How Many Ounces of Gold and Silver Do You Need?

Recently
by Jeff Clark: $2,300
Gold, Here We Come

This week,
Chris talks with Jeff Clark, Senior Precious Metals Analyst at Casey
Research, where he serves as editor of their Big
Gold newsletter.

They tackle
head-on many of the questions weary precious metals investors are
wondering after enduing the volatile yet range-bound price action
of gold and silver over the past year:

Have
the fundamentals for owning gold silver changed over the
past year? No
What
are they? currency devaluation/crisis, supply-chain risk,
ore grade depletion
How
should retail investors own gold? Mostly physical metal,
some quality mining majors (avoid the indices), and ETFs only
for trading
Is
gold in a bubble? No
Could
gold get re-monetized? Quite possibly
Where
is gold flowing? From the West to the East. At some point,
capital controls will be put in place

What
the politicians are doing is the exact opposite of what they need
to be doing. We continue adding to our debt, we continue
raising the debt ceiling, we continue deficit spending, we continue
borrowing money, and, of course, we continue printing money. We
are doing the exact opposite of all the things that would lead
us away from inflation. So yes, I think that is an important point.

I will add
that inflation has occurred very quickly, very rapidly,
very suddenly many times in the past, just in recent
history. If you look back at the high inflationary times, just
in the past 100 years here in the U.S., many of those that hit
12%, 14%, 15% Â– two years prior to then, the CPI was completely
benign. It was 1%, 2% Â– I think at one point it was 4% Â–
and then all of a sudden within 24 months, it was 12%, 14%. So
it can happen very suddenly, and my fear is that is what is going
to happen this time. People are in a lull; no one is expecting
it: the CPI is low; nothing is really happening with
all this money printing; there has been no fallout. But I
think that is the critical point. You cannot do these
kinds of things we are doing forever and not experience any consequences.
Sooner or later there are going to be consequences to what we
are doing, and my fear is that it is going to be nasty, catch
a lot of people off guard, and really hurt our society.
The bottom line for me is, that is why I am buying gold and silver,
still, to this day.

For these reasons
and others, Jeff strongly believes everyone should have exposure
to gold and silver as a defense for preserving the purchasing power
of their weath. The key question is: how much exposure?

You
want to focus on how many ounces you own, not necessarily
looking at whether the price is $5 higher today than it was yesterday.
How many ounces do you own? That is really the question
you want to ask yourself, so you can focus on how much you are
really going to need, and the amount really comes down to this.

For me, I
am probably going to use some of this gold if we get high inflation.
How are you going to protect your standard of living if we get
some kind of runaway inflation? And let’s say it’s not runaway
hyperinflation; let’s just say it’s high inflation, 10%, 15%.
Remember it was 14% in 1980, so the odds of us getting high inflation
are realistic. So if I am going to use that gold to cover my standard
of living, you are going to need about two thirds of an
ounce of gold for every thousand dollars of monthly expenses.
If you want to protect your standard of living and not have your
house be ravaged by inflation, so to speak, so that is a good
guideline to follow.

So if inflation
lasts a couple years, well, you are going to need 15 ounces of
gold for every thousand dollars of monthly expenses. That is a
good guideline to think about. And if your expenses are more per
month, you are going to need more gold than that. If inflation
lasts longer than two years, you are going to need more than that,
but you can actually use the sales of gold and silver to protect
your standard of living. You sell some gold and silver, you are
going to get U.S. dollars or Canadian dollars with it and you
can use the increase in the gold and silver price to offset the
increase in the goods and services you are buying.

So I think
that is the way to view it, to look at how you are going to use
it. And so the focus again comes back to how many ounces do
you own? So if you do not have any, you need to obviously
start buying.

Here are two
tables Â– one for gold and the other for silver Â– Jeff
offers in
his newsletter to help investors calculate the requisite ounces
needed to protect against rising inflation over time:

The point
here is that you’re probably going to need more ounces than
you think. Look at your bank statement and assess how much you
spend each month Â– and do it honestly.

The other
part of the equation is how long we’ll need to use gold and
silver to cover those expenses. The potential duration of high
inflation will dictate how much physical bullion we need stashed
away. This is also probably longer than you think; in Weimar Germany,
high inflation lasted two years Â– and then hyperinflation
hit and lasted another two. Four years of high inflation. That’s
not kindling Â– that’s a wildfire roaring through your
back yard.

So here’s
how much gold you’ll need, depending on your monthly expenses
and how long high inflation lasts.

