John Embry: Stay Strong, Own Gold And Silver, Wait

This article contains highlights from an interview with John Embry, chief investment strategist at Sprott Asset Management who is working alongside Rick Rule and Eric Sprott.

What gold and silver investors should look at:

Well, I’m looking at the reality of the picture. First of all, the world economies are not what they are made out to be. Without exception, pretty much, they are weakening, and they are struggling. It’s very simple: there’s far too much debt in the world, in virtually every country at every level. If you believe in the tenets of Austrian economics to the extent that I do, when you get an excess debt situation in the world, you cannot create enough new debt to get the economy to grow. I think that’s what we’re up against. Consequently, I don’t see the economy bailing out the bulls at this point. As things get worse and worse in the economy, I think that gold and silver become a worthwhile alternative. What goes unremarked is how small these markets really are. If you looked at every ounce of gold that’s been mined since the beginning of time, that’s only 170,000 tonnes—more or less. That’s only worth a little over $7 trillion. So you think about how little gold there is—silver is a fraction of that. If money decides they want an outlet in these two metals, it’s going to have an outsized impact on the price. I think as things get more and more difficult in the real world, people will seek outlets in gold and silver, and the impact will be outsized.

The West is no longer creating real wealth:

Well, I think what’s really happened is that the West has abdicated its manufacturing space to China in particular and a number of satellites in that part of the world. I think one of the great problems with unemployment in the West today derives from that. There used to be huge numbers of well-paid manufacturing jobs in North America and Europe. A lot of those have been lost, and a lot of those products are being produced at lower cost these days in China, because they have a much lower cost base. I don’t think that’s a particularly positive development in the long term for North America and Europe.

Drivers of the big world shift:

Basically, for the longest time from the post-war era China was asleep; it was just over there, not doing much of anything. But they do have over 1.4 billion people now. All the wealth was centered in the Western world, in North America and Europe, and Japan to a lesser extent. There are not many people in that group, probably 600 million people. Suddenly China, and India to some extent, awoke. 2.7 billion people decided they wanted what we had and were prepared to work hard for it. It’s started to have a dramatic impact on the standard of living in North America. And I think the manifestation of that is that the bottom half of our society is having trouble getting well-paying jobs, and it’s starting to take a toll.

The Canadian and European currencies vs the US dollar:

Rather than criticize the US specifically, I would be more critical of the Western world in general. We’ve lived a pretty good life after the Second World War and in the ensuing 70 or so years. And if we run up an awful lot of debt, it’s going to take some real doing to get back on the right track. In the intermediate, as we’re dealing with all these issues, money might be debased just to keep all of these things afloat. That’s one of the reasons I am so bullish on gold and silver. These are constants in an ever-changing world, and I think they are cheap now—very cheap. I don’t think people own enough of it, and when they finally get that this is happening, there’s not going to be enough to go around. So my advice to people is to get all the gold and silver you can at these prices. And better than that—if you really want leverage—buy the shares that mine the stuff. If you have the right shares, I think you’re going to make a fortune. So I’m a huge bull on the gold and silver shares; the only caveat is that you’ve got to be very selective. There have been a lot of bad stocks promoted through the years. And if you’re buying into this space, you’ve got to be real sure that they’ve got the goods—they’ve got a real ore body or they’re in production. Or they’re very close to production so you’ve got some kind of certainty that it’s real. Those kinds of stocks are going to do spectacularly well when this market starts to rock and roll.

This gold and silver issue is a huge deal; and I don’t think most investors understand the playing field that we’re on.

Stay strong, own gold and silver, and wait. I want to reiterate that there is so much bad press out there that most people just avoid the sector, and it seems like in the fullness of time it will turn out to have been a terrible mistake not to have had the protection of gold and silver and some related shares in your portfolio.

How long it will take to vindicate the case for gold and silver:

I wouldn’t say years. Of course, I want to leave myself some breathing room, but I think we are getting real close. There are more and more drumbeats about the degree to which the price has been messed with. And there’s all this paper out there with no real gold or silver backing it. When all this comes together in a crescendo for gold and silver, I think the impact on the metals is going to be way beyond what most investors can even comprehend today. And that’s why I think it’s important to be early rather than late today. If you’re late, you might never get in—because it may move so quickly and the availability is limited.

The signs of an imminent change in gold and silver to the upside:

I think there’s a lot of evidence now of how they are controlling the paper markets with all the rules that they have put in place, and the way their algorithms work. If the price of gold ever goes up 2% in a day, they stop it. So I will be feeling comfortable that we are really rocking and rolling in this when we start to see some really outsized moves—say, gold going up by $50 in a day. I think that would really tell us that the game is on. And I think we’re close—we’re talking months, not years.

The forces driving gold and silver to give way, as well as the expected response of the Federal Reserve:

Lack of physical. I think the real Achilles heel of the paper market is that there is overwhelming physical demand from China and other sources. Recognition of the lack of physical, especially to back all of the paper products, could really push this thing dramatically in a very short time frame.

I think they’ve already made all their responses. They have printed all this money, and I think that a lot of US officially held gold has entered the market through leases, swaps, or what-have-you. I think they have less and less firepower to maintain this sort of activity. As a result, when it changes, it will change dramatically, because there will be more demand than there is physical supply to meet. And the paper market, which has controlled the pricing mechanism for as long as I can remember, will finally be overrun.

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