Introduction: Andrew ("Andy") Hoffman, CFA joined Miles Franklin, one of America's oldest, largest bullion dealers, in October 2011 and serves as Marketing Director. For a decade, he was a US-based buy-side and sell-side analyst, most notably as an II-ranked oil service analyst at Salomon Smith Barney from 1999 through 2005. Since 2002, his focus has been entirely on precious metals, and since 2006 has written free missives regarding gold, silver and macroeconomics. Prior to joining the company he spent five years working as an investor relations officer or consultant to numerous junior mining companies. Andy's articles can be found on the Miles Franklin Blog, at www.milesfranklin.com.
Anthony Wile: We've looked at some of our past interviews with you and would like to take this time to update some of your comments. Let's start with the "big picture." Where do you see gold headed this year, upcoming, relative to the dollar? Will the dollar decline against gold … or rise?
Andy Hoffman: I have long maintained – based on empirical proof – that "the dollar's" level is not only not correlated to "gold," but shouldn't even logically have a connection. In fact, two years ago I said the dollar index would surge as the global economy collapsed – which is exactly what has happened, and then some. The reason being, NOT due to U.S. political or economic strength since, to the contrary, the U.S. economy hasn't been this weak since the Great Depression – but due to the liquidity it retains due to its current (but waning) role as the world's "reserve currency."
To the contrary, the average global currency is at or below its previous all-time low, with far more pain to come as historic debt levels default, which will only worsen exponentially as the dollar strengthens, making them harder to pay down. Not that they could be anyway, but it will only foster the ultimate, global fiat currency implosion at a more rapid rate.
As for "gold," it bottomed in essentially all global currencies around that time; and in many currencies, is at or near an all-time high despite relentless Cartel suppression of the paper prices in New York and London. In other words, six-plus people are experiencing gold bull markets, and the only reason the rest aren't is due to the massive, U.S. government-led price suppression that I have relentlessly discussed – in great, empirical detail – for the past 14 years.
Fortunately, the historic, Western government-led attempts to usurp "Economic Mother Nature" with unprecedented financial market and economic data are miserably failing. The global economy, unequivocally, is at its worst level of our lifetimes (no matter how old you are), and getting worse each day – with no chance of reversal until the aforementioned, tens of trillions of debt ultimately collapse – and with it, the fiat currencies underlying them.
Conversely, global physical demand for gold (and silver) are unequivocally at an all-time high whilst above-ground inventories are at an all-time low and the mining industry, care of 15 years of price suppression, is on the verge of collapse. In other words, a perfect supply/demand storm is heading our way, as exemplified by the massive silver shortages we experienced just two months ago. And this, as global central banks are on the verge of all-out monetary hyperinflation.
So, as to your question about the coming year – I have no idea if the Cartel will be defeated in the next 12 months, but I assure you it is coming soon. And when it does – which given all I just wrote may well be in 2016 – you had better have your stash when it is, because you likely won't get another chance, certainly not at prices even close to today's historically uneconomic levels.
Anthony Wile: We just read that London is going to try to provide an electronic marketplace for gold to make the prices more transparent. Any comment?
Andy Hoffman: Frankly, there have been so many changes in the crime scene that is the LBMA, or London Bullion Metals Association, I can't even keep up. Like the gold fix being replaced, and Deutsche Bank kicked out of the pricing mechanism due to allegations of price manipulation. Not to mention UBS paying fines – but not "admitting guilt" – for London-based gold manipulation. Throughout all these changes, the manipulation has just gotten worse – and trust me, NOTHING officially done will change that. All that matters is the rapid draining of physical gold from the paper crime dens, as evidenced by record UK exports to Switzerland, en route to China.
Anthony Wile: It seems to us that the action is moving toward India and China and that people are increasingly suspicious of gold manipulations in the West. Maybe that's why they're doing it. Comment?
Andy Hoffman: I swear, I did not read this question while answering the last. But absolutely, the ENTIRE WORLD is realizing how short global gold supply is, and how powerful – and relentless – physical demand is. More so each day, as currencies the world round implode, in most cases due to the suicidal monetary policies of their governments, i.e., central banks. The entire world also sees the comical manipulation of prices, via the same mechanisms every day – nearly always in the West, where less than 25% of actual physical buying occurs, if that. In my view, it won't be long before exploding physical demand swamps the paper suppression – undoubtedly, led by Chinese and Indian buying.
Anthony Wile: Russia and the US are facing off in the Middle East yet gold barely budges. It seems like nothing affects the price of the dollar versus gold these days.
