Chris Martenson: Welcome to another Peak Prosperity podcast. I am your host, of course, Chris Martenson, and today we welcome Jeff Clark to the program.
Jeff is Senior Precious Metals Analyst at Casey Research , where he serves as editor of their widely respected Big Gold newsletter . Now I have invited Jeff onto discuss all things gold and silver, as there are a lot of questions swirling these days about the price direction. Are they posed to surge after a year-long consolidation phase, or are they topped out? What impact will future central bank actions have? If you bought silver at $49 last year, will you ever see that price again? We will delve into these, along with a re-visitation of the fundamentals of owning precious metals – if they have changed at all – during this conversation, which I am really looking forward to.
Jeff, thank you so much for being our guest today.
Jeff Clark: I am glad to be here, Chris. Thanks for having me.
Chris Martenson: I want to start with a piece from your bio at the Casey Research Site, which states that you are the son of an award-winning gold panner and that you helped work with your family’s placer claims in California, Nevada, and Arizona. What sort of an award was that?
Jeff Clark: Well, my dad has been interested in gold mining for a long time, and that has been his fulltime hobby, shall we say, since he has retired. And we do placer claims of in California and Nevada and Arizona. And he has worked those over the years, and he has had some marginal success. Nothing that has been really life-changing, but he definitely has found lots of nuggets of gold and silver. But the award he won, they hold these contests where you are actually panning for gold, and they will put a little bit of gold in the bottom of a half-barrel type contraption, and everybody pans for it and whoever finds the gold first wins. He has never outright won, but he has always placed. He is good at it, and it is a fun thing that he does. He tends to be the one who gets out there and gets his hands dirty; he likes to get out in the rivers and really search for it. I like to go with him just to get out of doors, but my interest really is more in making money.
Chris Martenson: All right. Well, there is gold mining somewhere in your DNA, as it were. Tell our listeners a little bit more about your background, then, and how long you have been following the precious metals markets.
Jeff Clark: Well, it runs in the blood, you might say; it runs in the family. Both my grandparents left me a little bit of gold and silver when they passed away, and I did not realize at the time that they had done this. And what was interesting was I actually received some gold from one set of my grandparents and it really made an impression on me. The reason it did was because the gold would actually buy just as much at the time that I received the metal as it would when they first bought in decades earlier, and that really made an impression on me. So it is something that I always had a liking toward.
I would not call myself a “gold bug,” but I might say that I am a “temporary gold bug;” the reason I am a temporary gold bug we can go into; I do think that it is something that people are going to need to own and have a good exposure to here. But it is something that I have always had an interest in. I have been with Casey Research since late 2007; I joined them just in time for the big market meltdown, so the timing could not have been better for me.
Chris Martenson: Absolutely. So what form was that gold in that your grandparents left you; was that coins?
Jeff Clark: Yes, it was coins. They left me some gold coins, and I want to say one of my grandfathers actually bought me one of the first editions of the American Eagle when that first come out in 1986, so that was a really special coin to me to get and it is just really interesting, looking back. He kept some notes on what he paid for it and where he bought it, and what he paid for it then will buy me the same amount of goods and services here today in 2012 as it would in 1986. So it is really amazing to me how gold has kept pace in terms of purchasing power. That made an impression on me.
Chris Martenson: Well, I would like to start there. I have been a “temporary gold bug” as well, but I think it is ten years of “temporary” at this point, and it might last another ten. I honestly thought this period would be over a little bit sooner. But I want to start at the very outside of this conversation. I would like to understand your views for why we would invest in gold at all; the main reasons you have, one being that you are impressed with its ability to preserve purchasing power. What other reasons do you have?
Jeff Clark: Well, the reason that I am buying gold and silver now is not just because I like gold bullion coins. The fundamental driver right now, and the fundamental reasons we should all own some gold and silver right now, are, first of all, negative real interest rates – that is, an environment that is very positive for gold. You can demonstrate that throughout history very clearly. Any kind of weak or negative growth economy is a time where you would want to own gold. We certainly have that, and the outlook for many economies worldwide is not terribly positive. So not only are we weak now, but there is a weak outlook, so that makes owning gold and silver here even more important.
