Gold Is the Reciprocal of Paper Assets in a Time of Radical Monetary Experiments (Video)

Jim Grant joined Kitco News to share his thoughts on the gold market. Author of The Forgotten Depression and publisher of Grant’s Interest Rate Observer, Grant is one of the most reserved and staunch gold bulls in the financial media. Grant admits he is extremely frustrated with the gold market given the underlying fundamentals of the global economy. But with his typically patient demeanor, he maintains that now is a great opportunity to buy. Grant prefers to invest in non-numismatic, physical gold bullion, like Krugerrands. He also buys gold mining stocks.

We are in one of the most radical periods of monetary experimenting in the annals of money. It could be this all works out. That is a possibility. I rate that as a very low probability. For that reason, you want to have exposure to the reciprocal asset of the paper assets that are now most popular. Gold to me is now the conjunction of price, value, and sentiment. I am very bullish indeed.”

Highlights from the interview:

“I think it is a wonderful opportunity, and I say this with all due humility for what one can’t know about the future, which is everything. One can’t know what the bottom is. I think the important thing is to recall why those of us who own it bought it. What it is about gold that makes it – or ought to make it – appealing in this day and age, when it seems to be absolutely the thing you don’t want to have. To me, gold is an investment – not a hedge – but an investment in monetary disorder, monetary and financial disorder. So you look around the world, you see exchange rates are I think are properly disorderly. When you look around the world of lending and borrowing, we are in a regime of price control by another name, so called “zero percent rates” and “quantitative easing” by the world central banks. We are in one of the most radical periods of monetary experimenting in the annals of money. It could be this all works out. That is a possibility. I rate that as a very low probability. For that reason, you want to have exposure to the reciprocal asset of the paper assets that are now most popular. Gold to me is now the conjunction of price, value, and sentiment. I am very bullish indeed…

“I own Krugerrands, generic, non-numismatic value gold, physical gold… I like the physical. I am also the owner of all-too-many (for now) gold mining shares. The usual suspects. For which I have the highest hopes. I have a great deal of worry for the present, but a great deal of conviction for the future…

“If the Fed does attempt to raise the Funds rate, what’s going to happen to market interest rates. As we all see, commodity prices are in retreat the world over, which does not speak well for the strength of business activity the world over. It might just be the Fed, through institutional pride is going to raise rates at the wrong time, and if so, it might just be the world says, ‘Wait a second. They raise now, they’ll never raise again.’ And furthermore, they may have to implement more QE or more monetary stimulus to pick up the pace of a most lackluster, at best, global economic picture. It seems to me it’s by no means certain that market rates are going to go up in the face of what we’re going to see.

“Where gold thrives, or ought to thrive, is in the face of monetary turmoil, disorder, and uncertainty. I think we have all three of these things, now and for the present and the future…

“I think the Fed feels it has been talking about raising rates what seems now for eons. None of us who do this for a living can bear to talk about it anymore. It makes your face fall asleep. But I think the Fed now feels it must act just for institutional pride. You know, money supply growth is dwindling. The turnover rate of money, likewise. The only thing that is dynamic in the world of money and credit is the issuance of more and more dubiously sourced debt and more and more lenient terms. What debt does is two things. It pulls forward consumption, and it pushes back the evidence or the recognition of business failure. So you have kind of a backlog of companies that will go bankrupt, because they’ve been strung along by very easy credit. You have in the present consumption that will not be taking place in the future, because of the ease of borrowing…

“I think all of this is setting up for the things gold ought to love, which is uncertainty, turbulence, and disorder…”

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