HardAssetsInvestor

Written by Drew Voros  |

June 20, 2012

Casey Research’s Clark: Gold’s Volatility Signals Big Move Ahead; Tuesday Best Day To Buy Gold & Silver

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HAI: With all its volatility, is it a misnomer to call gold a safe haven in these times right now?

Clark: Gold is a safe haven, regardless of what traders may do on any given day or what CNBC says. It’s been a safe haven for who knows, 5,000 years? It hasn’t lost its safe-haven status just because the gold price is temporarily down. That’s not how it works. There’s been some volatility recently, but that’s only natural after the huge move the gold price had last September and with everything that’s going on in the world. The bull market is not over. But irrespective of that, gold is a safe haven. The only person who may think gold isn’t a safe haven is the one forced to sell due to personal circumstance when the price is temporarily lower than what he paid. Otherwise you’re holding onto your metals that for the future, until the bull market is over.

You want to treat gold and silver as your savings account because that’s what gold and silver are: money. Since Jan. 1, 2000, the U.S. dollar has lost 26 percent of purchasing power. Gold has lost none. The trend is sure to continue so that’s why you want to hold your savings in gold and silver.

Keep in mind that gold has many purposes. It’s not just a safe haven. It’s also an inflation hedge… a calamity hedge… a portfolio diversifier. And probably most importantly right now, gold is an alternative to currency.

HAI: What is one of the biggest misunderstood fundamentals of gold that you see or hear?

Clark: What frustrates me the most, and I think is the biggest misunderstood fundamental of gold, is when somebody like Warren Buffett compares it to a stock and says, “It’s just a piece of metal. If you melted it all down, it would fit inside an Olympic-size swimming pool and it would just sit there and do nothing.”

Well, we could take all the paper money that’s been printed and fill a football stadium with it and light it on fire. Who has the store of value now? Or we could just print more stock certificates and dilute the value of current shares. You can't do that with gold. With all due respect to the Oracle of Omaha, he really misunderstands what gold is about. Gold is not a stock; gold is a form of money, an alternative currency. That’s what it’s been throughout history. It’s irrelevant to compare it to a stock’s performance.

If you want to make a fair comparison, let’s compare Newmont Mining to whatever Warren Buffett’s favorite stock of the day might be. Given our current fiscal and monetary path, I'll pick Newmont because its dividend is tied directly to the gold price.

HAI: What are some of the most important fundamentals that you that you keep an eye on as a gold analyst?

Clark: There are two main things. One is of course what the real interest rate is. We have researched this and found that the real interest rate impacts whether gold is in a bull market, and whether it stays in a bull market.

By real rate I mean that inflation is higher than the 10-year Treasury. When inflation is higher than the 10-year bond, real rates are negative and that’s very supportive of a higher gold price. We can go back and document this for the past 40-plus years and show that when real rates are negative, the gold price rises. This is not conjecture or theory, but 40 years of data.

Let’s say Bernanke is forced to raise rates next year. Irrespective of whether you believe that will happen or not, would that mean the gold bull market is over? Well, to answer that question you have to know what inflation is doing. If he raises rates but inflation is higher, then the real rate is still negative and you still have a positive market for gold. Again, this has been a solid indicator for four decades.