Ounces
of Gold Needed to Meet Expenses During High Inflation
Monthly
expenses in US dollars
Monthly
expenses in gold, oz*
Inflation
Duration
6 months

1 year

18 months
2 years
3 years
4 years
5 years

*Based
on $1,600 gold price

If my monthly
expenses are about $3,000/month, I need 45 ounces to cover two
years of high inflation, and 90 if it lasts four years. Those
already well off should use the bottom rows of the table. How
much will you need?

Of course
many of us own silver, too. Here’s how many ounces we’d
need, if we saved in silver.

Ounces
of Silver Needed to Meet Expenses During High Inflation
Monthly
expenses in US dollars
Monthly
expenses in silver, oz*
Inflation
Duration
6
months
1
year
18
months
2
years
3
years
4
years
5
years

*Based
on $28 silver price

A $3,000
monthly budget needs 1,285 ounces to get through one year, or
3,857 ounces for three years.

I know these
amounts probably sound like a lot. But here’s the thing: if
you don’t save now in gold and silver, you’re going to
spend a whole lot more later. What I’ve outlined here
is exactly what gold and silver are for: to protect your purchasing
power, your standard of living.

Jeff discusses
the Hard Assets Alliance as a solution worth considering when purchasing
bullion.

Click
here to listen to Chris’ interview with Jeff Clark (46m:01s)
or read the transcript below:

Chris
Martenson: Welcome to another Peak Prosperity
podcast. I am your host, of course, Chris Martenson, and today we
welcome Jeff Clark to the program.

Jeff is Senior
Precious Metals Analyst at Casey
Research, where he serves as editor of their widely respected
Big
Gold newsletter. Now I have invited Jeff onto discuss all things
gold and silver, as there are a lot of questions swirling these
days about the price direction. Are they posed to surge after a
year-long consolidation phase, or are they topped out? What impact
will future central bank actions have? If you bought silver at $49
last year, will you ever see that price again? We will delve into
these, along with a re-visitation of the fundamentals of owning
precious metals Â– if they have changed at all Â– during
this conversation, which I am really looking forward to.

Jeff, thank
you so much for being our guest today.

Jeff
Clark: I am glad to be here, Chris. Thanks for having me.

Chris
Martenson: I want to start with a piece from your bio at
the Casey Research Site, which states that you are the son of an
award-winning gold panner and that you helped work with your family’s
placer claims in California, Nevada, and Arizona. What sort of an
award was that?

Jeff
Clark: Well, my dad has been interested in gold mining
for a long time, and that has been his fulltime hobby, shall we
say, since he has retired. And we do placer claims of in California
and Nevada and Arizona. And he has worked those over the years,
and he has had some marginal success. Nothing that has been really
life-changing, but he definitely has found lots of nuggets of gold
and silver. But the award he won, they hold these contests where
you are actually panning for gold, and they will put a little bit
of gold in the bottom of a half-barrel type contraption, and everybody
pans for it and whoever finds the gold first wins. He has never
outright won, but he has always placed. He is good at it, and it
is a fun thing that he does. He tends to be the one who gets out
there and gets his hands dirty; he likes to get out in the rivers
and really search for it. I like to go with him just to get out
of doors, but my interest really is more in making money.

Chris
Martenson: All right. Well, there is gold mining somewhere
in your DNA, as it were. Tell our listeners a little bit more about
your background, then, and how long you have been following the
precious metals markets.

Jeff
Clark: Well, it runs in the blood, you might say; it runs
in the family. Both my grandparents left me a little bit of gold
and silver when they passed away, and I did not realize at the time
that they had done this. And what was interesting was I actually
received some gold from one set of my grandparents and it really
made an impression on me. The reason it did was because the gold
would actually buy just as much at the time that I received the
metal as it would when they first bought in decades earlier, and
that really made an impression on me. So it is something that I
always had a liking toward.

I would not
call myself a “gold bug,” but I might say that I am a
“temporary gold bug;” the reason I am a temporary gold
bug we can go into; I do think that it is something that people
are going to need to own and have a good exposure to here. But it
is something that I have always had an interest in. I have been
with Casey Research since late 2007; I joined them just in time
for the big market meltdown, so the timing could not have been better
for me.

Chris
Martenson: Absolutely. So what form was that gold in that
your grandparents left you; was that coins?

