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Jim Puplava''s ''Financial Sense Newshour'' interviews GATA''s Mike Bolser
The Buck Drops Here:
A Longtime Gold Bull Explains
Why He Thinks a Dollar Collapse is Inevitable
By Sandra Ward
Barron's
Monday, October 4, 2004
We've found it worthwhile the last two years to pay
a call to one of our favorite authorities on the yellow
metal: James Turk, publisher of the Freemarket Gold
& Money Report and founder of Goldmoney.com, a
company that facilitates cross-border transactions
using gold as currency.
Turk's ability to assess the underlying dynamics and
direction of gold has been uncanny. Author of "The
Coming Collapse of the Dollar," soon to be published
by Doubleday, Turk makes a compelling case as to
why gold will resume its march higher.
Barron's: How imminent is this collapse of the dollar?
Turk: I thought the dollar was going to be under a lot
more pressure this year than it was. But it's an
election year and that has the markets jammed up.
Central banks are continuing to mop up all the dollars
from the federal budget and trade deficits and the
credit expansion that continues to go on in this
country. Without the central banks willingly picking
up those dollars, the value of the dollar would be in
a lot deeper trouble than it is at the moment.
Q: How much longer do foreign central banks
support the dollar?
A: The natural inclination of the exporter countries is
to buy dollars to keep their currencies from
appreciating against the dollar in order to protect their
domestic industries. This is particularly the case with
Japan. They want to continue to try to support the
dollar relative to the yen to make sure their products
remain relatively competitive because their domestic
economy isn't that brilliant. The Chinese currency
remains fixed against the dollar, although probably
for not much longer. There is a good likelihood we
could see a revaluation of the yuan because of the
huge amount of dollars that are being accumulated
there. What the Chinese are doing, too, is slowly
announcing changes in their foreign-exchange
controls and the capital controls. They may be
moving slowly to a process where they try to keep
their currency linked to the dollar but enable people
to start investing outside of China with the foreign
currency they earn on their exports. But it seems
ultimately the Chinese currency has to be revalued.
Q: What's your outlook for gold once the election is
behind us?
A: My expectation is that gold will surpass $430 an
ounce before the end of the year or by the beginning
of next year. Taking out $430 is significant because
that represents a resistance line going back to 1988
-- gold has not been above that level since then.
Once we cross $430, we'll see $500-an-ounce very
quickly. That would be a normal reaction on breaking
through that major long-term resistance level.
Q: What would drive another big run in gold?
A: There are a number of things but oil is at the top
of the list. Oil is going a lot higher. If you look at the
price of oil in terms of gold, which is the way I
measure it, the historical average is about 2.27
grams of gold per barrel of crude oil. At present, it
takes 3.54 gold grams to buy a barrel of crude oil. In
the 704 months since January 1946, we've been
above that level only six times. What that means is
that either crude oil is very, very expensive or gold is
very, very cheap. I think it is the latter. We're
consuming about 30 billion barrels of crude oil a
year and that's not being replaced in current reserves
and as a consequence crude oil is being
re-evaluated by the market. The trigger for the
revaluation was when Royal Dutch/Shell restated its
reserves earlier this year. That shocked the market
and the repercussions of that shock wave are still
being felt and will be felt for years to come. Not only
did other companies start revaluing their reserves, but
it gave rise to a lot of skepticism about the kind of
reserves countries have and whether they are
recoverable and, if they are, at what price? Where we
see crude oil today is probably a natural reaction to
the market coming to understand there is not an
infinite amount of oil in the world.
Q: What's the relationship between oil and gold?
A: There's always been a strong relationship between
crude oil and gold. There's a chart of crude oil and
gold going back to 1946 in which crude oil is
basically unchanged. The oil price, in gold terms,
has fluctuated but it is not significantly different
from where it was in 1946. In dollar terms, the chart
shows the price of crude oil has been going quite
high. Although crude oil is a little bit expensive
in gold terms at the moment -- it is at the high end
of the historical range -- it is not completely out
of line with the historical relationship. What the
climbing dollar price of crude oil reflects is
inflation in the dollar over the last five or six
decades.
Going back to the oil shock of the early 1970s,
the reasons why oil prices shot up were as much
economic as political. The price of crude oil had
been fixed and that was fine when the dollar was
still tied to $35 per ounce of gold. But when the
dollar was taken off the gold standard in 1971,
the price of crude oil remained the same in
dollar terms. The oil exporting countries were
getting less in real purchasing power so they
made a big adjustment to recover what they were
losing as a result of the dollar losing value.
Oil is cheap at $50 a barrel by any kind of
historical analysis. Any supply problem that
arises, whether it's a disruption in Venezuela
or labor strikes in Nigeria, or political fallout
in Russia, is bullish for oil. We should be
focusing on $60 or more a barrel.
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http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kuik.com/KH/KH.html
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Ted Butler silver commentary archive:
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