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It may not feel like it after a 12%
correction in the past 30 days, but Mike Maloney – founder of GoldSilver.com – is
convinced that we’re in a gold bull market that will be life changing
for those who participate. I interviewed him for our current edition of BIG GOLD and am sharing some of what we
talked about here. You may be shocked at what you read, because he’s
devoted a larger allocation to gold and silver than we have. See why
he’s convinced a bubble is ahead for precious metals, how high prices
will go, and why he stores some gold overseas.
Jeff Clark: For those who don’t know you, why is Mike Maloney
such a big believer in gold and silver?
Mike Maloney: Around 1999, my mother needed help with the estate my
father had left her. My sister and I interviewed a dozen financial planners
and picked the one that had the most glowing recommendations and gave him
control of the assets. He lost about 50% of them in the next year and a half.
What I’ve found is most financial planners get it wrong. They’re
always chasing yesterday’s news. To be fair, there was a market crash,
but with 50% of her assets gone by 2001, I ripped everything away from him,
moved it to cash, and started studying the economy like crazy.
I
discovered that the people concerned about budget deficits and trade
imbalances at that time were in the precious metals sector, the hard money
advocates. All the rest of the economists and newsletter writers didn’t
really care. Concerns about international trade imbalances and how they were
going to come back to bite us one day were coming from the hard money
analysts. They also wrote about monetary history, something I just fell in
love with. The fact that things just repeat over and over again is amazing.
I
have hard data from 1918 to today, and anecdotal evidence before 1918, that
shows that throughout history a society has a certain amount of real money
– gold and silver. Then they either come out with debased coinage, or paper representations of gold and silver and
expand the currency supply, which eventually cause prices to rise. People
then realize there was something wrong with the currency and they rush back
toward gold and silver to protect their purchasing power… and in doing
so, they bid up the value of the gold and silver in the country until it
matches the value of the circulating medium.
It
appears to me this process has been going on since 407 BC, with the first
great inflation in Athens. I have charts in my book, Guide to
Investing in Gold and Silver, starting in the year 1918,
showing the value of the gold held at the United States Treasury compared to
the value of all of the base money or paper currency, and it was a 1:1 ratio.
Jeff: So history shows that the value of gold eventually
equals the value of all paper money in circulation?
Mike: Yes. Back then, the US dollar was a claim check on
real money – gold. Base money was the number of US Treasury gold notes
in circulation. Before World War I, base money equaled the value of the gold
held at the US Treasury. Then we established the Federal Reserve and did a
bunch of deficit spending for WWI, expanding the currency supply, so now
there wasn’t enough gold to cover all the dollars they printed. In 1934
the price of gold was changed to $35 per ounce and the values of base money
and gold at the Treasury were once again in equilibrium.
Then
we expanded the currency supply to pay for WWII, Korea, and Vietnam, and in
the ‘70s the price of gold rose until its value at the Treasury
exceeded base money. But, for a short time in 1980, the value of gold at the
Treasury not only exceeded the base money, it surpassed base money plus
outstanding credit card balances. This is important because credit cards are
replacing cash in circulation, so you must include it if you want to estimate
a price target.
Jeff: So how high do gold and silver go?
Mike: When I finished the book, it required a $6,000 gold
price to cover base money plus outstanding revolving credit. I’m not
saying that that’s going to happen, but if history were to repeat, that
would be the price.
However,
since the book was written, Bernanke created a whole bunch of base money to
bail out the banks, and now it takes a $15,000 to $20,000 gold price. One
caveat is that $1.6 trillion of excess currency is sitting on banks’
balance sheets. It has yet to enter circulation, and if it never does, then
this price target changes. My point is that prices are a moving target.
Putting a dollar figure on them is an exercise in stupidity, I think, because
the dollar is always changing. You can’t use it as a measuring stick.
My
target for gold is that it should be equivalent to 1/40 of a single-family,
medium-priced home, or two shares of the Dow. So gold will probably buy you
about 12 times more stocks and 3 times more real estate in the future than it
does now. So those are my prices.
And
silver will leverage you to that. There is more gold on the exchanges and
with the dealers that investors can buy than there is silver. Their current
prices do not reflect this. Gold is way too cheap compared to dollars, and
silver is too cheap compared to gold.
Jeff: Sounds like it’s not too late to buy gold and
silver.
Mike: No. What investors need to be aware of is that we are
on the last legs of our currency system. History shows that the world sees a
brand-new monetary system every 30-40 years – and ours is 40 years old.
Right now all currencies on the planet are backed by debt. All of the
previous transitions were baby steps from something (gold) to nothing (debt).
In order to give confidence back to the currencies, we’ll have to go
from nothing (debt) to something (most likely gold again) in one big, huge,
gigantic leap. This will cause an economic convulsion the likes of which the
world has never seen.
The
end of this precious metals bull market will be marked by panic buying. Gold
and silver will be going into an astronomical bubble one day, probably the
biggest bubble in financial history. That is why I think gold and silver are
still fundamentally undervalued.
