With gold prices near 4-year lows, what should we expect in the gold market in 2015?
Gold has recently hovered near 4-year lows, forcing mining companies to sell below production costs. At the same time we are sitting on an $18 trillion debt as economists like Peter Schiff are warning us of another financial disaster precipitated by a coming big correction in the stock market. Inflation is also creeping along. What should we expect in the gold market in 2015? On this and more, listen to Jake Kennedy and Will Hart in this edition of The Market Report.
Mark Alyn: Welcome to the Market Report from the Birch Gold Group. Hi, I am Mark Alyn. I am joined by Will Hart and Jake Kennedy of the Birch Gold Group. Gentlemen, welcome to the Market Report.
Jake Kennedy: Thanks Mark.
Will Hart: Thank you Mark.
Mark Alyn: Let’s talk about what’s coming up for the year 2015. Elections are over now. For 2014 politicians can get back to doing what they do whatever that is. Gas prices are down, the stock market is up, and gold is at a 4-year low. What should we expect in 2015?
Will Hart: Well, let’s look at it. Like you said, the politicians now they can get back on track and do whatever they do. You’ve got the Fed supposedly has tapered on Quantitative Easing. The S&P 500 is at a historic high. Gold is at an all-time low.
Mark Alyn: Will, hold on a second. You said all-time low for gold, you meant?
Will Hart: Four-year low. I’m seeing a lot of…I am remembering 2008 right before the market crashed. You had a historic high and the stock market, you had gold at an all-time low, you know, which we call the slingshot effect. So you know gold being pulled down and what happened is the house of cards, the market, took a tumble, people lost approximately 40% of their value, and gold shot up 58%. So I mean I’m seeing something what happened you know 6 years ago happening again. Now, is it gonna play out the same way? I don’t know. If I knew that, I’d be a billionaire but…
Jake Kennedy: There’s lots of experts who think that it could play out the same way. I mean there is a big… there’s one guy… handful of guys, but Peter Schiff stood firm in his predictions. And you’d say, “OK, who’s this guy Peter Schiff?” But he is an economist, and for two years in the run up to the crash of 2008 he was shouting from his soapbox: You know the sub-prime mortgages would pull the mortgage down, the market’s gonna collapse, the economy’s gonna collapse. And he’s on TV this guy, on all the channels, and everyone pooh-poohed him. I mean I watched some of these on YouTube and everyone’s like, “Oh, Peter, you’re crazy – everything is just doing great. Even in the middle of 2008 we’re all doing fabulously, and everything’s ticking along nicely, the markets are going to their high, and we’re doing great.” And he’s like, “No, we’re heading for a terrible disaster.” He wrote a whole book about what exactly is going to happen six months prior to that, and guess what? You look back on these, you just go to YouTube and look up – Peter Schiff was right – and see all of these. And he was absolutely spot on his predictions. And right now (and he was right about the 2008 crash) right now, he’s written another book talking about how nothing has changed in the last five years, except now we have $5 trillion of debt on everything, all the problems that we have. And that’s kind of just papering over all the problems right now, and this is ultimately going to lead to a crash that is gonna make 2008 look like a walk in the park. And that’s what he is saying. And so, when is it gonna happen? Who knows, maybe 2015, maybe 2016, but he believes it’s still coming as too many other people, and it’s probably gonna start with a big correction in the stock market cause that’s how the house of cards fell before.
Will Hart: I mean it could happen any day. That’s the thing, nobody knows. This correction, which in my mind makes sense that this you know is like a pressure cooker – it has to reach a certain point that something has to give. You just can’t, the market can’t keep climbing. What? To 20,000? 25,000? I mean at some point something’s gonna have to give.
Jake Kennedy: We’re right now at record levels of investor complacency and debts and all of the…
Will Hart: Unemployment.
Jake Kennedy: Everything is, yeah, as it was in 2007 going into 2008 you know. I read a lot of articles right now saying, “It feels just like 2007,” or “It feels just like 2008 before the crash.” So, you know and everyone is sort of euphoric about the highs of the market when the reality is the economy isn’t as strong as people think it is, and unemployment is not really as good as they say it is if we use you know old metrics to measure employment. They’ve changed it of course recently to make it look favorable to the politicians, but things aren’t as they are or as they seem, and that’s why a lot of people have been worried here about where we are heading as a nation.
Mark Alyn: Will, you said “tapered off from Quantitative Easing.” I thought… Did they not stop it or they just kind of adjusted it?
Will Hart: Adjusted it. It’s smoke and mirrors. I mean again, yes, they, quote, unquote, stopped it, but you know Jake and I were talking about this. As a matter of fact, Jake, what we were talking about earlier – explain that.
