Jim Rickards: The New Case For Gold

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Monetary expert Jim Rickards returns this week to share the insights from his latest work The New Case For Gold, a detailed and highly-researched study of the fundamentals likely to drive the price of gold bullion in the years to come.

Rickards is quite confident that the price is going higher – much higher in fact – as the current world fiat currency regimes falter, to be replaced by ones backed (at least in part) by bullion.

On the way to that outcome, expect the price to be subjugated to the interests and aims of the largest players on the geopolitical chessboard:

Is there gold price manipulation going on? Absolutely; there’s no question about it. That’s not just an opinion.

I spoke to a PhD statistician who works for one of the biggest hedge funds in the world. I can’t mention the name but it’s a household name, you would know the fund. This guy is a PhD statistician. He looked at COMEX opening prices and COMEX closing prices for a 10-year period and he was dumbfounded. He said…This is the most blatant case of manipulation I’ve ever seen. He said if you went into the aftermarket, bought after the close and sold before the opening every day, you would make risk-free profits. He said statistically that’s impossible unless there’s manipulation going on.

I spoke to Professor Rosa Abrantes-Metz at the New York University Stern School of Business. She is the leading expert on globe price manipulation. She actually testifies in some of these gold manipulation cases that are going on. She wrote a report reaching the same conclusions. It’s not just an opinion, it’s not just a deep, dark conspiracy theory. Here’s a PhD statistician and a prominent market expert lawyer, expert witness in litigation qualified by the courts, who independently reached the same conclusion.

Now, where is the manipulation coming from? Well, there are a number of suspects but my number one suspect is China. To that you might say: Wait a second, China has 5,000 tons. They lie about it. They say officially they have 1,700 tons but it’s very easy to establish that China probably has 5,000 tons or more. Again, that’s not a made up number. How do we know? Well, we look at Hong Kong imports. China lies, Hong Kong doesn’t – they actually have fairly reliable trade statistics. They’re showing about 700 or 800 tons a year of exports from Hong Kong to China. Let’s just say 800 tons a year there and we have geological surveys that show China produces about 450 tons a year from the mining output and we know they have zero exports. Combine Hong Kong exports to China with Chinese indigenous mining output and you get a figure of about 1,200 or 1,300 tons a year times six years. That’s 9,000 tons right there. The only thing that’s not clear is how much of that is public and how much of it is private.

I was in Switzerland a couple of weeks ago and met with the head of the world’s largest gold refinery. His estimate is about 70% goes to private usage and about 30% to the government. Take the 9,000 tons, apply 30% and you get 3,000 tons, plus the 1,000 they admit, so you easily get to a figure of 4,000 or 5,000 tons. But here’s the problem: China has to get to 8,000 tons. If they want to look the US in the eye and have a big enough pile of poker chips the next time the major trading financial powers sit down to play poker and recut the deal and reform the international monetary system, they have to have as much gold as the US. So they’re still out to buy another 3,000 or 4,000 tons. Ultimately, the price will go much higher, but if you were a buyer of 3,000 tons wouldn’t you want a low price? Of course you would. By the way, they are untouchable by the CFTC or the Justice Department. We can’t prosecute China. We can’t get access to them. They would laugh at is.

So you’ve got a big whale out there buying thousands of tons through stealth interception motivated to have a low price, which is untouchable by US regulatory authorities. There’s your culprit right there(…)

(…) The senior officials know about it. They’re very relaxed about it. They think we need to do this. The question is: Why? Why does China need gold reserves? Obviously, you’re going to reset the monetary system on a gold basis. If you do that, back to Churchill 1925, you’ve got to get the price right. What is the implied, non-deflationary price of gold in the reset monetary system? The answer is at the low end $10,000 an ounce, at the high end $50,000 an ounce. It’s coming.

People say “I hear you Jim and I agree with your argument, but I’ll wait until it starts to take off.” Sorry, you’re not going to be able to get the gold. It will take off, but you’ll be standing there watching it on television going to $2,000, $3,000, $4,000 an ounce while frantically calling your dealer saying: Get me some gold! You know what the dealer is going to say? Sorry, sold out: back ordered. You call the Mint: back ordered. You’re not going to be able to get it. That’s my point. Get it now, while you can, at a good entry point. Not 100%. Just get 10% of your assets in gold, sit tight, and you’ll be fine.


