“My partner Eric Sprott often says, the US dollar is the best looking horse in the glue factory. If the US dollar is the world’s strongest currency, that’s the best endorsement for gold that I can think of.”
The above quote was from John Embry, Chief Investment Strategist of Sprott Asset Management and a long-time gold bull. Embry discussed his outlook for precious metals and the global economy in an interview with Hera Research Newsletter (HRN), published this morning by Minyanville.com.
Highlights from the interview included:
John Embry: Gold stocks represent a tremendous value in relation to the price of gold and to the fundamentals of the sector. There has been tremendous shorting activity by hedge funds and, as a result, dedicated gold funds have experienced redemptions. Retail investors, who are natural buyers of these stocks, have been annihilated by the price action. This has created one of the finest opportunities, if not the finest opportunity, that I have ever seen.
John Embry: I don’t look at short term price charts for gold. In a market as heavily interfered with as this one, charts can be made to look any way you want in the short run.
HRN: Europe seems to be a case in point. Do you think the euro will break up?
John Embry: The eurocrats who constructed the currency aren’t going to give it up easily. The key is how much the Germans are going to go along with. They realize that there’s a huge loss for them if the euro falls apart. I wouldn’t want to be in German Chancellor Angela Merkel’s shoes. Germany is trapped in the euro because it relies on exports and German banks hold the debt of other European countries. Despite the bailouts and the inflationary policies of the European Central Bank (ECB), Germany doesn’t have much choice.
HRN: What do you think the outcome is going be?
John Embry: I believe that before this is over we’ll have a new currency system, probably backed by gold.
HRN: Do you support the gold standard?
John Embry: One of the greatest periods of wealth creation was when we had a gold standard in the second half of the 19th century. It’s hard to believe that it’s going to be 41 years since there has been gold backing for any of the major currencies in the world. That is what has allowed the massive build up of debt that we have today. If there had been a gold standard, we wouldn’t be in the position we are in. Western governments don’t want the gold standard because it restricts their ability to dole out favors.
HRN: But the gold standard doesn’t prevent financial panics.
John Embry: There are always going to be financial panics, but, under the gold standard they tend to be short term. If we had had a gold standard, there would have been a number of cleansing periods where excess debt was eliminated. The Federal Reserve allowed the buildup of debt that led to the stock market bubble and crash of 1929 and to the Great Depression, which was followed by World War II. It took about a decade to build up the debt and more than a decade to deal with the fallout. It’s taken more than 40 years to build up the debt we have today and I don’t know how long it’s going to take to correct it.
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