Andy Hoffman: That's right, and France just experienced the worst Western terrorist attack since 9/11 followed by the typical gold surge, cap and attack. However, it's nothing new for the Cartel to suppress prices especially vigilantly during geopolitical crises – starting with 9/11 itself. Generally speaking, the Cartel, which was extremely active from 2000-2010, nearly lost the "gold wars" in 2011, when gold and silver prices exploded. At that point, they went "all-in" in suppressing prices, day in and day out – and in the last two months, have escalated such madness to unprecedented levels. That will only accelerate their demise, as the mining industry collapses and physical demand explodes. Does it surprise anyone that such suppression would accelerate as global currencies are freefalling, and central bank money printing is going exponential? Of course not, as the trapped rates are going down, and they're trying to "kick the can" as long as possible.
Anthony Wile: The Chinese government seems to be buying a lot of gold these days. Comment?
Andy Hoffman: That's the understatement of the century, as the Chinese government is by far the largest holder of gold, even if they only admit to a paltry 1,600 tonnes or so. The physical flow data proves it – from Swiss and UK exports to Hong Kong imports to Shanghai Exchange physical deliveries. Not to mention, the government actively tells its citizens to buy, knowing full well where gold prices are headed. That said, there is no reason to admit so much now, as they are still accumulating it at record low prices (based on the cost of production). When there is no more to be bought – and trust me, there can't be much left – they will at some point, either voluntarily, or more likely due to violent market movements, be forced to do so.
Anthony Wile: India, too, of course, though a gold repression program in India under Modi seems to have failed.
Andy Hoffman: The Indian government hasn't bought gold in years and more likely, has been surreptitiously selling it due to its ill-fated, suicidal alliance with Western, fiat-loving governments. That said, the population is buying it hand over fist – at record levels, in silver as well; and this, despite the onerous 10% tariffs in place for the past two years. Modi's "monetization" plan, like all others in the past, has been a miserable failure because the people don't trust their hyperinflating central banks – which, as we speak, has pushed the rupee to an all-time low, which will go much lower in the coming months and years. Moreover, due to an advanced black market, the already enormous Indian import levels are significantly understated.
Anthony Wile: Why do you think Indians and Chinese are more eager to buy gold?
Andy Hoffman: Because their cultures are based on gold (and silver) as wealth, and not fiat currencies. In fact, fiat currency was invented in China 1,000 years ago, so the people in the Far East are more well-versed in hyperinflation than any other. And now that the rupee is collapsing and the yuan in the early stages of a horrific devaluation, they are buying hand over fist whilst it is still legal to do so.
Anthony Wile: Let's examine central banking. Aren't most central banks headed toward further stimulation?
Andy Hoffman: Not most, ALL. And that includes the lying Fed, which has clearly been monetizing bonds all along, despite pretending to end QE last year. It still has zero interest rates, a record high (reported) balance sheet, and as much desperate need for zero interest rates and QE as anyone else.
And now that the global economy is collapsing, an all-out "final currency war" has commenced in the ultimate "race to the bottom" as politically-motivated central bankers simultaneously subscribe to the fallacy that a weaker currency brings in jobs and prosperity. Take a look at Japan, which has been doing it longer and more intensely, and see how untrue this is. Yes, it will shortly be both NIRP and QE to infinity, everywhere, until every fiat currency collapses.
Anthony Wile: And what will this approach accomplish?
Andy Hoffman: Per the above – and hundreds of historical instances, without exception – NOTHING but misery for 99% of the world.
Anthony Wile: It seems like most First and even Second World countries are in some sort of recession these days. Is the world still trying to recover from 2008?
Andy Hoffman: ALL nations are in recession, even those that don't admit it, like the U.S. Heck, Fed Vice Chairman Stanley Fischer last week admitted "inflation isn't as low as you think," thus admitting GDP, barely positive with all the BLS's comical "adjustments" in the fist place, is significantly overstated. Every imaginable measure of global trade is at or below previous all-time lows, like the Baltic Dry Index, Chinese Containerized Freight Index and CRB Commodity Index. And trust me, this is just the beginning of the economic hell that awaits, as the world is amidst record debt, commodity oversupply and financial market overvaluation.
Anthony Wile: Our theory is that the golden bull super cycle began in 2001. In other words, because Western financiers never let the market purge, the recession of 2001 never really abated. Your thoughts?
Andy Hoffman: Absolutely. The fiat Ponzi scheme peaked at the turn of the century – as symbolized by the bursting of the Internet bubble – and since then, economic activity has collapsed whilst physical gold and silver demand have exploded. In 2008, the system permanently broke under the weight of skyrocketing debt, at which point the aforementioned "end game" commenced, with the "powers that be" left only with unprecedented doses of money printing, market manipulation and propaganda to prevent the instantaneous collapse of all currencies – which I assure you is coming, much sooner than most can imagine.
Anthony Wile: Is the dollar going to move down further against gold? How about other currencies?
