Crushing Myths and Building a New Case for Gold: Peter Schiff’s Gold Videocast with Albert K Lu (Video)

In the last seven years, China has acquired more than 4,000 tons of gold – more than 10% of the official gold in the world. Why?

Jim Rickards delves into this question in an interview on Albert K Lu’s latest Gold Videocast:

Are they stupid? No…if the Americans don’t like gold, the Chinese know something the Americans don’t.”

Central bankers and the financial elite have good reasons why they don’t want you to buy gold. They perpetuate many myths about the yellow metal to dissuade the public from owning gold. In this interview, Rickards and Lu knock down some of those myths and begin building a new case for gold.

Follow along with full transcript:

Albert: Welcome to Schiff Gold, I’m Albert Lu. We’re joined once again by James Rickards, the best-selling author of “Currency Wars and the Death of Money.” He has a new book, “The New Case for Gold,” which is available now for pre-order, and publishes April 5, by Portfolio. It’s number one currently on Amazon in the Commodities, Trading, and Money categories. Mr. Rickards, you make a very compelling case. Welcome to the program, how are you?

James: Fine. Thanks, Albert. Great to be with you.

Albert: Before we start, I just want to read this review. You had a number of really great reviews for this book, one of them from Ron Paul, and so I just want to read this very quickly. He says, “Rickards makes a compelling case for why those looking for a way to protect themselves and their families from economic chaos created by central bankers should consider gold.”

Very nice review. You also had a very nice review by David Stockman, so congratulations on this book.

James: Thank you. That was very kind of Dr. Paul, and I was very appreciative of that. I don’t know if you know, Albert, but the title of the book, “The New Case for Gold,” actually references an earlier book from the early 1980s, called, “The Case for Gold.” “The Case for Gold” has an interesting history. In ’71, Richard Nixon ended the gold standard, 1980, just nine years later, Reagan was running for president. There was a lot of pressure to go back to the gold standard. President Reagan appointed a commission to study the issue. The commission did its work and came back, and recommended that the US not go on a gold standard, but there was a government commission that was a vocal minority, which included Ron Paul, and Lew Lehrman, and other prominent Americans, and they were allowed to file what’s called a minority report. They didn’t carry the day, but they could write their own report, very much in favor of a gold standard. Well, an enterprising publisher took the minority report, because it was a public document, and published it as a book, called “The Case for Gold.” So my book, “The New Case for Gold,” is a little bit of a tribute to that original title, which Dr. Paul was part of, and I was very happy he offered some compliments to my new book. Of course there’s plenty of new stuff in the book. That’s why we call it “The New Case for Gold,” but it is a look back to that earlier title.

Albert: Okay, yeah, certainly the investing, investment landscape has changed. Now when we talked in the past, you talked about some of the myths that are perpetuated by the anti-gold crowd. To me, it’s strange that there is an anti-gold crowd. As you mentioned, it’s a commodity. And so for a commodity to have so much hatred surrounding it by many people is just a little bit strange, isn’t it?

James: Well, you say it’s a commodity, and I actually wrote a column recently. I said, “Well gold is really a chameleon,” and of course a chameleon changes its color or complexion depending on how you look at it. And there are times when gold trades like a commodity, and people call it that. There are times when gold is considered an investment, and people call it that. But I actually think of gold as money. Money is different from an investment or a commodity, so, is gold a commodity? Is it an investment? Is it money? Well, it depends a little bit. Like a chameleon, it changes color. I think of it as money. But I think that’s why there is such bitter opposition, and so many really canards and made-up stories, anti-gold. These come from the PhDs. Whoever controls money controls the world. You control wealth, you control politics; you control who wins and who loses. It’s a very powerful thing to control.

Who controls money today? The answer is the central banks, and those are all PhDs, they come from MIT, Harvard, Chicago, Stanford, just a really small number of universities. They all know each other. It’s a club. Well, if you were in this PhD club that controls the central banks, you wouldn’t want people to even think about gold. You wouldn’t want them to talk about gold, because gold is the competition. Gold is the other money that can render their power meaningless. And so they perpetuate these myths about gold. Unfortunately, a lot of students, a lot of journalists, a lot of everyday citizens follow the leader, follow these PhDs without ever examining the assumptions. So 90% of my book, “The New Case for Gold,” is reasons to own gold, reasons to have gold in your portfolio. But I said, “What good does it do to educate people about reasons to have gold if there are these myths out there that keep convincing people they shouldn’t?” So 10% of the book’s just to knock down these myths once and for all. To show that they’re false, obsolete, empirically incorrect, scientifically incorrect, knock them down, and then build the new case for gold.