One of the biggest reasons, of course, is the massive deficit spending that we have; the runaway debt we have. And all that cannot be done for free; that is not consequence-free. You do not get to do that forever without experiencing some kind of consequences. The Obama administration has spent roughly 50% more than they took in, and that is staggering to me. You can only finance that one of two ways. One, you can borrow from foreigners, or [two,] you can run the printing press. And of course, the latter is just pure inflation; that is all it is.
Probably the biggest reason that I own gold and silver now is because of the ongoing currency dilution. The Fed is printing money, the European Central Bank is printing money, Japan is printing money, the UK, China, the Swiss – all these guys are adding to their balance sheets. All these roads lead to the same destination, and that is inflation. At some point, I am convinced, there is going to be some pretty serious fallout with all this, and however all the fallout plays out, I want to own gold and silver.
So for me, gold is more about protecting my purchasing power than it is about making a buck. Gold is not really an investment, technically; for me, that is what the stocks are for. Gold, for me, is more about money. And I think as people begin to view gold more as money, like it has been throughout the millennium, then that answers the question about how much you should own and how you should view it.
Chris Martenson: Excellent. I have one other piece that I would like to get your views on. Inflation is one thing that gold can protect against. I am holding gold as well; actually, for two other reasons. One is because of financial instability, gold being a monetary asset that is not simultaneously somebody else’s liability. When I go to Europe, I find many people are holding gold because they are frankly distrustful of institutions over there, and if you are in Greece or Spain, you have obvious reasons for that. But maybe more broadly, there is still a large concern out there that we cannot always know where the risks lie in these highly interconnected, complicated, and often intervened-in markets. Do you have a view around that?
Jeff Clark: I think there is strong evidence that it is more important now to own the physical metal than it is in ETF (exchange-traded funds). The ETF can serve a purpose; if you want to lay some kind of wager on the direction of the price, well, you can do that through an ETF; the ETF’s are liquid. If you want to buy an option, you can use an ETF. So they serve a purpose, but you do not really own that gold. You cannot, for all practical purposes, take delivery, so it is really critical, in my opinion. Look at what happened to MF Global; there is a good example. That tells you that you probably want to be moreover weight with the physical metal right now than you do an ETF. And again, gold is money, so as you view it more as money, you begin to realize that buying a gold coin is not just a pretty piece of history; it is actually something you can use to protect your standard of living.
Chris Martenson: Absolutely. I am wondering, now, you mentioned before that gold and silver are both legitimate investments, and we have been talking about gold. I am just wondering if we could just discuss silver for a second. Do you have a different rationale for holding silver, or is it fundamentally the same as gold?
Jeff Clark: The demand for gold is financial demand, period. Silver is financial demand, but it is also part industrial consumption. So there is a scenario under which gold could actually outperform silver. Many people think silver will outperform gold, and that is probably going to be true. But there is a scenario in which silver does poorly, and that would be where we get a very ugly economic situation combined with some kind of runaway inflation. If that happens, if we get a depression like that, then silver is going to be impacted and it is not going to do as well as gold, so that is the reason we do recommend buying more gold than silver. Do I expect that to happen? Probably not, and I do think that silver is going to outperform gold by the time this is all over. But you do have to keep that point in mind that silver is part industrial consumption. Half the metal that is dug up every year goes to some kind of industry, not to investments, so you need to keep that in mind when you are considering your investments.
Chris Martenson: Sure. I am thinking about time horizons now. And before we talk the long horizon, I would love to get your perspective on where silver is really going to go, considering depletion of known reserves and things like that. But hold that on the shelf for a second. So, price action for gold and silver has been very range-bound for over a year now. What are the reasons for that, in your opinion?
Jeff Clark: Well, the main reason is because we have not had a new catalyst for either gold or silver. Many of the catalysts that have driven the price as high as it has gone – and it has had a very good return; it has outperformed the S&P and many other asset classes – the reason it has not done much recently is because we have not added new catalysts. Negative real rates are very positive for gold and silver – well, we have known that for some time now; that has been the case for a while. Weak economies, deficit spending, debts, even the money printing issue, a lot of that is build into the price now.
