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GoldMoney''s James Turk: The dollar is ''on the precipice''
Gold seen soaring to more than $1,000 an ounce by end of decade;
Strategist even more upbeat on silver
ByAllan Robinson
The Globe & Mail, Toronto
Wednesday, May 26, 2004
http://www.theglobeandmail.com/servlet/ArticleNews/TPStory/LAC/2004052
6/RGOLD26/TPBusiness/MoneyMarkets
TORONTO -- The price of gold could soar to more than
$1,000 (U.S.) an ounce by the end of the decade, John
Embry, chief investment strategist and portfolio
manager at Sprott Asset Management Inc., told
analysts yesterday.
The bullish forecast made at a Toronto Society of
Financial Analysts meeting in Toronto came as bullion
has slumped to $388.30 an ounce from more than $426
early this year.
The growing deficits in the United States will eventually
result in the creditor nations deciding that they no longer
want to hold U.S. dollars, Mr. Embry said. "When that
day comes, the U.S. dollar is going to come under
incredible downside pressure," he said. "The U.S. debt
situation is unprecedented for a mature nation."
By the end of this year, Mr. Embry expects gold to
reach $500 an ounce.
David Chapman, a technical analyst at Union Securities
Ltd., also thinks gold is headed for $500 an ounce. "I
believe it could still get there this year despite the
pullback," he told the analysts.
But he is even more positive on silver. "Hold on to the
silver group; it is going to double a long time before
gold does," he said.
The rise in interest rates should not hurt gold stocks as
long as the increases in rates are below the rate of
inflation, Mr. Embry said in an interview following his
speech to the analysts. If the rate-setting body of the
U.S. Federal Reserve Board were to hike rates
aggressively ahead of inflation, there would be a
short-term downside risk to gold, he said.
Mr. Embry also doubts that rising interest rates will
result in more gold hedging activities by mining
companies or investment funds. Short-term rates have
not risen high enough to result in more hedging and
gold producers are not likely to hedge gold in a bull
market environment, he said.
In the past, mining companies have used low
gold-lease rates to sell gold forward in order to raise
money to finance the construction of new gold mines.
The efforts by other countries around the world to keep
their currencies below that of the U.S. dollar for
competitive reasons will lead to a massive debasement
of money, Mr. Embry told analysts. "Gold will
ultimately rise sharply against all major currencies,
which will be declining in a climate of competitive
devaluations in beggar-thy-neighbour policies," he said.
Mr. Embry thinks that central bank selling of bullion is
coming to an end and that the lack of new mining
projects on the drawing boards will offset any reduction
in jewellery demand because of a slowdown in the
world's economies. "There are very few projects out
there ready to go right now."
In addition, the capital cost of new mining projects is
soaring and the mines currently in operation are
extracting lower grades of ore than they have in the
past when the richest zones were mined when bullion
prices were low, Mr. Embry said. Some mines are
coming to the end of their mine life, he said.
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