Albert: We can discuss whether gold is a commodity or not, but one thing that’s not controversial is that it’s a basic element, which you have mentioned before. It’s a basic element, and if you want proof, not scientific proof, but social proof that gold is money, just look at, like you said, how much these PhDs and central bankers don’t like gold, and insist on attacking gold. We don’t see hit pieces in the New York Times taking down tungsten, for example, or tantalum, but these arguments are directed towards gold. So definitely, there’s something special about gold.

James: Yeah look, if you run the Ford Motor Company, you’re not going to have nice things to say about General Motors, and if you’re a PhD central banker, you’re not going to have nice things to say about gold. But what I do is, let’s look at the facts, not what they say. In a famous interview a couple years ago, Ben Bernanke was meeting with a group of students at George Washington University. And by the way, I love lecturing to students, because they ask the smartest questions. They haven’t been totally brainwashed the way a lot of people have, so they kind of have open minds. And one of the students raised his hand and asked Chairman Bernanke, “Well if gold is such a worthless asset, why does the Treasury have 8000 tons? Why does the United States hang on to 8,000 tons?” And Bernanke said, “Oh, it’s just a tradition.” He used that famous word “tradition” just to dismiss the whole thing. Well, but let’s pursue the question. Why does does the United States have 8,000 tons? Why does the IMF have 3,000, sorry, 2,000 tons? Why does Germany have 3,000 tons? Why does China have 5,000 tons, perhaps more? Why has Russia purchased 1,000 tons in the past 6 years? If it’s such a worthless commodity, if it doesn’t have a monetary role, why are central banks around the world scrambling to acquire gold?

Well obviously, it is money. There’s a lot more, it’s is not just a claim, there’s a lot behind that. And I point this out in the book. In chapter one, I explained how the solvency of the Federal Reserve is actually propped up by gold. That’s shocking to a lot of people, but I go through the analysis, I look at the Fed’s balance sheet, I show how they’re occasionally insolvent on a mark to market basis. They’re leveraged 100 to 1 if you look at the bond portfolio, but if you look at the Fed’s gold portfolio, they’re actually not insolvent. They’re only leveraged 13 to 1. The Fed looks like a very solvent, very solid bank if you count the gold. If you don’t count the gold, they look like a highly leveraged insolvent hedge fund. So gold is the secret.

You know, the smallest measure of money according to the Fed is M0. I call gold M sub-zero. It’s the real money supply that props up the world, but the PhDs don’t want to talk about it. Christine Lagarde, Mario Draghi, Janet Yellen, Ben Bernanke, Kuroda at the Bank of Japan, they’re not going to gold, because they don’t want you to think about it.

Albert: Yeah, it’s very insincere, and your comment about Bernanke saying that “it’s a tradition,” well you can’t really say that that’s the reason that China and Russia are accumulating so much. You made a point that China’s estimated accumulation accounts for what, 10% of above-ground gold? Something like that.

James: Sure, well not above-ground, but official gold. That’s another thing that’s not very well understood. Above-ground gold is approximately 180,000 tons. But of that, approximately 35,000 tons are “official gold.” When I say “official gold,” that means gold held by central banks, finance ministries, US Treasury, sovereign wealth funds. All the rest is private gold. It could be your ring, your watch, your earrings, it could be bullion if you own gold coins, gold bars, etc. Very wealthy individuals own gold. So the official gold is 35,000 tons. China has acquired more than 4,000 tons in the last 7 years, so in other words, they’ve acquired more than 10% of all the official gold in the world. Why? Are they stupid? No, they’re not stupid. I have friends in China. I’ve been to Beijing, Chongqing, Shanghai, Xian. I’ve been all over China. I’ve met with government officials, Communist Party officials. I’ve met with their sovereign wealth fund. They’re not stupid. These are some of the smartest people in the world. So obviously, since they’re not stupid, they must know what they’re doing, and if Americans don’t like gold, then the Chinese know something the Americans don’t. The Chinese see the reset, the collapse of the international monetary system coming, inflation of the dollar coming, and they’re getting ready for it.