Click the play button below to listen to Chris’ interview with Rickards (39m:36s)

This is a companion discussion topic for the original entry at https://peakprosperity.com/jim-rickards-the-new-case-for-gold/

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Chris, very interesting - thank you.  Does Jim have any thoughts on the consequences for the gold : silver ratio after a re-set of the gold price?  If we assume the GSR will revert to more traditional weighting, isn't there a more compelling case for hedging in silver?

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I met Rickards at the 2011 Gata conference in London. Main reason I went was to talk with him. He is just a normal guy, no BS, very sincere and extremely brilliant. When Jim talks…I listen.
I have always agreed with his directive to hold 10% in PMs.

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Silver is not a pure monetary asset. It will move with gold to some extent but in the scenario of a reset of the global monetary system you should own gold. 

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Lots of interesting stuff in there.  I have a few more questions I'd like to ask him!  [I'm guessing some answers are in the book]

  1. Jim, have you read the prospectus for CEF, for PHYS, and PSLV as well?  What are the circumstances where an owner of these specific ETFs will end up not having exposure to the price of gold?  Same question for allocated gold at Perth Mint, Bullion Vault, and any other programs you know about.

2)  From my reading of history, revaluations of gold appear to have happened during crises, and (in the case of the US revaluation) there was at least three months of clear warning before it occurred.  In the other cases, there is usually a monetary crisis of some sort, accompanied by a flood of official denials regarding the solution, and then a revaluation takes place.

Is there a historical case where a revaluation occurred out of a clear blue sky?  This is apart from events including just barely sub ELE meteor strikes, power grid takedowns, EMP bursts, and nuclear attacks.

Apart from these catastrophic events, if you think a "clear blue sky" event is likely or even reasonably possible this time, please explain what is different about today.  And if possible, roughly assess the likelihood of a "complete surprise revaluation" versus the more standard case where some warning occurs first.

  1. Related to (2), assuming a remonetization happens as the product of a crisis, can you describe a rough sequence of events and a rough timeline that would lead up to the remonetization?  Every crisis has a rough timeline because it is based on confidence, confidence timeline is driven roughly by people's emotions, which take time to change direction.
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Thanks John - maybe I should have said "is there not a more compelling case to weight your PMs to favour silver".  At the moment my PMs are 40% gold and 60% silver.  With the GSR at circa 75, a fall to say 50 (I'm ignoring the commentators who propose it will go back to the historic level of 16!) and a re-set of gold to $10,000/oz provides a better hedge than 100% gold.  Hence my question - where does Jim think the GSR will go in his re-set scenario…

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Many thanks Chris for having Jim.  GREAT stuff.
By the way I receive Strategic Intelligence Newsletter by Rickards and let me say this:

"OUTSTANDING."  For example in his March 2016 issue of 16 pages , you will find the following:

Satellite Wars: The Making of the Next Defense Boom.  Bottom line: BUY DigitalGlobe, Inc. (DGI: NYSE).

Nomi Prins: The Hidden Power Relationships Running the World (5 pages): Bottom line: watch closely:

ishares U.S.Healthcare Providers ETF (NYSE: IHF)  and  Huntington Ingalls (NYSE: HII)  and

Pro-Shares SHORT Financials (NYSE: SEF), an inverse ETF.          WITH REASONS WHY!!!

ALSO, "A Guide to Today's New Power Elite," by Jim (5 pages), with diagram of the top tier of the power elite today, headed by Robert Rubin–FASCINATING!!!   Nomi and Jim are preparing a full roster of the power elite that will run into the thousands of names!!

"The main object of the power elite is to ENHANCE THEIR WEALTH AND POWER at your expense."

"The best defense is to keep a close watch on how the players interact to advance their program."