Jake Kennedy: Yeah. I read this very interesting article, and obviously this is from an expert who understands the numbers and knows. You know the Federal Reserve puts out numbers, and really the way the Quantitative Easing was they were buying mortgage-backed securities and government bonds. OK, and that helped the government keep things ticking along, so on and so forth, and the mortgage market and all these talks of the mortgage debt from collapsing. So, OK, and everyone looks on the surface, “Oh, they’ve stopped, they’ve stopped and we’re doing just great now.” So, that’s why they’ve stopped. But in reality, all these mortgage-backed securities that they buy – they have it ready in their portfolio, generating interest. And they have something like $5 billion of interest every month coming back from these. So what they are doing is reinvesting that back into mortgage-backed securities every month. So they’re still buying these toxic assets so that the banks can get them off their books. So you know it’s money…
Mark Alyn: They are still buying property. They are still buying the mortgage-backed securities.
Jake Kennedy: The mortgage-backed securities. And I bet you in a few months’ time or three months’ time when we look back at this moment in time, we’ll see that somehow, some way, the Federal Reserve is working its magic in other areas that are still supporting these areas, but maybe by different means. We’ve seen this before in the past. You know, they’ve stopped it before, and then they did Operation Twist, which you know created the same effect just a different way. So I think we’ll see some magic here worked by the Federal Reserve.
Will Hart: Yeah, I mean, Mark, look at it this way: How can our economy, how can our government print, print, print to almost $18 trillion, and of course repaying interest on that money? Do we all of a sudden say, “Nah, we’re done. OK, we did it, we did enough.” I mean, wait a minute, I thought we were financially in problems and that’s why you had to print this money. And all of a sudden I mean, I don’t know, I look around, I don’t see anything’s changed dramatically, you know economically here in the United States or anywhere. I just I just I don’t understand. That’s why there has to be some sort of a shell game going on.
Jake Kennedy: And again, Peter Schiff, what he says recently, he says, you know and he’s predicted these two Quantitative Easings ago. There will be QE3, there will be QE4, there will be QE5, meaning that the next problem will arise. It’s happening in Europe right now, it’s happening in Japan, massive economic issues. And guess what their solution is, because there is no other solution? Well, let’s just print more money.
Will Hart: Print more money.
Jake Kennedy: Because… and so here we are kind of in some grey water, although on the surface everything looks rosy and we are all good. But underneath there’re real problems. So when the next problem happens, now the elections are over so who knows when that will be, then the solution would be, cause there is no other solution to generate economic growth, print money and prevent and give it to the government, to the banks, to stop an economic collapse. Essentially that’s what it is.
Mark Alyn: Gold right now is at a 4-year low. Where do you think gold would go in 2015? And is it a good time for people to move part of their portfolio into gold and other hard assets?
Will Hart: I think I think absolutely now is the time to be buying. You know what they say. If you can buy a product less than what it takes to make it or find it or so forth, you take advantage of that. So I think right now is a great time to be buying metals. I mean, I have a hard time believing it’s gonna be zero, that gold’s gonna be laying on the ground at some point. I mean I don’t think that’s ever gonna happen. And as far as what do I think of 2015, I think we’re gonna start seeing cracks in this façade, that our government’s kind of put-up in front of everybody. I think we’re gonna start seeing these cracks, and I think the market, I think Peter Schiff, and I think Ron Paul and all these other experts who’ve been saying, “Be ready.” I think we’re gonna start seeing this all unfold.
Jake Kennedy: Yeah, and if you listen to people like Jim Rickards, he recently came out and said, “You know, this is all happened before in the 80s. The dollar lost you know 80 to 90 percent of its value very quickly, and economic collapse is generally on flag, they happen very fast. Soviet economic crash in the 1988 happened in a week period and people lost you know 60-70 percent of the value of their money over that very short period of time. So when these things go, they go very fast for a number of different reasons. And what he said was gold is gonna go $7,000 or $9,000 an ounce because the dollar’s gonna lose that much of its buying power and value. It’s gonna happen very quickly so you don’t wanna be rushing out to try buying gold at that point because it may not even be available.
Will Hart: It’ll be too late.
Jake Kennedy: It’ll be too late. So this is about seeing danger, preparing, seeing a good opportunity in the market. It may go down some more, it may go up some more – who knows. But this is about foreseeing danger and saying, “You know, OK now is a good time to diversify my portfolio maybe out of my overvalued assets – stocks into undervalued assets like gold. That’s what China’s doing right now. It’s a great policy, and all other areas they see at risk. And you know diversifying into hard assets.
Will Hart: You just follow the smart money. When you see the billionaires and countries moving aggressively into hard assets like metals and moving away from paper, I think maybe it’s not a bad idea to follow that suit.
Mark Alyn: Copycats are the most sincere form of flattery.
Will Hart: Exactly.
Mark Alyn: Right.
Jake Kennedy: And the crazy thing is right now on the surface, and this is kind of the picture I think authorities want to paint: We’re doing great as a nation, there’s no need for gold, the dollar is strong, but if you look under the surface there’s more need for gold than ever before. And when you see at these prices, it is great time to buy.
Mark Alyn: Let’s talk about inflation. We have been talking about that over the last couple of months. Inflation seems to be creeping along. Actually in some areas it’s…
Will Hart: Receding?
Mark Alyn: No, not receding, it’s moving up.
Will Hart: Yeah, I was gonna say that.
Mark Alyn: The price of food for example has gone up, it’s skyrocketing. A loaf of bread, you know whoever thought you’d pay $4 for a loaf of bread?