So why not Americans? We’ve been brainwashed into thinking that gold is a so-called “barbarous relic,” something that John Maynard Keynes never said about gold. He said it about the gold exchange standard; he didn’t say it about gold per se. So, unfortunately we have at this point three generations of Americans since the 1970s who have been conditioned to believe that gold has no place in the monetary system. Meanwhile, the Chinese, the Russians, the Iranians, people in Kazakhstan, Vietnam, Philippines, around the world they’re buying up gold as fast as they can. Americans are the last to know. They’re going to be the last to know.

Albert: Yeah, I agree. I think the more education someone has, the worse they are in gold. They may be very knowledgeable on other things, but I find on gold, they’re usually not very good.

James: Well, people don’t stand up well to ridicule. The minute you raise your hand and say, “Well, I think gold is a monetary asset, I think it belongs in a portfolio, I think it has a role to play. Again, look at Russia, China, look at history, look at other analysis,” you get ridiculed. You get called a gold bug or a gold nut or a wing nut or a neanderthal. And people don’t like to be ridiculed, so they shy away, and they keep their mouths shut. I guess maybe I don’t mind, but I wrote the book. I actually wrote the book to give information. If you want gold in your portfolio, you want to just do an interview, or write an op-ed, or be in a cocktail party conversation, have something positive to say about gold, this book, “The New Case for Gold,” it gives you the ammunition, the argument you need. Not just rhetorical claims, but facts, history, analysis, data. It gives you everything you need to shoot down the gold haters and actually say something positive about gold, and hopefully have some in your portfolio.

Albert: James, I’m glad you raise that point, because actually we owe you a debt of gratitude. I’m a gold advocate, but I don’t do the circuit the way you guys do. The way you, Peter Schiff, Jim Grant, you guys are basically in the same circles, and subject to this criticism, yet you go ahead and defend it anyway, so actually we owe you a debt of gratitude for that, for your fearlessness in that way. I want to talk about some of these myths, and I want to talk about them in the context of a Financial Times video your people sent over. I avoid watching stuff like this, just because I know what to expect. Usually it’s not very good, full of myths. This one was particularly bad. They’re equating gold to human waste, saying if you invest in gold, you’re harming the environment, saying it’s useless, even attacking it at the atomic level, saying it doesn’t like to share its electrons. This is taking it to a whole new level.

James: Well it’s really interesting that you’re talking about something that the Financial Times put out. I think the title is, “Gold – Our dangerous obsession,” I’m pretty sure that’s the title. First of all, it was very high production, but I thought it was hilarious. It was so bad, it was so bad analytically that it was actually funny. I got a laugh out of it. So I recommend if you want a laugh or need a little humor, I recommend watching it. I don’t really blame the reporter, Isabella Kaminska’s the reporter. She’s a smart reporter. But look, she was sent out to do this thing and she did it. I don’t really fault her. I fault some of the people she interviewed, but they had one psychologist, he was doing the pop version of Sigmund Freud’s anal retentive theory that if you’re hoarding gold, you’re like a person who doesn’t like to have a bowel movement, and equating gold to, as the French say, “merde.” So this was all just nonsensical pop psychology. It was the worst thing I’ve ever seen about gold, just from the…it didn’t hold up to scrutiny, but it was hilarious. Interestingly, you mentioned chemistry. The chemist that they had on, Professor Sella, I actually quote him very favorably in my book, he said, “The gold atom is densely packed.” It was the psychologist who said that somehow equates to Freudian theory. That was just garbage. But Professor Sella’s point about fact that the atom was densely packed is important. The specific gravity of gold, atomic number 79, specific gravity is over 19. That means it’s 19 times heavier than water. Well, if you ever pick up a bucket of water, that’s pretty heavy. Imagine something almost 20 times as heavy, that’s the density of gold. That’s important, because it means that gold doesn’t interact with other chemicals, other elements. That may be a bad thing if you’re trying to blow up the lab, but it’s a good thing if you want money, because you don’t want…certain elements dissolve in water, certain elements are gaseous at room temperature, certain elements are radioactive, they’ll kill you, certain elements like arsenic are poisonous, etc. So actually, if you go down through the periodic table of the elements, one by one you can eliminate all of them, except for four – gold, silver, platinum, and palladium. And interestingly, silver, platinum, and palladium are all kind of silvery colored. Gold is the only one that’s gold color. Color is not a reason to think of it as money, but it shows the uniqueness of gold. So it’s not accident. It’s not myth. It’s not legend. It’s not tradition that has made gold money for all these centuries and millennia. It’s actually a very practical thing to have as money.

