The following is an interview that took place a few weeks ago at the Cambridge Economic summit in Palm Springs, Ca. It was recently released by Sprott Asset Management.
I have the enormous pleasure of having with us today mister John Embry. John is the chief investment strategist at Sprott Asset Management where he joined the now 10 billion dollar firm back in 2003. John is an expert in precious metals information and has researched the gold sector for over thirty years.
PM: John, thank you very much for being with us here today. I know you just finished speaking at the summit here, could you give our viewers a brief synopsis of your key points what you had to say.
JE: Yeah, I tried to sort of put a different spin on it this time because I have kind of given the gold shortage and what have you. And this time I tried to get across the point that the underlying reason for why one must own gold and silver is the inevitable debasement of money because of a debt situation in the world to which there is no solution.
And I went through each of the various economic entities that are important in the world today and tried to make the case that [for] every one of them, there was a problem that could not be solved without either accepting a debt collapse or printing unlimited amounts of money to keep their insolvent banking systems and the bad data flow.
My suspicion is we are going on the latter route and the implications for gold and silver in that scenario are huge.
PM: John, I'm intrigued by Asia's continued and accelerated push in the precious metals why do you think that investors here in the west, unlike their Asian counterparts, are generally so underinvested in gold and silver?
JE: That's an interesting question. I believe very simply that the western investors have been getting a really difficult story from the mainstream media. They're telling a story that is incorrect. They are trying to suggest that gold and silver are in bubbles, that they are bad investments and it's been ongoing through the entire bull market.
Nothing has really changed, but at the same time there is this enormous volatility in the prices of gold and silver that are created in the paper markets and we put that together with this bubble story that is being told to the public, it just drives them away because they don't have the background in monetary history to understand what is really going on. I feel very sorry for them. It is going to cost them a lot.
PM: So it is a question of education!
JE: This is very much so. One of the reasons I do what I do is… I am trying to get this across to as many people as possible. But it's a hard story to sell because you're going against the mainstream media and they have got a lot of power.
PM: Why are we being manipulated like this by the media?
JE: Well, I think that the powers that be in the west basically have put together a financial system that they want to keep intact and want to keep the U.S dollar dominant. The greatest risk to the whole fiat money, money system is gold and silver because they are traditionally money and have been for centuries. And if people suddenly realized that this fiat is what it really is, and started abandoning the whole system that has been cobbled together would fall apart. It is going to fall apart anyways they are just putting off the inevitable.
PM: John, the Chinese government encourages their citizens to own gold and silver. Should we be paying more attention to this proactive strategy?
JE: Yes, very much so. I think that the Chinese know full well what is unfolded and serve their best interests to employ tens of millions of new people from rural areas every year is required a manufacturing capacity that expanded dramatically. So basically they set up a situation by keeping their currency undervalued that they became the manufacturer to the rest of the world. and they were prepared because it was that these people be employed, the communists, it was the main plank in their whole approach. They basically set it up that they were prepared to take American money even though they knew ultimately this would be a problem. Now that stage is has been reached and they are basically taking steps clandestinely, basically to sort of diversify any from the American dollar. One of the ways they are doing it is having their public buy gold. I believe the government itself is buying gold, buying everything else under the sun they can get their hands on. They are very clever I think we are in a lot of trouble in North America because we have about a vision that is about this far in front of our noses. They are looking decades ahead at all times.
PM: John, with Asia's continually increasing demand for physical gold and silver could we be nearing a point where this demand is overwhelming the physical and tangible supply of these metals?
JE: Yeah, that is going to be the thing to change as a whole pricing dynamic and that is what is not realized by sort of all the people that are talking negatively about gold. The fact is to date, the gold price has been set in the paper markets and the paper markets can be wildly manipulated with derivatives negative short selling all sorts of arcane strategies. The physical gold market is a different matter. There is only so much physical gold. And if the demand for it ultimately overwhelms that which is available, and it will take over as the pricing mechanism and the whole paper thing will blow up, and it is more important than that. One of the things even able to stay off the inevitable is they have created a numerous number of paper products that are backed by gold and silver that are hypothecated and re-hypothecated to the extent there is very little backing for most of these products. We're coming near the end of that cycle to but at some point people are going to wake up and realize these gold vehicles, silver vehicles at the paper that they think they have for protection aren't going to be for protection. That would be dramatic money shifting from that sector into the real stuff. I believe that's coming before long, and that's what's going on in the Far East.
