GOLD ANALYSIS

Fiat currency system meltdown has huge implications for gold and silver - Embry

While not something he wants to see happen, Sprott Asset Management's John Embry says, he can't see the global financial situation improving, which has bulilsh implications for gold.

Author: Geoff Candy
Posted: Wednesday , 25 Jan 2012

GRONINGEN - 

The 12th year of gold's bull cycle could well be the best to date for the yellow metal, if Sprott Asset Management's John Embry is  correct.

Speaking on Mineweb.com's Gold Weekly podcast, Embry said, "If the economies are as damaged as I think they are, particularly in Europe, (I don't think they are as good in China or the US as they are trying to crack them up to be).... I think gold and silver prices could conceivably see the biggest percentage gains this year that they've had in the entire bull market"

He says, although he doesn't want to be right, he can only see two realistic scenarios - both of which are bullish for gold. If the world stops supporting the debt in the system, the global financial system will face a hard deflation event, or he says, the continued creation of debt will result in mounting inflation down the road.

"There's an excess debt issue in virtually every country of any import in the world and the chance of growing out of it are zero.  I am a big believer in Austrian economics which says growth requires more and more debt creation.  We can't support the debt we have already.  We have seen that in vivid fashion in Europe," he says.

As a result, he says, "I am a believer in the great expression that my friend Jim Sinclair coined a few years ago.  "Quantative easing to infinity" and I think that's basically the easiest way for the powers that be to go because nobody wants to be on the watch when the thing implodes and what will essentially prevent an implosion is just more and more money creation on a global basis."

But, eventually the shell game has to stop and, when this happens, he says, "I see a global Weimar in the future".

" This could come very quickly because hyper inflation is the thief in the night, it just sneaks up on you. Right now everybody seems to think that unlimited paper printing is alright. We haven't seen the inflationary impact yet, because the economy's been soft, but hyper inflation is a currency event, it isn't an economic event, and I think that's where we are headed.  I think we are headed for a meltdown in the fiat currency system.  That has amazing positive implications for gold and silver."

Given this outlook for the global economy, Embry believes that the fall seen in gold post-labour day was seriously overdone.

"It was reflective of the power of the paper markets to knock the price down much further than it should go," he says, especially in light of the amount of physical buying around the world and especially in China. 

As he points out, "You saw the number of the imports via Hong Kong into China for the last year - there were about 100 tonnes imported in November alone .  If you think about that it's only about a 4,000 tonne market and in one month the Chinese import 100 tonnes.  That's huge.  They've been pretty forthright about saying and expressing their views on gold and other things and now they are taking action."

iPad version: Picture - File photo Sprott Asset Management Chief Investment Strategist, John Embry