Jim Rickards: Gold, Bitcoin, Stimulus & Stocks

Interviews

Transcription of Finance News Network interview with Tangent Capital Senior Managing Director, Jim Rickards
 
Lelde Smits: Hello I’m Lelde Smits for Australia’s Finance News Network and joining me today is the Senior Managing Director from New York-based investment bank Tangent Capital, Jim Rickards. Jim, welcome to Mines and Money here in London.
 
Jim Rickards: Thank you Lelde.
 
Lelde Smits: Jim, one of the most striking developments since we last spoke on Sydney’s harbor in October last year [2012] is the gold price, which has since shed about 30 per cent. What do you believe prompted the plunge?
 
Jim Rickards: There are probably a number of things going on, not just one thing. I would expect that there is some central bank price manipulation. We know that this goes on, this is not speculation, it is actually disclosed in certain ways.
 
You know, whenever you are trying to solve a crime you say, ‘Who has the motive?’. The person with the greatest motive to keep the price of gold low is actually China, because they have the most to buy. So, people point the finger at the Fed, but you might suspect China, but also hedge funds are involved.
 
Traditionally hedge funds were not very involved in gold, they are now. Hedge funds don’t care if they trade gold or base ball cards, for them it is all about making money. And, they engage in manipulation. And, the enforcement side in the United States is very weak right now, so it’s almost an invitation for hedge funds to come in and play games.
 
So there are a number of things going on, some of them technical.  
 
Lelde Smits: And did you see it coming?
 
Jim Rickards: When it [the price of gold] got to $US1,900 [per ounce] I feel like that was a little bit of a spike. Now, I don’t think it is a bubble because you have to look at fundamentals. The fundamental price of gold will be much, much higher. But, when any – again, it doesn’t matter if is gold or any other commodity or stock for that matter – when it runs up that far that fast, you can expect a pull-back.
 
I didn’t necessarily expect a pull back to these levels but it’s interesting we’ve tested kind of $1,250 level three times. And, there does seem to be a floor there. I call it the Chinese floor - they do need to buy at the end of the day.
 
Lelde Smits: Where are we likely to see the gold price heading into 2014?
 
Jim Rickards: It really depends on the battle between deflation and inflation. Ultimately I see gold much higher, as you know Lelde, I see it at $US7,000 or $US9,000 an ounce, possibly higher – Based on fundamentals and based on loss of confidence in the existing international monetary system.  
 
But, if it did go lower that would be a very powerful price signal that deflation is winning the battle. There is a battle between deflation and inflation. I think ultimately inflation will win because the central banks will insist on it. But in the short run deflation could win, that could take it a bit lower.
 
Lelde Smits: And Jim, I hear you’ve been visiting some gold vaults and refineries recently. With the price so significantly down from its highs have you been tempted to buy up?
 
Jim Rickards: Well actually yes, I just launched a mutual fund with some partners and we've made a major allocation to precious metals. Gold, but also silver, platinum and palladium. Yes, so I think for a fund this is a great entry point.
 
Lelde Smits: If we can have a look at Bitcoin now, it has of course gained traction since we last spoke, recently surging to all time highs. What role do you see the virtual currency playing in global economics?
 
Jim Rickards: Bitcoin is an interesting phenomenon. I’ve actually read a number of the technical papers, a number of legal briefs on them. I’m not anti-bitcoin or [a] bitcoin basher. I don’t invest in them personally, I don’t recommend them to clients. I understand them technically. They seem to appeal to technophiles and libertarians.
 
The only thing I say to bitcoin people is, watch out for a couple of things. Number one, if you buy a bitcoin at one level and you redeem it for goods or services at a higher level, you have a taxable gain you have to put on your tax return. I daresay, very few people are doing that so they’ve all sort of become tax evaders.
 
And, a lot of people think if you’re in the bitcoin cloud the government is not watching, they are watching. So, consider the fact that you may be a tax evader and the government is looking over your shoulder, this will play out in time. So there is a little bit of caution in the bitcoin world.   
 
Lelde Smits: You’ve just given a presentation here at Mines & Money on the outlook for precious metals and the global economy. Have precious metal prices bottomed out or are we headed for a recovery?
 
Jim Rickards: Everything is contingent on the economy Lelde. Precious metal prices don’t move in a vacuum, they send you price signals in response to the economy. So, if inflation takes off they’ll go much higher. If the international monetary system collapses they’ll go up by a factor of five or ten. But if deflation gets us in its grip, they could go down a nominal space, but they might outperform other asset categories in real space.
 
Lelde Smits: And what are you predicting?
 
Jim Rickards: I think that the Fed and the other central banks are going to win the battle. Deflation is the national state of the world but central banks fear deflation so much they’re going to force inflation to happen. The problem is, when they’ll get a little inflation they’re going to find they’ve got a lot of inflation and it is going to take precious metals prices up much higher. But you know, if might play out of several years. I’m not saying this will happen in three to six months.
 
Lelde Smits: But in the short term, optimism is high on global equity markets now and many are predicting an upbeat 2014.  Do you agree?
 
Jim Rickards: Stock prices will continue to go higher as long as the Fed and other central banks are pumping out money. It is a bubble. It will end badly. People will find that this crashes, 30 – 40 per cent in the matter of weeks, maybe even less. But, in the time being I expect stock prices will go higher, but not for the right reasons.  
 
Lelde Smits: So finally Jim, what’s your best advice for investors heading into 2014?
 
Jim Rickards: As I say, I recommend investors have 10 – 20 per cent in gold or other precious metals. 10 per cent for the conservative investors, 20 per cent for the more aggressive investor. This will serve you well in inflation or deflation, war and peace. So it really is an insurance policy, everyone should have it. Not all in, but 10 – 20 per cent. 
 
Lelde Smits: Jim Rickards, thank you for speaking with us here in London and thank you as always for your insights.
 
Jim Rickards: Thank you Lelde.
 
 
Ends