In this exclusive interview, Jim Sinclair answers questions from our readers about the gold and silver market and his outlook on the economy.
Sprott Money News (SMN): Thank you, listeners, for joining us today on Ask the Expert. My name is Nathan McDonald of Sprott Money News, and we are very excited to have the pleasure of speaking with Jim Sinclair this morning. Jim Sinclair is the CEO of Tanzanian Royalty Exploration, which is ticker symbol TNX in Canada and TRX in the USA. Being a precious metals specialist and a quantities and foreign currency trader, Jim has authored numerous magazine articles and six books dealing with precious metals, trading strategies and geopolitical events, and the relationship to world economics and the markets. In January 2003, he launched JSMineset.com, which now hosts his gold commentary and is intended as a free teaching service to the gold community. With this, I am pleased to welcome Jim Sinclair this morning. Hello, Jim.
Jim: Hello. Thank you.
SMN: Excellent. So, we have a few questions here today from our viewers that they’re interested in. And there’s a definitely a few questions considering everything that’s happening in the gold market today. It’s interesting, to say the least. So, I’ll start off with a quick question, which I’m sure you’ve gotten before, but it’s still important to new viewers and those who are new to the gold market. And that is, for the first-time investor, what is the best way to own gold, in your personal opinion?
Jim: For the first time investor of modest capitalization – one ounce gold coins or a fund representing physical gold.
SMN: So, would physical gold would be your first bet though?
Jim: The first would be physical gold, but there are many ways of buying physical gold. Physical gold is represented, again, as I said, by funds such as PHYS, which holds the precious metals itself. It is also mining companies that have low costs and controlled overhead with filed 43-101 reports showing significant ounces mineable. It’s represented clearly by the physical metal itself. So, according to the character of the investor, any of those three methods would fulfill their requirements. The right way to look at gold is to look at it as a method of savings. Fiat currency is for transactions. Gold is for savings. Throughout all of history, in the last 2,500 years specifically, gold has held value where currencies have risen and fallen on a continuing basis.
So, for the modest capitalized first-time investor, look at gold as a savings account that will not be bailed in and clearly will not need a bailout. Don’t watch the volatility that’s in the marketplace, which is only going to increase, not decrease. Bear in mind that volatility is going to be on the upside as well as you’ve seen it in this reaction. So, physical gold can be purchased in various different ways and means, but physical gold is the first step.
SMN: Excellent. Yeah, I agree definitely. You definitely should have first your position in physical gold before you branch out. And then, obviously, like you said, there is a lot of other great options out there.
Jim: There are various options as ways and means to own physical gold. What we can’t do is change an investor’s characteristics. If an investor has never invested in physical gold, then the investor should take a look at the other physical gold equivalents such as managed funds in precious metals and funds that simply buy and own precious metals according to their capitalization. That would be the second best way.
And the third best way is for companies which are mining gold that have control over their capitalization. They don’t issue paper on a continuing basis to finance. There have management which control their spending. So, whatever the investor is – an equity investor, a fund investor, or a person looking to put their savings into physical metal in their own physical possession – physical is the first door of entry for any investor considering gold.
SMN: Great. Thanks for that detailed answer, Jim. That’s great. So, the next question that we received was: “If the stock market crashed tomorrow, which of these two scenarios do you see unfolding? A) The gold price drops as people get margin calls and sell the kitchen sink, including gold, to cover these margin calls. Or, B) The gold price goes up as a flight to safety and hyperinflation concerns set in as the Fed prints more and more money to keep the stock market propped up.”
Jim: Well, the answer to that is, in terms of series in time, over a short-term period, you will get A, and then get B. When everybody sells, they sell everything. When the naughty house is raided, the piano player goes to jail. When the market goes down and creates margin calls for people, needs for liquidity, or just a general feeling of malaise, you’ll find gold going lower. What will determine the direction of gold is not the stock market. What will determine the direction of gold is the direction of the US dollar. The direction of the reserve currency, now only by default.
