Doug Casey on Gold Breaking Through $1,400… and Four Ways He’s Positioned

Doug Casey is bullish on gold and commodities. From Casey at internationalman.com:

International Man: Recently, gold broke through the $1,400 barrier for the first time since 2013. What do you make of this?

Doug Casey: It’s long overdue.

The thing to remember here is that since the crisis of 2008, not just the US but all of the major governments in the world—the Japanese, the Chinese, the Europeans, and all the little countries too—have been printing up money hand over fist. Gold hasn’t really responded so far.

All that new money has gone into the stock and bond markets, and certain areas of the real estate markets. Now interest rates are once again down to their all-time lows, and about $13 trillion of bonds have negative yields—something that should be metaphysically impossible. Money is finally starting to filter down into commodities. All of which are extraordinarily depressed right now.

The recent move in gold has grabbed everyone’s attention. But all the commodities are going to move higher. There’s a lot of fear building up, and that always drives gold prices.

I’m bullish on gold. I don’t think this is a false start.

It last peaked in 2011 around $1,900. Gold is going back to at least its previous high, and that goes for all the other commodities as well.

International Man: You mentioned there’s a lot of fear building up. What do you mean by that?

Doug Casey: A lot of people are starting to recognize that in today’s world you don’t really own anything.

Stocks in your stock account are just another liability of the brokerage firm. If your broker goes bust, you’re out of luck for anything beyond the amount for which you’re insured. You’re just another unsecured creditor, like the broker’s landlord. You really don’t own the stocks in your stock account—at least in any secure way.

When it comes to commodities, the bust of MF Global under Corzine a few years ago proved that you really don’t own the money in your commodities account either. It used to be than an account with a clearing broker was sacrosanct. That’s no longer the case.

International Man: Recently, gold broke through the $1,400 barrier for the first time since 2013. What do you make of this?

Doug Casey: It’s long overdue.

The thing to remember here is that since the crisis of 2008, not just the US but all of the major governments in the world—the Japanese, the Chinese, the Europeans, and all the little countries too—have been printing up money hand over fist. Gold hasn’t really responded so far.

All that new money has gone into the stock and bond markets, and certain areas of the real estate markets. Now interest rates are once again down to their all-time lows, and about $13 trillion of bonds have negative yields—something that should be metaphysically impossible. Money is finally starting to filter down into commodities. All of which are extraordinarily depressed right now.

The recent move in gold has grabbed everyone’s attention. But all the commodities are going to move higher. There’s a lot of fear building up, and that always drives gold prices.

I’m bullish on gold. I don’t think this is a false start.

It last peaked in 2011 around $1,900. Gold is going back to at least its previous high, and that goes for all the other commodities as well.

International Man: You mentioned there’s a lot of fear building up. What do you mean by that?

Doug Casey: A lot of people are starting to recognize that in today’s world you don’t really own anything.

Stocks in your stock account are just another liability of the brokerage firm. If your broker goes bust, you’re out of luck for anything beyond the amount for which you’re insured. You’re just another unsecured creditor, like the broker’s landlord. You really don’t own the stocks in your stock account—at least in any secure way.

When it comes to commodities, the bust of MF Global under Corzine a few years ago proved that you really don’t own the money in your commodities account either. It used to be than an account with a clearing broker was sacrosanct. That’s no longer the case.

You don’t really own the money in your bank account, at least beyond the insured amount. The 2013 Cyprus crisis proved that. Instead of bailing out the banks, they were “bailed in” by customer accounts. The fractional reserve banking system, combined with a debt-heavy economy, guarantees there will be another wave of bank failures. Governments will follow the Cyprus model. Depositor’s funds are at risk.

More people are starting to realize that you actually don’t own any intangible assets in today’s over-financialized world. Security is an illusion.

That’s why there’s going to be a movement to gold. As I’ve said many times in the past, but it bears repeating, gold is the only financial asset that’s not simultaneously somebody else’s liability. It’s the “go to” asset in an unstable world.

International Man: The Fed capitulated earlier this year and ended its tightening cycle. The next stop seems to be more money printing. What does this mean for gold?

Doug Casey: Well, the more fiat money that’s created, the higher prices are going to go. That absolutely includes gold.

