Current scenario suggesting much higher gold prices in the next 12 months - Embry
The world remains in a financial bind, the likes of which it has probably never seen and those people calling for corrections or bubbles in the gold market are flat out wrong.
Posted: Wednesday , 27 Oct 2010
After a short pull back, gold could see a sharp move higher in November if recent history is any guide.
Speaking on Mineweb.com's Gold Weekly podcast, Sprott Asset Management's chief investment strategist, John Embry said the recent pullback is probably healthy for the market as many participants are focused on not only the up-coming US elections but also the potential for a further bout of quantitative easing to be announced when the FOMC meets next week,
"You'll remember last summer the gold price got taken down about $100 prior to the QE announcement and then took off like a scalded cat in its wake and I would expect much the same action if Ben Bernanke calls for more QE next week; to see the gold price moving sharply in November."
Embry maintains that while many market participants are expecting further QE, this isn't really reflected in the current gold price because, he says, " the anti-gold cartel has been extremely active.
"All you have to do is look at the open interest on Comex, which has blown out - no intelligent trader would stand in the path of a freight train and this is what whoever is shorting the stuff is doing. I think they're going to get overrun this time and we'll finally maybe get a free market.
He adds, "I don't think that serious QE II has been discounted at all fully in the market because it would have a real difficult impact on the US Dollar and if the US Dollar heads further south, the gold price could really explode here."
Having said that, Embry believes QE is "one of the great frauds of our history".
He believes that it will lead to a further debasement of paper and result in a dramatic acceleration in inflation which will be a much more disruptive social event than hard deflation.
"When you lose all foundations of your money, what your money is worth, this leads to social chaos. So I am actually opposed to it, but that doesn't mean that it isn't going to happen, and if it does happen, as I said you're probably going to see accelerating inflation and it's going to catch a lot of people that are very benign on the subject right now, by surprise."
He also takes umbrage with those who think the economy is not in that parlous a state and that real interest rates are likely to turn around sooner rather than later.
"This is going to be a long-term issue where you're going to have to keep interest rates low as you try to deal with the fiscal issues and the economic issues. So no, that [a sooner than expected uptick in real interest rates] to me is not what is going to stop gold this time, like it did at the end of the 1970s when the interest rates were driven up sharply in the United States - that will not most assuredly happen this time."
He does, however, add that were the US to try to put in a draconian fiscal programme, similar to the one which the UK has just implemented, it could put the brakes on gold's run.
But, he says, "I don't think the Americans have the stomach to do that - they still think they're the masters of the universe and that they can do what they want and they can borrow the money that they need to cover their shortfalls. If I'm wrong in that assumption and I don't think I am, well that conceivably could throw a wrench into the gold price, but everything that I look at suggests much higher prices over the next 12 months."
"We have gotten ourselves into a financial bind, the likes of which I think the world has probably never seen. It would appear that the easy way out in the short run is to print as much money as necessary to keep things stuck together. If that happens, the value of paper money will fall at an ever expanding rate and that means that the price of things that are denominated in the currency are going to rise, and gold being the monetary metal will be one of the major beneficiaries - and silver as well - so who knows how high they're going to go. The key is to know that they're going up and so many people are calling for corrections or bubbles or what have you, and in my opinion, they're flat out wrong.