As the economy worsens, as it will, as we go into collapse crisis number two in five years, the United States and in the Western financial world, the U.S. dollar will not have rationale for appreciation economically. And the effective economics, which is practiced now – that is, the psychological adjustment of people’s thinking as being a primary factor in economics – would have you believe through MSM, which is your mainstream media, that Europe is in a much worse economic situation than the United Sates.
Well, the first thing you’ve got to remember is, the United States is a monetary union. And this monetary union is the U.S. dollar. If you were to examine the income statements and the accumulated deficits of the various members of the dollar monetary union, the states of the United States, you’d find states that are as bad, and in fact worse, than Italy and Greece. The U.S. dollar will decline significantly, and that significant decline – which I should suspect will be fully recognized before the summer months are out – will be the price determining factor fundamentally that will deliver to you in new high in gold above $1900 in the fall and winter.
SMN: So, you see MOPE (Management of Perspective Economics) losing its effect over time, or very shortly actually.
Jim: Look right out your window now. Gold is going down, the stock market’s going down, and the malaise is setting in. When the world sells dollar-denominated assets, they get the dollar as proceeds of the sale. I mean, that’s exactly what happens. If you were to sell an Apple computer shares, you were in Istanbul or Budapest, well, you’re going to end up with dollars along the line of currency settlement.
So, it creates a very significant supply of dollars, because the bottom line you don’t want the dollar. You’re coming back to your own currency. So, the dollar will first firm followed by a very significant fall as U.S. assets the dollar moves into liquidated. And the same problem that is developing now in Japan is developing in the US.
Those who Bernanke, Chairman of the Board of the Federal Reserve, rescued are testing him to see whether or not his intentions in QE are significant. So, what they’re doing is selling treasury bonds. Selling treasury bonds is the definition of rising interest rates. Interest rates are not created by a group of wizards sitting at their table with pointy hats on. Interest rates are the product of the position of federal paper in the treasury market. Bernanke is being challenged by the IMF and by the same broker and banks that he rescued, to see what resolve he has. We’re going to find out very soon whether or not he’ll stand up to this, or whether or not Mr. Bernanke will leave office with history looking towards his administration of financial matters as total failure. He has that decision to make as we speak. Let’s see what he does.
SMN: And he doesn’t seem to have too much time.
Jim: Well, he doesn’t, because he leaves office at the beginning of the new year.
SMN: That’s correct. So, with all of this going on, do you believe that China is accumulating gold in order to eventually back the Yuan and start a new gold standard?
Jim: No, I don’t believe that any gold will back any currency ever again. I don’t believe that there’ll be any convertibility ever in the future of currencies. When you say currency is backed by gold, what you’re saying is that it’s going to be convertible again. The answer is, no, it’s not.
But gold is emancipating itself from paper gold. The key to the survival, now in question of paper gold, the means of manipulation, is the condition of the warehouses of the COMEX and other futures exchanges. Because, if the warehouses are wiped out of warehouse supply by physical demand – which they’re in the process of being – then the futures exchange can no longer settle in gold. Therefore, it loses the ability to manipulate gold.
So, what you’re watching is an action in this decline of a bull market in physical demand for gold, while you have a bear phase in paper gold. That is an emancipation of physical gold from paper no-gold process. Should it be successful, that means taking a level of inventory of the COMEX down to a point where the COMEX is forced to change, as it did in 1980, in the Hunt prices, the means of settling gold. Then the manipulators of gold are out of business. And the price-determining mechanism for gold will return to the over-the-counter cash market for gold, which exists and remains and is healthy. Then the price of gold will rise to levels even above what I have predicted.
SMN: Yeah, I’ve often heard you say that the price rise will set your hair on fire.
Jim: Literally and figuratively and correct.
SMN: That’s great. Well, hopefully that day is coming soon, especially with all the . . .
