Think gold is high? Wait till dollar bonds are dumped, Davies says

Section:

Ben Davies spoke at GATA's Gold Rush 2011 conference in London last weekend.

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$5,000 Gold? Fund Manager's Idea Has Its Critics

By Patrick Allen
CNBC
Tuesday, August 9, 2011

http://www.cnbc.com/id/44072271

The West is close to the point where its paper currency system is insolvent, and as a result gold is heading to $5,000 an ounce, according to the manager of a gold fund.

"A paper currency system ultimately ends in insolvency," said Ben Davies, the chief executive of Hinde Capital in an interview with CNBC.com on Tuesday. "We have arrived at this point in the West. So why own worthless paper?"

His belief that gold will hit $5,000 an ounce is not shared by many major players in the market. On Sunday, Goldman Sachs raised its 12-month price target for gold to $1,860 an ounce. In early trading Tuesday, spot gold hit a record $1,778 an ounce, before pulling back.

... Dispatch continues below ...



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Lewis E. Lehrman on How to Solve the U.S. Debt Problem

Lewis E. Lehrman, chairman of the Lehrman Institute, sponsor of The Gold Standard Now project, advises that to reduce the $1 1/2 trillion U.S. deficit, the Republican Party must initiate an investment program.

Working Americans are not saving, which enables the banks to lead the country into a cycle of debt, leverage, boom, panic, and bust.

Lehrman says: Eliminating the budget deficit of a trillion and a half dollars cannot be done overnight. The proposal by U.S. Rep. Paul Ryan was very dramatic -- one Republican called it radical -- but it was not happily received. The solution, of course, is to design an American program for prosperity, because you can solve these entitlement problems with a growing economy. We need a tremendous program of investment, and investment comes from savings. When you pay savers, middle-income professionals, and working people 0 percent at the bank, you are not going to encourage them to save. Then we are left with a bank cycle of debt, leverage, boom, panic, and bust."

To read more and to sign up for The Gold Standard Now's free, noncommercial, weekly report, "Prosperity through Gold," please visit:

http://www.thegoldstandardnow.org/gata



Goldman based its new target on low-inflation-linked U.S. 10-year Treasury yields, a weaker economic outlook in the U.S., that gold remains well below its 1980s inflation-adjusted highs, and the national debt problems in the U.S. and Europe.

While there are plenty of gold bulls out there, few are as bullish as Hinde. On Friday, Ashok Shah, the CIO of London and Capital, told CNBC that emerging market sovereign wealth buyers looking to reduce exposure to the dollar could push prices significantly higher, but warned that it will be difficult to call the level at which prices will level out.

"In essence, where does the clearing price ultimately equilibrate?" Shah asked. "I think that's very hard to say."

Hinde Capital's Davies believes the relationship between Asian exporters and Western debtors has led China and others to shun the U.S. dollar, as America and others attempt to use monetary policy to boost their ailing economies.

The second round of quantitative easing "was not a means to try stimulate the economy, although they hoped it would. But the transmission mechanism between markets and the real economy is broken," said Davies. "The real reason for quantitative easing was to stop bond market collapse --where rising rates would crush an overindebted nation, both state and householders."

On the other side of this relationship are the creditor nations attempting to maintain dollar pegs to assist exports, fueling domestic inflation, according to Davies.

The Chinese "attempted to sterilize this currency rise by raising reserve requirements. But it is not working, as seen by the latest Chinese inflation numbers," he said.

Figures last week showed China's inflation rose to a 37-month high in July.

Davies believes that the Federal Reserve got it wrong by attempting to pump cash into the system to avoid a liquidity crisis, as, he argues, they were not facing a liquidity crisis but a solvency crisis.

"Policymakers can't grasp the reality that allowing bondholders to default now, although horrendous for economies and employment," is a better option than defaulting later, said Davies.

"Individuals and private institutions are fleeing all fiat currencies into an asset that has no liabilities. This flight from insolvency is an exponential event," he said. "Gold is an inverse function of currency."

Fiat currencies are those a government has declared to be legal tender, without any intrinsic value or backing by reserves.

"Asset markets lost their funding when (the second round of quantitative easing) ended," said Davies. "Deleveraging has only just begun, but for now I am sure markets will bounce as QE3 arrives globally."

"If you think gold is high, wait until all and sundry exit dollar bonds," he said.

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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit:

http://sonaresources.com/_resources/news/SONA_NR19_2010.pdf