The big X factor is the huge amount of debt in the world, which is once again at new all-time highs. Mortgage debt, student loan debt, automobile debt, credit card debt, government debt, and corporate debt. The US dollar itself is a form of debt. It’s been this country’s major export for two generations now.

All that debt can be sustained with interest rates at 0% or 2%, but if—or rather when—interest rates eventually go up, a lot of that is going to be defaulted on. That will redirect people’s attention to an asset that can’t be defaulted on, such as physical gold.

International Man: If gold is merely a “tradition” as central banks like to pretend it is, why are central banks buying record amounts of it?

Doug Casey: Well, to start with, I’m always skeptical about the figures reported by governments. Not all central bankers are buying gold; it’s essentially just the Chinese and the Russians. Central bankers aren’t rocket scientists; they’re just government employees who’ve weaseled themselves into a position where they’re over paid, get to wear $1,000-dollar suits, and go to ritzy meetings. They have no understanding of economics, despite degrees from prestigious schools. They’ve been brought up on Keynesianism, and a lot of them are Marxists.

Central banks are really just engines of inflation. They really serve no purpose except to allow governments to extract capital from their populations indirectly by printing currency. As opposed to honestly—insofar as taxation is honest—by confiscating the money directly from citizens.

My hope is that over the next 20 years most of these central banks will go bankrupt. The Federal Reserve’s published balance sheet is loaded with trillions of dollars of ultra-low interest rate bonds. When—not if—rates return to even normal levels they’ll have hundreds of billions of negative equity. But I expect rates to go to the levels of the early 80’s and beyond.

Hopefully the Fed and other central banks will go bust and disappear. They’ll certainly go bust. As to disappearing, that’s not a prediction, just a fond hope. Banking and money should be left to the market, not an arm of the State.

Let me re-emphasize that the Russians and the Chinese have been buying a lot of gold in recent years.

Now, why are they doing that?

The major asset of the world’s central banks is US dollars. Even though central bankers aren’t rocket scientists, they recognize that the dollar is the just the unsecured asset of a bankrupt government, the US government.

So the Russians and the Chinese are trying to lighten up on dollars and go to gold. Other governments and central banks will too. It’s only convenient for everyone to use dollars out of habit, and because most everything is priced in dollars today.

But countries like Russia, China, and Iran don’t like to use dollars, because any time they transfer dollars—even between themselves—those dollars must clear through New York. The last thing that any of these countries want to do is use the currency of their adversary, or perhaps their enemy.

But what’s the alternative?

They don’t want to use renminbi and rubles, which are illiquid paper currencies. They don’t trust each other, or each other’s currencies. They certainly don’t want to use dollars. As a result I think the whole world is going back to gold. That will take the gold price to much higher levels. Remember, there are probably only about six billion ounces above ground, and the supply grows less than 1.5% per year from new production. That’s not much, considering that there are about 7.5 billion people in the world.

International Man: How are you positioned to profit?

Doug Casey: I’m doing several things.

Number one is buy gold coins every time I get a chance. However, I no longer buy large one-ounce gold coins. I only buy smaller, generally quarter of an ounce, gold coins. Things like Sovereigns, with a small numismatic value.

That’s because I’ve noticed, in several countries now, that if you have something that looks like it might be a Maple Leaf or a Krugerrand, they’ll open up your briefcase and check it out. It’s happened to me where they’ve mistaken silver coins for gold coins.

You should be buying physical gold coins, but preferably ones that look like pocket change.

Number two, you should have physical gold in storage in an offshore account. SWP Cayman, a precious metals storage company in the Cayman Islands, offers a convenient low-cost way to do that. There are others, but very few institutions will touch American accounts anymore, because of US regulations and reporting.

Number three is to speculate on gold indirectly. I’ve always been very big in mining stocks and they’re very cheap right now. When they run, the whole group can generally go 1,000%. I’m very involved in mining exploration and development stocks in particular at the moment.

The last thing, and this is not for most people, is the futures market. I use it by selling puts, buying calls, or just being long futures.

Those are the basics on how you play gold. You should mainly buy gold for safety, out of prudence, and for insurance. But I believe it will also be quite profitable in the years to come.

 

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