Interview with Jim Rickards: Gold Set for Massive

Rally
The author of the best-selling book Currency Wars talks about his new
book and why gold will rally in 2014
By Valentin Schmid - Epoch Times

Epoch Times: Mr. Rickards, please tell us about your new book, The Death of
Money, coming out in April.

James Rickards: Its both a prequel and a sequel to Currency Wars, my first
book. Its a prequel in a sense that Currency Wars opened with two chapters
that describe a financial war game that took place in a top-secret weapons
laboratory in 2009.
That was the first time the Pentagon had ever done a war game where the only
weapons could be financial instrumentsstocks, bonds, derivatives, currencies.
How did I get involved in it? I start out talking about earlier involvement in
national security matters and that led up to the war game. That part is the
prequel.
The sequel is that in Currency Wars I also had a lot of history. There were five
chapters of history and I thought that was very important.
If you are going to talk about gold with the reader, a lot of times if you jump right
into gold, people think you are sort of a nut. I find if you tell the story through
history people can see gold in a context, and when you talk about it, it doesnt
seem quite so strange.
In my new book, The Death of Money, there is no reason to repeat the
historythats all in Currency Warsso its more forward leaning, and talks
more about the future of the international monetary system, a coming collapse.
And not just a collapse, because a lot of people are running around talking
doom and gloom, the end of the dollar and all that. I might even agree with that,
but I dont think it has a lot of content.
What I try to do is provide a more in-depth analysis describing what will come
next, what the future international monetary system will look like.
I point out that the international monetary system has already collapsed three
times within the last 100 years1914, 1939, and 1971and that another
collapse would not be at all unusual. But its not the end of the world. Its just
that the major powers sit down and reform the system. I talk about what that
reformation will look like.
So thats the sequel or the continuation of the story looking over the horizon.
Some stuff that is before Currency Wars and some stuff that is after. And other
content on the contemporary situation in Europe and China, so I hope people
enjoy it.
Epoch Times: What about gold?
Mr. Rickards: Gold has a number of vectors. It is technically set up for a
massive rally. Let me separate the fundamentals from the technicals.
Fundamentally my target price for gold is in the range of $7,000 to $9,000 per
ounce. Thats not something that will happen straight away, but its not a 10-
year forecast either. Its a three- to five-year forecast, for the price to rise by
about five to six times.
Epoch Times: What is the analysis based on?
Mr. Rickards: Its based on a collapse of confidence in the dollar and other
forms of paper money. To restore confidence you have two means: You either
flood the world with liquidity from the International Monetary Fund in the form of
Special Drawing Rights [SDRs, a form of money issued by the IMF], or we
return to a gold standard.
The flooding of the market with SDRs would be highly inflationary, so that by
itself would drive gold to a higher level. If they go back to a gold standard they
will have to take a non-deflationary price.
People say there is not enough gold in the world. The answer is there is always
enough gold in the world. Its just a question of the price. Now, at $1,300 an
ounce, there is not enough gold to support world trade and finance. But at
$10,000 per ounce, there is enough gold. Its not about gold, its about the price.
If you go back to a gold standard you have to avoid the blunder that England
made in 1925, by going back to the gold standard at the wrong price, which
proved to be highly deflationary, and contributed to the Great Depression.
Ive done the math on that and the non-deflationary price for a gold standard
today is about $9,000 per ounce.
Epoch Times: What is your target price based on?
Mr. Rickards: Its based on supporting the paper money supply with gold. That
would be using M1 [paper notes, coins, and checking accounts] as the
monetary base, with a 40 percent backing. If you were to use M2 [M1 plus
savings accounts and money market funds] with a 100 percent backing, that
would be $40,000 per ounce.
Epoch Times: Gold investors would make a killing!
Mr. Rickards: It wouldnt mean gold would be worth any more [in real terms]; it
