Doug Casey: The
Gold Crash Is Not What Either Bulls or Bears Are Telling You Doug Casey Interviewed
by Louis James, Editor, International Speculator | April 19, 2013
L: Doug, the news of the
week is the big meltdown in the gold market. Some people
are saying the bear is here to stay, and it's time to sell
everything gold-related and look for greener pastures elsewhere.
Others are saying the is the buying opportunity of the decade,
and it's time to go "all in." What do you think?
Doug: I'd say it was neither. It could
be that just as in 2008, when gold went down a lot at just
the time you might think everyone would be panicking into
it. But a lot of people had to sell their gold to meet their
other obligations that were denominated in various paper
currencies. That may be happening at this very moment in
Cyprus. There are conflicting reports, but they may end
up being forced to sell something on the order of half a
billion euros' worth of gold – and if that happens
to them, it could happen to other much larger countries
that are in trouble, like Greece, Italy, Spain... or France.
L: That is an interesting explanation.
A lot of people have been pointing at the lower price target
and guidance issued by Goldman Sachs – but why anybody
would listen to those guys after all they've been wrong
about, at taxpayers' expense, is beyond me.
Doug: Yes. It makes no sense that anyone
would listen to Wall Street analysts about gold. Insofar
as these people have an education in economics, it's invariably
something they've gotten from a conventional university
program, which is to say that their economics degrees are
worth nothing, and their economic thinking is both totally
askew and totally conventional. You can always rely on conventional
thinking from the Establishment. The moment someone looks
like he's thinking independently, he's seen as a danger
and asked to go away. Which means getting off the gravy
train. And who wants to both be ostracized and lose a fat
L: That's what Walter Block said last
week. Did you see my interview with him?
Doug: I did, and I liked it. That was
a very good interview. How rare to have a conversation with
a university economics professor and have it not only make
sense, but be entertaining.
L: It was fun. But that's exactly what
he said: "My credentials are worthless."
Doug: [Laughs] That's one of the many
reasons why I like Walter; he's not only extremely smart,
but very intellectually honest. He looks at reality and
calls it the way he sees it, no matter how politically incorrect.
That's immediately obvious to anyone who reads his book
Defending the Undefendable, which is a hoot; it's like hitting
someone between the eyes with a mental 2 x 4... one of my
He recognizes that a Ph.D in economics from Columbia is
a sham. I'm not sure if it's worth more or less than a doctorate
in political science, sociology, or education. Or a degree
from a Bible college, for that matter. Actually, I'd assign
a negative value to all of them. They only prove that the
recipient was naïve enough to spend the time and money
it takes to get them. There's a lot more I could say. Those
who are interested can read more in our conversation on
L: Right. But back to the matter at hand.
You're saying that at least the proximal cause of the big
selloff in gold was Europeans getting hit by the demands
of their obligations and being forced to hit the bid on
gold – or fear of this happening in a big way?
Doug: It's hard to say. I think that's
part of the puzzle. Once a selloff starts pushing investors
into panic mode, that negative momentum can seem to take
on a life of its own, making the downturn longer and deeper
than a rational response to the situation merits, or indeed
than most people can imagine. In other words, it's a normal
– albeit radical – market fluctuation in abnormal
times. The sellers are apparently treating gold as a speculation,
which is a mistake. They should view it as a bedrock financial
asset, something you buy and put away for the very long
haul. It's not a trading sardine.
There are, of course, plenty of theories that flood the
Internet every time gold sells off when it seems like it
should be advancing – mostly conspiracy theories.
The proponents don't like it when we call their theories
conspiracy theories, but that's what they are. They allege
it's all because of the bullion banks, or the Bilderbergers,
or the Trilateral Commission, or the Council on Foreign
Relations, or the Fed's crash team, or some other nefarious
agency. I have good friends who are otherwise quite knowledgeable
and rational who sincerely believe that such groups are
constantly knocking the price of gold down. I know they
mean well, but I have to put these theories in the tinfoil
L: Some people are saying the Fed hit
the market with 500 tons of naked gold shorts. I'm not sure
how they could prove that, but the argument that the government
wants to see the price of gold go down does have a certain
Doug: Of course governments want the price
of gold lower. They want the prices of everything lower:
silver, copper, iron ore, soybeans, corn…everything
but housing, which for some reason they want higher. But
gold is the least important commodity to these people. Not
only don't they understand its monetary role, they don't
believe in it or even really care about it.
