss of confidence in the central banks. Beyond that, and making it even worse, is the inconsistency in policy, the blindness of the Fed raising rates in December, and what happened in January. Would you have raised rates in December if you knew the market reaction would be so bad?

A few people, myself included, predicted that market reaction, but the Fed certainly missed it. Investors are now well aware that the Fed missed it, so they’re losing confidence in the central banks.

It’s one thing to describe this, but when you look for concrete evidence, I see it in the price of gold.

The reason I say that is there are a lot of reasons why the dollar price of gold might go up or down. I think our listeners are familiar with many of them. There’s inflation, deflation, negative real rates, positive real rates. There are a number of factors such as normal supply and demand that we’ve spoken about and will talk about on future calls as well, but for now I want to focus on one very particular important aspect, which is until November 2014, the dollar price of gold was very highly correlated to the commodity price index.

There are a couple of big commodity price indices out there. I’m using the Goldman Sachs composite, but the same would be true for other commodity indices as well. They were very tightly correlated. That makes sense; it should be correlated. First of all, gold is in the index, so a single component should be somewhat correlated with an index that includes that component, but beyond that, they respond to a lot of the same forces, including inflation, deflation, and interest rates.

Beginning in November 2014, they very sharply diverged. The commodity index continued to collapse driven mostly by the price of oil. We all know the oil story, but gold went up and then came down again. It was volatile, but it found a floor right around that $1060 an ounce level. It bounced off that floor a couple of times, and it’s had a very strong rally of about 14% over the last three weeks as I’m sure our listeners are well aware of.

What does it mean when commodities are still going down, bouncing around the bottom, but gold has broken away from the pack and started to move up? That tells me gold is no longer trading as a commodity; it’s trading as money. I’ve written a couple of columns where I called it a chameleon. You put a chameleon on a green leaf and it looks green, you put a chameleon on a tree trunk and it looks brown. It changes color to adapt to the environment just as gold changes its characteristics.

It’s always gold. In my view it’s always money, but in terms of broader markets and the perception, sometimes it trades like a commodity while other times it trades like an investment. If there’s a flight to quality and people are dumping stocks and bonds, they might buy gold, because gold is another asset class, another investment, but sometimes it acts like money.

Right now gold is acting like money. It’s in the horse race between the dollar, the euro, the yen, the yuan, and all the other major currencies. People are starting to look at gold as an alternate currency, an alternate form of money.

That explains why gold is going up, and it also explains why it’s broken away from the commodity index. Some people call it the fear trade. Maybe there’s a little bit of that in there, but I see it as gold is a form of money.

That, by the way, is very symptomatic of a loss of confidence in central banks, because what’s the competition? If you say gold is a form of money, what’s the competition? Bitcoin is in a small way, but the real competition is central bank money. It’s the dollar, the euro, the yen, and the yuan. If people are losing confidence in all the central banks and they’re looking for a form of money, the only thing left is gold, and to me, that accounts for why gold is going up.

The short answer to the question is yes. As a result of the central bank’s inability to see the stock market collapse in January caused by their blunder (it’s very tightly compressed between raising rates in December and sinking markets in January), there’s a generalized loss of confidence in the ability of central banks to steer economies.

I never had much confidence in them in the first place for that ability. I don’t feel it’s their job to steer economies, but most people think the central banks know what they’re doing, which of course, they don’t. I think confidence was lost, and that’s showing up in the increase in the price of gold, which people are turning to as a form of money that’s not printed by central banks.

Jon: Speaking of gold, Jim, last month you shared with us exciting news about your latest book called, The New Case for Gold. May I ask you something about that book? As you were working on it, did you make any new discoveries for yourself about either the historical role of gold or its future potential in the global monetary system?

Jim: I did, Jon. When you set out to write a book, you have a topic and an outline in mind, so you start out sort of knowing where you’re going. Then you actually do the research and start to look at a lot of different threads and just think about it. The writing process itself is a creative process, and sometimes you get into what psychologists call the flow. You start writing and you just keep going. That’s the source of a lot of creativity.

One idea that emerged really draws on my background in the bond business and in government finance. Today I write and speak about gold a lot. I’m on the board of advisors of the Physical Gold Fund, I have this new book coming out on gold, and it’s something I’ve done a lot of in the last ten years, but before that, I was in banking, hedge funds, and government finance, and I have the bond market background. I’m very familiar with open market operations.