JE: ETF's are vulnerable.
JE: Yes to all sorts of these things, your pooled accounts, gold certificates all of this stuff is backed by fractional gold backing, I call it.
PM: John, you mentioned the bubble and there are those that continue to say that gold could be still considered to be in a bubble. Isn't equally fair to say that the equities market based on recent fundamentals in the global situation could be considered to be in a bubble as well?
JE: Well, that's where the real bubble is. Because essentially you've got trillions and trillions of dollars of new debt paper being spewed out into the world by the sovereign government surroundings, somebody is buying it. I think a lot of it is being monetized by their various central banks. But that's where the real bubble exists because U.S. paper for five years at .85% is preposterous and even ten year paper at 2%. There is where the bubble lies not even in stocks, in certain stocks yes, but I think if my vision of the world un-falls which is increasing inflation, the place you want to be is precious metals and good quality dividend paying stocks.
PM: John, everything else being somewhat equal what do you think things are going to look like in 2014, when the Fed releases their lock on zero base interest rates what is the dollar inflation and the recovery in general going to look like?
JE: My feeling is that by then inflation genie will be out of the bottle and I don't even think they can keep up which acronyms. I love zero interest rate policy in effect until then, for the simple reason people are going to realize I am not going to hold this stuff… Why would I hold a depreciating asset with zero return? So no, I'm not optimistic. I think that we will be facing an ongoing difficult economic situation with mounting inflation and that is the worst of all worlds.
PM: John, can you comment on the benefits of buying numismatic gold and silver coins versus gold and silver bullion, or is there a benefit?
JE: That's an interesting question because I was chatting with a guy here at the show, more of an expert… Certainly more so than I. He was pointing out to me that the premium on new numismatic coins especially old coins has collapsed in the sense that you're paying seventeen hundred fifty dollars an ounce for a new gold coin which is minted. You're only paying like fifty bucks more for an old coin that has been around for hundreds of years. Well, that is not the case in history so I think there's a huge revaluation as this whole game unfolds in these older coins with historic value numismatic type. So I think that's an opportunity and I agree with this guy I was chatting with.
PM: John, do you see the U.S. is moving to the gold standard in order to protect the dollar as the world 's reserve currency?
JE: If they have the gold and the reserve they report to have that would be the absolute correct strategy. For some reason they have more gold allegedly than any other nation by considerable amount and to sort of gain credence for the currency as this happens and as the paper currency is defaced, I think it will take metal backing eventually to sort of regain confidence. So, I would envision that as a reasonable alternative. And it's been interesting because people have been asking me the last time gold had a huge bull market, it went from $35 to $850, then it got killed.
PM: What is going to happen this time?
JE: Well, this time the situation is totally different. The system is so vulnerable that they will have to re-introduce gold into the system. So I don't see the correction. I think basically at some point you'll have gotten the maximum turn out of it and you will be able to… once the system is stabilized take your gold and sell it, which the authorities willingly will buy. Then you can go on and invest it in other things. So, I think it is totally different this time. I think we have a big move ahead of us and I don't worry about a terminal downside issue.
PM: John, with all this bearish sentiment floating around the media, is there a contrary view that we could be approaching possible turnaround here?
JE: To be conservative, and I would say this is conservative though it might not sound conservative to a lot of people, I would be disappointed if in the next twelve to twenty four months gold wasn't comfortably above the $2,500 maybe $3,000, and I know people smarter than I am saying it is going much higher than that. I don't think it is necessary to say that at this point because as long as you can comfortably and confidently say it's going $2,500 to $3,000, that's good enough for anybody to own it in this environment because there aren't many other things that are going to return, to provide that kind of safe return.
PM: We love the education and everything that goes along with Sprott's Asset Management.
JE: Well, thank you. It's very kind of you to say that. I mean, Eric and I have made a conscious effort and we're old enough now that we've seen it all and we really think this is important for people to protect themselves and we are dedicated to try to provide products and advice that will help.
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