Andy Hoffman: All currencies have been moving down against gold during the past 15 years, at varying paces depending on how rapidly their worthless fiat currencies have been collapsing. The only notable exception, as mentioned above, has been gold in U.S. dollar based terms (as opposed to, for instance, Australian, Canadian, and New Zealand "dollar" terms), care of the aforementioned, U.S. government-led price suppression scheme – which, like all others before it, such as the 1960s "London Gold Pool," will inevitably fail, causing dollar-based gold prices to resume the bull market that commenced in 2001 at $250/oz, and "peaked" when the aforementioned, historic price suppression scheme went into hyper-drive after peaking at $1,920/oz in September 2011. At which point, to demonstrate how obvious the manipulation has been, the U.S. National Debt was $14.2 trillion (excluding "off balance sheet" liabilities) versus $18.8 trillion today.
Anthony Wile: Amazing that the demand for gold can be high around the world and yet the dollar continues to move up against gold.
Andy Hoffman: Yes, though, of course, it is MEANINGLESS what "the dollar" is doing against other fiat currencies, as pertains to gold. The "dollar," as defined by the dollar index, is essentially all the exchange rates with the euro and yen. What matters is what gold is doing against the dollar itself – which is, it is falling in paper terms due to the manipulation, but doing so as physical demand hits record high levels as inventories hit record lows. In other words, an unsustainable scheme.
And for that matter – again, as I predicted two years ago – the more "the dollar" rises against other currencies, the more the 6+ billion people using those collapsing currencies will want to own gold (and silver) to protect themselves from inflation. Which is why it's so silly to measure "dollar strength" against gold, as no more than a billion people use the dollar, vs. 6+ billion using collapsing "other currencies." And since dollar-priced gold has been beaten down – below the cost of production, no less – the dollar buys more of it, so demand should, and has, risen due to simple Economics 101 logic.
Anthony Wile: Economics tells us that when you distort the market, you get a reaction. If gold is underpriced in dollars, then more people should buy gold causing a queue – a scarcity. Is there a scarcity of gold?
Andy Hoffman: There certainly has been a scarcity of silver – yielding the biggest retail shortage since 2009 this summer. Not to mention, there were significant shortages when prices surged in 2011, and plunged (due to the infamous "alternative currency destruction" raids) in April 2013. As for gold, the retail shortages have not occurred as in 2008 yet.
However, U.S. retail is a tiny, tiny part of the global market. Overseas, Chinese, Indian, and other Eastern regions – where perhaps 75% of global demand emanates from, demand is unquestionably at an all-time high; whilst essentially all observable inventory metrics – from COMEX registered inventory, to the GLD ETF, to record European exports to China, depict a scenario of dramatically tightening physical demand. Plus, central banks are buying more than ever – even as China is blatantly understating its own massive purchases.
Anthony Wile: Can we assume that scarcities are not being reported?
Andy Hoffman: Again, there are massive shortage issues in silver – even here in the West, where people generally speaking couldn't care less about silver. This summer's shortages were quite significant – and with "peak" gold and silver unquestionably here as we speak, supplies will get tighter in the coming years, as central banks print money at an exponentially faster rate. The paper suppression, thus, will only cause the tightening physical market. And yes, there's not a single aspect of precious metals "trading" and reporting that isn't manipulated. Or heck, the trading and reporting of all markets.
Anthony Wile: Back in December 2014 you said, "I have never been more confident that the global economy will be dramatically worse in 12 months." How has your prophecy worked out?"
Andy Hoffman: That's an understatement, as unequivocally the global economy is vastly worse today than at any time in our lifetimes – with a cumulatively weaker outlook than perhaps any time in history. Which, given that all currencies are now backed by nothing, and in the process of being hyperinflated, will lead to the greatest financial calamity in recorded history. Likely, far worse than 2000 or 2008, and far sooner than most can imagine.
Anthony Wile: Any divergence between gold and silver these days?
Andy Hoffman: Not really. Both have been under intense attack for the past month, and the gold/silver ratio has remained around its historically high – and long-term unsustainable – ratio of roughly 75.
Anthony Wile: How about junior mining stocks. Is that sector heating up?
Andy Hoffman: Only if "heating up" means record low stock prices, capital funding, exploration prospects, and production initiatives. For me, I have a very large percentage of my liquid assets in physical metal, as I believe gold and silver will soar against the dollar.
Anthony Wile: Before we end let's ask some questions about the Fed and domestic monetary policy. Is Janet Yellen going to hike? If so, when?