I started going down a list of objections to gold. I think we all know what I call the litany of reasons not to own gold. You run into people who say that gold is a barbarous relic, gold has no yield, gold is not part of the money supply and never will be, there’s not enough gold to have a gold standard.

Every one of those things is wrong. They’re either factually wrong, historically wrong, or analytically wrong. I write about that in the book. I take them one by one, rip them apart, and leave the reader with a very good historical, factual, analytical foundation on which to rebut the gold bashers.

If anyone picks up this book and reads it, and then whether they’re on television, at a cocktail party, dinner party, among friends or just behind the wheel listening to the radio and they hear some of these arguments against gold, I hope they will be well armed with the rebuttal, because that’s all in the book. I hope the readers enjoy that.

One particular objection you hear is that people say there’s not enough gold to have a gold standard. Look at the current price and the total volume of bank assets, trade and finance, capital flows, the size of the world economy, the amount of gold, and the price of gold. Could you have gold backing up the global economy today? The superficial answer and the incorrect answer is no, but the correct answer is that there is enough gold; you just have to change the price.

There may not be enough gold at $1200, that may be deflationary relative to the money supply, but there’s plenty of gold at $10,000 or $20,000. Particularly, the same quantity of gold can serve for any amount of money supply or any economic size simply by raising the price. To say there’s not enough gold is nonsense on its face, because there’s always enough gold; it’s just a question of price. There are some historical antecedents for getting the price wrong going back to the 1920s, and if you ever had a gold standard in the future, you’d have to get the price right.

Beyond that, another idea occurred to me that had not earlier. I’ve never seen it in print or discussed anywhere. One of the things I explore in The New Case for Gold – one of many that I hope the readers find new and interesting – is that the critics who say there’s not enough gold fail to distinguish between official gold and total gold.

The estimated total amount of gold in the world is about 180,000 tons; it could be a little higher or lower. The amount of official gold in the world owned by central banks and sovereign wealth funds (basically owned by governments) is a much smaller amount. It’s about 35,000 tons.

When I’ve done any of my calculations or spoken about $10,000 gold, and whenever people question whether there is enough gold to support the global monetary system, etc., the calculations are done with reference to that 35,000 tons. Mining output is about 2,500 tons a year give or take, so that grows about 1.5% a year relative to total stock.

If you’re a central bank and want to ease monetary policy and you’re on a gold standard at a fixed price and you say “I don’t really have enough gold,” all you have to do is buy some. You can go out and buy gold from the floating supply of non-official gold. The answer is you’re not limited to 35,000 tons. You’ve really got 180,000 tons. Official gold is only about 20% of the total gold supply. There’s 80% out there waiting to be had.

As a central bank on a gold standard, it’s called an open market operation when you print money and buy gold. That’s exactly what central banks do today in the bond market.

What do they do when they want to tighten monetary policy or when they want to raise interest rates? They sell bonds back to the banks, the banks pay for them, and then the money just disappears. It’s as if it went into a black hole.

Buying bonds from the market with newly printed money and then selling bonds back to the market with money that disappears is called open market operations. That is how central banks control interest rates and try to regulate inflation, deflation, and economic growth.

You can do exactly the same thing with gold. If you think there’s not enough gold at a certain price and you want to ease monetary conditions, you can print money and buy gold. Likewise, if you think inflation is getting out of control and you want to tighten monetary conditions, you could sell gold and be paid for it.

If you’re trying to target a price – and as I said before, you have to get the price right – that would be a way to do so. If you set your gold standard at let’s say $10,000 an ounce and had a side-by-side free market in gold and gold started going up to $10,500 an ounce or $10,700 an ounce or some significant move like that, that’s a price signal to the central bank that their monetary policy is too easy, so they could actually sell gold into that market to try to lower the price. Start dumping gold and you lower the price. Conversely, if you see the price of gold going down to say $9500 an ounce when your target is $10,000, you can go buy gold, print money, and bid up the price.

They can treat gold exactly the way they treat bonds today. They can buy it and sell it in an open market operation, and they can do that to target the price for any combination of monetary ease or tightening they want.

That’s a technical way of saying this objection to a gold standard on the basis that there’s not enough gold, leaving aside that there’s always enough gold at a price, indicates a deeper objection to that, which is that there’s plenty of gold on the sidelines in private hands. You can buy it and sell it through open market operations and hit any target price of gold you want and create or destroy money exactly the way it’s done today.