Jeff
Clark: Yes, it was coins. They left me some gold coins,
and I want to say one of my grandfathers actually bought me one
of the first editions of the American Eagle when that first come
out in 1986, so that was a really special coin to me to get and
it is just really interesting, looking back. He kept some notes
on what he paid for it and where he bought it, and what he paid
for it then will buy me the same amount of goods and services here
today in 2012 as it would in 1986. So it is really amazing to me
how gold has kept pace in terms of purchasing power. That made an
impression on me.

Chris
Martenson: Well, I would like to start there. I have been
a “temporary gold bug” as well, but I think it is ten
years of “temporary” at this point, and it might last
another ten. I honestly thought this period would be over a little
bit sooner. But I want to start at the very outside of this conversation.
I would like to understand your views for why we would invest in
gold at all; the main reasons you have, one being that you are impressed
with its ability to preserve purchasing power. What other reasons
do you have?

Jeff
Clark: Well, the reason that I am buying gold and silver
now is not just because I like gold bullion coins. The fundamental
driver right now, and the fundamental reasons we should all own
some gold and silver right now, are, first of all, negative real
interest rates Â– that is, an environment that is very positive
for gold. You can demonstrate that throughout history very clearly.
Any kind of weak or negative growth economy is a time where you
would want to own gold. We certainly have that, and the outlook
for many economies worldwide is not terribly positive. So not only
are we weak now, but there is a weak outlook, so that makes owning
gold and silver here even more important.

One of the
biggest reasons, of course, is the massive deficit spending that
we have; the runaway debt we have. And all that cannot be done for
free; that is not consequence-free. You do not get to do that forever
without experiencing some kind of consequences. The Obama administration
has spent roughly 50% more than they took in, and that is staggering
to me. You can only finance that one of two ways. One, you can borrow
from foreigners, or [two,] you can run the printing press. And of
course, the latter is just pure inflation; that is all it is.

Probably the
biggest reason that I own gold and silver now is because of the
ongoing currency dilution. The Fed is printing money, the European
Central Bank is printing money, Japan is printing money, the UK,
China, the Swiss Â– all these guys are adding to their balance
sheets. All these roads lead to the same destination, and that is
inflation. At some point, I am convinced, there is going to be some
pretty serious fallout with all this, and however all the fallout
plays out, I want to own gold and silver.

So for me,
gold is more about protecting my purchasing power than it is about
making a buck. Gold is not really an investment, technically; for
me, that is what the stocks are for. Gold, for me, is more about
money. And I think as people begin to view gold more as money, like
it has been throughout the millennium, then that answers the question
about how much you should own and how you should view it.

Chris
Martenson: Excellent. I have one other piece that I would
like to get your views on. Inflation is one thing that gold can
protect against. I am holding gold as well; actually, for two other
reasons. One is because of financial instability, gold being a monetary
asset that is not simultaneously somebody else’s liability. When
I go to Europe, I find many people are holding gold because they
are frankly distrustful of institutions over there, and if you are
in Greece or Spain, you have obvious reasons for that. But maybe
more broadly, there is still a large concern out there that we cannot
always know where the risks lie in these highly interconnected,
complicated, and often intervened-in markets. Do you have a view
around that?

Jeff
Clark: I think there is strong evidence that it is more
important now to own the physical metal than it is in ETF (exchange-traded
funds). The ETF can serve a purpose; if you want to lay some kind
of wager on the direction of the price, well, you can do that through
an ETF; the ETF’s are liquid. If you want to buy an option, you
can use an ETF. So they serve a purpose, but you do not really own
that gold. You cannot, for all practical purposes, take delivery,
so it is really critical, in my opinion. Look at what happened to
MF Global; there is a good example. That tells you that you probably
want to be moreover weight with the physical metal right now than
you do an ETF. And again, gold is money, so as you view it more
as money, you begin to realize that buying a gold coin is not just
a pretty piece of history; it is actually something you can use
to protect your standard of living.

Chris
Martenson: Absolutely. I am wondering, now, you mentioned
before that gold and silver are both legitimate investments, and
we have been talking about gold. I am just wondering if we could
just discuss silver for a second. Do you have a different rationale
for holding silver, or is it fundamentally the same as gold?

Jeff
Clark: The demand for gold is financial demand, period.
Silver is financial demand, but it is also part industrial consumption.
So there is a scenario under which gold could actually outperform
silver. Many people think silver will outperform gold, and that
is probably going to be true. But there is a scenario in which silver
does poorly, and that would be where we get a very ugly economic
situation combined with some kind of runaway inflation. If that
happens, if we get a depression like that, then silver is going
to be impacted and it is not going to do as well as gold, so that
is the reason we do recommend buying more gold than silver. Do I
expect that to happen? Probably not, and I do think that silver
is going to outperform gold by the time this is all over. But you
do have to keep that point in mind that silver is part industrial
consumption. Half the metal that is dug up every year goes to some
kind of industry, not to investments, so you need to keep that in
mind when you are considering your investments.