Jim: All the listeners have to do is watch the warehouse inventory of gold of the COMEX. Remember, in 1980 – I advised the Hunts in the means of getting out of their position – that when the COMEX bought their own rumor that Hunts intended to take delivery, which they never did, the COMEX unilaterally novated their contract went to sellers only. They went to cash settlement on gold. Few know that. Because they canceled the cash settlement and went back to regular settlement the minute the market started to break. So, it was only in place for about five days.
But knowing that, you know exactly what the same people, a lot older, but the same people are going to do. They’re not going to see their warehouse wiped out of gold. They’ve got to stop settling in gold. They’re near wipeout point right now. They could stop settling in gold as early as July.
SMN: Wow. That’s really soon.
Jim: Then gold is emancipated. If the government wishes to make the situation look better, they have only one option, and that is to sell physical gold. And the question is, how much physical gold do they really have that is unencumbered, that hasn’t been leased, that really exists, and in fact can be sold into the marketplace. The answer is, the emancipation of gold is the beginning of the real gold bull market that has not even happened yet.
SMN: Yeah. And it appears that the inventory at the COMEX is depleting rapidly.
Jim: It’s falling like a fishing line hanging off a fishing pole.
SMN: That’s going to be great for the price of gold in the up direction.
Jim: The entire key to gold finding its price is that the mechanism of price determination is not paper, fraudulent paper that has no gold behind it whatsoever, but real gold itself. As gold is emancipated by the change of delivery mechanism of the exchanges which must happen, gold is still far above $1900 as to make that number highly immaterial.
SMN: That’s great. So, recently there’s been a lot of manipulation in the system. I account it to . . .
Jim: Because this is happening. The manipulators are knowledgeable parties who know that what I’m telling you is exactly correct, and they’re doing everything within their power to prevent it. But by mistake, they’ve created a fire sale on gold, because the demand for physical in the developing world, in Europe, and here in the United States is up by tenfold and tenfold on that.
SMN: The paper price is down, but the physical sales and purchases are through the roof.
Jim: People are in the physical market in volume of demand while the Fed and the gold banks have created a bear phase, getting gold down in paper price through the manipulation of paper. Paper defaults, because the default of an exchange is exchange delivery. They’re never going to fail on a delivery. They’re going to change the method of delivery to a hundred thousand shares of GLD or cash, not physical gold. The COMEX can’t deliver soon because they’re running out of physical in warehouse. They have to. There’s no question. You don’t have to be a brain surgeon. It’s pure logic.
SMN: That’s right.
Jim: And bear in mind, I and my wife were members of the COMEX exchange. I know how these jerks think.
SMN: That’s right. You have a lot of experience in that industry.
Jim: I have over 50 years in this industry.
SMN: That’s right. So, clients’ funds have been stolen at MF Global. Citizens’ bank accounts have been raided in Cyprus. Now, Western central banks around the world have begun to implement bail-in plans, which is something you’ve been talking about quite a bit recently. Have the rules of clients been changed?
Jim: I’m trying to save your listeners from being bailed in. One in a 1,000 listens to me.
SMN: Yeah, it’s a hard message to get out.
Jim: I’m in meetings all over the world. Traveling is no fun. I’m not 25 years old. I’m 72. I’m doing everything within my power to wake up a sleeping public that I think is going to sleep right through bail-in and find out, like in Cyprus, 83% of accounts above the insurance level were in one way or another blocked and remain blocked.
SMN: That’s right.
Jim: 83%, not 35%. 83%.
SMN: That’s a staggering number.
Jim: Why in the world have a sick joke blocking 83% of a person’s funds and give somebody back 17%? Why not just take it all?
SMN: It’s basically an insult.
Jim: It’s an insult. And the IMF has now taken a position contrary to the Fed, who wants lower rates to remain low. The IMF wants everybody to give up.
SMN: Do you believe everybody will give up?
Jim: Is it politically impossible to entertain 25% unemployment in the United States without riots in the streets? It’s not going to happen.
