Maurice Jackson sits down with James Rickards to discuss his latest masterpiece entitled: ‘The New Case for Gold’! Legendary James Rickards is the most regarded advocate for the Gold Standard. This interview will confirm to listeners why gold will be going to $10,000 and beyond, the dangers of electronic wealth, and the role of Silver and Platinum in the coming years, how much investors need to allocate towards gold, and most important why investors need to buy gold now!
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Maurice Jackson: Welcome to Proven and Probable. I’m your host, Maurice Jackson. And joining us today is the most prominent, visible, vocal and intelligent advocate for the gold standard to discuss his latest masterpiece entitled “The New Case for Gold,” Mr. James Rickards. Sir, it’s an honor to have you join us today.
James Rickards: Thank you, Maurice. Great to be with you.
Maurice Jackson: Mr. Rickards, your last two books were truly exceptional. I’m speaking of ‘Currency Wars’ and ‘The Death of Money’. Now you focused your efforts on what I believe everyone has been anticipating, which is the aptly named “The New Case for Gold.” James, listeners are keenly aware that you are a strategic thinker. Therefore, I have to ask, why is the timing of your book so critical for listeners?
James Rickards: Well, thanks, Maurice. It’s a great question. A couple of reasons. You know, in my first two books, ‘Currency Wars’, I had a chapter on gold and in ‘The Death of Money’, I had two chapters on gold and I got to the point and I said, “You know what, I had to stop touching on those subjects and just do a whole book on gold. Just sit down, take everything I know, everything I’ve learned, everything I’ve researched, put it in one place. Make it very accessible for the reader.” And that’s what we’ve done. You know, you never know. Books take a long time to put together. They take a long time to write and get published and printed and distributed and so you never know what the economic conditions are going to be when the book actually hits the bookstores because there’s a long lead time. But it does seem that, you know, gold is the best-performing asset class in 2016. It seems to be on the very strong vector right now, so maybe it’s just good luck. I thought the book was important really at any time because gold always has a place in the portfolio, but we may have got the timing right on this one so I’m very happy about that.
Maurice Jackson: Well, if you would share with the listeners, what are some things that they will be learning from your new book?
James Rickards: Well, a couple things, Maurice. One, the title is ‘The New Case for Gold’. A lot of people will say, “What’s new about it?” People have been arguing about gold and debating gold for decades or even centuries, which is true. But there are some new reasons, 21st century reasons to have gold in your portfolio. First and foremost, there’s a threat of cyber financial warfare and hacking. You know, Vladimir Putin has a 6000-member cyber brigade working day and night to penetrate, disrupt, destroy, delete and erase digital financial records. I ran into very wealthy individuals, some of the billionaires and you say, “Well, what do you have?” And they say, “Oh, I have stocks and I have bonds and I have this and I have that,” and I say, “No, you don’t. You have electrons. Those can be wiped out. Those can be completely eliminated and erased and you would have nothing left.”
The great thing about gold, of course, is that it’s physical—bullion, coins, whatever form you have it in. It can’t be hacked. It can’t be erased. So, gold will preserve well even in the event of an attack like that. That’s not something we were talking about even 5 years ago, certainly not 10 or 20 years ago. There was no real cyber threat of the kind we have today. So, in addition to all the traditional reasons, another reason to have gold is that it is physical and tangible and cannot be erased or hacked either by criminal gangs or adversaries such as Russia, China, North Korea, Syria, Iran, they all have cyber brigades who are working to destroy digital wealth.
Maurice Jackson: Well, you know, sticking with that theme for a second here, I’m concerned about the aforementioned attacks on electronic wealth that you just conveyed. What would you say to investors that do not wish to have bullion in their possession? Now, we know your stance on gold ETFs, but will owning proxies to gold suffice for stewardship? By that I mean funds such as, let’s say, Sprott Physical Gold Trust or Axel Merk’s OUNZ. Does that still imply the same?
James Rickards: But we have to be careful. I don’t recommend what I call paper gold. So ETFs, COMEX Futures or what are called unallocated gold contracts from London Bullion Market Association Banks. Those are all paper contracts. You don’t have any segregated, separate physical gold and you cannot very easily get gold. Now, COMEX Future, they say you can put in a notice for delivery and take delivery from the physical gold. The problem with that is they have 100 times more contracts than they do gold. So in a steady state, you really just roll over your paper contracts, but if there’s a buying panic or super-spike in the price of gold, which I do expect, and everybody runs down to the COMEX vault to get their gold at the same time, only you know—it’s kind of like 100 people show up and they only have 1 bar of gold. The first guy might get the gold, but the next 99 are out of luck.
Same thing with ETFs where they have a lag of up to 28 days, perhaps longer where between the time, the new money comes in when they actually buy the gold. Again, they’re going to have to shut that down in a buying panic and that’s exactly when. When you want your gold the most is when you’re not going to be able to get it from these paper contracts. Again the same thing with the unallocated forwards. They sell more gold than they actually have. So none of those work.
