Sprott's John Embry: Dollar Decline, Inflation, Debt, QE Could Send Gold, Silver Soaring

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by: James P. Montes

The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome will become bankrupt. People must again learn to work instead of living on public assistance.

- Cicero , 55 BC

In a recent interview, John Embry, Chief Investment Strategist at Sprott Asset Management, argued that gold and silver are poised for a major move up as the US dollar declines, debt increases, governments print more money, and interest rates rise.

For the first time the US dollar fell below 80, another sign of the decline of the US dollar as the world's reserve currency. Embry said that the role of the US dollar as the world's reserve currency is "The most important thing currently in the outlook for gold." He predicted that the "US government will move heaven and earth to try to keep the US dollar from losing its reserve currency status," but "I don't think they will be successful." He argues, and I agree, that China is already planning to usurp the American role as the world's reserve currency. Embry said, "When it becomes more evident…the impact on silver and gold is going to be extremely good."

As he has mentioned in other interviews, Embry said that inflation is "understated by the government. The amount of money being created is going somewhere; it just doesn't show in the CPI." He argued that the money being created is going into the upper part of society, which is why prices for fine art are skyrocketing. He also pointed out that the "turnover of money has dropped precipitously to almost record lows." However, he argued, "At some point, people who put money into various financial assets are going to realize the value of money is being systematically destroyed by central banks." When that happens, there will be a rush to spend that money and "inflation could not just pick up, it's going to just explode in the next two to three years."

Turning to the US debt, Embry agreed that the debt is "the problem." It is already enormous and if you take in unfunded liabilities, "It's preposterous compared to the size of the economy." The result? "Interest rates will have to rise," which will make the debt problem even worse. Embry argues that "gold and silver are so dramatically underpriced, when more of the public realizes what is going on, when money starts flowing into those markets, the impact over two to three years is going to be spectacular." He predicted that in the future, today will be seen as "The finest opportunity in history to purchase gold and silver at great prices."

According to John Embry, Quantitative Easing (QE) is just "a fancy term for printing money." Embry argues that QE is "keeping the banking system liquid, not only in the US, but in the world." The size of QE is enormous, especially if you add QE in Japan and Europe to the US QE policy. Embry said, "A money printing blizzard is going on." Governments, he said, "Try to use semantics to hide this from the public." He does not believe the United States or anyone else can afford to taper at all. He said, "Even the talk of taper drove interest rates up." He predicted that QE "Might even increase it at some point in the future. If this thing starts to implode, it will require more QE….This could be imminent in the next six to twelve months."

Embry sees the combination of high debt levels, QE and the potential for interest rates to rise as a sign that gold and silver are poised for major moves up. He explained that in the late 1970s, interest rates were rising sharply, and gold and silver had their biggest increase in history. Paul Volker came in and changed the psychology by raising interest rates several basis points. Embry predicted that such a policy "Can't happen again." With so much debt, if the government raised interest rates several basis points, "US debt would collapse." Embry predicts that interest rates will rise, governments will keep printing money, and we will enter a period of hyperinflation.

Discussing the spread between the paper and physical gold and silver markets, Embry said, "At some point the West is going to run out of gold." At that point, the West will no longer be able to support "the chicanery in the paper market." He is surprised that the difference between the price of gold in the paper and physical markets has gone on so long; "It has gone on a lot longer than a rational mind would have thought." But, he said, "I'd be shocked if it lasted another 6 to 12 months."

Turning to gold mining shares, which have been pummeled recently, Embry said, "The single best buying opportunity in the history of buying gold and silver mining shares is right now." He warned, however, that you can't buy them all. Some mining companies are so badly damaged, they will never come back. He urged investors to do their research or find a fund that is run by a good manager. He said that the potential profits in investing in carefully selected gold and silver mining shares are huge.

Although Embry has "always loved gold," he believes that "silver will outperform gold." He argued that "silver is the poor man's gold." He predicts that central banks and the wealthy will buy gold, driving the price out of reach of the poor, who will then flood the silver market. Furthermore, there is not a lot of above-ground inventory in silver and a lot of silver is being consumed for good uses. He predicts that gold may go up three fold, while silver may rise "three, five or eight fold." Although, he said, "I hate putting time frames on things…This is a great place to be positioned at this point." In conclusion, he said, "The size of the move is less important than being there." If you wait too long, the move may price you out of the gold and silver markets.

TRADING DERIVATIVES, FINANCIAL INSTRUMENTS AND PRECIOUS METALS INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR EVERYONE. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within 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.