a Gold Bug's Eyes
James gives us his current thoughts on the
precious metals, and explains his prediction
that gold will reach US$8,000/oz.
Courtesy of the
- Jan 8/2006
Note: Audio link above and article below
contain different content
Author James Turk thinks the metal
can shine brighter still, maybe even hitting $850 in
Don't pity gold hoarders. Sure, when
it's slumping, as is often the case in boom years
and when the U.S. dollar is strong, they're
ridiculed as eccentric and archaic. But this year
they've enjoyed plenty of vindication. Earlier in
December the yellow metal topped $540 per ounce, a
24-year high. Closing the year around $519, it has
plenty of analysts jumping on the bandwagon.
A sign of growing interest was the launch within the
last year of two exchange traded funds (ETF) that
track gold: iShares Comex Gold Trust (IAU
) and streetTracks Gold Shares (GLD
). Still, there are skeptics who think gold won't
continue its bull run (See BW, 12/26/05,
"Hedging Against Inflation").
James Turk, author of newsletter The Freemarket
Gold & Money Report, is a gold bug of long
standing. A specialist in international economics,
he penned the 2004 book The Coming Collapse of
the Dollar and How to Profit from It: Make a Fortune
by Investing in Gold and Other Hard Assets with
John Rubino. Turk also founded
a Web site that gives analysis and investment advice
on precious metals.
Turk recently spoke with BusinessWeek Online
about how high gold will go, who's buying it, and
why. The following are edited excerpts from their
Why has gold climbed
in the past few years?
Gold responds to monetary problems. For the first
few years gold was rising only against the dollar.
The dollar had obvious problems in terms of the
trade deficit and the federal budget deficit. But
what has happened over the past years is that gold
has been rising against all national currencies, and
What happens when there are problems with a national
currency is that people begin to worry about the
value of their money, whether they're going to lose
purchasing power because of inflation or other
problems. As a consequence, they look for safe
Initially, when there were problems with the dollar,
people saw the euro as safe. But in May, [after] the
French and Dutch votes that rejected the European
constitution, people began looking at the euro and
realized it wasn't the haven they thought it was.
Since then the riots in France and all the other bad
news coming out of Europe have reinforced that view.
Consequently, money has been moving to gold.
But haven't European
countries been selling their gold?
They have, but they haven't been selling enough to
keep prices from rising. The demand for gold has
been very strong worldwide, and it's going to get
stronger. Gold has reached the $500 level, which has
eluded it for the past 24 years. Everyone who has
bought gold over the past 24 years is making money.
It's still below its high in January, 1980, of
approximately $850. In today's dollars [taking
inflation into account], to match the purchasing
power, you need $2,200 and gold's only at $519, so
we're well below the 1980 high.
How high do you
think it's going to go?
My expectation is that we're going to see $600 in
the first quarter of 2006, and sometime over the
course of 2006 we're going to touch that $850 level.
Why is it such an
unusual view that gold is going to keep rising?
Gold has been off everyone's radar screens for the
past 20 years because it has basically been in a
sideways trading range. As a consequence, a lot of
things changed. People have been focusing more on
financial assets than on tangible ones. Just like we
had a movement at the end of the 1960s bull market
from financial assets into tangibles, over the past
few years we've had a movement from financial into
tangible assets as well after the stock market
peaked in 2000.... We're up now 5 years in a row. I
think 2006 is going to be the sixth.
oblivious to it. For example, The Economist
called gold a "barbarous relic." Why is there such
There's a lot of antigold propaganda, partly because
economic theories don't explain what gold is and how
it works. It became politically incorrect to think
of gold as money once it had supposedly been
demonetized in 1971, when President Nixon closed the
gold window. But the reality is, monetary theory is
one thing and the way gold works in the real world
is entirely different.
You mentioned that
gold isn't politically correct. What do you mean?
In 1971 Nixon closed the gold window -- he said that
gold was being demonetized. The reality is that gold
still is money, but what's being demonetized is the
dollar. Every year the purchasing power of the
dollar is being eroded by inflation.
Why is gold still a
The way it works is gold is money. Gold is the only
asset we produce for accumulation. Every other good
and service we produce is consumed. Gold is hoarded.
Essentially all the gold ever mined throughout
history currently exists in above-ground stocks.
That's not true for anything else. Even copper is
consumed in the sense that it is dispersed in
millions of applications around the globe. The fact
that gold is hoarded is what makes it money. And
it's very useful for economic calculations for
prices of goods and services over long periods of
Wouldn't it be
better to invest in something like copper, which is
so useful? You know that eventually someone's going
to want to buy it.
Copper has use in terms of industrial applications.
Gold has use in monetary applications. So you'd buy
copper if you want to build engines. You buy gold if
you want to have a safe haven for your money.
Who is interested in
buying gold these days?
The most significant buyers over the past few years
have been individuals. Gold goes to where the wealth
is being created. So for example, the European
central banks have been disgorging gold from their
vaults, and that gold is going to China and India
because that's where new wealth is being created.
Gold is also going to the Middle East with the rise
in energy prices.
So the central banks
of China and India are accumulating gold?
The Central Bank of China apparently is buying.
There has been no evidence that the Central Bank of
India is buying. But individuals in those countries
are accumulating the gold, and that's what Americans
have to be looking at.
How can an
individual invest in gold?
We use the term investment, but that's a little bit
misleading. The amount of crude oil that you can buy
with an ounce of gold is the same as it was 50 years
ago. So in that sense, gold hasn't really provided
any rate of return. What we call the rate of return
in gold is actually the loss of purchasing power of
You can only have a rate of return when you take
that gold and take risks with it, as you would a
normal investment. You either take that gold and buy
stocks with it, or you lend it to generate some kind
of rate of return.
So when you look at an investment portfolio and you
have stocks, bonds, and cash, gold should be counted
as part of your cash. It should be that part of the
portfolio that provides liquidity.
What do you think of
the gold exchange traded funds?
iShares Comex Gold Trust (IAU
) and streetTracks Gold Shares (GLD
) are not an alternative to owning physical metal.
They're a convenient way to speculate on the price
of gold. They don't prove that the gold actually
exists in the vaults of the custodians and the
sub-custodians with an audit.
dollar becomes stronger again or another currency
emerges as the sort of investment that people want
to put money into, will it affect the price of gold?
A few years ago when the dollar was beginning to
fall of the edge of a cliff, people started putting
their money into the euro. But in the past few years
we've seen the price of gold rising not only against
the dollar, but also against the euro, the Swiss
franc, and the Japanese yen.
Gold is rising in terms of every major national
currency. You haven't had this since the 1970s. What
happened then was there was a flight out of national
currency because people became concerned about
inflation and other monetary problems. This is going
to continue in my view in the years ahead.
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