So what is going to be needed, in my view, to take the price to the next level, which for me is going to be breaking the $2000 barrier then staying above it, is going to be some type of new catalyst – a black swan – which may not be fun, but it is those kinds of things that will probably drive the price to new heights. For me, that is going to be inflation. I think inflation is going to be the key driver going forward. I think, in fact, it catches a lot of people off guard. I think it is going to hurt a lot of people, and I think if you do not have meaningful exposure to gold and silver before that kicks in, some people are going to get hurt. So there could be other catalysts as well. There could be some kind of surprise that we get in the market, but for me it is probably going to be some kind of inflation.
Chris Martenson: All right. So let us imagine – you mentioned that you think people should have a core position in the physical metal itself, and then you briefly touched on this idea of stocks, which are more of an investment, potentially even a speculative play on the price of the metal itself.
I would like to review, I cannot think of anybody better to talk to about the big trends in the gold shares. Now, as I look at these charts, I see that gold shares have really underperformed the metal itself for a while, since maybe early 2011, most recently with the HUI Gold BUGS index trailing gold. Why is that?
Jeff Clark: Well there are lots of reasons; political risk really ratcheted it up then through now. Political risk is higher; a lot of politicians are getting greedier. Costs have been going higher. Now the price has been outpacing the rising cost, but costs are definitely going higher. There is still more of a fear environment as opposed to a greed environment. A fear environment is good for gold; a greed environment is good for gold stocks. We are still stuck in that fear environment.
There has been massive share dilution by a lot of management companies, and that is the big no-no that a lot of us analysts do not like; share dilution has been incredible. They have really diluted shareholders very badly over the past four or five years. They believe what they were doing was correct – that all the assets they wanted to buy or new development projects they wanted to put into production were worth it. And maybe they were, but they financed these things by issuing shares and diluting existing shareholders. That kept shares down as well, so a lot of these things have played into why shares have underperformed. But that is only part of the story, and that book is not fully written yet. There are many more chapters in the book of gold stocks to go yet.
Chris Martenson: So a little bit more in the fear than the greed cycle – we have the share dilution, something I have certainly noticed. I also had not seen free cash flow from operations really take off like I thought it was going to be. You mentioned that there were higher costs on that side, which I think true across the entire mining sector, whether we are talking coal or steel or precious metals.
Jeff Clark: It really is, and the gold stocks and silver stocks have been no different. These guys have developed a lot of projects, they have bought a lot of other assets, and they needed to add to their reserves. There is no doubt that they needed to keep up; a large producer has to add a million ounces a year just to maintain the same level of reserves that they had in the past, so to grow, they needed even more than that. There has been a lot of that, so this free-cash-flow thing has not been an issue, and they have not had much good free cash flow because of these issues. But again, how they solved that problem was by issuing more shares, as opposed to growing organically or keeping a lid on costs and focusing on costs and these kinds of things.
Chris Martenson: So I am going to guess that you are advocating that an individual might also vary tremendously on these gold stocks and that you are more about finding the right ones rather than investing crossing indexes. Is that fair, or do you have some other methodology?
Jeff Clark: Absolutely. We only would recommend buying the index, the ETF (GDX), which is the gold miners’ index – or ETF, not an index. I would only recommend buying that for someone who just does not have enough money to diversify in individual stocks. So for the very small investors, absolutely, I would buy either a good mutual fund or GDX. After that, once you have enough funds to diversify, I would definitely rather do some stock-picking. Just as an example, I am proud to say that our four best buys in Big Gold have outperformed GDX, three of which have substantially outperformed it. So there is a point to being picky right now; you do want to be picky with the investments that you are buying, and some will clearly do better than others. There are many reasons for that, but the bottom line is, you do want to be selective; you do want to pay attention to which stocks you own will definitely outperform others.