 

ENJOY.  Ken

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Excellent interview Chris!  I might quibble with Rickards as to the degree to which the US (vs. China) is complicit in the manipulation… but in the end it doesn't change the outcome, nor the actions one should take.     
My personal take on GSR is that the "right" answer to this question is simply unknowable.  I have ended up not far from 50:50 on a dollar basis today… but I have always just bought both, without obsessing over the ratio.  I understand that the ratio is out of whack historically, and geologically… but if industry comes crashing to a halt industrial demand for Silver will be reduced, and there is still a large component of demand that is industrial.  That being said, once the Gold runs out… and I agree with Jim R (and not DaveFairtex whose comment earlier in this thread barely manages to contain his contempt for this particular concept) that it will run out VERY fast… Silver will come next.  There simply is not that much Silver for sale in the world, especially in today dollar terms… so Silver will most likely skyrocket in price.

But will governments come after Gold?  Will they not come after Silver?  Will they tax Gold profits but not Silver (since it's needed for industry as well and you don't want to hamstring industry)?  There are so many speculative rabbit holes to go down… like I said, I have stores of both in and out of country, all outside of the banking system.  

Let's talk a little more about how fast Silver and Gold will run out.  Dave suggests he will somehow see this coming and be able to position himself… maybe that will turn out to be true. But for most folks… I think that will not be true… I think that the physical availability will shut off within hours of an event/the event.  This will happen for a very simple reason;  The dealers will see the event before you and I do, and they will pull their Gold (and probably Silver too) from the shelves… they are going to stop taking orders.  I certainly would if I were them.  

This podcast from last Friday is very interesting in that the Doc and Eric Dubin discuss real time Silver demand… and how when the price got smashed last week the SD Bullion business turned over 30K ounces in the first part of the day.  Listen for yourself;

     http://www.silverdoctors.com/precious-metals-market-podcast/blbs-triggers-insane-demand-for-silver/
  • “Insane Demand For Silver“ – SD Bullion Burns Through 30,000 Silver Rounds Friday In Wake Of Jobs Report Silver Smash
  • Eric Explains Why Friday’s Action Demonstrates The 3rd Stage of the Secular Gold and Silver Bull Market is Underway
  • The Dollar is Reaching an Inflection Point – BIG Moves Ahead For the Greenback?
So the signals regarding PHYSICAL supply vs demand availability will be clear to the dealers before it's clear to you.  Maybe a few dealers will sell out their inventories.. and maybe you will get a few ounces of this or that.. at some price if you are watching in real time.  But now is the time to make sure you have what you think you need.  Buy the insurance now if you want insurance.      

 

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Well Jim, we definitely agree.  If you don't have insurance, then buy it now if you want it.  Its probably not wise to try and time your first purchase.  Do the dollar cost average approach so you don't have to stress about it.

Let's talk a little more about how fast Silver and Gold will run out.  Dave suggests he will somehow see this coming and be able to position himself.. maybe that will turn out to be true. But for most folks.. I think that will not be true.. I think that the physical availability will shut off within hours of an event/the event...
I don't agree.  Or rather, I do agree, but with this modest change: physical availability at the COMEX PRICE will shut off within hours of the event.  Those gold dealers will probably cough it up in exchange for a massive premium, if you make them an offer they can't refuse.  But the whole concept of buying AFTER the event is not something I support.  For heaven's sake, thats why I asked what the warning signs of the event might be, so IF we see those warning signs, we can "top up the tanks" - perhaps boosting our concentration to higher than the 10% number Rickards talks about.

After all, that's what Chris is doing for us when he sends out alerts.  He sees a signpost of something potentially unpleasant, and he lets us know.  Doesn't this seem like a good idea?  Jim imagines I'm disdainful - nope, I'm just looking for a realistic assessment of what Rickards sees as those signposts, rather than the usual goldbug fearmongering of "it could happen AT ANY TIME!  OMG!"

I get the sense that Jim lives in a constant state of near panic…I do my best to avoid such a situation by trying to understand the actual risk involved, and then taking action that matches the level of risk I see.

