Gold Research Videos

James Turk: Good evening, ladies and gentlemen. It's a real pleasure to be back in Munich. This is the third time I've had the opportunity to speak at a DEG event and I'm very honored to be invited back yet again. David, if you could take care of the slides for me, I'd appreciate it. Peter said I'm going to be short tonight. I'll talk about 10 or 12 minutes and to the point.

The point that I want to make this evening, I'm going to tell you right now. It's basically that the euro is not the Deutsche mark. The ECB is not the Bundesbank. Once you recognise that and understand that, you'll understand the reasons why you need to own gold and silver to help protect your wealth and your assets against the tough times that we have coming.

David? I always like to begin with this table. This is the price of gold appreciation against nine of the world's major currencies over the past 10 years. There's very little red on that table. Gold continues to go up, but the reality is that it's not that gold is going up. It's that the purchasing power of currencies is going down. The interesting thing about this table, regardless of which major currency you look at, double-digit rates of appreciation against all of those currencies over the past 10 years.

I want to put gold into its proper perspective. A lot of people call gold an investment. Gold is not an investment. It is money. It is fundamentally different from an investment and I want to use this little table to explain that point. With investments, they're wealth-producing assets. They generate wealth. They generate cash flow. If it's farm, if it's timberland, if it's a factory, if it's an oil well, it generates wealth.

Gold is just a sterile asset. It has no cash flow. It doesn't generate wealth. It protects wealth. That's why it's money. So when you're talking about told, you're not talking about investing in gold; you're talking about saving gold, because gold is money. When you're looking at gold, it goes into the bottom part of your portfolio, the liquidity part of your portfolio. And when you're evaluating whether you want to own gold, you evaluate it against other currencies of the world, other monies of the world.

Keep in mind that even though we're not spending gold as a form of currency – although we're starting to do that now in gold money – gold currency can be, when you have money, you can do two things with it. You can save it or you can spend it. We're in this stage because gold is undervalued. You want to continue accumulating it. You want to continue saving it.

At some point in time in the future – I tend to think it's probably going to be 2013 to 2015, which is my longstanding forecast – we're going to be spending that gold. We're going to be buying undervalued assets and we're going to ride the next boom/bust cycle.

Thanks, David. This next chart, I want to use this to explain why gold is money. This is the price of crude oil against four different currencies. I'm using a base-100 analysis here. In other words, I'm going back to January 1950, and I'm going to show the change in the price of crude oil on a base-100 analysis, starting with 100 against each of these four currencies. So you can see exactly what's happened.

This is the price of crude oil in terms of the British pound. Go ahead. This is the price of crude oil in terms of the US dollar. What you can see right there is that as bad as it's been for the US dollar since 1950, from inflation debasement and all of the problems that we faced, it's even worse for the British pound. The British pound has lost more purchasing power because we're comparing both currencies against the same standard, a barrel of crude oil. OK, the third currency is the euro, and prior to that, the Deutsche mark.

I want to focus on this for a second, because this is critical in terms of the point that I am making this evening. Look at the chart at the bottom there, from 1950 until 2000. You can see that over that period of time, the Deutsche mark preserved purchasing power very, very well. It basically had in 1970 the same amount of purchasing power it did back in 1950. That's very, very important to understand. What's also important to understand is look what's happening to the euro, from 2000 to the present. It's looking more and more what's happening to gold and silver.

I'm going to come back to that again in a second, but before we go to the next chart, go ahead and click. This little red line on the bottom, that's the price of crude oil in terms of gold. An ounce of gold buys the same amount of crude oil as it did, buys today the same amount of crude oil as it did back in 1950. This also explains why gold is not an investment.

If you can buy the same amount of crude oil today that you could 60 years ago, who wants an investment like that? You want an investment that's going to increase your wealth. Gold does not increase your wealth; it preserves your wealth. Gold does what money is supposed to do. It's supposed to preserve purchasing power over long periods of time and enable economic calculation. Calculate the price of goods and services with gold and you get a very clear picture as to what's truly happening with our monetary system today.

Now, I want to focus on this next chart, the price of crude oil from 2000 to the present. What I've done here is I've taken a base-100 analysis, but not back to 1950, back to 2000 when the euro was created. You can see the price of crude oil in terms of gold continues to go basically sideways. But look what's happening the euro. The euro is looking more and more like the dollar and the British pound. The euro is being debased. We had the wake-up call last May, after the politicians got together during the Greek crisis.

On the following Monday, Mr Trichet said he's going to start buying government bonds. That broke the promise that the European governments made that the European Central Bank was going to act like the Bundesbank and that the euro was going to be managed like the Deutsche mark.

We now know that that's not true. The ECB is under political control. The proof of it occurred last year and we've seen additional evidence of that proof ever since. Whenever you have political control of the money, the money gets destroyed. The purchasing power of that money gets destroyed, and that's what this chart is starting to show.

I'm going to come back to this point in a minute. Go ahead to the next one. I want to show the boom/bust cycle in terms of what's happening relative to stocks' overvaluation and undervaluation against major stock indexes and explaining why we still have a ways to go in this current bust.

As I was saying earlier, it won't end until 2013, 2015. This is the Dow Jones Industrial Average in terms of gold and it shows the boom/bust cycle. You can see clear cycles – the boom, the bust, boom, bust. Now, what's happening in the United States is not unique. Go ahead, David. I don't have the data going back to 1913 when the Federal Reserve was created, but this was the FTSE, the London stock average, in terms of gold explaining the boom/bust cycle. Go ahead. That's the DAX.