Chris
Martenson: Sure. I am thinking about time horizons now.
And before we talk the long horizon, I would love to get your perspective
on where silver is really going to go, considering depletion of
known reserves and things like that. But hold that on the shelf
for a second. So, price action for gold and silver has been very
range-bound for over a year now. What are the reasons for that,
in your opinion?

Jeff
Clark: Well, the main reason is because we have not had
a new catalyst for either gold or silver. Many of the catalysts
that have driven the price as high as it has gone Â– and it
has had a very good return; it has outperformed the SP and
many other asset classes Â– the reason it has not done much
recently is because we have not added new catalysts. Negative real
rates are very positive for gold and silver Â– well, we have
known that for some time now; that has been the case for a while.
Weak economies, deficit spending, debts, even the money printing
issue, a lot of that is build into the price now.

So what is
going to be needed, in my view, to take the price to the next level,
which for me is going to be breaking the $2000 barrier then staying
above it, is going to be some type of new catalyst Â– a black
swan Â– which may not be fun, but it is those kinds of things
that will probably drive the price to new heights. For me, that
is going to be inflation. I think inflation is going to be the key
driver going forward. I think, in fact, it catches a lot of people
off guard. I think it is going to hurt a lot of people, and I think
if you do not have meaningful exposure to gold and silver before
that kicks in, some people are going to get hurt. So there could
be other catalysts as well. There could be some kind of surprise
that we get in the market, but for me it is probably going to be
some kind of inflation.

Chris
Martenson: All right. So let us imagine Â– you mentioned
that you think people should have a core position in the physical
metal itself, and then you briefly touched on this idea of stocks,
which are more of an investment, potentially even a speculative
play on the price of the metal itself.

I would like
to review, I cannot think of anybody better to talk to about the
big trends in the gold shares. Now, as I look at these charts, I
see that gold shares have really underperformed the metal itself
for a while, since maybe early 2011, most recently with the HUI
Gold BUGS index trailing gold. Why is that?

Jeff
Clark: Well there are lots of reasons; political risk really
ratcheted it up then through now. Political risk is higher; a lot
of politicians are getting greedier. Costs have been going higher.
Now the price has been outpacing the rising cost, but costs are
definitely going higher. There is still more of a fear environment
as opposed to a greed environment. A fear environment is good for
gold; a greed environment is good for gold stocks. We are still
stuck in that fear environment.

There has been
massive share dilution by a lot of management companies, and that
is the big no-no that a lot of us analysts do not like; share dilution
has been incredible. They have really diluted shareholders very
badly over the past four or five years. They believe what they were
doing was correct Â– that all the assets they wanted to buy
or new development projects they wanted to put into production were
worth it. And maybe they were, but they financed these things by
issuing shares and diluting existing shareholders. That kept shares
down as well, so a lot of these things have played into why shares
have underperformed. But that is only part of the story, and that
book is not fully written yet. There are many more chapters in the
book of gold stocks to go yet.

Chris
Martenson: So a little bit more in the fear than the greed
cycle Â– we have the share dilution, something I have certainly
noticed. I also had not seen free cash flow from operations really
take off like I thought it was going to be. You mentioned that there
were higher costs on that side, which I think true across the entire
mining sector, whether we are talking coal or steel or precious
metals.

Jeff
Clark: It really is, and the gold stocks and silver stocks
have been no different. These guys have developed a lot of projects,
they have bought a lot of other assets, and they needed to add to
their reserves. There is no doubt that they needed to keep up; a
large producer has to add a million ounces a year just to maintain
the same level of reserves that they had in the past, so to grow,
they needed even more than that. There has been a lot of that, so
this free-cash-flow thing has not been an issue, and they have not
had much good free cash flow because of these issues. But again,
how they solved that problem was by issuing more shares, as opposed
to growing organically or keeping a lid on costs and focusing on
costs and these kinds of things.

Chris
Martenson: So I am going to guess that you are advocating
that an individual might also vary tremendously on these gold stocks
and that you are more about finding the right ones rather than investing
crossing indexes. Is that fair, or do you have some other methodology?