SMN: Yeah, it’s not going to happen. That’s right.
Jim: When Bernanke turns over the helm of the Fed to Yellan or some similar person, it will be simply to get more helicopters into the air.
SMN: That’s a scary thought.
Jim: A scarier thought of the IMF that all central banks should simply give up taking thereby Western financial world back into the Dark Ages tomorrow.
SMN: That’s right.
Jim: What would happen if QE stops? Rates of 14% on ten-year money? No problem at all. It happened back in the 1970s, so why can’t it happen now?
SMN: That’s right. Everybody lives in today, and they think that that happened in the past. It won’t happen again. It won’t happen here.
Jim: They’re all living in a virtualized financialized world, which is a world of make-believe. And make-believe is about to become reality. Virtual markets and financialized economies are collapsing.
SMN: And everything’s a virtual economy, like you said.
Jim: Virtual economy and financialized economy are collapsing. And it will be absolutely public that this has happened as we go into August and September.
SMN: So, do you think, because they’re implementing all these bail-in plans, do you think if the banks foresee another 2008-style collapse, what do you see coming?
Jim: The second collapse of the millennium has already started.
SMN: It’s already started.
Jim: It will become very public by the fall.
SMN: So, do you think precious metals will be safe from confiscation in this scenario?
Jim: Confiscation occurred in the 1930s, and this is something the listeners must understand. The reason why Roosevelt confiscated gold was because gold was the exchange standard. In order for Roosevelt to create more paper and buy his own debt, then dissimilar from now, you had to have the gold. And every day, he met with his Secretary of the Treasury at breakfast, and they raised the price of gold.
So, he did it to take the U.S. gold out of the speculative arena. Back then, there was no China speculation in a gold market. The U.S. was the biggest speculator in the world. So, one reason for confiscation was to shut down speculation – that’s not the primary reason. The second was, he had to have the gold, because without it, he couldn’t expand the monetary base. So, there is no fundamental reason today to support the thought of confiscation, unless you say, “They will punish us for saving ourselves”, which is a little bit paranoid.
SMN: That’s very paranoid. One thing that I’ve noticed is that in Western society, I don’t believe it would even be worth their time to do a mass confiscation, considering that so few people seem to even own gold.
Jim: Confiscation of gold would be almost like taking guns from people in Georgia and Texas. It’s a very hard proposition. And it was a hard proposition back then. They collected very, very little gold. Very few turned the gold in.
SMN: That’s right. That’s what a lot of people forget, that they put up the bill, and they told people to go and turn it in.
Jim: People in the main ignored the order to turn in their gold in the 30s.
SMN: Yeah. But a lot of people just didn’t do it.
Jim: People totally ignored it. History speaks to that fact, compared to the amount of gold that’s out there.
SMN: So, something you often talk about is people taking control of their own destiny. This includes taking ownership of your own shares. Do you believe that in today’s uncertain times, we all need to become our own central bank?
Jim: Well, that’s something that I’ve held up as a primary necessity going back over ten years, to be your own central bank. And there are various methods of owning shares. It’s not any great kind of difficulty. There is direct registration. There is DTCC. There’s certification.
So, the amount of listeners that are in the DTCC system right as we speak here, even pro-gold, is probably somewhere around 90 to 95%. DTCC is a tool of manipulation. DTCC is the father and mother of naked short selling. DTCC is the power tool of the banking community.
I’ve recommended to the people who listen to me that they take their shares into direct registration, which can be done even in retirement accounts, even in Canada, as well as the United States, as well as Europe, in Euroland, and anywhere else. It is your right. You demand it. If they won’t do it, you go to a broker who will do it. The total cost is $50 per issue, not the $500 they quote. $50 per issue to go into direct registration. Direct registration results in a bookkeeping entity, known as the transfer agent, having your name. Not your share, not the ownership or your share – your name. That is a step out of the system.
