Ask The Expert - James Turk - June 2021

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Craig: Welcome back to the Sprott Money News and sprottmoney.com "Ask the Expert" series. It's June 2021. And our guest this month is James Turk. Of course, many know James is the founder of GoldMoney, someone who's been involved in the precious metals sector his whole life. James, thank you very much for spending some time with us this month.

James: Thanks, Craig. It's always great to be with you.

Craig: And it's great to visit with you and tap your wisdom experience. No doubt about that. We've got a series of questions for you that we've collected over the course of the month. Before we get there, though, I want to remind everyone, of course, all of this great content, whether it's "Weekly Wrap-Up," "Ask The Expert," our monthly precious metals projections that we do, all of that content comes to you from sprottmoney.com. Keep that in mind whenever you are in the market to add to your physical metal. And right now, until June 28th, our Spring into Summer Sale continues. And it includes a bonus discount on select products when you store your metals at one of our Canadian storage facilities. This is a bonus call-in offer only. So, to find out which products have that bonus discount and to place your orders, pick up the phone and give us a call at 888-861-0775. James, as we get rolling here, like I said, I've got six questions. Are you ready to roll as we get started?

James: Yep. All set.

Craig: All right. As I just mentioned, Sprott Money is great place to store your physical precious metal as well. James, the first question is, are there certain international jurisdictions for storing gold that are better than others?

James: Yeah. I think there are. You have to look at which countries have confiscated gold in the past. If they've confiscated gold in the past, one could assume that they could confiscate it again in the future, and therefore, you have to be very careful about, you know, political jurisdiction. I also think it makes sense to look at it from a geographic point of view, you want to be geographically diversified. The basic principle, Craig, is that gold and silver are the bedrock assets in your portfolio. When you own physical gold and physical silver, they're the most important asset. Everything else is built upon that. So, your liquidity, it's not contingent upon anything because it's the tangible assets so there's no counterparty risk. So, you don't want to take risk with that bedrock asset, you want to diversify as much as possible. So, diversify in different political jurisdictions and different geographic jurisdictions. United States, everyone knows, has confiscated gold in the past. Canada has not. England has actually confiscated gold, but only in 1662, which led to the Glorious Revolution in 1688 and overthrew the Stuart monarchy at the time. So, it's not likely that they will confiscate gold anytime in the future, but you just never know how governments are going to react. Switzerland is considered to be a safe location. Singapore as well. Hong Kong used to be but still maybe for some, you know, if you want to have a different political jurisdiction because, obviously, Hong Kong, its political outlook has changed in recent years. So, I guess the answer is there is no one right answer other than seeking diversification.

Craig: Yeah. James, I guess kind of as a little follow-up, I've had people ask me in the past about geographic location in terms of work and how close is it. Do you store your gold to where you are? I mean, if I live in U.S. or Canada, is there a benefit to getting it in Singapore? You know, a long ways away, I mean, you know, I can't necessarily get to Singapore very easily if I need to. I mean, how much does that factor in?

James: Yeah. It does factor in, and it's part of the diversification. You obviously want to have some gold and silver where you live and have immediate access, too, but where you live, you know, the politics may change and you may feel that you need to move somewhere else in order to live the life that you want to live. And as a consequence, you want to have your assets diversified so that, regardless of where you are, you can continue to live the same lifestyle.

Craig: Yeah. All right. Let's move on to question two because that's a pretty good segue. You know, especially at my site, we're always cautious to not get into anything that perceives to be advice or counsel or anything like that. But, you know, you kind of can speak of general guidelines or rules. In your mind, is there a general guideline or rule for that matter for a personal percentage allocation to precious metals?

James: Yeah. Here's what I do, the older you get, the more precious metals you need because precious metals, again, you know, it's liquidity that's not contingent upon any bank or any counterparty. So, as a rule of thumb, the older you become, the more metal you want. And the percentage-wise, it's like, if you're 50 years old, you want 50% of your net worth in precious metals. If you're 80 years old, you want 80%. If you're 20, you maybe want to have 20% and then get into more risky things outside the precious metals because you're still young and you have the opportunity to accumulate wealth by taking risk. So, it's really related to risk, the older you are, the less risk you want, therefore, the more precious metals you want in order to preserve your purchasing power because that's what it comes down to. Precious metals have proven to preserve purchasing power over long periods of time.

Craig: You know, it's interesting to hear you put it that way. Back when I was a stockbroker, that general rule of thumb applied for equities versus fixed income, you know, maybe that your fixed income percentage was what matched your age. And with fixed income yielding nothing, if not negative these days, yeah, why not substitute gold, I guess.

James: Yeah. Exactly.