It's true that the US government tried to suppress the
gold price back in the late '60s, back when it was $35.
But that was because the Treasury had to redeem its paper
money for gold at that price; since 1971 it no longer does
that. Actually, if anything, the US should want a much higher
gold price now; with a reported 265 million ounces in national
reserves, the US is by far the world's largest gold owner.
But the price-suppression theories are quite ridiculous
from a practical standpoint as well. The US couldn't even
suppress gold's price 40 years ago – when there was
only half as much gold in the world as there is now, and
twice as much was owned by governments, and it was 1/40
of the price that it is now. And governments were far more
solvent than they are today. Yet they are somehow supposed
to be able to keep the price of gold down now. So, whatever
else it might be, I do not attribute gold's retreat to an
official price-suppression conspiracy. The idea gives conspiracy
theories a bad name…
L: They have successfully suppressed the
price of gold from $250 an ounce all the way down to $1,600
or $1,800 an ounce... until recently.
Doug: [Chuckles] Yes, exactly. Nobody,
not even the US government, is stupid enough to fight the
biggest bull market in history for the last 12 years. Especially
when it's bankrupt; exactly how are the losses being accounted
for? And especially when traders talk like high-school girls
about who's winning or losing in the markets. They don't
get paid bonuses for losing money. I wonder when the conspiracy
guys suppose the government will stop trying to suppress
the price… at $5,000? $10,000? I wonder why the US
would be trying to help the Russians, the Chinese, and lots
of other governments buy gold at lower prices? None of this
makes any sense.
L: Okay, we may never sort out all the
imponderables relating to why, but perhaps the more useful
question now is what to do now as gold investors.
Doug: Well, this environment is full of
buying opportunities. That said, I'd be careful about backing
up the truck and going all in. It's not as though gold has
dropped all the way back to where it started its current
bull run, back under $300 an ounce.
L: So what should people do?
Doug: They should stick with their plans,
buying consistently and lowering their dollar cost average.
The lower goes, the more gold at better prices they will
L: And that's still a good thing?
Doug: Yes. All these governments around
the world are still printing up trillions of dollars' worth
of new currency units. At this point, all that new paper
money is basically just sitting in the financial system
– not entirely, but most of it. At some point it's
going to get into the economy. It's going to cause much
higher prices for consumer goods. And it's definitely going
to create more asset bubbles. One of the most certain of
those bubbles is gold. That in turn will create an even
bigger bubble in its old friends the gold stocks, which,
relative to the price of gold, are about as cheap as they
have ever been in history.
As you know, the reason why I like junior mining stocks
– well, mining stocks in general, but especially the
juniors – is that they are the most volatile class
of securities on the planet. It seems to me that everything
is lining up right now for a perfect bear-market bottom
in these stocks. That's despite the fact that mining is
a terrible industry that has gotten nothing but worse over
L: More regulation, taxation, and confiscation.
Doug: That's right. There are thousands
of NGOs running around the world trying to put miners out
of business, and lots of native tribes who see the recent
mining boom as an opportunity to hop on the gravy train
and perform a righteous shakedown. That's in addition to
the fact that young people see it as a 19th-century choo-choo
train business. You have to spend huge amounts up front
on an Easter egg hunt to find deposits, then billions more
to build a mine with no certainty you'll ever get even a
return of investment – forget about return on investment
– many years later. Plus the fact that the world has
been picked over for both large and high-grade deposits.
It's a horrible business. Despite these things – or
in some ways because of them, actually – I think there's
going to be a super bubble in mining stocks. Which means
a fantastic opportunity for those with the courage to buy
now, because true market capitulation is shaping up in the
sector, as we speak.
L: Is there a price below which you would
advise throwing caution to the wind and going all in?
