Paul Tustain: Gold Is Sending a Signal That the Monetary System Is in Grave Danger

News & Current Events Public News & Current Events
,
1

"When a country's public debt exceeds 90% of GDP, that is the magic number. You get to 90%, there is no way back, and that is the number that the U.S. is going through pretty much as we speak. It is also the number which the UK has gone through; all of the PIIGS are going through it, as well. They are all going past the 90% debt to GDP ratio. Obviously, Japan is miles past it already. It's up to 200%+. There does not appear, in the historical analysis, to be any great likelihood of getting back from that level of debt safely. There is this strong evidence that above 90% debt to GDP, you will experience either a cataclysmic default or some form of very serious inflation."

So observes Paul Tustain, gold market analyst and founder of BullionVault. In his view, gold serves as a beacon who's price is currently signaling the monetary system is in grave danger. He and Chris discuss the primary factors driving the price of gold and smart strategies for investors looking to build or maintain their holdings of the metal.

Click the play button below to listen to Chris' interview with Paul Tustain (runtime 56m:55s):

[swf file="http://media.PeakProsperity.com/audio/paul-tustain-2011-04-08-final.mp3"]

Download/Play the Podcast
Read the Transcript of the Podcast
Report a Problem Playing the Podcast

 

In this podcast, Paul covers:

  • The differences between unallocated and allocated buillion and the market problem that led Paul to found BullionVault
  • How central banks have recently shifted to become net buyers of gold after a long period of dis-hoarding bullion, and how this - combined with surging private investment - has sent demand for the metal skyrocketing 
  • Why we're currently experiencing inflation and deflation at the same time: Our monetary policy is pushing more and more money into short-term investments, driving up the price of the things we use today (food, fuel, etc.) and lowering prices of the things we finance over longer periods (like houses)
  • Paul's approach to valuing gold and why he sees $3,844/ounce as a defensible (and conservative) estimate of its appropriate value
  • Paul's perspective on silver, gold miners, and ETFs
  • The purpose and advantages of the allocated custodial bullion purchasing and storage model that BullionVault offers

Click here to read the transcript 

 
BullionVault's Director, Paul Tustain, founded BullionVault as a response to a widespread perception of increasing systemic risk in the financial world. He remains in full day-to-day control, and in his view global systemic risk has become still more acute. He is committed to directing the business in such a way that at every step it retains its first objective of using gold to secure customers against the threats in the international financial system. He is also the editor and publiser of Galmarley.com, a well-regarded and free educational resource for prospective gold buyers.

 

Our series of podcast interviews with notable minds includes:

This is a companion discussion topic for the original entry at https://peakprosperity.com/paul-tustain-gold-is-sending-a-signal-that-the-monetary-system-is-in-grave-danger-2/

2

Why we’re currently experiencing inflation & deflation at the same time: our monetary policy is pushing more and more money into short-term investments, driving up the price of the things we use today (food, fuel, etc) and and lowering prices of the things we finance over longer periods (like houses)
 That was probably one of the most important points I got from the interview… I think the “quantity theory of money”, is only a 1 dimensional view… there’s a “temporal theory”, and a “tangible vs virtual” theory in there as well…

 Nervousness increases the premium on liquidity… options…

 and also the demand for tangibles… something real… no default risk.

 Gold is benefiting from both of those forces, but silver even more so… if gold is a metallic proxy for land (also limited and doesn’t grow even at 1% pa (only problem - lack of portability…), then silver (or copper) is a metallic proxy for oil, consumed, depleting…

 

 

3

Nice interview…thanks Chris
 

great video today on CNBS with Mar Faber.

http://video.cnbc.com/gallery/?video=3000015563

 The Federal Reserve’s money-printing policies continue to make gold an attractive investment even though it has hit a succession of new highs recently, Marc Faber, author of the Gloom Boom & Doom report, told CNBC.