Now, there are some gold funds, physical gold funds, Sprott and a few others, where okay, you buy a unit or a share but the sponsor then takes your money, buys physical gold. You have the title of that gold. If you want it delivered, you can call up. They’ll deliver it to you. If you want them to sell and send you the proceeds, they’ll do that. So there’s a much more direct linkage between your investment and the gold. So there are a couple like that that I recommend.
But the best way to own gold is actually physical gold yourself. You don’t have to keep it in your home if you don’t like. There are reliable non-bank vaults. I don’t recommend putting it in the banks by the way because, again, in a panic, the banks will be shut down. You won’t be able to get your gold. But there are non-bank secure logistics firms like Brinks, Loomis, Dunbar. There are many others that are perhaps not as well-known, but they’re reputable. They’ve got insurance and you have to do due diligence like anything else, but there are risk-good, safe, non-bank storage for your physical gold.
Maurice Jackson: For the non-bank storage, are you specifically referring to segregated and allocated?
James Rickards: Well, what I’m saying is if you actually own the gold, then, yes, it is segregated and allocated, but you would actually have your gold and make arrangements with the vault operator to store your gold there so there would never be any question about the fact that that’s your gold. Now, with segregated and allocated, that’s more like the funds I’m describing as I mentioned earlier, physical gold fund and Sprott and a few others where, you know, you buy a unit. You send them the money. They buy the gold and then they say, “Okay, here’s your gold bars. It’s got a serial number. It’s got a weight,” or “Here’s physical quantity of gold. That’s your gold. We keep it for you, but if you want it, call us up and we’ll deliver it to you.” That’s the only way to own physical gold, either you buy it yourself and store it or buy it from a plan sponsor or manager who segregates it for you. But, the big banks—The London Bullion Market Association Banks, GLD ETFs, COMEX Futures, that’s not the way to own gold because you have no title to the actual gold.
Maurice Jackson: Well, thank you for sharing that. Switching gears here. Gold is known as a precious metal for a reason because of its rarity. Thus, I’ve heard the paradigm advocated by Keynesians stating that gold could not function in any financial system. Why is their thesis incorrect?
James Rickards: Well, you know, Maurice, that’s a good question. 90% of my book, The ‘New Case for Gold’, are positive affirmative reasons to own gold, but about 10% of it I shoot down all these arguments. There are arguments against gold that you hear over and over again. I hear them all the time. I actually researched them. They’re all incorrect, obsolete, not one of them holds water, not one of them stands up to scrutiny, but you hear them nevertheless from very smart people including professional economists and others. I just got kind of sick and tired of hearing them so I said: “First thing I’m going to do in the book, you shoot down those arguments” and then I’ll move on and make a case for gold.
So what the Keynesians say, for example, is that—well, they say a number of things that are wrong. They say there’s not enough gold in the world to support global commerce and international monetary system. Well, that’s nonsense. I mean there’s always— however much gold there is, it’s not a question of quantity, it’s a question of price. So, yes, if you set the price too low relative to the money supply that is deflationary. So the solution is just to set the price higher. I’ve actually done the math looking at the total money supply, the total supply of physical gold, make some assumptions, do you want 40% back or 100% back, etc. So you do have a few inputs like that. But my calculations all based on hard data is that gold would have to be at least $10,000 an ounce, possibly much higher. At that price, that would not be deflationary. So, yeah, you can set the price wrong and cause deflation. That’s what the Keynesians say. Well, my answer is, just set the price in the right place and the answer is $10,000 or more. I do expect gold to go there for that reason.
The other thing the Keynesians say is that you need an elastic money supply because, you know, the economy grows about—yeah, the global economy grows about 3% or 4% a year. Mining output, the increase of gold relative to the total stock is about 1.6% a year which it is, so they say: “See, you know, gold supply does not increase fast enough to support the growth in world commerce.” That’s not true because the gold mining output is irrelevant. What the Keynesians failed to distinguish is the difference between official gold and total gold. Total gold is about 180,000 tons. Of that, official gold, that is, the gold owned by central banks and finance ministries is about 35,000 tons. But that leaves 145,000 tons of private gold. If a central bank wants to ease the money supply and, under discretionary monetary policy, own a gold standard, all they have to do is print money and buy gold, just buy some of the private gold. In other words, mining output is not a constraint on the ability of central banks to acquire more gold. All they have to do is buy it from the private sector. So, these are examples of arguments, as I said, they don’t hold water. I shoot down every one of them and they’re like wanting to make an affirmative positive case for having gold in your portfolio.
Maurice Jackson: Well, I look forward to reading that. You’ve conveyed that gold must service a fundamental allocation to one’s portfolio. May I ask, for the listeners, how much do you believe is sufficient for one’s portfolio?
James Rickards: My view of the right amount is 10%. 10% of investable assets, Maurice— let me explain what I mean by investable assets. So, take your home equity, put it to one side. Take your business equity. So let’s say you’re, you know, drycleaner or a pizza parlor operator, car dealer, doctor, dentist or whatever it is, take that business equity and put it to one side. You don’t want to bet with your house money and you don’t want to bet with your livelihood. But everything leftover, everything other than that, those are your investable assets. I recommend 10% of that in gold, and the reason is 10% is plenty. If the system collapses as I expect, that 10% allocation is going to go up by multiples, so you’ll do fine. If everything is wonderful and there’s no down in the stock market, gold doesn’t do very much, you’re not going to get hurt with 10%. So to me, 10% is enough to provide insurance and protection against the rest of your portfolio, but not so much that if it goes down, you’ll get hurt. So I think 10% is the right amount.