Doug: No. Almost no matter how low it
goes, it can always go lower. If it dropped below $800 or
$900 per ounce, that would be below the average cost of
production today, and would rationally signal that gold
would have to rise eventually. But the new supply of gold
is unimportant to moving its price. About 80 million ounces
are mined annually these days, but there are about six billion
ounces estimated to remain above ground. So supply only
increases about 1.3% per year – it's fairly trivial,
especially after industrial consumption. What determines
the price is the desire of current owners to buy, hold,
or sell it. It's not like wheat, or even copper, where new
supply is critical.
So, no; if the negative momentum were strong enough, it
could fall well below the cost of production. I'm not saying
I think it will go that low, just that the only point at
which it can go no lower is zero. Now, I don't expect it
to drop much more, and I'd be very surprised at a drop below
$1,000 an ounce, but there is no law of nature preventing
it from doing so. All markets fluctuate. People who get
panicked are overcommitted... or maybe they shouldn't be
in the market because they're not psychologically suited
for it. The problem is that government currency debasement
practically forces everyone to be in the market, just to
try to stay ahead of inflation.
You can't time market bottoms, but you've got to play the
odds. If I were going to sell anything now, I wouldn't think
of selling my gold or gold stocks – as we said already,
I'm a buyer today – but I would absolutely sell any
government bonds, if I hadn't been paying attention and
still owned any. I'd also get out of most common stocks,
which are very overpriced, based on very unsound economic
L: On the other hand, you say that all
these trillions of new currency units are flooding the market
and have to go somewhere – clearly a lot of them are
going into stocks. We just saw that in Japan, with the government
announced it would be printing a lot more yen, and the same
thing sure seems to be happening on Wall Street. This can
be a new super-bubble forming in stocks; might a speculator
not want to buy before that happens?
Doug: Well, that might work, at least
if you buy the kind of stocks Warren Buffett buys, as they
represent ownership in real productive assets. But that's
a bubble that could pop at any time, and I view it as extremely
high risk. I want to re-emphasize that we're just in the
eye of the biggest financial and economic hurricane in history.
The key in the Greater Depression is first and foremost
to keep what you have. That's not going to be easy.
L: All right, I understand – the
precious metals remain my favorite investment as well. But
last week Walter Block said that as much as he likes gold
for similar reasons, he hesitates to recommend buying it
because it's subject to confiscation by desperate governments.
It happened in the United States in the 1930s, by Executive
Order 6201, issued by FDR.
Doug: That's why I have always recommended
internationalizing one's assets. No place is perfect, no
country on earth is completely safe, but you can mitigate
political risk by distributing your assets across a variety
of jurisdictions. Political diversification makes more sense
than ever today.
Bluntly: all investments are dangerous
these days. There are very few bargains anywhere, in any
market, in any country. Governments around the globe are
completely out of control – there is nothing so low
that they will not stoop to it. They are predators, they
are desperate, and they are hungry.
Oblivious people, mostly untraveled and unsophisticated
US tax slaves, argue that one should not diversify internationally,
believing that foreigners are more likely to steal from
them. The amount of fear and antagonism that some quarters
of the populace have toward libertarian ideas is actually
quite disturbing. The people who think this way generally
have the same attitude that medieval serfs had who could
not be persuaded to go further than ten miles from their
home towns, because they had heard that they were dragons
over the hills. I pity the fools. They don't realize that
their main danger is from their own government, which believes
it owns them.
This is true of all governments, but most governments are
generally not aggressive towards tourists. Tourists are
treated as honored guests who come and spend money –
and can pick up and leave if offended. Citizens, on the
other hand, are commonly regarded as milk cows, if not beef
cows. And contrary to what most people in the US think,
there are countries that are more stable than the US is
today. These people are living in the past, thinking that
the United States is no different from the America of 50
L: I scratch my head about that too. Anybody
who thinks that what happened in Cyprus, for example, could
only happen in Cyprus, is just not paying attention. It
was the European Central Bank's idea to confiscate people's
savings, not that of the Cypriot politicians or central
bankers. That's First World politicians' thinking these
days: "the people's money is our money to do with as
we please." People are being naïve beyond reason
if they imagine that such a thing could never happen in
Doug: That's right. It's been said that
officials in Canada and New Zealand have talked about seizing
bank accounts, if necessary, just like in Cyprus –
and those two have long been considered among the most stable
countries in the world.