Chris Martenson: Absolutely. So I am interested now in something you touched on, which is something I am personally very interested to learn more about, the idea of reserve additions. As I look out across the whole world, it does not even matter which industry I am looking at. The mining industry, everybody struggles with reserve depletion and mostly diminishing ore qualities. The mines are smaller, they are deeper, they are less concentrated than they used to be. But is that a fair characterization of gold and silver reserves at this point, and what sort of trends are you seeing there?
Jeff Clark: You are correct about that trend; it is something that is concerning. Grades are going down; the number of large ore deposits being found is declining. A lot of the bigger mines are maturing. We have not had a real large find in this cycle. Maybe Aurelian, which was bought out by Kinross down in Ecuador – which is not being developed, by the way – so you have a lot of issues like this, where supply is not really growing. In fact, supply is basically flat, and the gold price has quadrupled since 2001, so you would think that supply would be increasing – it should be increasing, and it is not. And in fact, like you point out, grades are going down. So that is the trend right now, and that is a little concerning.
In the big picture, I am not terribly worried about that; where that is going to be an issue is if we get some kind of mania in the gold and silver area where supply just is not sufficient to keep up with the demand. That would be a temporary thing, because I think in the long run, technologies will increase and we will find more gold. That is the big-big picture. But in the short term, it could be a concern, especially if we get a mania.
Chris Martenson: Interesting. So against this backdrop – I note perhaps you have analyzed what is going on in South Africa – a lot of those big mines there are very mature, very deep, and they are chasing some fairly marginal grades at this point in some of those mines. Is there any chance that the strikes down there are going to take one or more producers out of the game because they were at the margins of what was viable, or will this all be put behind us at some point?
Jeff Clark: Eventually I think it gets put behind us. There is, as we talk, reason to think that a lot of the strikes are getting solved. Not all of them are, but many of them are starting to work with the workers to try to get some kind of wage that they want. It is still a live issue, it is not resolved, and a lot of that, by the way, is built into the price. I do not think a lot of investors think they are going to go completely offline. Even thought South Africa’s production output has been in decline for years now, it is not going to go to zero and it is not going to go away. Now that being said, I would not necessarily invest there; there is just a myriad of problems. Almost every imaginable problem you could think of with buying a gold stock is present in South African producers, so I definitely would not buy there.
Chris Martenson: The big trends being, there is an instability, a social or political instability, plus increasing mining costs, those sort of factors are really starting to pinch there, but maybe better opportunities elsewhere, is that what you are saying?
Jeff Clark: Absolutely. I mean, they have political problems, they have power problems, they have labor problems, they have cost problems, they have profitability problems, they have growth problems. Every issue you could think of is present there, so we do not own or recommend any South African producer. Definitely one issue to be aware of right now is political risk. The political risk is high there, so we would avoid it for that reason among others. But you want to look for low political risk, you want to look for a company that is growing production, and that is one issue we have really focused on in Big Gold – trying to find the next big producer before it becomes one and buying it now. You want to focus on a good strong management team, and you want a strong balance sheet, so those are things we would look for in the kinds of stocks we would pick.
Chris Martenson: What, are you telling me that fundamental analysis still has a role in this computerized, high-frequency-trading, technical-analysis world?
Jeff Clark: That is interesting, because a lot of analysts I go with on these trips, they have their models, they have their numbers that they all crunch, and that is all good, and that is valuable, it is insightful, but it is not the whole picture. You have to look at the whole picture right now, and trying to force a company into your model is not the whole picture; it is like looking at just one part of the elephant. So you do want to look at everything that is involved. And probably the two most important things right now are not the property and not the asset, it is the people running it and it is the political risk that surrounds it. So you want to start with those things, and then look at your model and your numbers and what kind of production it would be.
Chris Martenson: So people and politics – and on the people side, would you suggest a shortage of really high quality talent out there, or is this just you really need to find a fully mature management team that knows how to both find and run a company?
Jeff Clark: Well, in the exploration side and the junior side, you want someone that has had some degree of success. We have what we call our “explorers league,” which are individuals that have demonstrated continued success; they have had at least three economic finds or more. So betting on someone who has had that level of success in the past is a pretty good bet.
