Gold – So true, funny how it seems.
The Gold Symposium held ay Sydney’s Luna Park launched with the enduring musical tribute to the
yellowest of metals with 1980s new-romantic supergroup Spandau Ballet supplying the soundtrack.
Tony Hadley’s vocal gymnastics reminded the gathering audience of aurum acolytes of gold’s cognisance of its impervious properties as they settled in for two days of listening to a roster of speakers who would validate their faith in it maintaining its current standing in the investment community.
Kicking off his keynote speech at the Gold Symposium at Sydney’s Luna Park, Toronto-based bullion guru Eric Sprott took a quick straw poll.
Sprott asked those in the audience who actually owned physical gold to raise their hands.
The speed of their response didn’t really allow for an accurate count but a healthy portion; say 70 per cent to 80 per cent divulged they had.
He then asked how many owned physical silver and again the response was positive.
Not as many as gold, but again well over half the audience responded in the affirmative.
Sometime into his talk Sprott queried how many of his audience had bought physical gold in 2000, before it was in fashion to do so.
This time the numbers were down with only around 10 per cent (again the accuracy of our calculations is not to be relied heavily upon) said yes.
These participants were very quick to react to this particular question almost shooting their fingers through the ceiling of the iconic park’s Crystal Palace convention room with a, ‘pick me teacher, I’m ever so smart’, enthusiasm.
Sprott left little doubt he is bullish when it comes to investing in gold rather than paper or other investment forms.
He outlined the fundamental problem facing world economies at present as being they suffer from the dilemma that five cents of capital in physical gold held by central banks is protecting one dollar of their paper assets.
“What are the odds that that dollar has not depreciated by five cents,” Sprott asked.
“We had days last week when the stock market fell three or four per cent in Eurpoe. We had bonds falling three or four per cent in a day.
“If you live in the United States, try to sell your mortgage portfolio, it’s impossible.
“If you live in Paris and you ring up the guy at BNP saying that you would like to sell off your commercial lending portfolio he would respond by saying, ‘you know what I want to sell you my portfolio.
“Because we are all trying to de-lever at the same time and there is no net-buyer.”
The more he spoke, the more palpable the investment fear in the room became.
Paper savings were no good he said and basically we should all start dragging our money out of the bank and buying gold and silver, even if there isn’t any to actually buy.
“The important thing to know about gold is that mining production has hardly gone up for ten years,” he explained.
“Most people don’t realise… the world’s resource of gold above ground is around about 165,000 tons.
“We are only adding 1.4 per cent to the pool of gold each year, that’s a very minor amount.
“My partner John Emery has been a great proponent of gold due to Fiat currency and he has been absolutely right.”
A Fiat money system is one where money is not backed by a physical commodity such as gold or silver.
What provides money with its value is its relative scarcity and the faith placed in it by the people that use it.
In a Fiat monetary system, there are no restrictions on the amount of money that can be created, which ultimately allows unlimited credit creation.
It is in these environments that rapid growth in the availability of credit can be mistaken for economic growth.
As spending and business profits grow more often than not there is a rapid growth in equity prices.
“When I started in the gold business, it was my view, and there was some phenomenal work done by others who expressed the fact, there was probably going to be a physical shortage of gold,” Sprott said.
“I bought into it because gold was at a very low price, the miners were hedging, the central banks were selling, demand would probably only go up, and yet I imagined that the supply of gold each year would stay constant, therefore this marginal change in demand would move the price higher.”
Sprott admitted that like his native Canada the banks in Australia are also theoretically strong.
However, he also said that in a worst case global economic situation, like the one he claimed we are already experiencing, money starts flying in all directions as investors the world over attempt to liquidate what money they have in banks.
He described this as a risky situation and one of the fundamental reasons why he feels investors should have their money in gold and silver.
“Never paper; I don’t recommend futures, anything to do with paper I don’t recommend,” he said.
“It is always best to have it (your investment) in your own physical possession.
According to Sprott the market, not the central bank, and not government treasuries, has already determined gold is to now be the reserve currency.
“The markets have made up their minds that gold is the reserve currency; it’s up 600 per cent versus almost every currency,” he said.
“This diatribe of stuff we have to listen to every day about the dollar versus the euro, the yen versus the dollar, the pound sterling – whatever; they’re all crap!
“It’s like – who’s the prettiest horse in the glue factory? And they’re all lucky it’s a close competition.
“If they (media outlets) started reporting that all currencies are down today against gold – imagine if you turned on your telly on Saturday and they said all currencies were down two per cent against gold on Friday.
“And they kept repeating that day after day after day, would you finally get the message?”