We live in a global economy. What banks do in the United States, they do all over the world. They lend and lend and lend, create the boom, created the illusions of prosperity, too many loans are made, too many debts are borrowed. Banks become over-leveraged, debtors become over-leveraged, and you go into the bust. And when you're in the bust, you want to avoid financial assets like this, you want to move into tangible assets like gold. OK.

I just want to summarise real quickly, the current situation. If you were here a year ago, January, when I spoke at the DEG event in this particular hall, I made some key points and I showed how gold's, what I call the exchange rate, it's not the price. Because you don't talk about the price in Swiss francs, you don't talk about the price in yen, you talk about the exchange rate.

Gold is money, so you talk about gold's exchange rate relative to other currencies. It's rising against the dollar, rising against the euro. OK, David. Commodity and oil prices are rising. They were rising back in January 2010 when I was speaking there, they're rising even more now, both in dollar terms and euro terms. Negative real interest rates, if you put a hundred euros in the bank on January first, you might get a 101 euros on December 31, but the purchasing power of those euros are probably 92 euros, based on the true inflation rate of what's happening in commodities and goods and services.

Blind faith in central banks, why do we believe the Federal Reserve? They have such a lousy record. Milton Friedman wrote a book in 1965 explaining how the Federal Reserve made the Great Depression worse by their manipulations and the attempts to do it. Yet we believe when Mr. Bernanke says that he can fight inflation in a minute, or take away the punch bowl.

The punch bowl is continually being filled by the Federal Reserve. They're not fighting inflation, they're bailing out the banks. Quantitative easing is pushing up stock prices. Stock prices are not rising across the world because of good economic condition. You can't have good economic conditions until employment starts improving. Spain reported today 21.4 per cent official unemployment rate, that's a Great Depression type of a number. The unofficial employment rate, they tell me, and I live in the south of Spain, is closer to 34 per cent.

Runaway government spending. This is the key. Of the 16 countries in the euro bloc, 13 of them are violating the three percent rule. We've got runaway spending all over the world. And what happens is, when a government is spending too much, and the market is unwilling to lend money to the government, the government turns to the Central Bank and the printing press.

During the Weimar Republic here in Germany, the Weimar government was spending too much money, the turned to the Reichsbank, the Reichsbank ran the printing press, and we ultimately had a massive hyperinflation with wheelbarrows. The reason why you had wheelbarrows and paper all over the place is that Germany at that moment in time was a cash currency economy. Most transactions were done on the basis of cash.

In contrast in Argentina in 1991, where I went to study what was going on in hyperinflation, you had a deposit currency economy. Most commercial transactions took place through the banking system by checks, wire transfers, plastic cards and the like. And what happened in Argentina, when the Argentine government was spending too much, the central bank bought the debt that the government was borrowing, nobody was willing to lend, and they added zeros to the Argentine government's checking account, which it then wrote checks against and created the hyperinflation.

The U.S. is headed to an Argentine-style hyperinflation. I think we're getting very, very close. I don't know if you've been following the dollar index, but we're very, very close to it's all-time low. And I've been discussing on King World News, which is an internet site, why that waterfall decline that I've been talking about in King World News, began after Mr Bernanke's press conference the other day when he was talking about quantitative easing.

Everybody understands that runaway government spending in United States is leading to hyperinflation, just like it did in Argentina in 1991, just like it did in the Weimar Republic 1924. And lastly, I had question marks when I gave this presentation back in January 2010. The demand for currency is as important as the supply of currency. Everything in our world of economics has supply and demand, even money. And the key to understanding what's happening to the dollar and the various paper currencies, or fiat currencies, around the world is not so much what's going on in the supply side, even though the supply is increasing, it's what's happening on the demand side.

The demand for the dollar is falling. Confidence in the dollar is falling, and it's going to continue to fall because people who are looking at the situation in the United States recognise that Congress is spending money with no discipline. The Federal Reserve is buying that debt and turning it into currency.

Let me give you an example. When the Federal Reserve announced quantitative easing back in August of 2010 to the present, the US government debt has increased about $900 billion. Think about that, $900 billion. Over $500 billion of that was turned into money by the Federal Reserve. That's what makes hyperinflation, that's why the dollar is falling, that's why gold and silver are soaring. OK, David.

I want to wrap up with four charts. You may have seen an article that I wrote recently about this. I got a lot of criticism, because I'm not a mathematician and I called it hyperbolic, rather than parabolic because this is a log scale chart. In other words the distance between 250 and 500 is the same distance between 500 and a 1,000. So you can easily measure percentage changes on this chart rather than if it were in arithmetic scale.

Anyway, the point that I want to make is that the precious metals are getting ready to explode, and in fact they've already begun. The dollar's begun to waterfall decline; precious metals have begun an explosion. And I want to show the price of gold in terms of four different currencies. Now we all know that the price of gold is rising in terms of U.S. dollar. It's getting ready to explode to the upside, David. The price of gold is rising to the British pound. Note the similarity between the dollar and the British pound chart.

Now it's a good thing that everybody's sitting down because, David, let's have the next one. This is the price of gold in terms of the euro. There's no difference between the British pound, the U.S dollar and the euro. And the next one, David. Even the Swiss franc, it's exploding against all of the different currencies.

What we have here is a historic moment. What we have here is a lack of confidence, a flight out of the U.S. dollar, a flight out of all the paper currencies of the world. People understand that the game is up. The ability to create money out of thin air with no discipline is coming to an end. And it's going to end in an ugly way unless you own gold and silver to protect yourselves.

Ladies and Gentlemen, thank you very much.