On the production side, you just want people that have experience, that have done what they said they were going to do. I just cannot tell you how important that is. There are management teams that have good goals, and you may like them and they have a good piece of property, but if they do not follow through and do what they say they are going to do, that is a huge red flag for us. We have been burned by that with a company recently, and we had to sell for a small loss because I just became increasingly uncomfortable with the management team and what they were doing and what they were not doing. Now fortunately, that is the exception rather than the rule in Big Gold, but it is a critical component to focus on that management team and make sure that they have had either demonstrated success in the past or they follow through and actually do what they say they are going to do.
Chris Martenson: We have had a lot of people suggest, to me personally and more broadly across the airwaves there, and in print and other means, that gold is in a bubble and has been in bubble territory for a long time. And you look at its ten-year price rise. Where do you think that we are in the arch of gold prices at this point? Is there anything to suggest that we are in a bubble or anywhere close to one?
Jeff Clark: No. Years ago, when this idea of gold being in a bubble first came up, I would laugh at them. Now I am getting irritated by these people; just saying “gold is in a bubble” is ridiculous. Did you know that the S&P doubled from its’09 low? So if the S&P has doubled in three, three-and-a-half years, well, maybe that is a bubble. Gold is up about 140% in the same timeframe, so if gold is in a bubble, then the S&P is in a bubble. So these analysts and mainstream people that keep saying gold is in a bubble, maybe they need to look at their own assets and realize that if gold is in a bubble and the S&P is, too, we should dump everything in the S&P. Well, that is ludicrous; the S&P is not in a bubble and neither is gold.
A bubble really requires two things. First of all, you have to have the price in a runaway mode, there has to be a true soaring – and I do not mean 30% a year; I mean 30% in a week. The gold price doubled in six weeks in 1979, 1980. It doubled in six weeks. That is a bubble; that is a mania. We have not had anything like that, we have not had the Internet stock craze, we have not had the real estate craze, and we have not had anything like that in the gold market this time around, so we are not in a bubble.
The second thing you need is you need widespread participation by the public. And we have not had that either; we have had nothing like that. Most reports say that 1% of the population owns any form of gold or gold stock. Has your taxi driver told you to buy gold? How many friends of yours are telling you to buy gold? How many shows that we see on CNBC that are devoted to how to get rich in gold stocks? We have not had any of that. So we are not in a bubble.
Now, interestingly, I do think we will go into a bubble, and it is probably going to be because the currency dilution that is continuing to go on. I think that forces us into some kind of inflation, and I think people run to gold as a result. And I do think we will get a bubble in it.
Chris Martenson: Anybody listening to this right now: You can do the same test I will do when I have Thanksgiving with my extended family this year, or Christmas if you are listening to this later, or a holiday when you are at your family gathering. Just poll, find out how many people have bought investment gold in the past year. Not because their broker said we are going to put you into a little GDX, but I mean physical position, a core position where on their own that they want to get into gold in some way, shape. And if your family is anything like mine, you will be hard pressed to find a single new candidate to the gold club this year.
Jeff Clark: That is exactly right, and just because gold is talked about in some headlines on CNBC or whatever you might read or watch does not mean that it is in a bubble. It is in the headlines because it is making new highs; that does not make it a bubble.
Chris Martenson: Absolutely. Now you touched on one of the things that are near and dear to my heart, and it is this idea that there may be some form of a currency crisis in the future. You hinted at it; I am going at it more directly, since there is a lot of currency printing and this will lead to an inflationary event that is one form of a currency crisis. There could be other forms out there, and one of the reasons that I do like to hold gold is because to me it has an embedded option value in it, and that option is this: Sooner or later there may be a world currency crisis. Not 100% chance, but some decent chance, maybe 25% chance over the next five years. And if that comes to pass, we will have to come up with some sort of solution to that. More than likely, we will have to revert to some sort of gold standard, not because it is ideal, but it is because it is the only thing we know for sure that works to balance international payments on an appropriate scale that people can trust. So you have heard certainly Robert Zoellick talk about it – [former] President of the World Bank, I believe – so what are your thoughts on the potential for gold to get remonetized on the international stage; any chance of that?
