Why Gold is not in a Bubble : Interview of Egon von Greyerz by Fabrice Drouin Ristori

Fabrice Drouin Ristori, founder and CEO of Goldbroker.com interview Egon von Greyerz, founder of Matterhorn Asset Management (Goldswitzerland.com) and board member of Goldbroker.com.

In this interview recorded in Zurich, Egon von Greyerz explains why it's important to own gold outside the banking system and why gold is not in a bubble.

Fabrice Drouin Ristori (FDR): We are here in Zurich with Egon von Greyerz, founding member and manager of Matterhorn Asset Management and Goldswitzerland.com. Thank you for having us. Can you tell us when did you decide to invest in physical gold and silver, and why did you take this decision in the past?

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 the ensuing years. So that’s why we advised our clients to put up to 50 percent of their assets into gold, into physical gold. 

FDR: Can you tell us why it is very important to own real physical gold and silver and not paper gold and certificates ?

EvG: 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 –world governments – up to around 30.000 tons of gold. Most probably don’t have it, they probably lent it to bullion banks and trading banks, and therefore there is probably not the gold around the banks are saying, 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.

Therefore it is extremely important to hold physical gold because the paper gold will be totally worthless and banks will not be able to meet their commitments.

«Gold is not in a bubble, all gold is doing is reflecting the destruction of paper money. Only one percent of world financial assets are in gold today, so nobody owns gold actually, and gold has still gone up over the last 12 years, it has gone up five, six times, depending on the currency.»

FDR: Can you tell us now why it is really important as well to own your physical gold and silver outside the banking system?

EvG: Well, the world is in a mess, as I said, it was already in a mess in 2002 and it is 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 rather at maturity value. If they valued it at market value, no bank would be standing today. So you have a situation where governments are bust, where the banks are bust, or potentially bust, and therefore we think that gold must be held outside the banking system, in your own possession where you have direct access to your physical bars. And because a lot of the gold that is stored in banks – and we have seen that – is not actually there.

FDR: Now, can you tell us how do you see the situation evolving in the future?

EvG: There is no solution to this problem. The problem is too big, as I said, governments are bankrupt, debts are increasing now at an exponential rate, and there is no chance whatsoever to reduce the debts. Any government even trying austerity programs is thrown out immediately, but even if they did try austerity measures, it is too late now. So the next stage that I see, and I think that will start very soon, it could already be in 2013, is that the 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 are down 97 to 99 percent against gold in the last hundred years, they are down 80 percent against gold in the last 12 years, so there is not far to go to be down 100 percent and that will happen, and so will the money printing destroy the value of paper money, and that is what will create hyperinflation. 

FDR: In this context, can we say that gold is in a bubble?

EvG: 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 you turn the curve upside down and it is the currencies going down. It is the Dollar going down, it is the Euro going down and it is the Pound going down. And that will continue.

Only one percent of world financial assets are in gold today, so nobody owns gold actually, and gold has still gone up over the last 12 years, it has 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 the demand for gold will increase, there isn’t enough supply, so the additional supply can only be met by higher prices. And this is what is going to happen.