Here are facts that illustrate why physical gold and silver are the only options left to investors for protecting their assets from the devaluation of currencies. Fabrice Drouin Ristori and Egon von Greyerz.
EvG: Well, back in 2002, we saw that the world was in a mess. Governments were running deficits, banks were increasing credit at an enormous amount, and we thought that, for our investors, wealth protection was absolutely critical. At that time, gold was $300 – the low had been, a couple of years earlier, at $250 – but we considered that gold was the best way to protect the assets of our clients from the destruction of paper money that we saw coming in those few years. So that’s why we advised our clients to put up to 50% of their assets into gold – into physical gold.
The paper market – the gold paper market – is a hundred times bigger than the physical market. So there is so much paper outstanding in gold – and in silver – and governments are said to have upwards of – world governments have thirty... around thirty thousand tonnes of gold. Most of them probably don’t have it – they probably lent it to the bullion banks, the trading banks, and, therefore, there’s probably not around... there’s not the gold around that the banks are saying... that the central banks are saying they have... and one day, when investors ask for delivery against the paper gold that is outstanding, there will not be enough physical gold. And therefore, it’s extremely important to hold physical gold, because the paper gold will be totally worthless and banks won’t be able to meet their commitments.
Well, the world is in a mess, as I said. It was already in a mess in 2002. It’s a lot worse now: we have never, ever in history had a situation when virtually every single major government is bankrupt. And when the whole banking system is also bankrupt... the banking system is only standing because banks are allowed to value their toxic debt at full value, or – no, at maturity value – if they valued it at market value, no bank would be standing today. So you have a situation when governments are bust, when the banks are bust – or are potentially bust – and therefore, we think that gold must be held outside of the banking system, in your own possession, where you have direct access to your physical bars. And, because a lot of the gold stored in banks – and we’ve seen that – is not actually there.
There is no solution to this problem. The problem is too big, as I’ve said. Governments are bankrupt, debts are increasing now at an exponential rate and there’s no chance whatsoever to reduce the debt. Any government that would try an austerity programme would be thrown out immediately – but even if they did try austerity, it’s too late now. So, the next stage that I see – and I think that will start very soon – it could be early 2013 – is that money printing will accelerate. Deficits will accelerate and, therefore, money printing will accelerate, and we will be on the way to a hyperinflationary depression. Now, it might take a few years, but I think it could go faster than we expect because the system is so fragile. So, money printing, as I said, will destroy the currencies... as all currencies are going down, they have for the last hundred years... they’re down 97 to 99% against gold in the last hundred years. They’re down 80% against gold in the last twelve years. So there’s not far to go to be down 100% and that will happen as the money printing will destroy the value of paper money... and that is what will create hyperinflation.
Gold is not in a bubble. All gold is doing is reflecting the destruction of paper money. You just have to turn the curve upside down: if you look at... rather than seeing gold going up, if you turn it upside down and it’s the currencies going down... it’s the dollar going down, it’s the euro going down, it’s the pound going down... And that will continue. Only one percent of the world’s financial assets are in gold today. But nobody owns gold, actually. And gold has still gone up for the last twelve years... it’s gone up five, six times, depending on the currency and, as I said, still only one percent of investors actually hold gold. So, that will change in the next few years and... which will mean that the demand for gold will increase, there isn’t enough supply, and additional supplies can only be met by higher prices – and this is what’s going to happen.