There’s no inconsistency between a gold standard and discretionary monetary policy just as there’s no inconsistency between a gold standard and open market operations. When you throw in the entire private gold side by side with official gold, the idea that there’s not enough gold just falls away. It’s one of those clichés people throw out at you, but you can understand the ins and outs.

By the way, PhD economists, monetary economists, and central bankers would perfectly understand everything I’m saying, so why do they not say it? It’s because they don’t want to talk about it; they don’t want a gold standard; they don’t want to say anything positive about gold.

You can see that there’s plenty of gold and that gold standards are feasible. You do have to get the price right, but that target price would be $10,000 an ounce or higher.

Jon: Thank you, Jim. It’s an intriguing picture and certainly new to me.

Alex Stanczyk is here with questions from our listeners. I’m sorry time is a little short, but we’ve got some minutes left. Alex, would you take over here and share with us some questions from our listeners?

Alex: Sure, Jon, thank you. We encourage people to always give us questions however they like. They can send it in by e-mail, we have an interface here for you to ask questions this way, and you can also ask questions on Twitter using the hashtag #AskJimRickards. We’ll always monitor for those, and if we don’t pick them up in this webinar, we can possibly pick them up in future webinars.

A question that’s coming in right now is: How do we get Jim’s new book, The New Case for Gold? You can go to http://thenewcaseforgold.com/ and follow a link that will take you to Amazon. Otherwise, you can just go straight to Amazon and search for it. It’s available for preorder now. Our special edition is not available on Amazon; that’s going to be done completely separately, but you can order the standard edition that way.

Some questions we receive have to do with asking for what amounts to financial advice, investing advice, tax advice, or legal advice. Just to let you know, we typically try to stay away from those kinds of questions for obvious reasons.

A fairly common question right now has to do with the cashless society. One comment is, “Will cash be even more valuable in the black market if they try to go cashless?” Another question is, “There’s so much eagerness with bankers to ban cash. How would you see that play out?” There’s another one from Nathan that says, “Regarding recent news about elimination of the €500 bill and the $100 US bill, can you talk about this a little bit?”

Jim: Yes, I know there’s a lot of interest in it. Harvard professor Larry Summers had a report on this and blogged about it, and I spoke a little bit about it on Twitter. It’s generating a lot of interest, so let’s just hit this one head-on.

First of all, we are moving in the direction of a cashless society. There’s no question that governments around the world would like to go cashless. They know there will be some resistance, and they don’t want there to be a political issue in that way. The more homogenous the society is, the more likely you’ll see it. I think we may actually see this in the next year or so in Sweden since they’re pretty far down the road, and Europe would like to do it, so we are moving in that direction.

Another quick point is that a lot of people associate a cashless society with negative interest rates. Negative interest rates are already here in Japan, Europe, Sweden, and Switzerland. They may be coming to the United States just not right away.

I don’t think we’ll get to negative interest rates in the US until the middle of 2017. That’s because we’ll have a couple more rate hikes, and then I think the Fed will pause. Before they get to negative, they have to cut, because once you get up to 75 basis points, you’ve got to get back down to zero. That means two or three cuts.

If they raise in March, raise in June, pause in the fall, cut in January, February, March of 2017, you’re going to be all the way out until April 2017 before you see negative rates in the US. Having said that, I think we may see negative rates in the US before they do QE4. They’ll also try to do helicopter money side by side. So we are moving to negative interest rates, and we may see them in the United States next year.

A lot of people say, “Aha, I know a way around negative interest rates.”

That’s actually not feasible. I think the war on cash is over and the government won. People who think they can get a lot of cash are fooling themselves.

Corporations can’t do this. Apple has maybe $1 trillion of cash on its balance sheet, an enormous amount of cash. You’re not going to get $1 trillion in $100 bills and stick it in your back yard in Cupertino, California. The large buyers such as BlackRock, PIMPCO, Apple, and any company with large cash balances are not going to get currency, so we’re only talking about individuals.

Individuals are actually not that big of a piece in the puzzle, because the real impact of negative rates is going to be indirect through mutual funds, corporations, and stocks that you own.