Jeff Clark: I certainly think it is possible, Chris. Going to a gold standard is certainly possible at some point, and I think the forces leading us to it will grow. I think the cries for going to a gold standard will increase, especially as we get deeper into debt, as our deficit spending does not get under control, as our borrowing continues to increases. All of these things, and of course, inflation. So I think it is very possible that there could be serious consideration for going back to a gold standard. We have many states saying that they are going to be making gold money, so you have a lot of these kinds of issues underway at this point.
How it all plays out is anybody’s guess, I do think that it is certainly possible, and if we get to that point, gold is going to become even more valuable. The issue that could happen at that point is the price could be fixed again. So my personal feeling is, I hope that we have some kind of mania or bubble before then, because then that is when I am going to sell for hopefully a huge profit and get out before they do that. So who really knows. I am not an economist so it is a difficult topic for me to really comment knowledgeably on, but that is my sense for it.
Chris Martenson: So let us talk about the flow of gold, then, “from West to East,” as one precious metal dealer described it to me. This is a gentleman out of California who does a lot of gold dealing and noted that a lot of his biggest buyers are coming in from Shanghai and other places. And that a lot of the sellers – there were a couple of ways of selling. First there was retail-level selling, where people were taking the dregs of what coins had been handed to them, potentially the same as the coins you got from your grandparents, and that way went by, that was for economic reasons. But still, the heavy buying is mainly concentrated in the East, so we are seeing this flow of gold as it were going in one direction predominantly at this point in time. What are your thoughts on those buying pressures? Will that just continue until all the gold ends up in the East, or will we have to settle that out with a price mechanism? Or is there – shudder – the possibility of capital control put in place at some point? How does this resolve itself, in your mind?
Jeff Clark: Well, it is interesting that you bring this up. First of all, the demand for gold and silver is primarily in the East already. Only about 8% or 9% of investment demand for gold occurs in North America, and that includes Canada. 52% percent of demand comes from India and China alone, so you are looking at roughly two thirds of demand coming from all of Asia, and again I am speaking of investment demand. So they already get it; they understand the role of gold, whereas a lot of North Americans do not. So by the time North Americans are buying, the price is probably going to be a lot higher, but that could tip us over into a mania when this population here starts to see the true value of gold and silver when demand increases. But it has already shifted, and I think that shift is A) really underway and B) is going to continue.
Now, capital controls, who knows. I think gold would have to be viewed a lot more valuable in North America than it is now before something like that would ever happen. But capital controls for our money, absolutely; most of the Casey researchers are convinced that there is going to be some type of capital controls before this is all over. That seems almost inevitable to us at this point.
Chris Martenson: This is not an unthinkable thought to me, because we did have a gold capital control, as it were, that happened in 1971 with the slamming of the gold window. So the official levels of flows of gold were frozen. That is the essence of what I am talking about here, but you mentioned that two thirds of demand is already coming out of the East. There is a lot of money printing going on all across the world; there is potential for black swan; there are all kinds of thing that fundamentally say you should own gold. Now let’s imagine for a moment that I am listening to this, and I happened to be somebody who has no exposure to gold or silver at this point in time, but now I feel like I should. How would I start?
Jeff Clark: Well, first of all, you want to focus on how many ounces you own, not necessarily looking at whether the price is five dollars higher today than it was yesterday. How many ounces do you own? That is really the question you want to ask yourself, so you can focus on how much you are really going to need, and the amount really comes down to this. For me, I am probably going to use some of this gold if we get high inflation. How are you going to protect your standard of living if we get some kind of runaway inflation? And let’s say it is not runaway hyperinflation; let’s just say it is high inflation, 10%, 15%. Remember it was 14% in 1980, so the odds of us getting high inflation are realistic. So if I am going to use that gold to cover my standard of living, you are going to need about two thirds of an ounce of gold for every thousand dollars of monthly expenses. If you want to protect your standard of living and not have your house be ravaged by inflation, so to speak, so that is a good guideline to follow.