Will Hart: Yeah.
Mark Alyn: I mean it’s amazing. So my question is how is inflation going to interact in all this as it hits the value of gold?
Will Hart: Well, again, you know. Jake had mentioned this I think earlier is the fact that gold rides, it raises I should say, along with the cost of goods and services. So as you know we’ve talked in the past about a suit you know hundred years ago was 20 bucks and an ounce of gold was 20 bucks, and now a suit today is $1,500 and an ounce of gold is $1,500, let’s say.
Mark Alyn: You go and buy a much nicer suit than I am.
Will Hart: Hey, exactly. Well, the point is that you’re gonna see gold climb along with these values. What’s going down in value is that perceived value of that currency. So again, it’s a teeter totter. You are seeing one thing going up, but really what’s happening is the other end is going down, and that’s the value of the dollar going down. So we’ve talked about this also before – you have inflation and you have of course devaluation. Now supposedly, quote, unquote, the devaluation processed has stopped, but I think that is just again a little smoke and mirrors that’s taking place.
Mark Alyn: Alright. Gold is now at a 4-year low, and it seems to me it would be an opportune time for those who want to diversify their portfolios to invest in gold, because you know we all wanna buy low and sell high. Can you react to that?
Jake Kennedy: Yeah, and with gold you know you’re not necessarily gonna be playing that game when you buy low and sell high. That’s kind of a stock play. But at the moment you know this is a great opportunity to buy assets while they are at a 4-year low and below production cost and hold on to them for who, knows, 3, 5, maybe 10 years that this debt economic/financial crises keeps grinding forward here. So yeah, you never really never can time the bottom of the market, you can never really time the top of the market, but stocks are at all time high right now, and gold relatively is at a low, 4-year low. Great time to be switching from one to the other, or even just diversifying from any paper-denominated asset into a hard asset. You know gold and silver are great assets to be buying right now.
Will Hart: Yeah, I mean again. You are 100% right Jake. You wanna diversify. You don’t wanna have all your eggs in one basket. Nobody you know when they call here and say, “I wanna move it all.” I mean, yeah, occasionally that happens, but most people wanna diversify. They wanna have their paper and they wanna have their hard assets. They wanna have their precious metals and whatever other hard assets they are looking at. Again, it’s about diversifying.
Mark Alyn: And the reason is not to make money. It’s to protect the value of the money you have.
Will Hart: Exactly. That’s correct.
Jake Kennedy: Exactly. So I’ve got a lot of clients who see some real inherent problems moving forward into the next year and the year after. And they are saying, “You know if this happens or that happens, the market crashes or the bond bubble bursts or the dollar collapses,” -you know these are real concerns and legitimate concerns as well, “then I have all my assets right now in paper which is basically in dollars. So what can I do to protect and insure the rest of my portfolio in case the dollar collapses, if we have inflation or devaluation or the market losses 40 or 50 percent again?” And so that’s why gold and silver come in. You buy gold and silver as the ultimate hedge against all these issues, and there are a plenty of issues here that we are facing. And you buy whatever you know amount makes you feel comfortable that that percentage of your portfolio in gold and silver is going to protect the value of the rest of your portfolio. So just very quickly. If the stocks lose, and this happened to our clients way back when the markets crashed, and people who bought gold, as they saw the value of the stocks fall 40-50 percent but the value of gold went up 58 percent in the first year, doubled within 2 years. And of course that counterbalanced the losses they had in the markets over those in the coming years. And if we have a collapse of the dollar or devaluation and you see goods, products, services rise dramatically in value, your gold would go up in value as well to keep your buying power ahead of inflation or dollar devaluation, whereas bonds and fixed assets, fix income assets, like annuities or just cash, will ultimately stay at their original value and will lose buying power as a result.
Mark Alyn: And it’s perfect for a retirement.
Will Hart: Correct, yeah. A lot of people who have their dollars, and the majority of people have their retirement dollars in IRAs and so forth. A lot of people may not even know that you can convert a portion of your retirement account, whatever you wanna do, into physical gold. And not a paper gold, physical gold. So if what Jake is saying is right and the dollar continues to lose value and things do get squirrelly out there, at least you know you’ve got hard assets in your retirement account in physical gold, and that’s where you have to say to yourself, “Do I think the dollar is gonna be the one that’s gonna outlast or is it gonna be gold?” And gold has a much better track record that obviously the dollar.
Mark Alyn: Gentlemen, thank you very much for your insights into the year 2015, which is rapidly approaching to us. You’ve been listening to the Market Report from the Birch Gold Group. If you have any questions we invite your questions. Just write us, send us an e-mail at email@example.com, or you can call us at (800) 355-2116. Speak to a Gold Specialist, and they’ll answer all of your questions, and explain just how easy the process is. We also invite you to join us at www.birchgold.com. Go to our website because there is so much information there – quotes from major economists, information from around the world as to why buying precious metals is a good idea to protect the money you have now. Again that number to call is (800) 355-2116, or you can go to www.birchgold.com. For Will Hart and Jake Kennedy and the Birch Gold Group, I’m Mark Alyn. Thanks for listening.