On April 17, 2013, I had the opportunity to interview John Embry, Chief Investment Strategist for the Sprott Gold & Precious Metals Fund, about the state of the gold and silver markets. His advice, "Don't sell. You must hold your position."
Mr. Embry said the wide attention the fall in gold and silver prices has attracted in the mainstream media has "created a wonderful buying opportunity." He predicts that, "When the carnage is over, and we're probably a lot closer to the end than to the beginning, I think this will represent the finest buying opportunity of the entire bull market, which is in its thirteenth year."
Echoing what metals whistleblower Andrew McGuire commented last week, Mr. Embry believes that the drop in gold and silver has been intentionally engineered. They both said bullion banks and central banks have been on the short side of the gold market for a very long time. They want the price to go down.
Mr. Embry explained that there are huge problems in the world's financial and economic systems. He believes that the powers that realize that they're going to have to print so much money to keep this thing from imploding, the last thing they want is gold and silver rising sharply in price because that would be a tell of what they're having to do and would lead pretty rapidly to higher interest rates. He said, "The one thing this system can't stand is higher interest rates."
Supporting what I have written in the past on Seeking Alpha, Mr. Embry focused on the almost $200 trillion worth of debt in the world and $250 trillion dollars of derivatives, which makes the system leveraged to a degree that is "almost unfathomable."
I asked Mr. Embry if there is a way out of this mess. He thought that no option was good, but the easiest option is to gradually wind our way towards hyperinflation, which might put the inevitable off for a considerable period of time. However, he said, US authorities have no intention of pursuing any austerity measures.
Turning to the case of Cyprus, Mr. Embry agreed that seizing depositors' money was a "very bad precedent." Stories that Cyprus might be forced to sell its gold, however, he said, were just misinformation. Even if Cyprus sold all of its gold, it would be "like a flea bite" on the global gold market. If Spain and Italy, in order to receive a bailout, were required to sell their gold, it might have some effect. However, a lot of their gold is already leased and isn't available. Mr. Embry argued that such information was just part of a broader propaganda campaign to drive gold prices down.
Turning to mining stocks, Mr. Embry said that for some time he has believed that we are at peak production levels for gold. Old mines are being played out and there are few new sources. Mining shares "have been crushed" and any exploration that is being done is being conducted by juniors. On this basis, Mr. Embry argued that we face "a very real probability that gold production will fall dramatically in the next few years."
Mr. Embry sees some of the cheapest valuations of mining shares he has ever seen, which may be an excellent buying opportunity.
Is the gold bull market finished?
Mr. Embry agrees with our analysts, Rick Rule, Eric Sprott and Mr. McGuire. Mr. Embry said, "I am absolutely sure the gold and silver bull market has not ended. If you don't like gold prices here, then you must like the value of paper money and you're getting next to zero interest on it." With governments printing money around the world, he said, "I don't see how you can possibly make that argument."
What should investors do?
"Do not be sucked in by this," Mr. Embry said. "Sell is just what they want you to do. You must hold your position. If you have cash, I think this is a wonderful opportunity to dollar-cost average in."
Although we are in a bottom area, he said, "You can't pick the bottom because you can see what these guys can do in a short period of time."
Mr. Embry predicted, "I'd be surprised if they (precious metals) were not back in favor by the fall, because I don't think these guys can maintain this façade of everything's fine. There isn't a robust recovery going on at all."
Based on recent interviews with Mr. McGuire, Rick Rule and Eric Sprott, as well as the analysis of our own research at the Equity Management Academy, there is growing consensus that the gold market is being pushed down by bullion banks and central banks which are short. It will not last, however, and a rebound is on the way, soon.
Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AGOL, DGL, DGLD, DGP, DGZ, DZZ, GLD, GLL, IAU, PHYS, SGOL, UBG, UGL, UGLD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.