Gold News

A Monumental Monetary Crisis

"Gazing through a crystal ball, I think gold's going over $1,200 no problem..."

their survey of analyst expectations for the Gold Market in 2008, one of the editors from the BIG GOLD service interviewed the newsletter's founder, the famous contrarian investor and Casey Research chairman, Doug Casey.

   Here's his take on what's to come in gold...

BIG GOLD: The Gold Price has passed its 1980 nominal high. Why do you think it's breaking out now?

DOUG CASEY: The fact that Gold has moved above its 1980 high is meaningful only in an academic way; today's Dollar is worth only a fraction of a 1980 Dollar.

   From here on, it's best to avoid thinking about anything just in terms of US Dollars. What's developing now is likely to be the biggest monetary crisis of the past 100 years, potentially the biggest since the US Civil War.

   This isn't a prediction; it's just an appraisal of the tumultuous possibilities now opening up. Americans are going to have to learn to think more like Argentines. If an Argentine tried to keep track of value in the local Peso, he'd be bankrupt in 5 years.

BIG GOLD: There are those who agree with you about a possible crisis but believe we'll see deflation instead of inflation, or at least deflation before inflation.

DOUG CASEY: What we're facing is a monumental monetary crisis that can take one of two forms. It can be deflationary, where billions and billions of dollars are wiped out through bankruptcies and defaults, and the remaining dollars become worth more as a result. Or it can be inflationary, where the world's central banks keep dollar assets from being wiped out by supporting the issuance of debt.

   That is what they're currently doing, by propping up failing banks and homeowners who can't pay their mortgages. Those are your two alternatives. You can have either one – it's really a flip of the coin as to which you get. It's also possible you can have both at the same time.

   You could have deflation in some areas of the economy, such as real estate, which is happening now, and inflation in other areas of the economy – where prices are going up – as with food and oil.

   I'm of the opinion that government is so big and so powerful now, and the average person – idiotically – relies on it so heavily, that much higher inflation is inevitable. They're certainly going to do their very best to keep a deflationary collapse from happening, because they all fear what it was like in the United States in the 1930s. Yet not too many people think about Germany's inflationary collapse in the 1920s. It was much more unpleasant.

   Inflation is the enemy of the person who works, saves and invests. But it's the friend of the speculator.

BIG GOLD: Why do you think Gold Stocks have lagged while the Gold Market itself has taken off?

DOUG CASEY: Gold Stocks are a play on gold, but they are also stocks. The best environment for them is when both gold and the general market are moving up, and lately the stock market has been problematical.

   People are going to panic into gold, because it's cash – money in the most basic form. Gold Stocks are not money; they're speculative vehicles. And despite the strength in gold, the costs and risks of finding and building mines have gone up just as fast in the last couple of years.

   There's no necessity for Gold Mining Stocks to move in lockstep with gold itself. That said, I think gold stocks are really going to howl as gold goes into the Mania Stage.

BIG GOLD: The water in the pot is definitely getting hotter. Where do you think gold is going this year?

DOUG CASEY: Gold has been in a bull market since 2001. It's gone up, on average, about 25% per year compounded, and there's absolutely no reason the bull market should stop now. On the contrary, there's every reason to believe that the gold bull market, having gone through its Stealth Stage and still being in its Wall of Worry stage, is going to hit the Mania Stage.

To sell now would be to leave the big money on the table. My best advice is to be right and sit tight. And that means staying long until you see a golden bull tearing apart the New York Stock Exchange on the front cover of Newsweek magazine, at which point it will be time to sell.

BIG GOLD: What price do you think gold will hit in 2008?

DOUG CASEY: Strictly gazing through a crystal ball, I think it's going over $1,200, no problem.

BIG GOLD: What about the long-term Gold Price?

Just to reach its previous high in purchasing power, gold will have to go over $2,500 – probably more like $3,000 after you discount the phoniness in the US government's consumer-price inflation numbers.

But because this crisis is much more serious than the one in the late 1970s and early '80s – and much more far-ranging – $3,000 is actually a fairly conservative number. I'll say it again: gold is not just going through the roof, it's going to the moon.

BIG GOLD: What advice would you give to readers of Big Gold about how to make Gold Investments and buy gold stocks in the coming environment?

DOUG CASEY: The first thing is, you've got to have a lot of physical gold. Second, make sure a large chunk of it is outside the political jurisdiction where you live. If you live in the US, your gold has got to be outside the United States. If you live in Canada, it's got to be outside Canada, and so forth. Third, gold stocks are definitely going to howl, so you definitely should have a good position in them.

   As important as gold and gold stocks are, though, I suspect we're going to see foreign exchange controls of some type or description in the years to come. That means if you don't have assets outside your native country, you're going to be caught like a lobster in a trap. I think it's very important to diversify internationally.

   Buying foreign real estate is one prudent way to do so because, even though there's been a worldwide property mania, there are still some places where property is very cheap, leaving plenty of upside. In addition, if you pick a locale where you'd like to live, you'll have a comfortable place to wait things out – which is a serious plus, because I think things in the US are going to get really ugly in the years to come. And most important, the government can't make you repatriate foreign real estate.

BIG GOLD: What if I don't have the ability to buy real estate outside the country I live? I know you can have a foreign bank account and a safe deposit box, but I have to report those, so how does that help me?

DOUG CASEY: You have to report a bank account, but you don't have to report a safe deposit box.

BIG GOLD: What if I have over $10,000 of say, Gold Coins, in that box?

DOUG CASEY: It doesn't matter. It's just like having a million dollars of foreign real estate – not reportable. But of course, they can change these arbitrary laws – probably to make them more restrictive and invasive – at any time.

BIG GOLD: Thanks, Doug, for the practical advice. Anything else you'd like to say to Big Gold readers?

DOUG CASEY: Hold on to your hat; you're in for the ride of your life.

Doug Casey is a world-renowned investor and author, whose book Crisis Investing was #1 on the New York Times bestseller list for 29 consecutive weeks, a record at the time.

He has been a featured guest on hundreds of radio and TV shows, including David Letterman, Merv Griffin, Charlie Rose, Phil Donahue, Regis Philbin, NBC News, and CNN; and has been the topic of numerous features in periodicals such as Time, Forbes, People and the Washington Post.

His firm, Casey Research, LLC., publishes a variety of newsletters and web sites with a combined weekly audience in excess of 200,000, largely high net worth investors with an interest in resource development and international real estate.

See full archive of Doug Casey articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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