Craig: Makes sense to me. All right. Here's an interesting question that actually just came in earlier this week and now is being exacerbated, the sell-off in gold as we record this on Thursday the 17th is quite remarkable. So, this question is, are the pending Basel III requirements for the EU banks... June 28th looks like the U.S. banks are gonna be subject to kind of similar requirements on July the 1st. Are those pending Basel III requirements driving the current sell-off in gold?

James: It could be a factor. I think there's a bigger issue that's driving the current sell-off in gold. I think the central banks and governments around the world realize they're at the end game. You know, they're borrowing money like there's no tomorrow. They're borrowing more money than the world has saved. So, where's that money coming from? It's coming from central banks. And when you turn to central banks to create currency out of thin air, which is what's happening today, by turning government deficits into dollars, and euros, and all of the other currencies of the world, you're debasing the currency. And if you continue doing it, you're moving toward hyperinflation. So, central banks are in a very tough spot. They can't force politicians to stop spending. And on the other hand, central banks don't want to lose their power and position as an elite ruling class, so they do what the politicians tell them. So, I think they recognize that they're moving down the end of the road. So, you're seeing these extremes happen.

This is probably the final, you know, very close to a final battle that we're in because I don't think we can go much further in terms of huge deficits. You know, in 2020, the U.S. government borrowed nearly one-half of what it spent. Look at yourself as an individual, could you live by borrowing half of what you spend during the course of the year? Now, government has a little bit more power because they can print that currency, but are they printing that currency because they're borrowing from people who've already saved that currency? Or are they printing that currency out of thin air, not tapping savings but just tapping thin air? And they are tapping thin air, and that's what's bringing them closer and closer to the end game. I think central banks realize that. So, in order to delay the inevitable, even though inflation is busting out all over the place, they're keeping a cap on gold and silver prices to make it look like inflation is not as bad as everything else is saying inflation is as bad as it is. Because gold is the messenger. It's a canary in the coal mine. You get a rising gold price, and people start to worry. So, keep the gold price contained, and maybe people won't be worried.

Craig: Well, I think, again, you've served as an excellent segue to question four, we're halfway done. And this is, I think, one of the big questions of the day in terms, I mean, I see people on Twitter banding this about back and forth because you got the people that believe in inflation and then the people that think that long run it's deflation. Where do you stand on this? Are we in an inflationary period, or are we in a deflationary period?

James: Well, it depends how you measure it. If you measure things in terms of dollars, we're in inflation, and we're going into what I think is hyperinflation. If you measure things in terms of gold, ounces of gold or grams of gold, we're in deflation, and we're going into hyperdeflation. What hyperdeflation in gold means is a hyperinflation of the gold price in dollar terms. So, you know, it's deflationary when calculating prices in terms of gold but inflationary when calculating prices in terms of dollars, or euros, or pounds, or any of the other national currencies.

Craig: So, how does that then play out going forward?

James: Well, that's a political question.

Craig: Yeah.

James: Do central banks pull back and preserve the purchasing power of the dollar, like Volcker did back in 1979, 1980 by raising interest rates to 20%? Remember, in 1980 and '79, the U.S. was the largest creditor nation in the world. We're the largest debtor nation that the universe has ever seen. And as a consequence, you can't raise interest rates, which is why they're near zero and why they're going to continue near zero. And what that's doing is debasing the dollar. You can debase the dollar two ways, you can base it by printing too much currency, or you can debase the dollar by making it unattractive to hold, in other words affecting the demand. And that's what zero interest rates are doing. They're making the demand for the dollar weakened. So, it's a real quandary for the central banks. But what the central banks do determines whether you get the inflationary or deflationary outcome. I just don't see them going to any dollar deflation. You know, ever since the Federal Reserve was created in 1913, it's been more or less a one-way street. They learned their lesson in the 1930s, done a lot of dollar deflation. And ever since, it's been dollar inflation, which is why the gold price today is, you know, $1,800 an ounce rather than $20.67 an ounce, which it was in 2013. But prices of goods and services when measured in dollar terms are still pretty much the same. You know, I like to use the example of just recently... You know, I'm 74 years old. In the 1950s, my parents could go to a petrol station and fill the family car for $2, $2 silver, the car would be filled. Today, you can take the content of $2 silver and still fill the family car, but $2 doesn't even buy you a gallon of gasoline.

Craig: All right. I hear, James. I think that's a good segue, again, now to question five, which is kind of along the same topics. Instead of fighting gold, wouldn't a higher price now benefit the central banks and particularly those of Europe?