So if inflation lasts a couple years, well, you are going to need 15 ounces of gold for every thousand dollars of monthly expenses. That is a good guideline to think about. And if your expenses are more per month, you are going to need more gold than that. If inflation lasts longer than two years, you are going to need more than that, but you can actually use the sales of gold and silver to protect your standard of living. You sell some gold and silver, you are going to get U.S. dollars or Canadian dollars with it and you can use the increase in the gold and silver price to offset the increase in the goods and services you are buying.
So I think that is the way to view it, to look at how you are going to use it. And so the focus again comes back to how many ounces do you own? So if you do not have any, you need to obviously start buying. And the couple programs I would probably recommend: I really like Silver Saver –the title is Silver Saver, but they do have gold as well – they have an automatic program where they will deduct right from your checking account and buy you gold and silver on any day of the month or week that you want. And the minimums are pretty low; it is only fifty dollars a month or twenty five dollars a week. So I really like that program, and I use it all the time still.
The other one is Hard Assets Alliance, and the minimum there is five grand for purchase, so it is probably for a medium- or high-net-worth person. But if that is you, and you do not have any gold, boy, that is a really attractive program. Because first of all, it can all be done online. It is very simple; it is no more complicated than buying GLD. The premiums are very low, and the reason they are so low is because they actually bid your order out to a network of dealers – anywhere from ten, twelve, fourteen dealers that are competing for your order – so you always get the lowest price automatically in terms of premium. So the commission is very low, and then they can store it for you as well. Now you can take delivery domestically or store it internationally. When you go to sell, you can do it all online and get the proceeds wired to you in a day or two, so it is a very attractive program; it actually replaces the need to even own GLD, for that matter. But if you do not own any, the bottom line is, you need to start buying, and those are two good programs that I would look at.
Chris Martenson: Absolutely, and in the interest of disclosure I should note here that Peak Prosperity does have a relationship with Hard Assets Alliance. You can find out more about that – I will put a little link on the bottom of this that you can follow. It is a great program; we are one of the founding members with Casey on that because we really like what that program has to offer. And I want to echo here that the one thing that makes sense to me is if somebody does not have exposure to gold or silver –
But let us start with gold first; they really have to get that going. You should really have some. And I am totally price insensitive; when I first started buying gold and silver, I have to tell you, Jeff, I was watching the price like 20 times a day; every wiggle counted and I felt it really mattered; I might even lose some sleep. Now I almost do not even track the price anymore because I set my ounces aside a while ago, and I have the luxury of being heavily in the green on those. But at the same time, I no longer really care about the dollar price of gold; I care about gold tracking against all kinds of other things. And that would be gold against the S&P, gold against house prices, gold against college tuition, and gold against the price of oil.
On all of these bases and many more, I find that gold – all the charts when you look at those relationships – gold is doing just fine. It is exactly where I want to be, and I know there is going to be a day when I am going to need to transition out of my gold into something else. I do not feel we are there yet; in fact, I feel that we are still years away from that moment. In your own sense, where do you think we are in this gold story, this inflation that might be arising? Is that something that could arise next Tuesday, or is this something you set your dial for several years from now?
Jeff Clark: You know, I do not have a dial set; I am just holding gold and continuing to accumulate until it comes, because I am personally convinced that it is going to come. So the longer it takes, the more time I have to get myself prepared for it and accumulate enough metal to make a difference. For my income level and portfolio size, I own a fairly high percentage of bullion – it is about 13%, 14%, I do not mind sharing with you – and my theory is, that is not enough. So Doug Casey, as you might imagine, owns a lot of gold and silver bullion. He is still buying; he is afraid he does not have enough. So our view is that it is going to come at some point and it could be nasty; it may not. Let’s hope it is not, but if it is, you want to be prepared.
And if there was ever a time to be overweight gold and silver in a period of history, this is it. All the signs are there. So when does it occur, who really knows – my personal sense is, it is probably not going to be in 2013, it will be more like 2014, but that is okay with me, because it gives me time to make sure I am as prepared as I really want to be.