It’s just not feasible for the big players to get cash. Even for everyday citizens and a lot of our listeners, you can’t go to the bank today and get $20,000. Call your bank tomorrow morning and tell them you’d like to withdraw $20,000 in cash. You’ll hear silence on the phone, then they’ll say “Come back in three days, because we’ve got to get the money,” and you’d better bring your birth certificate and 20 forms of federal ID, because they’re going to want your whole life history. It’s what they call a CTR, currency transaction report. It doesn’t make you a criminal, but you’re on some radar screens. You can’t access large amounts of hard cash without being treated like a criminal, a tax evader, or a terrorist. In fact, you will be treated like a criminal, a tax evader, or a terrorist even though you’re a perfectly honest citizen.

People can say, “I’ve got this figured out. As soon as they go to negative rates I’m going to march down and get some cash,” but they can’t get it. For that matter, you can withdraw $5,000 a week for a couple of months and say, “Well, they won’t file the currency transaction report,” but they’ll file something else called a suspicious activity report, SAR. You’re on the radar screens, so as a practical matter, you can’t get your cash.

You might say, “Maybe I’ll do it anyway and let them file a report, who cares? I pay my taxes, I’m an honest citizen, I have nothing to hide. If they want to send in a report to the Treasury, that’s fine, but it doesn’t really matter. I’m going to get my cash.” You can do that, but the question is would it possibly be worth more on the black market in the time of a cashless society? The answer is no, because if they go cashless, I can tell you what they’re going to do. They’re going to call in the money.

There’s going to be a public announcement that says, for example, you have 90 days to come down to the bank with your cash, hand it in, and we’ll give you credit in a digital account, your bank account, basically. Anybody who doesn’t do it within the 90 days, their cash will no longer be valid; it’ll be like confetti or newspaper.

I say these things and people look at me like, “Wait, Jim, you’re writing science fiction here,” but it happens all the time. How do you think they got to the euro? In 1999, you didn’t have the euro; you had Italian lira, Spanish pesetas, French franks, German Deutsche marks and others among 14 different currencies at the time.

They said “Hey everybody, you have X number of days to come down with your Deutsche marks or Spanish pesetas or whatever it is, cash them in, and we’ll give you euros.” You could get paper money because there’s still a paper euro, but if you have Deutsche marks today, they’re worthless because you’re past the time that they gave you to come and cash them in.

I would say two things. Number one, the cashless society is already here in effect, because it’s just not practical to get your hands on very much cash. Number two, even if they did make it a matter of law so that it was literally illegal and impossible to get cash, you’d have a certain amount of time to hand it over. In doing so, you would also be reported to the government, and therefore your cash isn’t going to do you any good. There’s not going to be a black market because it’s simply going to be worthless.

However, notice that everything I just said does not apply to gold. If you’re worried about the digital society, the cashless society, the government calling in $100 bills and writing down the names of everyone that comes in with a stack of 100s, if you’re concerned about all that, you ought to buy physical gold, because that will always be valuable. The government can’t make it go away. That’s really the alternative.

I wouldn’t be trying to load up on $100 bills. You might be trying to load up on physical gold, because that’s really the answer to being stampeded into digital accounts, which the government can then steal from.

Alex: I know that’s been on the mind of a lot of people, so thanks for covering all of that, Jim. We still have quite a few more questions, but unfortunately we’re out of time. Thanks, Jim, we really appreciate your insight as usual. With that, I’m going to turn it back over to Jon.

Jon: Thank you, Alex, and thank you, Jim Rickards. It’s always a pleasure and an education having you with us. Most of all, thank you to our listeners for spending time with us today. Let me encourage you to follow Jim on Twitter. His handle is @JamesGRickards.

Goodbye for now, and we look forward to joining you again soon.

 

Listen to the original audio of the podcast here

The Gold Chronicles: February, 18th 2016 Interview with Jim Rickards

 

Learn more about Jim Rickards new book, The New Case for Gold at http://thenewcaseforgold.com/

You can follow Alex Stanczyk on Twitter @alexstanczyk

You can follow Jim Rickards on Twitter @JamesGRickards

You can listen to the Gold Chronicles on iTunes at:
https://itunes.apple.com/us/podcast/the-gold-chronicles/id980027782?mt=2

You can Listen to the Global Perspectives on iTunes at:
https://itunes.apple.com/ca/podcast/physical-gold-fund-podcasts/id1056831476?mt=2

You can access transcripts of our interviews at:
http://physicalgoldfund.com/category/transcripts/

You can subscribe to our Youtube channel to access these interviews and more at:
https://www.youtube.com/channel/UCXRWzw0vaNgCwo7nTMEAwkA

 

By listening to this podcast or reading its associated transcript (collectively, this “Podcast”), you agree with the following.