Gold Bars
AP

Faber, sometimes called “Dr. Doom” for his contrarian investment perspectives and often dour views on the economy and stocks, rejected the notion that gold is in a bubble even as it begins to approach $1,500 an ounce.

In doing so, he related a story from a conference he attended this week where he asked the investment professionals in attendance if any had more than 5 percent of their personal assets in gold. No one raised a hand.

“If it were a bubble a lot of people would have gold. The whole world would be trading gold 24 hours a day,” he said. "But I don’t think it’s really a bubble. I think gold is maybe cheaper today than it was in 1999, when it was $252.

What makes gold such an attractive investment is due in part to the Fed’s move to keep the US dollar cheap as a way to boost asset prices and stimulate a recovery.

Gold is denominated in US dollars, so a decline in the greenback makes the metal—along with most other commodities—cheaper to buy on the global markets.

Investments in hard assets will be good buys in the future as Chairman Ben Bernanke and the rest of the Fed continue the liquidity-friendly policies, Faber said.

However, that also will mean bad news for consumers, who will pay more for food, energy and a broad spectrum of other goods as inflation accelerates.

That will occur, Faber said, even if the Fed enacts incremental interest rate increases. That’s because small raises won’t be able to keep pace with inflation and thus won’t slow down the hike in prices in real dollar terms.

“One day they will increase it by a quarter percent. But what does it mean when commodity prices are going through the roof, energy prices are going up, health care costs are going up, insurance premiums are going up?” he said. “Everything is going up. Only at the Federal Reserve is there no inflation.”

In that environment, cash and bonds will lose value. Other good choices besides gold, he said, are “commodities, real estate, art, collectibles and so forth, anything that essentially cannot be multiplied at the same rate as paper money, that is subject to the printing presses of Mr. Bernanke.”

4

[quote=plato1965]Why we’re currently experiencing inflation & deflation at the same time: our monetary policy is pushing more and more money into short-term investments, driving up the price of the things we use today (food, fuel, etc) and and lowering prices of the things we finance over longer periods (like houses)
 That was probably one of the most important points I got from the interview… I think the “quantity theory of money”, is only a 1 dimensional view… there’s a “temporal theory”, and a “tangible vs virtual” theory in there as well…
 Nervousness increases the premium on liquidity… options…
 and also the demand for tangibles… something real… no default risk.
 Gold is benefiting from both of those forces, but silver even more so… if gold is a metallic proxy for land (also limited and doesn’t grow even at 1% pa (only problem - lack of portability…), then silver (or copper) is a metallic proxy for oil, consumed, depleting…
[/quote]
+1
This interview needs another listen. My brain needs to defrag to allow the new data in. He truly cuts to the bone on gold and debt to GDP, etc. 
SS

5

Excellent interview. Especially liked the explanation of the bond markets and the Portuguese cement guy story at the end.
 

6

 Man this was a eally helpful interview!
Money moving out of long term to short term was really insightful in terms of why commodities are so nuts.
I hadnt understood the whole Gold Bullion storage abroad vs having it trapped within ones own country dynamic.
 
I really learned a lot WRT use  of a PM holding as a way of normalizing value while the rest of the currency world dropped — the portugal investor story.  That was an illuminating story about how to protect an asset.
 
In regards to the story of the Rich Man from Portugal:
I kind of have a different feeling about the debasement that we are in the midst of currently in the fact that Portugal in the 70s would have been
an island of trouble sitting in a world of relative stability.  In that regard, there was a place to sidestep the problem.
 
WIth the comming issues as I see them, the troubled island has become the economies of the entire world. 
I think one can potentially sidestep the problem (perhaps) by going to gold and waiting for things to stabalize, or by becoming more self reliant in terms of Land, Food, Water and the like.
If one goes to Gold, then the play would appear to be a bet that after 10-20 years of riding it out, the world will stabalize and there will be cheap investments to be had by converting the gold.  Another assumption is that things are stable enough in general to live while the transition is taking place.
If one goes to Land and self sufficiency, the play would be more along the lines of a belief that things may not transition to recovery mode for a long time and that a different way of life is needed.  With this case, a way to hopefully survive the transition is needed.
Of course, one can persue both strategies as a hedge.  :slight_smile:
 
Very good interview! 
Thanks
John
 

7

Very nice interview, thanks Chris.