Andy Hoffman: LOL. If the Fed does – by the measly, meaningless quarter point it suggests – it will be doing so amidst the worst economic backdrop imaginable, both here and overseas. In other words, conditions far worse than when it was lowering rates to zero – and instituting QEs 1-3 – over the past seven years. And if it does, it will only make all the aforementioned factors worse – from causing the dollar to strengthen, to debt becoming more onerous to pay down, to threatening financial markets that, care of the PPT, etc., are trading at all-time high valuations amidst all-time low fundamentals. And for those worrying that such an action would "hurt" precious metals, they have already been decimated, causing demand to explode and the mining industry to implode. In fact, I'd argue that if the Fed were dumb enough to shoot itself in the head by raising rates – remember, the Fed has the world's largest, highest duration bond portfolio – it would likely cause further, explosive precious metal demand worldwide as global currencies collapse more rapidly.
Anthony Wile: Is the US really in a recovery, as Janet Yellen regularly maintains?
Andy Hoffman: If "recovery" means the worst economic data since the financial crisis, contracting corporate earnings, and exploding debt on all levels of society, yes, which is exactly where we stand today. Heck, perhaps the government's "Ministry of Truth" will actually come up with a propaganda scheme, a la Atlas Shrugged, to depict such a relationship.
Anthony Wile: Will the US inevitably end up debasing its currency further even while pretending to be in a recovery? Some have speculated that we will see additional quantitative easing even though it won't be called that.
Andy Hoffman: The Fed will NEVER stop printing, no matter what it says it is doing, or what it calls it. And once the global economy – and more importantly, the 100% rigged financial markets – grow too out of control to reign in, you can bet the Fed will overtly step up the money printing, whether they call it QE or some other "Fedspeak" created name.
Anthony Wile: Do you think the US seeks increased military tensions around the world to distract the population from the failing economy at home?
Andy Hoffman: I'm not one for speculating on unprovable things. However, logically speaking, it makes a lot of sense. Plus, such actions have been proven throughout history, time after time. I mean, why else would we be sending troops to, of all places, Syria?
Anthony Wile: Are you expecting a world war to act as a global economic reset?
Andy Hoffman: My view is that the world's leaders are a bunch of Keystone Kops, with similar interests due to the aforementioned, global fiat currency regime. However, their actions suggest they are in an "every man for themselves" mode – which is exactly what I'd anticipate on a worldwide basis. To that end, history tells us that economic collapses typically bring about major wars. And given today's historic economic collapse, I certainly expect major wars to result, perhaps a world war, catalyzed by what's occurring in Syria.
Anthony Wile: Any last points you want to make?
Andy Hoffman: Yes, PROTECT YOURSELF with historically cheap precious metals whilst you still can, as in many countries around the world they are not even available, much less at today's historically "subsidized" costs. And remember, there's a reason why Miles Franklin Precious Metals has been around for 26 years without a single registered complaint, with an A+ Better Business Bureau rating.
Anthony Wile: Thank you, Andy, for your time. Insightful, as always.
Andy Hoffman: You're very welcome. Happy holidays, to you and all of the Daily Bell's readers.
Andy Hoffman once again confirms a lot of our perspectives when it comes to precious metals, especially gold, and its relationship to the modern economy. There's no doubt that despite all the talk for the past five years about "green shoots" and recovery, central banks under the coordination of the BIS are scrambling to print more currency than ever.
We once estimated that central banks would print US$100 trillion to re-stimulate the world's economy after the disastrous asset deflation of 2008. We've read figures now of upwards of US$50 trillion and there is no end in sight either for the money printing or the world's larger economic dysfunction.
Andy believes that central banks will never stop printing – i.e., rates will remain below market rates, thus aggravating asset bubbles, which are already expanding. We also believe, like Andy, that at some point all the extra currency injected into world markets will begin to have an impact on the value of gold and silver versus other world currencies.
We would anticipate that the dollar will fall against gold, as it has in the past, even the fairly recent past. That's not saying anything radical, of course. Gold has retained its value for thousands of years and in the current hypercharged currency environment we would have to believe another leg up is feasible – and one that investors will not necessarily have to wait a decade for.
Of course, Andy believes we ought to hold physical gold and silver, and he is right about that. But we have often mentioned that the final leg of the golden bull will include junior mining run-ups just as it did in the late 1970s. Thus, one ought to look to paper assets as well, in particular certain mining stocks that can set themselves apart from others as the market rises.
We have already mentioned one such several times – Seabridge – because its management retains its assets in the ground rather than trying to sell them for fiat dollars at the market price. When gold begins to charge, Seabridge could benefit accordingly. You can see our interview with Seabridge's CEO here.
As of this writing it is obvious that gold is responding sluggishly to market conditions. But history shows us that over time previous metals serve as a repository of value when other kinds of assets inevitably deflate. Such assets are deflating and sooner or later, precious metals should continue upwards in a predictable trajectory. It is a matter of time, and perhaps not too much of it.