Doug Casey: “Gold is Going to the Moon”
Doug Casey
An interview with the
editors of BIG
GOLD, Casey Research
As part of our
survey of expectations for gold in 2008, one of our BIG GOLD editors interviewed
famous contrarian investor and Casey Research Chairman Doug Casey. Here’s his
take on what’s to come.
BIG GOLD: Gold has passed its 1980 nominal high. Why do you
think it’s breaking out now?
Doug Casey: The fact that gold has moved above its 1980 high is
meaningful only in an academic way; today’s dollar is worth only a fraction of
a 1980 dollar. From here on, it’s best to avoid thinking about anything just in
terms of dollars. What’s developing now is likely to be the biggest monetary
crisis of the past 100 years, potentially the biggest since the U.S. Civil War.
This isn’t a prediction, just an appraisal of the tumultuous possibilities that
are opening up. Americans are going to have to learn to think more like
Argentines: if an Argentine tried to keep track of value in the local peso,
he’d be bankrupt in 5 years.
BG: There are those who agree with you about a possible crisis but believe
we’ll see deflation instead of inflation, or at least deflation before
inflation.
DC: What we’re facing is a monumental monetary crisis that can take one
of two forms. It can be deflationary, where billions and billions of dollars
are wiped out through bankruptcies and defaults, and the remaining dollars
become worth more as a result. Or it can be inflationary, where the world’s
central banks keep dollar assets from being wiped out by supporting the
issuance of debt --- which is what they’re currently doing, by propping up
failing banks and homeowners who can’t pay their mortgages. Those are your two
alternatives. You can have either one – it’s really a flip of the coin as to
which you get.
It’s also possible you can have both at the same time. You could have deflation
in some areas of the economy, such as real estate, which is happening now, and
inflation in other areas of the economy, where prices are going up, as with
food and oil.
I’m of the opinion that government is so big and so powerful now, and the
average person – idiotically – relies on it so heavily, that much higher
inflation is inevitable. They’re certainly going to do their very best to keep
a deflationary collapse from happening, because they all remember what it was
like in the U.S. in the 1930s. Yet not too many people think about Germany’s
inflationary collapse in the 1920s. It was much more unpleasant.
Inflation is the enemy of the person who works, saves and invests. But it’s the
friend of the speculator.
BG: Why do you think gold stocks have lagged while gold has taken off?
DC: Gold stocks are a play on gold. But they're also stocks. The best
environment for them is when both gold and the general market are moving up,
and lately the stock market has been problematical. People are going to panic
into gold, because it's cash – money in the most basic form. Gold stocks are
not money; they're speculative vehicles. And despite the strength in gold, the
costs and risks of finding and building mines have gone up just as fast in the
last couple of years. There's no necessity for them to move in lockstep with
gold itself. That said, I think gold stocks are really going to howl as gold
goes into the Mania stage.
BG: The water in the pot is definitely getting hotter. Where do you think
gold is going this year?
DC: Gold has been in a bull market since 2001. It’s gone up, on average,
about 25% per year compounded, and there’s absolutely no reason the bull market
should stop now. On the contrary, there’s every reason to believe that the gold
bull market, having gone through its Stealth stage and still being in its Wall
of Worry stage, is going to hit the Mania stage. To sell now would be to leave
the big money on the table.
My best advice is, be right and sit tight. And that means staying long until
you see a golden bull tearing apart the New York Stock Exchange on the front
cover of Newsweek magazine, at which point it will be time to sell.
BG: What price do you think gold will hit in 2008?
DC: Strictly gazing through a crystal ball, I think it’s going over
$1,200, no problem.
BG: What about the long-term price for gold?
DC: Just to reach its previous high in purchasing power, gold will have
to go over $2,500 – probably more like $3,000 after you discount the phoniness
in the government’s CPI numbers. But because this crisis is much more serious
than the one in the late 1970s and early ‘80s and much more far-ranging, $3,000
is actually a fairly conservative number. I’ll say it again: gold is not just
going through the roof, it’s going to the moon.
BG: What advice would you give to readers of Big Gold about how to invest in
gold and gold stocks in the coming environment?
DC: The first thing is, you’ve got to have a lot of physical gold in the
form of gold coins. Second, make sure a large chunk of those coins is outside
the political jurisdiction where you live. If you live in the U.S., they’ve got to be outside the U.S. If you
live in Canada, they’ve got
to be outside Canada,
and so forth. Third, gold stocks are definitely going to howl, so you
definitely should have a good position in them.
As important as gold and gold stocks are, though, I suspect we’re going to see
foreign exchange controls of some type or description in the years to come.
That means if you don’t have assets outside your native country, you’re going
to be caught like a lobster in a trap. I think it’s very important to diversify
internationally. Buying foreign real estate is one prudent way to do so
because, even though there’s been a worldwide property mania, there are still
some places where property is very cheap, leaving plenty of upside. In addition,
if you pick a locale where you’d like to live, you’ll have a comfortable place
to wait things out – which is a serious plus, because I think things in the U.S. are going
to get really ugly in the years to come. And most important, the government
can’t make you repatriate foreign real estate.
BG: What if I don’t have the ability to buy real estate outside the country
I live? I know you can have a foreign bank account and a safe deposit box, but
I have to report those, so how does that help me?
DC: You have to report a bank account, but you don’t have to report a
safe deposit box.
BG: What if I have over $10,000 of coins in that box?
DC: It doesn’t matter. It’s just like having a million dollars of
foreign real estate – not reportable. Of course they can change these arbitrary
laws – probably to make them more restrictive and invasive – at any time.
BG: Thanks, Doug, for the practical advice. Anything else you’d like to say
to Big Gold readers?
DC: Hold on to your hat; you’re in for the ride of your life.
BIG GOLD is a monthly
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research on natural resource investments.
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