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Dave:
 "But the whole concept of buying AFTER the event is not something I support.  For heaven's sake, that's why I asked what the warning signs of the event might be, so IF we see those warning signs, we can "top up the tanks" - perhaps boosting our concentration to higher than the 10% number Rickards talks about."

 

Rickards recommends at least 10% of assets for insurance, but I wonder;  IF gold does what he says it will do, why not go for wealth INVESTMENT, that is, buy WAY MORE than 10% for the gains.  I believe that I saw where Mike Maloney and others (Chris too?) were confessing that their % was much, much higher??  How risky??  What are the odds?

Comments, anyone.  Ken

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While I agree with  Rickard's comments on gold it is disappointing to hear him joining in with the noticeable media campaign  to demonize the Russian President. Rickards has spoken in the past of his involvement in financial war gaming with the CIA in order to develop strategies so he obviously has friends and a vested interest in maintaining the support of these people. Defence experts in Russia would be remiss if they did not  engage in similar activities. In my opinion Putin appears to act in ways that avoid violence and  promote peaceful outcomes while it is the USA and NATO that are behaving aggressively are expansionist and foment violence in places such as Libya, Syria Afghanistan and Ukraine. Before you dismiss my opininion and say "Putin troll would you like to live in Russia", no I would not. I do not want to live under a totalitarian regime anywhere and that is where the west is headed under the current crop of world leaders , their media manipulation, and their short-sighted militaristic policies.

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I second Ken’s view. Given that Jim has just written a book called ‘The New Case For Gold’, I don’t understand why he recommends only 10%. When asked on Twitter, he has responded “Deflation”. But gold can also do well in this scenario, when gold has to be revalued higher to break the deflation (as was done in the 30’s). I really just can’t see any good fundamental arguments against a higher allocation in gold.

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JR is a very bright guy. You can hear that when he speaks, and he speaks with authority. He words were music to my ears, since I have over $1.5M in gold and silver.

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Why is gold better? What about the industrial role which silver plays? Why wouldn't silver's non-monetary qualities have an exponential impact on its price, independently of gold? What about the possibility of a two-tiered structure between silver's commodity price and its physical price? What about the fact that China and other nations - but China especially - are having a red hot go at making a large shift to alternative energies? (Some of which is solar, which of course uses silver in PV manufacturing.) What about the emergence of crypto-currencies as a real alternative to fiat, perhaps at the small expense of PM chances as monetary assets)? What happens to gold & silver respectively after The Great Reset (assuming it happens) i.e. why couldn't silver's value & price continue to rise while gold's stagnates?

 

Making a simplistic statement like "in the scenario of a reset of the global monetary system you should own gold" is a one-dimensional way of looking at cause-and-effect, and a one-dimensional assumption that what happened before will happen again. Nothing is as simple as it used to be, least of all our markets, our economies, our industries, our technologies… and the entwinement of all of them.

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Gold, buy as much of it as you understand of this PM. It's priced MTM on the sheets of the ECB. Why??

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'we came, we saw, he died' plus 'it' is gone (116 tons)
http://www.thedailybell.com/editorials/anthony-wile-gaddafi-planned-gold-dinar-now-under-attack/

 

http://www.tradingeconomics.com/libya/gold-reserves

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Guys, when you have time could you address Harry Dent's theory that gold prices will likely fall to new lows over the next couple of years?  I think Harry has a number of commonalities with you (believes a severe crisis is about to take place) but this is one area where you differ.

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locksmith-
I think the silver vs gold debate depends on what outcome you envision.

If we have a remonetization, gold owners are suddenly handed a prize - a full and complete price support (Rickards thinks it will be $10,000).  Silver will probably follow to some degree, but it will be gold that wins the lottery, not silver.

If we imagine the standard goldbug hyperinflationary outcome, then silver wins because it could actually stand in as an actual currency, and silver tends to outperform gold during inflationary times.