would just mean the dollar has collapsed. But yes, you get more dollars for the
ounce. Lets call that the three- to five-year forecast.
For the year ahead, those fundamentals are unlikely to play out in a year. But
the technicals can play out. Technically, gold is set up for a major rally based on
the decline in floating supply.
Epoch Times: Does that have to do with the gold crash last year?
Mr. Rickards: There was 500 tons removed from the GLD [Spider Gold Trust
ETF] warehouse by the bullion banks. That was a massive physical overhang
removed from the market. People dont really understand how the GLD ETF
works. When people are buying the GLD, they are not buying or selling gold;
they are buying and selling shares.
The gold sits in a warehouse and is only available to authorized participants. If
you look at the list of authorized participants and look at the list of bullion banks,
they are pretty much the same people: Goldman Sachs, Citigroup, JPMorgan,
Morgan Stanley, Deutsche Bank, HSBC, etcetera.
Those banks have the ability to buy up shares, take the shares, cash them in,
and get physical gold. And they were doing that and they were sending that
gold to Shanghai to support trading and leasing on the Shanghai gold
exchange. So when you take 500 tons and dump it on the market, thats about
20 percent of the annual mining supply. Its a massive physical injection.
The other factor is just outright manipulation, which is very visible in Comex
future prices. Ive seen some statistical analysis that demonstrates market
manipulation beyond the shadow of a doubt.
Epoch Times: A double whammy
Mr. Rickards: So the point is that between central bank manipulation through
Comex futures and bullion banks dumping the physical, and by cleaning out the
GLD warehouse, and also the Comex warehouse for that matter, there is a
massive amount of gold that came on the market over and above normal supply
trends, putting massive selling pressure on the Comex.
So that was a bad combination, but the problem is that its not sustainable.
Epoch Times: So what now?
Mr. Rickards: You cant loot the warehouse twice. Once you take all the gold
out, you cant take it out again. JPMorgans vault is low, Comexs vault is low,
the GLDs vault is low.
Epoch Times: Where is gold going?
Mr. Rickards: One of the big movements right now is gold moving from places
like UBS, Credit Suisse, and Deutsche Bank to private storage such as G4S,
ViaMAT, and Brinks. That doesnt increase the supply of gold at all. But what it
does do is it decreases the floating supply available for trading.
If I have my gold at UBS, UBS typically has the right of rehypothecation. But if I
take my gold and move it over to ViaMAT, its just sitting there and its not being
traded or rehypothecated.
So, if I move gold from UBS to ViaMAT, theres no more or less gold in the
world. Im still the owner, and its the same amount of gold. But from a market
perspective, the floating supply has decreased.
The biggest player in that is China. China is buying thousands of tons of gold
secretly through deception and using military intelligence assets, covert
operations, etcetera.
Epoch Times: So why will gold rally then?
Mr. Rickards: There is a total supply of gold in the world. But to corner a
market or squeeze a market, you dont need to buy all the gold, you just need to
buy the floating supply. Think of all the gold in the world, its about 170,000
tons. Think of a little sliver on top of it that is the floating supply available for
trading.
Gold thats in the Comex or JPMorgan or GLD vaults is available for trading.
Gold purchased by the Chinese will not see the light of day again for the next
300 years, and is not available for trading. So with the gold going from West to
East, and from GLD to China, the total amount of gold is unchanged, but the
floating supply is declining rapidly.
This means that the paper gold that sits on top of the floating supply is
becoming more and more unstable and vulnerable to a short squeeze, because
there is not enough physical gold to support it. So thats likely to collapse at one
point and lead to a short squeeze and heavy buying.
Epoch Times: Mr. Rickards, thank you very much for the interview.

James Rickards is the author of the national bestseller Currency Wars and the
forthcoming book The Death of Money. He is a portfolio manager at West
Shore Group and an adviser on international economics and financial threats to
the Department of Defense and the U.S. intelligence community.
The interview has been edited for brevity and clarity.