This Podcast is not an offer to sell, nor a solicitation of an offer to purchase, any security. This Podcast is intended for general education and information purposes only, and may include broad discussions of markets, geopolitics, monetary policy, and geoeconomics. Nothing in this Podcast constitutes investment, legal or tax advice, nor an evaluation of or prospectus for any particular investment or market, including gold. This Podcast should not be relied upon to make any investment decision. You are encouraged to seek the advice of qualified financial, legal and tax advisors before making any investment decisions.

This material is provided on an “as is” and “as available” basis, without any representations, warranties or conditions of any kind. In particular, information provided by third parties in this Podcast has not independently evaluated or confirmed. Furthermore, we take no responsibility to update this Podcast to reflect any changes in any of the information presented. Physical Hard Assets Fund SPC and Physical Gold Fund, its officers, directors, employees or associated persons will not under any circumstances be liable to you or any other person for any loss or damage (whether direct, indirect, special, incidental, economic, or consequential, exemplary or punitive) arising from, connected with, or relating to the use of, or inability to use, this Podcast or the information herein, or any action or decision made by you or any other person in reliance on this information, or any unauthorized use or reproduction of this Podcast or the information herein.

The Gold Chronicles: February, 18th 2016 Interview with Jim Rickards

Jim Rickards, The Gold Chronicles February 2016:

*Negative Interest Rates leading to a fresh round of currency wars
*Fed on the path to raise interest rates in March and again in June
*Markets are currently assuming the Fed is not going to raise rates
*The S&P would have to be sub 1650 and the jobs report would have to come in under 100k for the Fed to not raise rates
*Still seeing consistent below trend growth
*Inconsistency in policy is causing a loss of confidence in the Fed
*Gold is currently acting like money, similar to USD, Yen, Euro
*In Jim’s new book he addresses common falacies and myths in regards to Gold
*The New Case for Gold can be pre-ordered on Amazon at http://www.amazon.com/New-Case-Gold-James-Rickards/dp/1101980761
*What a move to a cashless society looks like
*May see negative interest rates in the US in 2017

 

 

Learn more about Jim Rickards new book, The New Case for Gold at http://thenewcaseforgold.com/

You can follow Alex Stanczyk on Twitter @alexstanczyk

You can follow Jim Rickards on Twitter @JamesGRickards

You can listen to the Gold Chronicles on iTunes at:
https://itunes.apple.com/us/podcast/the-gold-chronicles/id980027782?mt=2

You can Listen to the Global Perspectives on iTunes at:
https://itunes.apple.com/ca/podcast/physical-gold-fund-podcasts/id1056831476?mt=2

You can access transcripts of our interviews at:
http://physicalgoldfund.com/category/transcripts/

You can subscribe to our Youtube channel to access these interviews and more at:
https://www.youtube.com/channel/UCXRWzw0vaNgCwo7nTMEAwkA

 

By listening to this podcast or reading its associated transcript (collectively, this “Podcast”), you agree with the following.

This Podcast is not an offer to sell, nor a solicitation of an offer to purchase, any security. This Podcast is intended for general education and information purposes only, and may include broad discussions of markets, geopolitics, monetary policy, and geoeconomics. Nothing in this Podcast constitutes investment, legal or tax advice, nor an evaluation of or prospectus for any particular investment or market, including gold. This Podcast should not be relied upon to make any investment decision. You are encouraged to seek the advice of qualified financial, legal and tax advisors before making any investment decisions.

This material is provided on an “as is” and “as available” basis, without any representations, warranties or conditions of any kind. In particular, information provided by third parties in this Podcast has not independently evaluated or confirmed. Furthermore, we take no responsibility to update this Podcast to reflect any changes in any of the information presented. Physical Hard Assets Fund SPC and Physical Gold Fund, its officers, directors, employees or associated persons will not under any circumstances be liable to you or any other person for any loss or damage (whether direct, indirect, special, incidental, economic, or consequential, exemplary or punitive) arising from, connected with, or relating to the use of, or inability to use, this Podcast or the information herein, or any action or decision made by you or any other person in reliance on this information, or any unauthorized use or reproduction of this Podcast or the information herein.

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