GoldMoney founder James Turk, believes, while one can't predict what the catalyst is going to be that will force gold and silver higher, the bull market remains intact
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GEOFF CANDY: Welcome to this week's edition of Mineweb.com's Gold Weekly podcast. Joining me on the line all the way from Spain is James Turk - he's the founder of GoldMoney. James after a sharp fall in December, gold prices have been recovering fairly nicely over the past month and a bit. What's been driving that, do you think?
JAMES TURK: Yea they bounced from the lows but the reality is that both gold and silver remain in a trading range. The peak in silver goes back to April of last year, the peak in gold goes back to the summer of last year, and since then we've been in this broad trading range. But the interesting this is that we're now back at the high of the trading range and after moving from $1520 at the end of December to early January up to around $1750. We're still around that $1730/$1725 area so that actually demonstrates in my mind a lot of strength in gold and silver doing basically the same thing, so there's a lot of strength in silver and I think this correction we've been in over the past several months in both metals is about to end and you're going to see much higher gold prices and silver prices as we work to the end of the first quarter.
GEOFF CANDY: I want to talk to you about that because a number of commentators have pointed out that the peak that we saw in September last year was driven predominantly by the US debt ceiling talks. Obviously aided and abetted by the crisis in Europe and a number of other factors, but there does seem to be a sense from some people now that perhaps what's going on in Europe is having less of an effect on gold than it perhaps should or would have done in previous crises and the next likely jump forward is potentially... it needs a catalyst of some sort and that catalyst is likely to come from the US.
JAMES TURK: Yes it's an interesting point because in this world of floating currencies they all bop up and down against each other depending on what's happening in any one country or compared to other countries. A couple of years ago the euro was strong and the US dollar was weak. This past year the dollar was strong and the euro was weak, but over that period of time both the dollar and the euro have been sinking relative to gold which I think is the more relative point. The problems in Europe have not been solved. The debt problems in the US have not been solved. Mr Obama just put to Congress a massive over $1tr deficit spending plan. This cannot go on forever. Governments seem to think that it can and central banks are trying to make it last for ever. The reality is, is all of this money printing, all of this debt is going to end up badly and in that kind of environment, gold and silver will both soar and that's what we're about to see here with the way the metals are trading. I think something quite spectacular is about ready to happen over the next few months.
GEOFF CANDY: Now you are on record calling significantly higher prices than the ones we have at the moment, what are you looking for at the moment to be a catalyst for higher prices, if such a catalyst were to happen?
JAMES TURK: You really can't predict what event or what catalyst will occur to cause the metals to move higher, it's just an ongoing bull market. You know my long-term forecast going back to an interview in Biarritz in 2003 when gold was about $350/oz was that sometime between 2013 and 2015 gold would be $8000/oz and I' sticking to that forecast. And that forecast is not based on crystal balls or anything of that nature, it's basically just mathematical that when you go into a financial bust, and one began in 2000, people prefer tangible assets over financial assets because in a financial bust a lot of promises that have been made are broken, and when those promises are broken, confidence in the system falls and people move to tangible assets because they want to own things like gold because gold doesn't have counterparty risk. We're still very much in this major trend and as the problems in Greece continue to unravel because I don't think this parliament bill that's been approved is going to have any long-term positive effect, and other problems in Europe - in Italy and Spain continue to unfold, and recently now the bond-raising agencies have marked the united kingdom for a possible downgrade which would take it from its AAA status. All of these cumulatively are providing reasons for people to move out of financial assets, to move into tangible assets, so I expect this trend to continue. But what event it's going to be you can't really predict that, you just have to play the bull trend, continue to accumulate the metals - I've been recommending a dollar cost averaging programme to do that and focus on much higher prices in the years ahead, as all these problems come to a head.
GEOFF CANDY: To argue the other side of that point though, there are commentators that say that the main reason for buying gold is, as you say, as a tangible asset. But it doesn't necessarily provide a yield and if we see a return to real interest rates, we're likely to see some fall off in investment in gold, and that's where a lot of the price action has come in, from the investment side, on the margins in the gold market and that if we do see a change in real interest rates people will see a decline in gold prices.