When you’re in DRS – direct registration – you need two things to have certification. One, you need the company that you own to okay it, meaning that they participate in it. And number two, you’ve simply got to ask for it. And there is no charge when you’re in direct registration for your actual certificate, which is the ultimate step out of the system.
This system is coming down. There will be a huge crash is the second collapse of the Western financial world, which has already started, but will be clearly seen, understood, and accepted to be real in 2013. You don’t have much time. You can’t sit around and say, “Well, do I believe Sinclair? Do I really want to protect myself?” I am absolutely correct, and all you need to do is to look at the Canadian budget report that was filed with your agencies. And right in there, it discusses bail-in on Canadian citizens. If that isn’t enough for you, then all you need to go back to is the joint report, which was done by the Bank of England and the Federal Deposit Insurance Corporation of the United States discussing bail-in as the absolute method to be used from this point forward.
You’re sitting around thinking about it, you’re in harm’s way. Get off your backend, get up, get your direct registration – which is your right – get your certificate if you want, and get any money out of banks that you have that is over the amount insured. And don’t believe you can have 50 banks and play some cute game and get insured in all of them. Governments will never let you get away with that one.
SMN: So, basically, you take control of yourself.
Jim: Take control of yourself. Physical gold is for savings. Fiat currency is for spending. I think the prices you’re going to see on gold stocks and gold going into early July, you will never in your life see again, in terms of being cheap.
SMN: It certainly appears to be setting up that way.
Jim: Well, it is setting up that way, and it will happen. I haven’t been in this business for 53 years and just wasted my time. I know these markets. I am these markets.
SMN: You earned the nickname “Mr. Gold.”
Jim: Maybe I qualify by age.
SMN: There you go. So, your father, Bert, and his business partner, Jesse Livermore, are known as legendary investors who used to control a staggering 10% of the daily New York Stock Exchange trading volume in the 1950s.
Jim: It’s like watching Michelangelo paint to watch Bert trade, but all I know of Jesse is what Bert told me.
SMN: That’s right. But they’re both legendary investors in their time, that’s for sure.
Jim: They are the two great lone wolves of the investment market. I got my sense of the markets from Bert, and indirectly, therefore, from Jesse. And I worked for Harry Schultz for about 11 years, so I’ll say my fundamental understanding comes from the Dean of Gold. God bless him. Long live Harry Schultz.
SMN: There you go. That’s great.
Jim: He’s 90.
SMN: And he’s still putting out great information.
Jim: And he’s brilliant, totally, completely, utterly, and absolutely brilliant.
SMN: He is. I agree. And I don’t know anyone that would disagree with that statement.
Jim: I’m going to tell you, he was one of my mentors.
SMN: That’s great. So, what would their reaction be to the recent attacks on the gold and silver markets?
Jim: Well, the reaction has been a Fibonacci percentage in the bull market in gold. We’ve discovered that there isn’t any physical gold in comparison to what we might have thought existed above ground before. The question it begs is, where did all of the physical gold go?
And my opinion is the entities which control the gold banks, the entities which are our government financial planners, own the gold. I think it’s been taking place for a generation, and that’s why I think the physical price of gold could rise as high as $50,000, based on emancipation from paper gold, based on the continued decline of the inventories of the exchanges.
SMN: Wow, so basically this is a beach balloon that’s been pushed underwater so far that it’s going to just rocket higher?
Jim: You take the COMEX inventory down to a level that they really know they’ve got to change – they must change, because they don’t have the gold to deliver. It’s just simple. It’s arithmetic. They haven’t got it. They have to change their delivery system. Then paper gold will trade at a price that’s irrelevant to the paper gold market but price determined by the OTC physical gold.
SMN: And paper gold seems to be becoming increasingly and increasingly more irrelevant.
Jim: Well, it’s relevant enough that it scared the living dickens out of a lot of people that are listening to this interview. Physical gold is taking its senior position. Paper gold is taking a junior position. The moment the exchanges change to a cash settlement, the new bull market on gold will be born. I don’t think we’ve seen the real bull market on gold yet.