Now of course, Milton Friedman, the late Milton Friedman, Janet Yellen today, Ben Bernanke, they’ll all tell you that you don’t need a hard asset to be money. Well really? Well tell Vladimir Putin that. Vladimir Putin has a 6,000 member cyber brigade working day and night to wipe out digital wealth. So if you think you’re wealthy – I bump into billionaires, and they say, “I’ve got all these stocks and bonds,” I go, “No you don’t. You have electrons. You have digital money. You’re relying on the power grid. You’re relying on exchanges. You’re relying on digital records to preserve your wealth, and Vladimir Putin can wipe that out in a heartbeat. And good luck trying to re-establish it once it’s been erased.”

But physical wealth in the form of gold can’t be hacked, can’t be erased, Vladimir Putin can’t get to it. That wealth will be preserved. So that’s part of the new case for gold. We weren’t talking about cyber financial warfare 5, 10, 15 years ago, but it’s happening today. And I say things like this, and people go, “Oh, that’s science fiction. That’ll never happen.” Believe me; it’s happening.

Look what happened last week. The country of Bangladesh, one of the poorest countries in the world, had $100 million on deposit at the Federal Reserve Bank of New York, and the money disappeared. It wasn’t on deposit with some rinky-dink Bangladesh bank, it was at the safest bank in the world, the Federal Reserve Bank of New York, and the money disappeared. Gone. Now there’s a criminal investigation. Maybe they’ll get to the bottom of it, maybe not. I doubt it. But my point is that’s what happens with digital wealth. It doesn’t happen with physical gold.

Albert: Right. Now, we’ve discussed before, too, that you don’t think there’s any chance of the central banks getting together, unless they’re just very desperate, and installing a legitimate, honest gold standard. But that doesn’t mean you’re out of luck, because you don’t have to wait for that. And you’ve been very consistent, not just in this book. If you look back to prior books, you advocated gold back then, too. Ten percent, among other things, other hard assets, but the gold was always there. So you think 10% is the right number?

James: Right, and Albert, that’s one of the reasons I wrote the book “The New Case for Gold,” because in my first book, “Currency Wars,” I had one chapter that talked about gold. In my second book, “The Death of Money,” I had two chapters that talked about gold in different ways, but finally I said to myself, “You know what? I need to write a whole book on gold. I need to take everything I know, everything I’ve learned, research done by others, the history, the politics, the economics, the analytics, put it all in one place.” Make it really easy for the reader to just sit down, it’s a little shorter than my other books, you can put your feet up, read it in two or three hours, and it’s kind of a download on gold. Again, 90% of it is a positive case for gold, 10% of it is just knocking down all these myths for reasons not to own gold…

I’m ready for a fair debate. If you don’t think investors should have gold, raise your hand, tell me who you are, I’ll debate you anytime, anywhere. I like a fair debate, but I don’t like a bogus debate. I don’t like it when the arguments against gold don’t hold water, and they don’t. And I explain why in the book. So it’s available right now on Amazon, it’ll be in the bookstores Tuesday, April 5, but you can get it anytime on Amazon, and I hope readers enjoy it.

Albert: OK. We’ve been speaking with James Rickards. As you mentioned, “The New Case for Gold,” is available now for pre-order, but it’ll be published by Portfolio on April 5. You can catch him at his website, JamesRickardsProject.com, and he’s very active on Twitter, so go ahead and check him out, @JamesGRickards.com. It’s been a great pleasure talking to you again. Thanks for doing this, really appreciate it.

James: Thanks, Albert. Great to be with you.

Albert: And don’t forget to visit SchiffGold.com for exclusive interviews and gold commentary by Peter Schiff. I’m Albert Lu. Till next time, take care.

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