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No Doubt Inflation Is Coming; Gold is the Answer - Jeff Clark Interview

August 4, 2014 - 9:00am

Jeff Clark, one of the world's top gold experts and the Senior Precious Metals Analyst at Casey Research, chats with Cambridge House Live anchor Vanessa Collette at the Sprott Natural Resource Symposium in Vancouver about where the gold price will go should the mainstream markets have a major correction, why inflation is absolutely on its way and how he chooses what gold stocks to buy. You couldn't watch a better interview today on gold and why you need it in your portfolio.

Vanessa Collette: Welcome to Cambridge House Live. I’m Vanessa Collette here at the Sprott Symposium–I’m joined by Jeff Clark, Senior Metals Analyst at Casey Research. Welcome Jeff , nice to see you.

Jeff Clark: Thanks for having me.

VC: Now Jeff, a question that is on a lot of investor’s minds right now is if the overall markets are going to collapse, is it going to take gold stocks with it if gold goes up at the same time?

JC: We actually did some analysis there and we looked at every major crash or correction in the S&P since the late 70s. There has been something like 16 of them, 10% or greater. During those episodes, gold actually rose in 11 of them. So it did fall in a third of them, and it rose in 2/3rds of them. So just because the stock market crashes, doesn’t mean that gold is automatically going to decline, especially if you measure it over a long period of time, from the high of the S&P to where it actually crashes. In 2008 gold crashed along with the market, but actually ended up. So over time, during the period of a bear market in the S&P does not mean that gold is going to crash, it is actually more likely to go up than it is to go down. Now gold stocks are a slightly different story…


VC: Yes, that was my next question.


JC: It’s just the opposite. About 2/3rds of the time the stocks actually do go down – the gold stocks – with the S&P – as opposed to going up and one third of the time they have gone up. To put gold stocks in perspective though, they’ve already crashed dramatically, they are seriously undervalued – one of the greatest undervaluations you’ll find in history – so since they have already crashed, it’s not likely that they are going to follow the market down that much more. And in fact, if gold responds positively to that crash we think gold stocks are more likely in this current environment to go up then they are to go down.


VC: Right – and gold being a safe haven asset by nature, if there is a big crash, that could send people to gold as in some of the studies that you saw.


JC: Right. It would depend on the reasons why the stock market crashed, a lot of it has been propped up by governments and by money printing and all of that, a lot of it is not a true recovery. So when the façade comes off, and you realize why the stock market has gone up is not a valid reason that is more likely to be positive for gold than a negative. So, yes, we think it is more likely that we will see, over time, maybe not on a daily basis, over time – maybe not on a daily basis- we think it is going to be more positive for gold than a negative.


VC: So, are you looking at gold stocks right now? You say that they are extremely undervalued – it this something Casey Research believes people should be buying right now?


JC: Oh, absolutely, I mean some of the stocks we’ve recommended have already doubled, some of the juniors, even some of the producers have had a nice surge, in historical context they are still dramatically undervalued so I am still turning over couch cushions – I think it is just the opportunity of a lifetime. Jim Rogers once quipped – I wait to invest until there is a pile of money just sitting there over the corner and I can just go pick it up. Well, that is a perfect description for gold stocks right now because if you are willing to hold, and go through the ups and downs, and wait for the next major catalyst to send gold higher, these stocks are just going to bring just tremendous leverage to that. And depending on the stocks you buy, yes you could get rich, just from buying the right gold stocks and holding on.


VC: How do people find the right ones?


JC: Well, they come to www.CaseyResearch.com of course! But really, there is a method to our madness so we are looking at who are the quality companies right now, so we look at the people, that is the number one factor that you look at – the people behind the deposit. We look at the properties themselves of course, and there are better deposits than others, and high grade is not necessarily everything – you want a profitable high margin mine, just as much as high grade. Politics are becoming more and more critical, so it’s important that you look at what is a good, calculated risk, a good risk to take in a political environment vs. a bad risk , there is no such thing as a ‘no risk’ investment politically in the mining world anymore, so you have to look at where the best risk is. There are definitely better buys out there than others and some of the companies just simply aren’t going to make it if we stay here another year or two at these prices – I am not predicting that – but if we did some companies are just not going to make it and you don’t want to be holding those in that kind of environment.


