On Saturday, Rick again appeared on The Korelin Economics Report, where this week’s topic of discussion was the gold market and where it’s headed. The transcript of the interview is shown below. The audio may be heard here. (Rick is interviewed in segment #4)
Al Korelin: Okay. Here to wrap up the first hour of the weekend edition of the Korelin Economics Report. Thank you for joining me, particularly our newest listeners and folks down in Portland, Oregon, listening on radio station KUIK.
I’ve got Rick Ackerman on the line with me right now. Rick is one of the best technical analysts who I know. Rick and I, I think, are on the surface initially disagreeing, I should say, on one concept.
That is, Rick feels that from a technical standpoint, we’re going to see the price of gold go down, specifically on the August contracts… August futures, I should say. We’re going to see it down at $1497. My personal feeling is hard for me to swallow that, only because I’ve never seen such a great time – from a fundamental standpoint – for gold to appreciate in value, for lack of a better term.
Now, I want to get an explanation from Rick as to why he feels this way, because he has certainly been involved in this for as long as I have, and he’s a very bright guy. He doesn’t just shoot from the hip unless he’s got some fairly serious backup ammunition, for lack of a better term.
Rick, why exactly do you feel that we’re going to see gold go down in price?
Rick Ackerman: Well, mainly it’s from a technical standpoint. I look at charts with patterns that have ABCD configurations. I look for an AB – what I call an impulse leg – and then I look for a corrective BC, and then a CD follow-through that’s equal to AB.
So in very simple terms, lining up my ABCs and Ds, they project gold down to $1497.40, as you mentioned, basis the August contract.
Ultimately, I depend on technicals more than fundamentals. It’s not that you can’t get a handle on the facts. But sometimes, when you put all the facts together, the logic that comes out of them is too complicated to get a handle on the markets.
Of course, we know it’s not necessarily the facts that drive things up and down. It’s the perception of facts, and that’s what’s really so hard to estimate, to judge.
So I don’t disagree with you that looking globally at a monetary blowout that’s going on around the world, that gold is very bullish. But for some reason, it’s not trading above $2000 an ounce – when it should be.
When you start to think of possible reasons, one to me is that all that’s going on right now in the real world is very deflationary or at least the outcome is proving to be deflationary. That means no matter how much stimulus you put into the system, you’re in a deflationary sinkhole right now, which is most evident in Europe. As much as they can stimulate, they’re not managing to inflate much of anything.
So you can talk about the inflationary effects of a monetary blowout, but it’s really not money. I call it credit, and it’s unactualized credit at that. It’s credit that nobody wants or needs. So we’re really not getting much inflationary bang or getting no inflationary bang for the buck, other than in certain financial assets.
Al: I’ve been around for a long, long time. I was certainly not alive during the Depression, et cetera. But when I was born in the ‘40s, things were really on the mend, for lack of a better term.
It just strikes me that with all the stuff that’s going on, fundamentally I mean, I haven’t seen a time ever that has been as positive an environment for gold and silver as we have right now. Yet you’re thinking that we’re going to see a drop into the $1400s for gold. I need some explanation, for lack of a better term.
Rick: Well, I think that you’re right. There are a lot of things that are very positive for gold right now. Even looking back into the 1940s, you might have guessed that it doesn’t get any better or it couldn’t get any better, because we’ve got essentially a monetary blowout globally.
But you have to consider the quality of the money and its nature. It hasn’t been money per se. It’s been a credit blowout.
Right now, it’s becoming more obvious that all the credit in the world is in achieving its stated or its ostensible goal, which is to inflate, for one, the housing market. But failing that, of course, inflate the financial markets. That has worked somewhat.
So we’ve got this huge global attempt to reinflate a debt deflating global economy, and it’s simply not working. I think that overall, you see that in these huge forces between inflation and deflation, the deflation is winning.
Al: So maybe I misunderstood you then. Are you saying that gold in absolute terms is going to go down in price, but relative to the various currencies around the world, that’s not going to happen? And it is perhaps a good place to be in terms of an insurance policy, what have you. Is that what you’re saying?
Rick: Well, I’ve never felt otherwise. Regardless of how you argue the inflation-deflationary conundrum, I’ve always thought very confidently that gold and silver would hold their purchasing power relative to all other classes of assets.
So I think if you hold gold and silver, you’ll be fine, as long as you don’t get this idea that it’s going to be worth $5000 or $10000 or $20000 an ounce in current dollars.
Al: I understand that. I think that’s a very, very important point. Now that I understand what you’re saying, we had a bit of a disagreement, at least a bit of a disagreement on my part, in the sense that I view gold not in absolute terms. But I view gold relative its value as relative to currencies.
I would have to say that’s the reason that I buy gold and silver, is because it to me is a hedge against economic catastrophe. I think you’re agreeing with that. Is that right?
Rick: Absolutely, absolutely.
Al: Okay.
Rick: But I think that implicitly, a lot of people who hoard gold for that worse-than-rainy day, are thinking that they’re going to take gold, they’re going to convert it into an I-don’t-know-what medium… maybe gold directly going into something that will do them some good, let’s say farmland.
Al: Yeah.
Rick: And the idea is that you will have a couple of Krugerrands that could buy you a whole farm.
Al: Yeah.
Rick: I question whether in the crisis that’s still looming, which could happen precipitously…
Al: Yes, it could.
Rick: If anybody will have the chance to go through that process of taking the gold and converting it into something that, so to speak, you can eat. So I think gold has to be part of a rainy day portfolio.
Al: Yeah.
Rick: You really should keep some coins around. I think in the worst crisis imaginable – where let’s say the banks close for an unexpected holiday. When they reopen, you can probably appreciate the fact that the credit card system will not function, because there’s a daisy chain of clearing relationships that make it possible for you to go out and use a credit card.
So I have a very strong feeling that cash, fives, tens, twenty-dollar bills are going to be the coin of the realm if something really horrible happens.
Al: Well, I think a lot of people have said that. But I don’t think that that’s necessarily going to be a long-term phenomenon. But I think it definitely will be in the short-term, I think probably a good place to be in cash. We’ve talked about that on the show before. The type of cash would be, the general consensus among the folks involved on this show would be either the U.S. dollar or the Canadian dollar.
But basically, you’re saying that you do believe that as a component of a portfolio, that gold and silver really does need to be there. Is that right?
Rick: Absolutely. But you can see that that doesn’t necessarily extend, or so far, it hasn’t extended felicitously to people who hold gold shares.
Al: No.
Rick: There’s no question that the cheapest buy you can get on gold right now is the gold hill in the ground by some mining company.
Al: Right.
Rick: Yet you know that the mining stocks really haven’t participated in the move in the underlying metal.
Al: To a very large extent, they have not. That’s correct. I mean, I talk about my portfolio a lot on this program. I have to say that I am up in at least 50% of the cases of the shares that we hold here in the family. We’re up there. I’m glad I made that investment. In the shares that where we’re down, I mean, I guess my rationale is that I’ll get a tax loss that will probably do me some good.
You know Rick, I think what we’re dealing with here, and we’ve discussed this in almost every single segment of this show, is that we are in uncharted waters. People really, really need to keep their powder dry, keep their wits about them, because we are not getting what we need, for lack of a better term, in terms of a financial direction. That is on an international basis.
It will be very, very interesting for me to see exactly where we are at sometime between the next, let’s say five to twenty years. I don’t think it’s going to be a good spot.
Ladies and gentlemen, if you want to find out more about Rick Ackerman, click on the banner on our website, Rick’s Picks. It’s on our homepage. Stick around for the second hour of the weekend edition of the Korelin Economics Report.