Maurice Jackson: Okay, fair enough. And what would you like to share with those that haven’t deployed capital to gold with hopes of trying to time the market?
James Rickards: What are you waiting for? In other words, the problem, Maurice, is that there will be a gold buying panic. There will come a time when gold is going up, you know, $100 an ounce per day, $200 per ounce per day and then a lot of people are going to wake up and say, “Oh, gee, I better get some gold.” You’re not going to be able to get it. There are already physical shortages. I just got back from Switzerland. I met with the head of the world’s largest gold refinery. When you think about what do we find and what do gold refineries do, they take gold in the front door. They refine it into different forms and they ship it out the backdoor. So this guy knows who all the sellers are. He knows who all the buyers are because those are the people he acquires gold from and those were his customers. He tells me he’s got a waiting list of buyers that are Chinese. He sells them about 10 tons a week. He said, “They’d like to buy twice as much, but I can’t sell it to them because I don’t have that much gold.” He said on the incoming, he said, “I’m seeing gold shortages.” He’s been in the business 35 years. He’s never seen anything like the current situation. He said, “I’m having difficulty sourcing the gold.”
So the physical shortages are already showing up. The Chinese are buying gold by the thousands of tons. The Russians are acquiring gold. They purchased over 1000 tons in the last 7 years. So, when you want the gold, you’re not going to be able to get it, so the time to get it is now.
Maurice Jackson: That’s truly concerning. Thank you so much for sharing that. That’s really—it’s quite an amazing just to hear those numbers in that magnitude. In closing, I realize the emphasis is gold and should remain on gold. But I will be remiss if I didn’t ask, platinum doesn’t really have a role in monetary history, but a couple of years ago, Congress wanted to pass a bill to have a platinum coin pay off the national debt. Did the U.S. show their hand on a potential introduction of platinum into a precious metals backed currency?
James Rickards: No, I don’t think so. That was—first of all, the whole idea was nonsense. The idea is as long as if they were going to have, you know, 19 trillion dollars’ worth of platinum.
Maurice Jackson: Correct.
James Rickards: There isn’t that much platinum in the world, at least not in current prices. What they were going to do is print a coin and just say it was worth 19 trillion dollars. Here’s—or actually, they were trying to finance the deficit, I believe, so maybe it was only, you know, 400 billion dollar coin, but whatever it was. They were going to just by fiat designate the coin and this was in reliance on some provision of the constitution that gives Congress authority to set the coinage, you know. So they said, “We will have to issue paper debt or, you know, electronic debt from the Treasury. We can actually print this coin and say it’s worth X and, you know, pay off the deficit.” The whole thing was nonsense. I don’t really think it’s revealing as far as platinum is concerned. The problem with platinum, silver and palladium as precious metals, they are precious metals. They do have value. Silver historically has performed a monetary role. The problem is there were also industrial inputs, so in analyzing them, you have to separate the money role with the precious metals role on the one hand from the industrial role on the other. It clouds the picture a little bit.
The thing I like about gold is that gold is actually not good for anything except money. It’s the perfect form of money, but it’s not good for much else. And so you can just think of gold as money, think of it in a monetary context for purposes of analysis and you don’t have to worry about industrial supply and demand the way you do with silver. So I think silver is actually useful to have, you know, silver coins in the event of, you know, dire social breakdown, the power grid collapses, etc. Gold will preserve your wealth. You definitely want gold. But for buying, you know, a couple of days’ worth of groceries, you know, a gold coin will probably get you a year’s worth of groceries. You might want a few silver coins to buy that day’s grocery to feed your family. So, I think silver will tag along with gold, but I primarily emphasize the need to have gold in your portfolio. I recommend 10%. It’ll preserve wealth and make sure it’s physical not paper because when gold goes up a lot, the paper contracts are not going to be honored. They’re going to be terminated. But if you have physical gold, you will be protected.
Maurice Jackson: Well, thank you for that clarification. Mr. Rickards, please share with the listeners where they can purchase ‘The New Case for Gold’ and where they can continue to follow your work.
James Rickards: Thank you, Maurice. ‘The New Case for Gold’ is on sale in bookstores everywhere. It’s also available on Amazon.com so just go to Amazon, ‘The New Case for Gold’. You’ll find it right away. And if people are interested in more, I have a newsletter called Strategic Intelligence. Jim Rickards’ Strategic Intelligence. You can google that. I’m also very active on Twitter. My Twitter handle is @jamesgrickards. My middle initial G for George @jamesgrickards, R-I-C-K-A-R-D-S. And my website, www.jamesrickardsproject.com. So thank you, Maurice. I’m very happy to share all that with your listeners.
Maurice Jackson: Well, thank you, sir. Mr. Rickards, we look forward to reading ‘The New Case for Gold’. Thank you for joining us today on Proven and Probable.
James Rickards: Thank you.
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