8

From Turd Ferguson today, with gold approaching $1500 and silver approaching $41…
“We should all be very enthused by the action today…a little sad and apprehensive, too. Days like these just make it more obvious that we are correct. Yes, the current economic system is ending. Fortunately, there is still time to prepare but prepare we must. Hard times lie ahead.”

I couldn’t agree more.  I’ve hated to see what the PMs are doing for the last 6 months, because it means we’ve understood the situation correctly (while hoping we were actually wrong.)

 

Very nice interview!!

Carl

9

Great interview Chris!
This is best explanation I’ve heard about inflation and deflation happening at the same time. If you haven’t seen Paul Tustain’s presentation about how he calculated the $3,844 price for gold, here is the link again (it has been posted already a couple of weeks ago):
http://gold.bullionvault.com/How/GoldValue
 

10

Agree…very informative and useful. This interview series was good to begin with, but now it is superb.
Two questions:

  1. Anyone care to share any perceived negatives or potential problems with the BullionVault model?

  2. Is there any way for the prototypical Fidelity/ Vanguard 401K/ 403B retirement account holder to utilize BullionVault? Anyone else feel trapped?

Rob 

11

[quote=robbie]Agree…very informative and useful. This interview series was good to begin with, but now it is superb.
Two questions:

  1. Anyone care to share any perceived negatives or potential problems with the BullionVault model?
  2. Is there any way for the prototypical Fidelity/ Vanguard 401K/ 403B retirement account holder to utilize BullionVault? Anyone else feel trapped?
    Rob 
    [/quote]
  3. I opened a BV account a few months ago and so far it has worked well for me. Being new to PM, I thought it was a great model since I didn’t have to worry about the quality of the product, insurance, Vault etc… The gold (or silver) is allocated but at the same time you can get in cash instantly 24/7 so it’s a great model I think.  I was actually happy to hear that Chris also has an account, it reinforces my opinion about BV.
  4. My self-directed 401-K owns a BV account so that is possible for sure. So if you have an old IRA/401-K you would need to roll over them first to a self-directed one, otherwise I would think you can’t open a BV account in a regular 401K
     
12

   I’m glad Robbie raised the question about concerns. I have some concerns about the safety of BullionVault. I’d like to explain them. Hopefully someone can put these concerns to rest because I’d like to use BullionVault. I also thought it was a great interview. Here are my concerns:   1. What happens if the internet goes down? What if it goes down just when I need to make a trade? What if the server that BullionValult uses goes down? How safe it is to put a large amount of money at risk in sole reliance on an internet connection that I don’t know anything about?
   2. My second concern is greater than my first. What happens if there is fraud or some other “glitch” somewhere in the BullionVault system? I don’t see where I am protected against fraud or errors or omissions. I did see mention of an insurance policy on the website but I don’t believe that is enough. I believe I would need to be named as an additional insured under that policy for me to derive benefits from the insurance coverage. I also saw that the policy expires in 2012. I would need to legal undertaking from BullionValult that the policy will be renewed for as long as I choose to invest. Further, even if I were an additional insured and even if there were guaranteed renewal, which I doubt Bullion Vault would agree to, I would need to be satisfied that the insurer has sufficient assets to cover my loss. I would also need to be satisfied that the terms of the insurance policy are broad enough to cover any conceivable peril, e.g., fraud, loss, theft, error, omission, that might occur. Insurance policies typically exclude perils related to nuclear accidents and war. Both of those events are now more likely happenings. I did see some mention of Lloyds of London as an insurer. If my understanding is correct, Lloyds is not an insurer but a marketplace of insurers.
   All these concerns amount to the type of “due diligence” that a legal analysis would undertake of the risks involved in  BullionVault. As I say, BullionVault has so many benefits that I would like to use it. I hope someone might write and dispel my concerns and prove them to be groundless. Maybe a representative of BullionVault would even weigh in on this dialogue as I am an interested, potential customer.