Chris Martenson: Three great points there for me, Jeff. One is no time like the present, the second is we still have the gift of time, so let us use it wisely, and then the third is around this idea of shifting baselines. Meaning, if you took Chris from eight years ago and just dropped me in my seat today and allowed me to look at what the Federal Reserve, the ECB, and the Bank of Japan are doing, I literally would jump out of my chair with my hair on fire. I would be absolutely scared witless.
And this is one of the surprises to me: I never thought we could get this far into the printing game with things remaining as roughly quiet as they are. But I have this sense that it is rather like snow building up on a cornice. We have been lulled into this sense of complacency. Now people go, oh, trillion dollar deficits, oh another trillion dollars of QE. We cannot make sense of those numbers, and at the same time, those represent to me the additional accumulation of potential energy for something that could happen.
And like you, I am really hopeful – double fingers crossed – that it is not going to be bad. But history suggests that A) it is going to happen and there is really no way to avoid it, and B) I am worried that the risks seem to be accumulating, not being minimized or lessened, as we go forward in time. Do you share that?
Jeff Clark: Oh, what the politicians are doing is the exact opposite of what they need to be doing. We continue adding to our debt, we continue raising the debt ceiling, we continue deficit spending, we continue borrowing money, and, of course, we continue printing money. We are doing the exact opposite of all the things that would lead us away from inflation. So yes, I think that is an important point.
You know, I will add that inflation has occurred very quickly, very rapidly, very suddenly many times in the past, just in recent history. If you look back at the high inflationary times, just in the past 100 years here in the U.S., many of those that hit 12%, 14%, 15% two years prior. Then the CPI was completely benign, it was 1%, 2% – I think at one point it was 4% – and then all of a sudden within 24 months, it was 12%, 14%. So it can happen very suddenly, and my fear is that is what is going to happen this time. People just like you said, they are in a lull; no one is expecting it; the CPI is low; nothing is really happening with all this money printing; there has been no fallout. But I think that is the critical point. You cannot do these kinds of things we are doing forever and not experience any consequences. Sooner or later there are going to be consequences to what we are doing, and my fear is that it is going to be nasty, catch a lot of people off guard, and really hurt our society. The bottom line for me is, that is why I am buying gold and silver, still, to this day.
Chris Martenson: I think it is just fascinating how you put it, two thirds of an ounce per thousand dollars of monthly expenses; think about the ounces you want to have set aside; that is your core position. Of course, then if you want to go on top of that and potentially shoot for some larger returns, if you pick the stocks in the mining territory carefully – you have some great ideas there as well.
I really want to thank you, Jeff, for your time today. Very illuminating, and I love those ideas and the conversation itself. How can people follow your work more closely if they want to?
Jeff Clark: It is really easy, just go onto the www.caseyresearch.com ) website" target="_blank">Casey Research (www.caseyresearch.com ) website and you will see the letters that we publish. I think we have something like 11 letters now. But the entry-level letter is Big Gold , and it is very inexpensive – I think it is $79 now a year – and it is a great little letter, if I do say so myself. But it is really designed for someone who wants to initially get some basic exposure to gold and silver and to the stocks. We recommend only the producers in that letter, so there is no speculation with juniors going on in there; we do have that and that is our specialty in our other letters. But for this letter, very entry-level. It is a great place to start.
In fact, the current issue now has a discount on our gold bullion coins, and it is a fractional gold bullion coin where you can get a significant discount that you just cannot find out there in the market. We were able to negotiate with a bullion dealer where you can get a half-ounce fractional gold eagle at basically the same price as a full ounce. So that could have a real practical purpose – for example, in the future ,where if you are actually going to use your gold and silver during a period of high inflation to cover some of your expenses, a fractional gold coin could be very practical. So it is those kind of things we like to do in that letter that make me think I am really on the right track here with what I am bringing to subscribers.
Chris Martenson: Well, fantastic. We have been talking with Jeff Clark. Hey, Jeff, I really enjoyed myself, and I hope we can do this again sometime.
Jeff Clark: Very good; glad to be here. Yes, let’s do it again.