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Jim Rickards: Paper, Gold or Chaos? October 31, 2012 09:40 AM

Transcription of Finance News Network Interview with JAC Capital Advisors Partner, Jim Rickards at The Gold Investment Symposium in Sydney.
 
Lelde Smits: Hello, I’m Lelde Smits for the Finance News Network and joining me today is American hedge fund adviser Jim Rickards. Jim, welcome to Australia and to Luna Park here in Sydney.You’ve just given a presentation titled, ‘The Future of the International Monetary System: Paper, Gold or Chaos?’ Jim that’s three options, which do you believe is the most desirable outcome?

Jim Rickards: The most desirable outcome is probably some kind of gold-backed currency. And, it doesn’t mean that we’ll all be walking around with gold coins in our pockets. You can have paper currencies but they can be supported by gold, and tied in some way. And you can have discretionary monetary policy, these things are not mutually exclusive. So, I think they would be the best because it would mean that government’s would stop stealing from their citizens in the form of inflation.

If you have savings or retirement, or annuity or an insurance policy, you’re dependent upon a fixed income or a fixed stream of dollars. If I make those dollars worth less, it’s exactly like stealing money from you. And that’s what countries to do their citizens, that’s what government’s do to their citizens. And, one way to prevent that is to, well, citizens can protect themselves from buying gold and countries can avoid it in the first place by having a gold backed standard. So, I think that’s the most desirable.  

Lelde Smits: Jim, you were one of the first to come out with the call for the US to return to a gold standard: Why do you believe that is important and what do you think is holding the US Government back?

Jim Rickards: Well, I don’t think the gold standard is absolutely necessary but you do need sound money. Now you can have sound paper money, if the Fed [US Federal Reserve] limits the amount of printing, but they’re not doing that. So, I would like to study gold, I don’t think you automatically go back to it. There are a lot of questions that have to be answered. So, what I’m actually calling for is the study for a potential gold standard, but what I’d really like to see is a strong dollar.

Lelde Smits:  And why is that?

Jim Rickards: Just because it’s sound money. If people work for money, they’re getting paid in money, that money should have a sound value. If you cheapen it it’s like stealing people’s work or stealing their wealth. And, that also undermines confidence in democracy, it undermines confidence in the rule of law, it can lead to social breakdown. There are very serious consequences that come when you de-base currencies. It’s not just economic, it also creates a sort of social unrest that can destroy countries.

Lelde Smits:  So you’re saying that chaos would be the only catalyst to return to a gold standard?

Jim Rickards: Once the chaos hits, which I would define as a complete loss of confidence in paper money, social unrest and riots, when that sort of things starts to break out, governments will have to do something and they’ll have to regain trust. And the easiest, fastest way to regain trust is by going back to a gold standard. So as I say, they won’t want to do it but they will do it out of necessity.

Lelde Smits:  And do you have a timeline on when you believe these events will play out?

Jim Rickards: My analytical method is the complexity theory and any complexity theorist will tell you that, you can understand the danger, you can understand the degree of the risk you can understand bad outcomes, but timing is very difficult. So, I don’t want to pretend that there is a strict clock. In fact, these things kind of happen spontaneously and it’s like an avalanche. You can watch the amount of snow, it builds up, it builds up, it builds up. And then one day, the whole thing collapses. Now you don’t know what day that is going to be, but you can see it coming. So, we can see this collapse coming, timing in difficult. But, I don’t think we’re talking about 10 or 20 years. We might be as talking about as little as 5-7 years.

Lelde Smits:  The price of gold is now sitting at just above $US1,700 an ounce: You predict it will climb to between $US3,000 and $US7,000. What is this forecast based upon?

Jim Rickards: Well, it’s based on the relationship between paper money and physical gold. And, these are not just made up numbers, I don’t just say these to be provocative or get headlines. I mean, not at all. If you actually look at the amount of paper money and look at the amount of physical gold- and these are know, there is no great secret here- and just divide one by the other here, these are the numbers you get.

Lelde Smits:  If you’re as bullish as you say you are, what percentage of a portfolio do you believe investors should devote to gold?

Jim Rickards: I recommend for the conservative investor 10 per cent and for the aggressive investor 20 per cent. A lot of people are surprised at that. They say, ‘You know Jim, if you’re so bullish on gold, why not more, why not 50 per cent or more?’. The answer is, you don’t want to be too much in any one thing. No matter what your view is, there are certain risks associated with over concentration. And, there are other asset classes you can be in to protect your wealth. One of them is raw land, fine art, other precious metals, and you should have some cash.

People are surprised to hear me say that, they say, ‘Boy, Jim you’re the guy who says that these currencies are going to collapse, why would you have cash?’ You might not have it for long, but you might have it for the short run to preserve wealth and it gives you optionality. When you get a little more of it, when you have cash, and you get more visibility you can pivot into these other asset classes. So, I like a diversified portfolio of gold, silver, land, fine art and cash, and I think that will serve you very well.

Lelde Smits:  Jim Rickards, thank you so much for your insights today.

Jim Rickards: Thank you Lelde.

 
Ends

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