Look for Gold-Backed Currencies in Next 10 Years (Video)
Eric Sprott, the well-known billionaire asset manager, believes that investors need to buy gold and silver to protect themselves from the increasingly volatile currency markets. Last year, 84% of the world’s population would have made money owning gold. Sprott puts his money where his mouth is, claiming that 80% of his assets are in precious metals.
Since this January interview, the gold price has fallen in US dollars. However, Sprott is focused on the long-term picture of how the radical monetary policies of global central banks will damage the global economy. With banking policies like negative interest rates and massive money printing, the world is experiencing a completely new financial landscape. When paired with the fact that gold demand seems to be exceeding supply, he expects to see gold-backed currencies within the next decade.
Highlights from the interview:
“I think the comment about currency gyrations is probably the most significant thing [concerning gold]. I’m kind of shocked that the most volatile sector of the financial market is the currencies. Which goes against the grain of what should happen. It really should be bonds or stocks, and now it seems to be currencies. This leads into an awesome outlook for gold. Last year, 84% of the world’s population would have made money owning gold, because of the various currency moves…
“As we sit here this year, I think it is now the strongest currency in the world. You can see the volatility of currencies is drawing in interest to gold. We’ve seen that manifest itself in a number of ways. One, the gold trust, the GLD, has added something like forty tons already this month [January], which is a stunning number when you realize it’s only a 4,000 ton market…
“You can see the interest in the gold stocks picking up. In Toronto… there were five issues announced that totaled half a billion dollars, and they all sold out. So we’re seeing money going to the gold trust. We’re seeing the gold sales; mints are strong. We see the money coming into the stocks. We see all the technical signs of breaking through the 200 day moving average… Lots of stocks have had major moves already. It’s very reminiscent of how we started 2014… I think all the reason to own gold, with all the volatility we’ve had just could not be better than they are right now…
“One of the reasons I got into gold way back in 2000, is that you realize that the financial system was way too over levered. We had banks levered at 30 to 1, which by definition means that if your assets decline by 3.3%, you’ve lost all your equity. Of course, that’s exactly what happened in 2008. The banks effectively all went broke, except they weren’t made to go broke, because the various central banks and governments came in to rescue them…
“A lot of money can slosh around, trying to pick what the next weak currency is going to be or what the next strong currency going to be. The strong ones have to worry that they want to push it up, and the weak ones worry that the speculators might push it down. It’s hard to protect your wealth in an environment where your own currency is more volatile than any other measurable financial instrument out there. That’s what we’re going through right now…
“I’m a huge proponent of owning gold and anything related to precious metals. I know there’s been lots of studies done about how much gold one should have… I’m of the view that I’m way more involved than those kinds of numbers [5-10% of your portfolio], because I believe that we are in a financial Ponzi that has been perpetuated by the printing of money, zero interest rates, negative interest rates now. It’s almost inexplicable that the markets can sustain these things and that he economies can function with no return to savers…
“Now, with all the currency volatility on top of it. Imagine if you had a German bond and you’re already losing half a percent, then the euro goes down 1.5% in a day. Not only do you lose on the interest, you lose on the currency. How do you deal with this very odd situation that we’re in? All of this leads me to recommend [precious metals]…
“When all of the movements of physical data, the movement of physical gold, tells me that there’s more demand than supply, I’m quite prepared to stand in there… I full expect that we end up seeing new highs in all the metals…
“The whole precept that printing money is good, and I’m totally sure that it’s fallacious. The concept that somehow zero interest rates and negative interest rates are good, is I’m sure totally fallacious. The whole saving segment of the world can’t earn a return. Say you have a million dollars in a pension fund. What did you earn on it? ‘It didn’t earn anything, I lost 1% per year.’ Well, how do we get progress out of that, when you have such low interest rates? That’s a fallacy.
“Another fallacy is when we went into 2012, ‘It’s going to be a great year.’ It wasn’t. ‘2013 is going to be a great year. 2014 is going to be a great year.’ It’s always in the beginning of the year. Then you get to the end of the year and it’s never great. 2015, people are suggesting maybe the US economy is going to be strong. I don’t think there is any serious growth that is going on in the economy. We have people making decisions to let more and more people buy houses who shouldn’t buy them, buy cars who shouldn’t own them and can’t afford them. Essentially, we’re not likely to have a recovery…
“I wake up this morning, [and] I read that the Chinese delivered 61 tons in the Shanghai Exchange this week. I love to work with numbers. 60 tons a week is 240 tons a month. Well, we only mine 180 tons a month. So here we have more deliveries on the Shanghai Gold Exchange than we mine in a month. And that’s just one country. I’ve been so pleased by the demand of India, China. It looks like India might cut the import tariff… There are all sorts of things going on that say the one true, safest asset is to be in precious metals…
“If I was to bet – in less than 20 to 30 years, we will have to have a gold-backed currency. It’s just going to happen. There’s no way that governments can keep spending the money they spend and printing the money they print. It’s so unimaginable and yet somehow the investment public has bought into it. You’ll never read about printing money in an economics textbook, because it never happened before. You’ll never hear about negative interest rates in an economics textbook, because it never happened before… Those words, ‘It’s never happened before,’ should awaken [people] that things are rather unstable here. We are fighting the natural decline of the economy that should be taking place, and the powers that be don’t want it to happen… I imagine that in less than 10 years we’ll see materials, physical assets backing currencies, and the most obvious one is gold.”
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