Mike Norman (Norman): Hi everybody, and welcome to HardAssetsInvestor.com. I'm Mike Norman, your host, here with the second part of my interview with Andre Julian, who is the senior market strategist at OpVest Wealth Management.
So the last time you were here, Andre, we had a discussion about silver. Silver has been on fire. It's been amazing. But you were bullish on it at the time. I think it was about a year ago. But you didn't think it was going to overtake gold in terms of its performance. Are you surprised? You should be, because that was not your outlook.
Andre Julian, senior market strategist, OpVest Wealth Management (Julian): Yes. I'm really surprised. I thought gold would be the leader. And I thought that silver was just going to kind of tag along as maybe gold's younger brother. And it overtook it. If you look at the money that's going into silver, it's moved a lot faster than gold has. It moved 70 percent last year, and it's still continuing to move.
Norman: To me, that looks like just a mania. Because I guess you could make an argument for gold. People talk about it as sort of a quasi-money. And they talk about the Fed and QE2. And traditionally, historically, whenever there is inflation fear, you look at gold. But this rush into silver, this recent stampede into it, don't you think it's a little bit overdone at this point?
Julian: They have been saying that gold has been overdone for 10 years. And it continues to climb. So I started looking at silver a little bit more closely, and I think that you have your typical answer, which is, "Hey, it's a fight against inflation. And it's a fight against the devaluating dollar." And that's kind of where the discussion ends with a lot of people.
But when you really look at it, I think, again, you have to look at what's happening with the currencies, look at what's happening globally, with the fiat currencies. They're really losing their standing. The president of China came out about a month ago and said that he thinks the dollar has lost its status as the world reserve.
Norman: But meanwhile, reserve holdings of dollars have gone up in the last year. And actually, since the crisis, reserve holdings of U.S. dollars around the world, at Central Banks, have gone up. It's a greater proportion than it was even prior to the crisis. So that might be a statement designed to be politically targeted in some way. I don't think it holds any credence right now.
Julian: Well again, the reason I brought that up was because he comes out and says that, and you're right, I don't think it means a lot, because really, if you look at his currency, if you look at the RMB, what's it backed by? Well, it's backed by a basket of other currencies. But the U.S. currency is backed by gold. Still about 60 percent of it is backed by gold. If you look at the major …
Julian: Yes, by gold. Not backed by it, but the holdings against currencies. Holdings against currencies are actually about 60 percent in gold.
Norman: Well, our currency is nonconvertible.
Julian: No, it's not officially backed by gold, but our holdings in gold. Basically, our holdings in gold are in proportion to our currency, which is about 60 percent. And if you look at China, it's about 2 percent. And that's a huge difference. So China has a penchant for buying gold, because they want to have strength beyond just their currency, currency strength beyond just a basket of other currencies.
Norman: So you're saying that the silver move is going to continue because it's tied in with this whole "inflation fear, devaluation/debasement of the currency" argument?
Julian: Well I think that, typically, people buy gold when they're nervous, and people buy copper when the world is exploding and when it's booming. And people buy silver when they're uncertain. I think there's a lot of uncertainty right now.
Norman: So they're doing all three.
Julian: They're doing all three; people are buying silver, gold, copper. But if you look at the silver consumption, if you look at what people are buying it for, a lot of it is because the price point in gold, also, has got to a level where it's hard for the investor to actually buy the gold because it's gotten so expensive. So where do they go?
Well, they can move into silver, because it's cheaper. It's a cheaper product. And if you look at especially China, they have actually opened their doors to silver and gold investing for the first time, really, for their retail investor also. So I think you have a lot of money flooding into silver from gold, just because of the price point. And as the price point continues to grow higher in gold, all of a sudden silver becomes that much more attractive, because the price point is a lot lower. So it could be even a level of just price point, and people are finding a bargain − so to say − in silver, as compared to gold.
Norman: What about the agricultural commodities, also, again; seeing huge moves there? You could look at the riots and the uprisings we see in Egypt and elsewhere; food insecurity at its highest level ever. Do you think there might come a time when people will demand government action to stop the speculation? And could that cause the markets to really come down, collapse?
Julian: Again, you're going to have collapses. You're going to have pullbacks. That's just the way the market works, because the market is very emotional in the short term. But in the long term, I think that people really need to live with the fact that we are running out of food. There's a lot of consumption. If you look at the trend, look at what's happened over the past 10 years, from 2000 to now, there really hasn't been that much of an increase in acreage in wheat. There really hasn't been that much of an increase in acreage in soybeans. The increase is coming in corn. Why? Because corn obviously is used for food and fuel. So now we have this huge food and fuel debate: How much food can we really start using for fuel?
And China, again − I keep on bringing up China because I'm really into this emerging market story. Well, they came out and said, "You know what? We're going to release some of the corn in our storage because we have enough." And then all of a sudden they come and buy corn, because they keep on playing this game: The market comes down, they buy it at a better price.
Julian: So obviously, there's an issue there. There's a shortage in food. And we're also exporting our inflation. With the Fed continuing to …
Norman: … the weak dollar …
Julian: Yes, with the weak dollar, we're exporting that inflation. And that hurts the rest of the world.
Norman: All right. So your No. 1 commodity pick for the next year is?
Julian: I think it would have to be in the ags [agriculture]. I think it's going to have to be wheat.
Norman: All right, wheat.
Julian: Without a doubt. Because remember, a lot of farmers right now are moving into corn because that's where the demand is. And I think that wheat's going to suffer with what happened with the bad weather in Australia. You still have Russia; they're not exporting wheat. So I think there's going to be major pressure on the grain market, and I think it's going to flow over into wheat.
Norman: All right; wheat without a doubt! Without a doubt! All right; that's it, folks. We'll see you next time. This is Mike Norman, saying bye-bye.
Read part I of Andre Julian's interview here.