James: That's a really good question. And that may be the answer that if central banks choose, go back on a gold standard at $10,000 an ounce, you know, some high level to give them credibility that they have the gold, sufficient gold on hand to meet any redemptions, you know, go back to redeemable currency. You know, when you look at the 1930s and the gold confiscation in the States, the excuse that Roosevelt gave was that he needed the gold in order to make the dollar redeemable into gold. But you don't have to confiscate gold for that to happen. All you have to do is devalue the dollar's exchange rate to an ounce of gold or a gram of gold and had heat instead of chosen $35, chosen $36. That $1 difference was effectively all of the gold that he had confiscated from American citizens because Americans knew it was unconstitutional for him to take private property. And also that gold itself is constitutional money, not the Federal Reserve dollar. So, yeah. Central banks could go back onto a gold standard, $10,000 an ounce might do it. But do central banks have the credibility, do governments have the credibility to maintain a gold standard given, you know, the history of debasing currency? I don't know. That's a question that only time will tell.

Craig: Yeah. I think the Fed still values at, what, $42.22, $42.22?

James: Yeah, $42.22.

Craig: Not $4,222, either.

James: Yeah. Yeah. Exactly. So, I mean, it's just an indication of how bizarre this monetary world is today that we live in, and it's just totally, totally out of proportions in terms of any kind of sound, politically honest money. And, ultimately, I think we are going to go back to sound, politically honest money either willingly by the government or ultimately the market will force them to go back.

Craig: Yeah. All right. James, just one last question, and I'm going to kind of lengthen it out a little bit because specifically the question was, will the Basel III changes impact the silver price? But I kind of want to get your thoughts on silver in general because we're still far away from the all-time highs, you know, that were achieved twice in 1980 and again in 2011. We've got this ongoing silver squeeze movement that is trying to gobble up all the silver that's available for investment annually. We've got, again, a number of positive fundamentals in the commodity sector as well. Putting that all together, again, starting with, can the Basel III changes impact silver? What is your feeling about silver specifically?

James: Yeah. I don't think Basel III is specifically going to affect silver. Well, it'll be an indirect impact in the sense that if it affects gold, silver will be affected. The way I view silver... First of all, gold is money. So, for me, when I calculate prices of goods and services, not only do I look at it in terms of dollars, or when I'm in England, in terms of pounds, I also look at it in terms of grams. How many grams of gold does this cost or how many grams of it does something else cost? Now, for me, silver is a gold substitute. In other words, silver does the same thing that gold can do. So, I have to look at the relationship between the two in order to determine which one do I prefer to hold or do I want to hold both. And for that, I look at the gold-silver ratio. How many ounces of silver equal to one ounce of gold? Now, geologists tell me that there's about maybe 12 to 15 times more silver in the Earth's crust than there is gold.

But the ratio today is, you know, 68, or whatever the number is, rather than 10 or 12. And historically, the relationship had been about 16 to 1 in terms of dollars in gold. And when we run a buy metal standard and the gold standard, that's what it was, 16 to 1, 16 ounces of silver equal to 1 ounce of gold. So, when you look at the ratio that way, silver... You know, first of all, gold is cheap, undervalued, but silver is even more cheap and more undervalued. So, not only am I a gold bull, I'm also a silver bull. Now, the problem with silver is it's much more volatile than gold. And we're seeing that today, you know, silver, or in this last little downturn, gold's down percent or percent and a half, I can't remember the exact number. So, it's down like 4% or 4.5%. So, you get bigger moves on the downside, and you get bigger moves on the upside, which is the key. So, if you're looking at where we're going to go from here, my guess is, like we saw in 2011, a 30 to 1 ratio, 30 ounces of silver to 1 ounce of gold, we're probably going to fall back down toward that 30 area. And if you're prepared to take the risks of holding silver, then, you know, I think you should have some physical silver in your portfolio just like you own physical gold. As for amounts, you know, 25% silver, 75% gold, if the ratio goes to 30 ounces again, like it did in 2011, the value of your silver will equal the value of your gold when measured in dollar terms, more or less.

Craig: Yeah. Yeah. Absolutely. I think that's very wise advice. Again, we've been speaking with James Turk, legendary investor in the precious metals arena and founder of GoldMoney. Again, we would ask you if you enjoy this information from Sprott Money, keep us in mind whenever you're in the market to acquire some physical metal, but also just simply give us a like, a share, maybe subscribe on whichever platform you listen to this content. It'll help us get the word out. And, again, keep in mind that Spring into Summer Sale continues through June 28th. James, thank you so much for your time today. It's just always fascinating to talk to you. And I think everybody has benefited from listening today.

James: Thank you, Craig. Those are good questions, and I hope people find my comments to be useful.

Craig: I'm sure they will. And from all of us, it's Sprott Money News and sprottmoney.com. Thanks for listening. We'll have another "Ask The Expert" segment next month.