13

Really  enjoyed the interview AND the good questions from fellow listeners.The book mentioned ( http://www.amazon.com/This-Time-Different-Centuries-Financial/product-reviews/0691142165/ref=sr_1_1_cm_cr_acr_txt?ie=UTF8&showViewpoints=1 ) This Time Is Different: Eight Centuries of Financial Folly   - wonder if we can get Chris to summarize it … a few comments on amazon mentioned a tough read … just a thought … better to have Chris ‘wear out than rust out’
It does make you consider opening an account - great low keyed ad … only  wish they  dealt in Cdn dollars as well … yep - I am lazy.
Greg
ps - just googled this - trying to find Niall Ferguson’s review of the ebook mentioned –  http://www.economics.harvard.edu/faculty/rogoff/TTID_Discussions
hmm - this wil keep me busy for  a while
 
ps- here is Charlie Rose link to  interview - ties in Niall as well
http://www.charlierose.com/view/interview/10707

14

mr. tustain obviously was not anywhere near argentina when he paints a picture of relative safety during its currency collapse. my wife, who is ecuadorian, worked at citigroup private banking latin america division in new york during the crisis. there were people flying in from argentina with loads of cash looking to make deposits here. and many of them had stories of rampant robberies where anyone suspected of keeping cash in their homes had armed home invasions in search of the cash. so to say that arming oneself is not necessary is naive

15

Great interview!  Many thanks to Chris for making this available.  Mr. Tustain’s ideas about the bond market are fascinating and to some extent revelutionary.  I really haven’t read much analysis of this “piling up” idea but I certainly plan to do some of my own.

16

Second that!  And Dr. Chris’ image of sloshing the water from one end of the tub to the other (where it suddenly makes a big “wave” and splashes all over the place) was useful for me (at best, an educated layman on finance etc.).

17

Sounds interesting but a bigger country could easily invade Switzerland and commandeer the gold.   Even without warfare between nations, there is the question of how the gold is protected from a well-armed criminal gang with high-powered weapons.   Can someone shed light on how the gold is secured in Switzerland?

18

[quote=KugsCheese]Sounds interesting but a bigger country could easily invade Switzerland and commandeer the gold.   Even without warfare between nations, there is the question of how the gold is protected from a well-armed criminal gang with high-powered weapons.   Can someone shed light on how the gold is secured in Switzerland?
[/quote]
No one’s going to invade Switzerland.  Why do you think it came through W1 and WW2 unscathed?  There’s a famous story of a Swiss officer showing a German officer their defenses including mountain passes wired with explosives and other defensive measures.  The Swiss officer described how they could quickly mobilize 1 million of their well armed citizens.  The German officer said, “What if I invade with 7 million soldiers”.  The Swiss officer replied, “Then we’ll each have to fire 7 times.”
Just a question.  What’s the difference between a “high-powered” weapon and a “?low-powered?” weapon?;-) 
   

19

Seriously.  Are we talking ray-guns here or something?  
I like a good heist flick as much as the next guy, but dang:  You don’t just “stick up” the Gnomes of Zurich.  

20

LOL.  I hope KugsCheese takes this all in good fun.  It’s just that “high powered” is a favorite phrase used by MSM writers who don’t seem to know dip squat about firearms.  They even called the 9mm. G19 that was used by the gunman who shot Congresswoman Giffords a “high powered” weapon.
I know it’s probably a repost but this video clip speaks volumes about the Swiss and firearms:
http://www.youtube.com/watch?v=6nf1OgV449g