Its all theory though.  A remonetization at 8x the current price - what will the effect be?    I wish I knew.  I don't have a model for how that would play out.  I mean all the goldbugs (and I include myself) would win, but somehow that seems like such a fairy tale ending that it makes me automatically suspicious.  Such things never happen to goldbugs.  :slight_smile:

Silver at the gold/silver ratio of 81.65:1 seems like a bargain.  Problem is, the bargain might get even better if we have a more severe deflationary period prior to any remonetization and/or reflation via helicopter money.  And if I wanted to flee with my wealth intact, I always imagine trying to swim the Rio Grande with $100,000 in silver…

I guess ultimately I come down on the side of gold because its more portable, and based on history as well as price action I've observed in recent years, would decline less during a deflation.  (The current gold/silver ratio is an artifact of "gold behaving better during deflation than silver").  Based on the evidence, I think gold is a more reliable insurance policy in all the various scenarios I can see.  But silver could end up being a huge winner - the current gold/silver ratio could well unwind in silver's favor under the right circumstances.

The way I see it: gold is insurance, and silver is a bet.  If you have enough money, do both.  :slight_smile:

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I mean all the goldbugs (and I include myself) would win, but somehow that seems like such a fairy tale ending that it makes me automatically suspicious.  Such things never happen to goldbugs.  :-)                                    
Dave,

I'm pretty sure they would put some kind of windfall profit tax on any revaluation…perhaps in the 80%'ish range.  That's another reason why it's prudent to have some silver, miners, platinum and palladium as well.

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Thumbs up to this post!

That one psychopathic statement you quoted should be sufficient grounds to both remove someone from public life and all forms of power, and probably institutionalize them.  

I've always wondered where all that Libyan gold went…as well as the Iraqi gold.  A lot of mysterious disappearances there.

For example, Iraq was noted to have 29.8 tons of monetary gold as of August 2014, up from a reported 6 tons in 2003.

But we know that the US Army had intercepted over 50 tons just at one checkpoint which is the origin of these photos.

Just for scale, here's what one ton of gold looks like piled up:

So we can easily see that the amount of gold confiscated at this one checkpoint was quite a bit more than the reputed 6 tons in the Iraqi central bank.  The rumors and reports at the time were that this stash represented melted jewelry that Hussain had secured from Iraqis to help fight the Iranian war.

At any rate, you can be sure that the few pictures circulating are but a small part of the gold that was 'found' in Iraq.

To find out where the rest went I would suggest opening up all the tax haven files from all the lawyers outfits in the Camen, Jersey, and Panama locations, among others.

You might find some of this in there too:

Missing Iraq money may have been stolen, auditors say

Jun 2011 Reporting from Washington — After the U.S.-led invasion of Iraq in March 2003, the George W. Bush administration flooded the conquered country with so much cash to pay for reconstruction and other projects in the first year that a new unit of measurement was born.

Pentagon officials determined that one giant C-130 Hercules cargo plane could carry $2.4 billion in shrink-wrapped bricks of $100 bills. They sent an initial full planeload of cash, followed by 20 other flights to Iraq by May 2004 in a $12-billion haul that U.S. officials believe to be the biggest international cash airlift of all time.

This month, the Pentagon and the Iraqi government are finally closing the books on the program that handled all those Benjamins. But despite years of audits and investigations, U.S. Defense officials still cannot say what happened to $6.6 billion in cash — enough to run the Los Angeles Unified School District or the Chicago Public Schools for a year, among many other things.

For the first time, federal auditors are suggesting that some or all of the cash may have been stolen, not just mislaid in an accounting error. Stuart Bowen, special inspector general for Iraq reconstruction, an office created by Congress, said the missing $6.6 billion may be "the largest theft of funds in national history."

Heh heh. “May have been stolen.” Yeah. Possibly. Or maybe it’s just sitting there still on pallets at the Baghdad airport unnoticed against a back wall?

The final disposition of all that cash too would probably be revealed by scrutinizing all the off shore accounts out there. It didn’t just disappear…and $6.6 billion is a lot of money. Hard to hide all that. Plus, you can bet that the serial numbers of the cash was recorded before it was sent over (assuming they used fresh-run money, which would have made sense, unless the plan all along was to steal it).

At any rate, like the missing Libyan and Iraqi gold, all we ever get at this level is the report that the stuff is missing and then the stories just disappear into the memory hole. Never to be examined again.