Jeff
Clark: Absolutely. We only would recommend buying the index,
the ETF (GDX), which is the gold miners’ index Â– or ETF, not
an index. I would only recommend buying that for someone who just
does not have enough money to diversify in individual stocks. So
for the very small investors, absolutely, I would buy either a good
mutual fund or GDX. After that, once you have enough funds to diversify,
I would definitely rather do some stock-picking. Just as an example,
I am proud to say that our four best buys in Big Gold have outperformed
GDX, three of which have substantially outperformed it. So there
is a point to being picky right now; you do want to be picky with
the investments that you are buying, and some will clearly do better
than others. There are many reasons for that, but the bottom line
is, you do want to be selective; you do want to pay attention to
which stocks you own will definitely outperform others.

Chris
Martenson: Absolutely. So I am interested now in something
you touched on, which is something I am personally very interested
to learn more about, the idea of reserve additions. As I look out
across the whole world, it does not even matter which industry I
am looking at. The mining industry, everybody struggles with reserve
depletion and mostly diminishing ore qualities. The mines are smaller,
they are deeper, they are less concentrated than they used to be.
But is that a fair characterization of gold and silver reserves
at this point, and what sort of trends are you seeing there?

Jeff
Clark: You are correct about that trend; it is something
that is concerning. Grades are going down; the number of large ore
deposits being found is declining. A lot of the bigger mines are
maturing. We have not had a real large find in this cycle. Maybe
Aurelian, which was bought out by Kinross down in Ecuador Â–
which is not being developed, by the way Â– so you have a lot
of issues like this, where supply is not really growing. In fact,
supply is basically flat, and the gold price has quadrupled since
2001, so you would think that supply would be increasing Â–
it should be increasing, and it is not. And in fact, like you point
out, grades are going down. So that is the trend right now, and
that is a little concerning.

In the big
picture, I am not terribly worried about that; where that is going
to be an issue is if we get some kind of mania in the gold and silver
area where supply just is not sufficient to keep up with the demand.
That would be a temporary thing, because I think in the long run,
technologies will increase and we will find more gold. That is the
big-big picture. But in the short term, it could be a concern, especially
if we get a mania.

Chris
Martenson: Interesting. So against this backdrop Â–
I note perhaps you have analyzed what is going on in South Africa
Â– a lot of those big mines there are very mature, very deep,
and they are chasing some fairly marginal grades at this point in
some of those mines. Is there any chance that the strikes down there
are going to take one or more producers out of the game because
they were at the margins of what was viable, or will this all be
put behind us at some point?

Jeff
Clark: Eventually I think it gets put behind us. There
is, as we talk, reason to think that a lot of the strikes are getting
solved. Not all of them are, but many of them are starting to work
with the workers to try to get some kind of wage that they want.
It is still a live issue, it is not resolved, and a lot of that,
by the way, is built into the price. I do not think a lot of investors
think they are going to go completely offline. Even thought South
Africa’s production output has been in decline for years now, it
is not going to go to zero and it is not going to go away. Now that
being said, I would not necessarily invest there; there is just
a myriad of problems. Almost every imaginable problem you could
think of with buying a gold stock is present in South African producers,
so I definitely would not buy there.

Chris
Martenson: The big trends being, there is an instability,
a social or political instability, plus increasing mining costs,
those sort of factors are really starting to pinch there, but maybe
better opportunities elsewhere, is that what you are saying?

Jeff
Clark: Absolutely. I mean, they have political problems,
they have power problems, they have labor problems, they have cost
problems, they have profitability problems, they have growth problems.
Every issue you could think of is present there, so we do not own
or recommend any South African producer. Definitely one issue to
be aware of right now is political risk. The political risk is high
there, so we would avoid it for that reason among others. But you
want to look for low political risk, you want to look for a company
that is growing production, and that is one issue we have really
focused on in Big Gold Â– trying to find the next big producer
before it becomes one and buying it now. You want to focus on a
good strong management team, and you want a strong balance sheet,
so those are things we would look for in the kinds of stocks we
would pick.

Chris
Martenson: What, are you telling me that fundamental analysis
still has a role in this computerized, high-frequency-trading, technical-analysis
world?

Jeff
Clark: That is interesting, because a lot of analysts I
go with on these trips, they have their models, they have their
numbers that they all crunch, and that is all good, and that is
valuable, it is insightful, but it is not the whole picture. You
have to look at the whole picture right now, and trying to force
a company into your model is not the whole picture; it is like looking
at just one part of the elephant. So you do want to look at everything
that is involved. And probably the two most important things right
now are not the property and not the asset, it is the people running
it and it is the political risk that surrounds it. So you want to
start with those things, and then look at your model and your numbers
and what kind of production it would be.

