Cazenove Capital’s Robin Griffiths believes that when the ‘big reset’ finally comes to the global financial system, the price of silver in today’s dollars could reach a ten to twenty “bagger”—that’s 10 to 20 times from $34, or $340 to $680 per the ounce.
“I believe going forward that silver will be a ten or twenty bagger, one just has to tolerate the short-term volatility,” Griffiths told King World News.
Griffiths suggested that today’s price for silver reflects a continued lack of awareness among the general investor public of its safe haven status and store of wealth, especially when widely-quoted exchange rates don’t reflect the carefully orchestrated currency devaluations among central banks.
The lessons of drastic changes in currency crosses leading up to the 1987 stock market crash and Asian currency crisis of 1997 must remain fresh in the minds of policymakers. In hindsight, the G-5 Plaza Accord and the rapid rise of capital flows into the ‘Asian Tigers’ destabilized the global financial system, respectively, resulting in market convulsions, bankruptcies and unprecedented (at that time) central bank interventions.
Big swings in currencies and in the proxies for those currencies, debt markets, bring on sudden bankruptcies to highly levered participants, such as a Dexia and MF Global as well as the temporarily hidden losses between counter parties of the two entities. In those two cases, the lesser-understood sovereign debt market crisis was the culprit and overshadowed any sizable swings in the dollar-euro cross.
That may explain, to a rather limited degree, why demand for precious metals remains remarkably low in the U.S., still, among the vast majority of American investors who’ve had little to no experience coping with the fallout of a grossly mismanaged currency. The knee-jerk reaction to a financial crisis for many is to run to cash—not gold and silver, as many investors still believe in the integrity of the US Treasury market.
“There is no euphoria in the gold market at the moment,” said Griffiths. “It’s not an over-owned trade. There are still a few gold bugs and prudent people who are using gold as a hedge against paper money being overprinted, but we are nowhere near the exponential, runaway move yet.”
Those above the age of 60-years were probably old enough to remember high inflation and high unemployment of the 1970s—a time of rapidly deteriorating dollar value overseas, and wealth, domestically. Both inflation and sluggish consumer demand can coexist. Gold preserved wealth, while holders of Treasuries were decimated in purchasing power.
At this stage of the financial crisis, it feels more like 1974 all over again. The threat of deflation (according to the Fed and commentators) grips the markets, as was the case in 1974, corralling investors into Treasuries—a move that famed commodities trader Jim Rogers said is “the wrong thing to do.” Rogers made his first fortune getting it right in the turbulent 1970s.
Moving into cash, Griffiths believes, will be the trade in the coming months as the European mess gets even messier. That means a rally in the USDX, according to him.
“The dollar should go higher than 81 and I could see it running up into the high 90s on the DXY. That would be a significant dollar run,” Griffiths speculated.
“People are still worried, and the dollar, still, for the moment, is the world’s leading currency,” he added. “Once they go into cash that’s what they go into. So I think we are in a period, from now until the beginning of the year, where you should be long the U.S. dollar.”
In a way, Griffiths sees the world as FX Concepts John Taylor sees it, parting, however, from Taylor on the outlook for gold during a hypothetical dollar rally. Griffiths envisions a higher dollar and higher gold prices.
When KWN’s Eric King asked Griffiths if his outlook for the dollar meant lower gold prices, Griffiths said, “Not necessarily, when you are worried you buy a bit of both don’t you?”
On the other hand, FX’s Taylor expects gold to drop to $1,000 before jettisoning to new highs—similarly to gold’s plunge from its nearly $200 all-time high in 1974 before dropping back to $100 during an 18-months sell off period—which lasted until 1976. The yellow metal, then, made its big move to eventually reaching a high of $850 in Jan. 1980. In disbelief, most investors were left behind until the very last moment of the end to the trade. Taylor, presumably, believes gold will be sold to satisfy redemptions among hedge funds.
Euro Pacific Capital’s Peter Schiff has a different take from both men. He believes the move down in the dollar to its last bastion of major support at the USDX 72 level is imminent and will fail that support, leading to a panic out of the dollar in coming months. He said investors will be shocked by the contrarian move in the dollar.
So what to do among the disparate opinions from some of the smartest in finance? As Dow Theory Letter’s famed author Richard Russell puts it, just buy enough gold as an “insurance policy” and “forget about it.” But if investors seeking leverage to the gold price, they should buy more silver. That’s the advice of nearly all hard money advocates, including the latest to come aboard the silver train, Gerald Celente.
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