L: Okay, well, Cyprus was a banking destination
until a few weeks ago, and obviously won't be again for
a very long time. Have your thoughts on where the best places
in the world internationalize to changed any in recent times?
Doug: It really depends on who you are,
what stage of life you're in, what you want, how much money
you have, and so forth. If I were just starting out, for
example, I would definitely do Africa. It's not a lifestyle
destination, but a raw and rough place where people with
courage, brains, and determination can seek and create their
If a gracious and pleasant lifestyle were my goal, on the
other hand, Europe is still a place to go – it's just
bloody expensive. And the culture has been totally corrupted
by ingrained socialist ideas, high taxes, onerous regulation,
and extravagant welfare programs. The politics there will
likely become even worse in the future, until the place
collapses economically or has another war. I've lived in
several countries there, but it's not for me.
I'm a big fan of the Orient, as you know, because that's
where the future lies. The problem with the Orient, however,
is that unless you were born there you will always be an
outsider, regardless of how welcome a guest you may be.
So I remain a fan of Latin America. I spent almost all
of my time these days in Argentina and Uruguay. Both are
quite similar to Europe culturally, but with much lower
population density. Also, they won't be on the front lines
of the ongoing war with Islam. Of course, they both have
completely insane governments – but that's true of
most everywhere today. I'm here for the lifestyle, not to
do business. From that point of view, it's impossible to
L: So, suppose you bumped into one of
our readers who had just read our past interviews, and wanted
some advice on the first steps to take to internationalize
his or her life. What would you say?
Doug: The first and most important thing
is to uproot and destroy any remnants of medieval serf thinking
you may have lurking around in the crevices of your mind.
Second is to open a bank account or a brokerage account
in some country – any country that you like spending
time in and has reasonable banking laws – where you
are not a citizen/resident/ milk cow. This is both hard
and getting harder for people carrying US passports, but
it's very important and well worth doing. Political diversification
is even more important than investment diversification at
Just start traveling. Explore the world. Look for countries
you truly enjoy, that are friendly to foreigners, and are
open to investors – especially as regards real estate.
L: Because buying a farm in the Congo
isn't likely to turn out well, unless you actually plan
to live in the Congo and keep an eye on it? Better to build
a house on the beach in Thailand or Costa Rica, if that
sort of thing is your cup of tea.
Doug: Precisely. But today, it's important
to think as a speculator, not an investor. Personally, I
probably wouldn't pick Costa Rica these days, because it's
totally overrun with gringos and way too expensive. Thailand
makes it quite hard for foreigners to buy real estate, but
it's one of the best choices in the world for lifestyle.
But to each his own.
L: Would you say that Costa Rica is more
expensive than Uruguay?
Doug: Nothing is more expensive than Uruguay,
it seems… I think Uruguay is now about three times
as expensive as Argentina, all in. It's 50% more expensive
than the US. Uruguay is no bargain, although it is pleasant.
L: Well, maybe Costa Rica is a good starter
country for people new to internationalization; people might
find it more comfortable and less frightening to be in a
place where they hear English as much as Spanish. Sort of
like San Diego, but just a bit farther south.
Doug: Maybe that's not a bad idea; sometimes
you have to start with baby steps. It's not a bad place.
Panama might be my suggestion, from that point of view.
L: Very well, then… anything else?
Doug: I guess I should tell our readers
that we're going to be moving these conversations to monthly
editions of The Casey Report. I'm pretty busy practicing
what I preach down here in Cafayate, and I've pretty much
said the most important things I wanted to say, at least
in this format.
I am, however, working with my friend Dr. John Hunt on
a series of six novels, reforming six very politically incorrect
– but unjustly besmirched – occupations. I'm
not crazy about preaching to the choir anymore, but there
are lots of things you can show and say in fiction that
you don't dare talk about in a format like this one. I expect
they'll be quite fun.
I also think we'll have a second volume of our conversations,
a sequel to Totally Incorrect, out in a while as well. I
trust many of our readers liked our first volume.
As for our conversations going forward, I'll keep on commenting
on the passing parade in The Casey Report, so I encourage
readers who really like them to sign up for TCR. But regardless
of their choice on that, I urge them in all sincerity to
think like contrarians, and implement our strategy: Liquidate,
Consolidate, Speculate, and Create.