Thanks to GATA's Mark Webber for the transcript of Sprott Asset Management President John Embry's interview on Report on Business Television in Canada this week. It's appended here.
CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc.
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ROB-TV's "Lunch Money" with Michael Hainsworth 12:20p ET Tuesday, November 18, 2003
Hainsworth: John Embry is president of Sprott Asset Management. Thanks for being here.
Embry: Michael, a pleasure.
Hainsworth: Let's talk about gold but as it relates to the U.S. economy and the inflation data we got -- or the lack of inflation data we got -- out of the United States. What does that tell you, first of all, about the recovery in the United States, because pricing power doesn't seem to be there?
Embry: The recovery in the United States is questionable to me. We had a great quarter numerically. You look at a lot of the underlying dynamics and I don't think the real power is there. And as you point out, pricing power in certain things isn't there. On the other hand there is rampant inflation in certain parts of the system, like in housing. If you look at things like shipping rates, they've gone through the roof. Food is starting to rise. Energy is rising. So I dispute this idea that there's no inflation in the system. I think there's considerable inflation in certain areas. And there's deflationary pressures where stuff's coming from China, where there's an oversupply of stuff in other parts. And so they can somehow construct a number that says that there is no inflation? I think if you ask the average guy he'd say,"My paycheck isn't going as far these days."
Hainsworth: And with that paycheck, as you pointed out not going as far these days, the U.S. Federal Reserve finds itself in an interesting position. They've essentially already telegraphed no interest rate changes for all of 2004.
Embry: Let me tell you why I think that's the case. Basically they're terrified of one thing: higher rates that affect the mortgage rate. And so essentially what they're doing, by saying we aren't going to have any actual rise in short rates, is putting on a trade for the speculator, because he can borrow short and buy long bonds, take a nice spread, and it actually creates a bid for the long bond. So I think these uys are playing a very dangerous game, because will be overtaken by inflation. There will be some real difficulties when rates do naturally start to rise. Because the dollar's falling, which is inevitable, is going to cause rates to rise irrespective of what the Fed does.
Hainsworth: So where does gold go in a situation where we have continued downward pressure on the U.S. dollar? We have an economy, as you suggest, improving in some areas but not in others?
Embry: Not robust, no.
Hainsworth: What does that do for gold? We were talking $400 an ounce last time?
Embry: Well, we should have had $400 an ounce -- except the chaps on the other side of the market, who have a problem with an awful lot of open calls in the December expiry, which is coming up November 24, attacked the market yesterday. It looked like it was going through $400 in Asia until they got at it in London and really got at it in New York, and at one point had it down $11 or $12. But there are big, big buyers in the market -- buyers of physical gold. Gold's going through $400. It's just a matter of whether it's tomorrow, next week, or the week after that. It is most assuredly going through $400. And when it does that, it could get a wind at its back and go a lot further.
So the world's figuring it out. There's an awful lot of money creation going on all around the world. The gold price doesn't really go up. People don't understand that. Gold is a standard of value that has existed through centuries. The value of paper money goes down because it gets debased. That's what we're in the early stages of.
Hainsworth: If as you say we're expecting gold to surpass $400, if not tomorrow or the day after. ...
Embry: Soon.
Hainsworth: A week or so anyway. ...
Embry: Soon.
Hainsworth: That pushes us into that November 24th date: the expiry date. Does that create a problem?
Embry: It creates a huge problem so maybe I shouldn't say "tomorrow." I think it will probably. ... They may be able to withstand the upward pressure. They're sure going to try to withstand the upward pressure until this option expiry date goes by next Monday.
Hainsworth: So, do we see gold-related stocks follow suit? Because we really haven't to some degree been seeing that.
Embry: Well, we have. I think the gold stocks are ahead of gold bullion. Gold bullion had better go through $400, as I suspect, or some of these gold stocks that are up on posts are going to sort of get a fairly significant correction. It's a very tenuous point right now because if it does go through $400 with a lot of momentum, there's going to be a riot. People are going to be fighting to get into gold stocks. You see it today with the gold price heading up and up, at one stage, $5 and $6. There was a real bid to the big gold stocks.