Jeff: Investors reading this might be a little skeptical that
a bullion dealer is telling them to buy gold and silver. Do you mind sharing
what percentage of your assets is held in gold and silver?
Mike: My personal portfolio is 100% in gold and silver. I
have no other investments. I am completely committed to this because I
absolutely believe it. I spent 2-1/2 years writing what is now a bestselling
book on gold, and I opened a precious metals dealership. There isn’t
anything I do, no action I take, that isn’t somehow connected to gold
and silver.
Jeff: What separates GoldSilver.com from other bullion
dealers?
Mike: Everybody at GoldSilver.com invests in gold and
silver. They have all been invested in precious metals since I started the
company in 2005. Everyone is absolutely committed and very knowledgeable. So
we are all on the same side of the boat as Casey Research. If you become a
gold and silver client, you’ll know we’re invested just like you
are. We’re walking the walk and talking the talk.
We
also have a team of researchers who are constantly analyzing where we are in
this bull market. It’s in our best interest to try to find the top of
this bull market and sell when the time is right. I believe we can multiply
your winnings by letting you know what we’re doing when it comes time
to sell. The way I’ve set up my company is that if you don’t win,
I don’t win.
Another
thing you should know is that I am not a gold or silver bug. I couldn’t
care less about these metals. They are just in their cycle right now and will
be the best performing asset for the coming years – period – just
based on history.
There
are these brief moments in history where the safe-haven asset also becomes
the asset class with the single greatest potential gains in absolute
purchasing power. We’re in one of these cycles right now; as the
currency supply gets ramped up and people realize there is something wrong with
it, they’ll rush back toward gold and silver and bid the price up until
it matches the value of the currency supply.
Jeff: You’re increasing the number of storage
facilities outside the US; why should a US citizen consider storing bullion
outside the country?
Mike: Some investors are concerned about
“confiscation,” which is technically incorrect. The US government
never confiscated gold; they “nationalized” it. In 1933, they
bought it from US citizens at full face so that the Treasury could hold it as
an asset for the entire nation. That’s the very definition of
nationalization.
Jeff: Are you saying you don’t think gold could be
confiscated?
Mike: It’s possible, but I don’t believe it
would happen in the United States. More than half of our currency resides
outside the border. We’re the only country in that situation. If Obama
passed an executive order today once again nationalizing gold, I believe that
banks and brokerage houses around the world would suspect something was wrong
with the dollar, and they would immediately dump their dollars and buy gold
and silver. That would cause the dollar to fall to zero and send gold and
silver to infinity in a matter of weeks. I would hope there is someone in the
government smart enough to know this. If so, then it makes nationalization
very unlikely.
Jeff: Good point.
Mike: But I do believe that it is good to have some
geographical diversity. I think we’re going to see governments trying
to limit our financial freedom even more than we’ve seen since 9/11.
They’ll do this by instituting such draconian capital controls that today’s
IRS will seem magnanimous by comparison. I want to be able to travel freely
and have access to my funds no matter what happens. Therefore, I keep some of
my gold in offshore storage accounts in several countries.
Jeff: But why go to the hassle and bother with the
reporting requirements?
Mike: Because if you’ve got ownership outside the
country, you may be able to retain it, even in a
nationalization. The point is, we don’t
know the future. All we can do is look at what’s happening, try to
figure out what governments are going to do, and then protect ourselves with
a little bit of diversity. And of all the assets you could own offshore, I
believe none are safer than physical gold or silver.
Jeff: Do you think foreign storage puts a target on my back
with government officials?
Mike: Well, they want to make sure you’re declaring
any capital gain. And I do think that precious metals investors will see some
sort of windfall profit tax when the government tries to punish those nasty
gold speculators that caused the dollar to crash. They will always point the
finger anywhere but where it belongs – which is squarely at the
government and the Federal Reserve. People are just trying to protect
themselves from government stupidity and the Fed by buying gold and silver.
I
think the reason they require the reporting is to make it difficult for
people to cheat on their taxes. I don’t think it’s going to make
you any more of a target than anybody else if you report everything. If you
play within the rules, you’re not a target. I myself walk the straight
and narrow. I make sure I comply with everything the IRS and the Treasury
require.
Jeff: What about the small investor? Do you have any advice
for the person who has limited funds?
Mike: Yes. It only takes $40 to become a silver investor.
Regardless of what your income level is, you’re going to come out much
better in the end. And once you take the leap and become an investor, your
mindset changes and you find yourself starting to plan. A lot of people are
not really planning on the future that much – but once you buy an ounce
of silver and become educated, you give yourself a
tremendous advantage over the rest of the population.
So
just buy small quantities of silver. It has such leverage to it. And silver
will probably go into some sort of super-spike that you will want to catch,
which means you probably need some sort of guidance. That’s where
subscribing to newsletters such as yours is very, very important for anybody
who’s going to get into this.
Jeff: Thanks for your time, Mike. And we appreciate the
discount you’re offering our readers.
Mike: You’re very welcome.
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