JAMES TURK: Yes, gold doesn't provide yield because it doesn't have counterparty risk. If you want to put your gold at risk and lend it to someone you can generate yield on that. So right now people don't want that counterparty risk because they don't know whether their gold is going to be returned or whether the euro's they haven't deposited in their bank is going to be returned, if the bank goes belly-up, or the purchasing power of the euros they put on deposit will be returned because of inflation as a result of all the quantitative easing and money printing that's going on around the world. So you can't really look at some of those "straw man" arguments against gold because they don't think they carry any weight. The more important thing is what's been actually happening in over the last 11 years - the gold price has risen in US dollar terms at an average annual rate of appreciation of 17%. Now have you been earning 17% on your dollar deposits or euro deposits every year? You haven't and so gold is going to become more and more attractive as people understand that gold is still undervalued and still very much useful, and you know, valuation is more important than price. They are different things - as long as an asset is undervalued you should continue to accumulate it and by all my historical measures, gold is still undervalued.
GEOFF CANDY: You talk about the financial systems going bust and those kinds of things - it's very much a case of "be careful what you wish for". How do you see the situation looking in a few years?
JAMES TURK: If you have gold you can weather the storm - that's the basic premise and what I'm looking at here is 5 000 years of history for gold. Gold preserves purchasing power over long periods of time. This experiment with FIAT currency, currency backed by nothing but government promises, is only 40 years old. That pales in comparison to a 5 000 year history of gold used as money. And what's more important is that it's quite clear from all of the imbalances and problems that we're seeing globally with FIAT currency, that this experiment is going horribly wrong. So when FIAT currencies collapse which is what I think will inevitably happen, and most governments and central banks do an about face and go back in the right direction toward sound money, FIAT currencies will indeed collapse if they continue down this road. And in that environment we're going to go back to gold eventually anyway. To think that 5 000 years of history of gold has disappeared just because governments say that gold is no longer money, is not very logical to make that kind of assumption, particularly given that gold still buys the same amount of crude oil that it does today as it did 50 years ago. Gold preserves purchasing power - that's what money is all about.
GEOFF CANDY: I take it then that you would be preferring gold bullion over gold equities?
JAMES TURK: Well they're two different things - in a portfolio you have investments where you put your money at risk to generate some kind of return, and you also have liquidity which is after selling an investment you've got your cash, and you hold onto your cash until you're ready to purchase a consumer good or make another investment. So when you're talking about gold bullion you're talking about money, in other words the liquidity part of your portfolio. When you're talking about mining stocks you are talking about the investment part of your portfolio. They're two different things. Everybody needs money, but not everybody is willing to make an investment, be it in mining stocks or any other kind of stock for that matter. But generally speaking here, the mining stocks have been underperforming gold but I think that's about ready to change. If you look at the cash flow that's been generated by some of the mining companies, and if you also look at the increase in dividends that have been coming as a result of this increase in cash flow, you can see that the mining companies here are basically pretty cheap by their historical comparisons. And markets don't like undervaluation, so my expectation is that eventually the mining stocks are going to go back into the more customary outperformance relative to bullion itself. So if I'm right about bullion this year, I think the mining stocks are probably going to even do better than bullion.
GEOFF CANDY: Moving quickly from gold to silver, clearly the price has been performing as well. What do you make of that in comparison to gold?
JAMES TURK: Well my long-term view is that I've always been more bullish on silver than I have been on gold and the reason is that even though gold is cheap, silver is even cheaper than gold. The ratio is still in the 50s when the historical ratio is 16 ounces of silver equal to one ounce of gold, and I expect before this bull market is over, we're going to get down toward that area. But the problem with silver is that it's much more volatile than gold. Last year the ratio was at 31 and a few months later it was at 57/58. That volatility is not for everybody, but if you can handle the volatility - own some silver. My general recommendation is that two-thirds gold, one-third silver and by the time this bull market is over, the silver component of your portfolio will have a higher currency value than the gold component of your portfolio because of the outperformance as a result of the decline in the gold-silver ratio.