SMN: So, you think the real gains are just to come?
Jim: I think the real gains are just to come. And I think it’s going to start in July. I think that we’re going to have a second Western financial crash, and all of these advisors that are talking about biting the bullet and going to austerity will be creating paper so fast, you won’t believe it.
SMN: Wow, that’s great. So, do you think that this price rise is scaring the COMEX? Or do you think…
Jim: I think the COMEX is terrified. Look at the price of COMEX seats. In 2005, they were 500,000. Today they’re under 100,000. Is that not telling you something?
SMN: It’s telling me something, that’s for sure.
Jim: It’s telling your listeners and readers something, because this is not brain surgery. This is not complicated stuff. This is mathematics. Do the math. Stop with all the talk. They don’t have the gold. And if an exchange can’t deliver the gold, no matter what they call their contracting, it’s not gold. This end paper’s ability to influence the physical market.
The over-the-counter physical market’s still there, except you’ve got cobwebs on the telephones. It’s discoverable on platforms, except there’s not enough people making a demand for that platform. The price of gold, when it’s traded on the over the-counter exchange, where it was traded before 1973, will be back again and will be as easy to find as it is for you to find December gold contract now.
SMN: That’s right. So, finally, Jim, where do you see the price of gold and silver by the end of this year? Also, where do you see the price of gold and silver in ten years’ time?
Jim: Well, the price of gold and silver by the end of this year will be in excess of $1,650, and it could be challenging the $1,900. The long-term prognosis on gold, assuming that the paper gold remains deliverable is $3,500. If paper gold no longer can deliver real gold, and the physical gold market takes over, I’m a $50,000 per ounce person.
SMN: You see $50,000 per ounce?
Jim: No, $1,650. $1,900. $3,500. $50,000.
SMN: And it technically could go to infinity if the fiat system collapses.
Jim: Gold is for your savings. Fiat currency is for your transactions. Gold will be in the system emancipated, and the countries like Russia and China who have a lot, their currencies will wear a necklace in gold. Because they have that gold, their currencies will be more in demand. And the countries that don’t have the gold or won’t audit it publicly, will be less in demand. The future of the Yuan, therefore is greater than the future of the US dollar.
SMN: And you see the U.S. fiat currency basically drifting to irrelevance?
Jim: No, I wouldn’t say irrelevant, but I’d say 56 on the USDX is not out of the question.
SMN: Yeah, that’s a big change. Exactly. So, Jim, you were doing quite a few speaking engagements recently. And I think you have a few more upcoming. Can you . . .
Jim: I’ve been having private meetings. No recordings. No names. Where people can ask me any question they want to ask me, and I’ll give them an answer. And I’ve been to London. I’ve been to Toronto. I’m going to Vancouver soon. I’ll be in Chicago. And I’ll be in Phoenix on the week of July 8th. And I think that’s very good timing, because I think right after those meetings, everything is going to become extraordinarily obvious to people.
SMN: You definitely have a track record of speaking out, such as the GATA Event in London and then the press exploding.
Jim: I’ve been right. But I’m not giving this as trading advice. I’m giving this as investment advice. Why would I give trading advice? I’m a trader. I do it for myself. All you do is create walls in front of you. So, all the advice I’d given to investors, and I’m giving now, deals with the investor. The trader, I’m not interested in, because today’s virtual world – I don’t want any part of it.
SMN: That’s right. And neither do I. But thank you very much, Jim, for joining us today on behalf of Sprott Money. It was great having you.
Jim: I enjoyed it. I hope you’ll find it interesting enough. And I hope when all this turns out correct, you’ll have me back.
SMN: We definitely will if you would join us. And our viewers will definitely find this very informative. And the price predictions that you gave should put a smile on many people’s faces.
Jim: When they come into the market place, they will, and they will come into the market place.
SMN: Great, Jim. Thanks for joining us.
Jim: My pleasure.