Sprott's John Embry On Gold: 'Greatest Buying Opportunity In The Entire Bull Market'

Includes: GLD, IAU, PHYS
by: Patrick MontesDeOca

Is the U.S. Economy Improving?

With the European Central Bank's decision to cut interest rates further, it gave the yellow metal support to increase physical demand to record levels ending the week up 0.7% higher. As the unemployment numbers Friday showed better than expected unemployment figures, the price of copper rallied nearly 7%, the biggest one-day gain in over two and half years.

The U.S. economy created a net 165,000 jobs in April, the Labor Department said Friday. The number surpassed the 135,000 forecast of economists polled by MarketWatch. The acceleration in hiring nudged the unemployment rate down to 7.5%, the lowest level since December 2008.

Despite the improved labor statistics for the month of April, it is still questionable if companies are hiring enough workers to continue to show additional improvements in the months ahead as consumers begin to feel the effects from higher taxes imposed in January.

Debt and the US Dollar as the Global Reserve Currency

Echoing what I have been writing about in articles and been told in interviews with leading analysts, there is far too much debt in the global economic system at all levels. Such debt means that sustainable growth will remain an illusion. Instead of facing the debt problem head on, governments have avoided the issue by printing more and more money.

Sprott's John Embry said in an interview recently that printing money "does not lead to a lot of growth. I think it's going to lead to a lot of inflation." The liquidity created by printing money does little to nothing to increase growth.

Embry called today, "A very problematic time for the US dollar." He voiced fears that the US dollar will at some point in the not so distant future lose its role as the world's reserve currency. "The United States has not lived up to its responsibilities as the provider of the world's reserve currency, given lax US fiscal policy, which has led the Chinese to cut deals with countries around the world in which the dollar is being knocked out of the transaction. As such transactions become more common, the US dollar's use will decline and with it, demand for dollars is going to drop."

Do We Have Bullion Shortages?

According to Karl Schott, a precious metal bullion specialist with the CMT group:

"Buyers came out of the woodwork for gold and silver bullion products" he said. " This was the best buying opportunity since the collapse in 2008, it surprised everybody but especially the gold cartel as you can see from the price action since we made new lows."

On April 15, gold futures suffered their biggest one-day decline since the 1980s, dropping over 9% to $1,361.10 an ounce, tallying a two-session loss of more than $200. By the month's end, prices had lost 7.7% from the end of March. They closed at $1,469.90 on Friday.

In my most recent interview, I asked Rick Rule (Sprott Asset Management) if we had shortages of physical gold? He said:

"I think we are in a physical shortage in retail denominations (of gold and silver). There's no shortage of kilo bars. There is a shortage of coin rounds and strips, which are used to make coins." However, there is no reported shortage of silver or gold in larger denominations. Mr. Rule did forecast shortages in the wholesale bar market as wholesale bars begin to be converted into coin strip to make up for the shortages in the smaller retail denominations. He warned that retailers may kill off much of the retail market as many are beginning to charge 20% and 25% premiums on the price of precious metals."

Gold: Salvation for Many

Embry said, "I think gold is going to be the salvation for a lot of people."

The old rule of thumb used to be that 10% of a portfolio should be in gold. Today, Embry said, "things are far, far worse and it should be closer to 20% or 25%."

Why gold? Embry said, "It's insurance if your worst fears are realized…What gold will do it preserve purchasing power." Purchasing power is crucial because by printing money and borrowing heavily, governments appear to have chosen to follow policies that will lead to hyperinflation. If inflation begins and turns into hyperinflation, it will make it extraordinarily difficult for people living on fixed incomes as the dollars and paper investments they hold are worth less and less in comparison to real assets, such as food, shelter and gasoline.

Yet stocks appear to be doing so well today. Why? Embry argues that, "Stocks have an elevated value because of all the money being created in the world." He pointed out that Japan and the United States are creating $160 million a month, which has to be spent or invested. Such a massive infusion of cash has elevated stocks, but not gold, making gold the better alternative. Gold has not been artificially inflated.

Embry said, "I do like certain stocks because they represent real assets, but on the margins, I think you should be moving stocks into gold, particularly if you're underweight gold."

Embry believes that now is the time to buy gold. "I think in the fullness of time," he said, "this will be seen to be the greatest buying opportunity in the entire bull market that started more than 12 years ago. Prices have been pounded down to levels where the mining companies can't make any money and anyone who says that gold is in a bubble; that's just a ridiculous assertion."

Although many people are buying ETFs and certificates of gold, Embry warned that investors should be careful to "make sure you own real gold." Only real gold will be worth much if hyperinflation appears.

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, AGQ, 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.