I suspect we are in for a wonderfull Fall,” John Embry, Sprott Asset Management's chief investment strategist, told Mineweb’s Gold Weekly Podcast, primarily because the yellow metal is currently very under-priced and the Indian market has been taking note.
“At this point I am probably as bullish as I’ve been in living memory actually,” Embry said, “adding “I thought this summer might be a little slow because it’s a quiet market and you can play around in the paper market, but I think that’s going to change quite significantly in the fall and I would not be surprised if, by early next year, we weren’t challenging all-time high.”
While recent activity in India is clearly indicative of continued high demand, the govenrment is intent on trying to curb imports. Asked his view of the recent interventions made by the Indian government, Embry explains that, India is under the hedgemony of the US, which is currently very anti-gold. But, he adds, he doesn’t think the measures being adopted will work because “Indians almost have gold in their DNA and when you try and stop them from getting it…I am told the smuggling has been extreme.”
The second main pillar of increased prices for the yellow metal is rooted in China, which Embry believes is ultimately intent on backing its currency with gold.
“I think they're [China] accumulating a lot more than is being admitted, and at some point they may spring that on the world.”
While China and India are likely to continue to account for a significant portion of physical demand for the metal, Embry was also at pains to point out the growing divergence of the phyical and paper markets...
“I think that physical will separate itself from the paper market. The problem with the paper market is there's no gold and they basically have all these claims or people think that they have claims on gold, but the fact is the gold isn’t there, it’s been hypothecated and re-hypothecated. It’s basically... what you want today is real physical gold or a paper product where its audited and you know 100% that the gold it allegedly holds, is there.”
And, for Embry, the need to hold gold in phyiscal form is becoming increasingly urgent as the world’s debt continues to grow.
“The fact is that the world has infinitely too much debt…and once you reach this stage the economy needs more and more debt creation to grow at all and they can’t do it because they can’t support the existing debt.”
For Embry there are only two ways out of this situation, either a hard deflation, as was the case in the 1930s – something for which, he says, no one has an appetite. Or, a continuation of the unlimited quantitative easing currently underway. But, he says, eventually “this thing destroys the currencies and that leads to some form of hyperinflation, which I am absolutely opposed to because I think that’s the most corrosive thing that can happen to a society.”
Both of these scenarios also see gold playing an increasingly important role.
As Embry explains “For centuries gold has been money. We sometimes go through periods where we forget that when paper is doing well and we’re making money on our paper assets. But we’re going back now because paper is so risky and the bond markets around the world... they're preposterous. Why anybody would own this garbage is beyond my comprehension. Then the fact is that gold will reassert itself as money.”