VC: Absolutely. Now moving over to gold, I think you have looking a bit in some of your studies at how countries are buying gold as protection against inflation.


JC: Gold is the number one inflation hedge, it is not real estate, it is not stocks. It is gold and a rising inflationary environment, not a stagnant one, or especially where inflation expectations are high, you’re going to find a greater protection by buying gold and gold stocks than the general stock market or even real estate in that environment. So yes we see inflation as an inevitable at some point, we could see some kind of deflationary crash first, especially if it is related to the stock market but we think ultimately that is going to be good for gold given the context we are in. I personally think we are going to see more of a stagflation type of thing where inflation is high yet we have deflation in certain assets- something like we saw in the 70s and 80s. that kind of environment. The reason a lot of undeveloped countries are buying gold, is because they are already have inflation in their economies. That is one reason. So if we get that inflation here in North America, look out, I think gold is going to come back and that could be the next catalyst, who knows – but definitely gold is a good inflation hedge and the number one thing I would use to protect myself for a high inflationary environment.


VC: So it’s not just these governments, it’s people who should be protecting themselves as well. And you’re a big proponent of that. What is the best way for people to buy bullion? Are there accumulation plans?


JC: Absolutely, there are accumulation plans at Silver Saver and at Metals Stream – which is part of the hard assets alliance program – which full disclosure the Casey Research product that was started. Something that I mentioned to our CEO to start – However you do it though, this it the time to accumulate, this it the time to buy, when prices are low. I mean silver at $20-21 is as close to a no brainer investment as it gets – and especially if you are buying the junior silver producers – there’s tremendous opportunity there. So however you do it, you want to be buying on a regular basis while prices stay at this level because some day they won’t be here and you’re going to have to pay $25, $30 and then $35, and silver is probably headed to $100. Just inflation adjusting it for the CPI, it puts silver at $110 and that’s using a faulty CPI, that has been changed a dozen times since Carter was in office. If you go back and use the CPI formula from 1980, you get a silver price of about $400. Now I’m not saying it is going to go that high, but clearly the opportunity is to the upside for silver. This is the time to be accumulating, so however you do it, you want to be doing it now on a regular basis, as much as you can afford, on a regular monthly or weekly basis to make sure you own enough to prepare yourself for what is coming.


VC: Absolutely. Now you’re a big proponent of platinum and palladium. What is driving the higher prices there?


JC: Now a lot of people were speculating because of the strike in South Africa, because the bulk of production comes from that country for both metals. But the strike ended, but the prices are still inching up, and the reason is because those problems are not going to be solved any time soon. So we think this is the next 5 year bull market, and the reason is because it’s a structural deficit. It’s not a one off, it’s not a short term thing, or temporary thing it’s a structural problem that cannot be solved easily. So, platinum and palladium, let us count the reasons- there are so many reasons why – but those mines can’t come back online very quickly, they’ve lost so much already, demand is still high, the ETF’s are still busying and hoarding, the mine shafts are getting deeper, they are getting harder to access, grades are falling, power is still a problem, electricity – you name it. The Russian reserves are – we believe- they don’t report them and tell them but we believe they are just at abysmal levels – the Russian government is even buying from the producers themselves so that tells you that they probably don’t have the reserves anymore that they used to have. There’s a litany of reasons why you want to buy– but the bottom line is that it is a structural problem that can’t easily be resolved. Platinum and palladium are going higher even though they are already high.


VC: Well Jeff, thank you so much for taking the time to join us today, it was a pleasure having you on.


JC: Thank you & you’re welcome.




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About Vanessa Collette

Vanessa Collette is the host of GoldSeek TV and anchor for Cambridge House Live. She conducts regular interviews with experts on finance related topics with a focus on investing. Follow her @vavicolletteTV

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