Chris
Martenson: So people and politics Â– and on the people
side, would you suggest a shortage of really high quality talent
out there, or is this just you really need to find a fully mature
management team that knows how to both find and run a company?

Jeff
Clark: Well, in the exploration side and the junior side,
you want someone that has had some degree of success. We have what
we call our “explorers league,” which are individuals
that have demonstrated continued success; they have had at least
three economic finds or more. So betting on someone who has had
that level of success in the past is a pretty good bet.

On the production
side, you just want people that have experience, that have done
what they said they were going to do. I just cannot tell you how
important that is. There are management teams that have good goals,
and you may like them and they have a good piece of property, but
if they do not follow through and do what they say they are going
to do, that is a huge red flag for us. We have been burned by that
with a company recently, and we had to sell for a small loss because
I just became increasingly uncomfortable with the management team
and what they were doing and what they were not doing. Now fortunately,
that is the exception rather than the rule in Big Gold, but it is
a critical component to focus on that management team and make sure
that they have had either demonstrated success in the past or they
follow through and actually do what they say they are going to do.

Chris
Martenson: We have had a lot of people suggest, to me personally
and more broadly across the airwaves there, and in print and other
means, that gold is in a bubble and has been in bubble territory
for a long time. And you look at its ten-year price rise. Where
do you think that we are in the arch of gold prices at this point?
Is there anything to suggest that we are in a bubble or anywhere
close to one?

Jeff
Clark: No. Years ago, when this idea of gold being in a
bubble first came up, I would laugh at them. Now I am getting irritated
by these people; just saying “gold is in a bubble” is
ridiculous. Did you know that the SP doubled from its’09 low?
So if the SP has doubled in three, three-and-a-half years,
well, maybe that is a bubble. Gold is up about 140% in the same
timeframe, so if gold is in a bubble, then the SP is in a bubble.
So these analysts and mainstream people that keep saying gold is
in a bubble, maybe they need to look at their own assets and realize
that if gold is in a bubble and the SP is, too, we should dump
everything in the SP. Well, that is ludicrous; the SP
is not in a bubble and neither is gold.

A bubble really
requires two things. First of all, you have to have the price in
a runaway mode, there has to be a true soaring Â– and I do not
mean 30% a year; I mean 30% in a week. The gold price doubled in
six weeks in 1979, 1980. It doubled in six weeks. That is a bubble;
that is a mania. We have not had anything like that, we have not
had the Internet stock craze, we have not had the real estate craze,
and we have not had anything like that in the gold market this time
around, so we are not in a bubble.

The second
thing you need is you need widespread participation by the public.
And we have not had that either; we have had nothing like that.
Most reports say that 1% of the population owns any form of gold
or gold stock. Has your taxi driver told you to buy gold? How many
friends of yours are telling you to buy gold? How many shows that
we see on CNBC that are devoted to how to get rich in gold stocks?
We have not had any of that. So we are not in a bubble.

Now, interestingly,
I do think we will go into a bubble, and it is probably going to
be because the currency dilution that is continuing to go on. I
think that forces us into some kind of inflation, and I think people
run to gold as a result. And I do think we will get a bubble in
it.

Chris
Martenson: Anybody listening to this right now: You can
do the same test I will do when I have Thanksgiving with my extended
family this year, or Christmas if you are listening to this later,
or a holiday when you are at your family gathering. Just poll, find
out how many people have bought investment gold in the past year.
Not because their broker said we are going to put you into a
little GDX, but I mean physical position, a core position where
on their own that they want to get into gold in some way, shape.
And if your family is anything like mine, you will be hard pressed
to find a single new candidate to the gold club this year.

Jeff
Clark: That is exactly right, and just because gold is
talked about in some headlines on CNBC or whatever you might read
or watch does not mean that it is in a bubble. It is in the headlines
because it is making new highs; that does not make it a bubble.

Chris
Martenson: Absolutely. Now you touched on one of the things
that are near and dear to my heart, and it is this idea that there
may be some form of a currency crisis in the future. You hinted
at it; I am going at it more directly, since there is a lot of currency
printing and this will lead to an inflationary event that is one
form of a currency crisis. There could be other forms out there,
and one of the reasons that I do like to hold gold is because to
me it has an embedded option value in it, and that option is this:
Sooner or later there may be a world currency crisis. Not 100% chance,
but some decent chance, maybe 25% chance over the next five years.
And if that comes to pass, we will have to come up with some sort
of solution to that. More than likely, we will have to revert to
some sort of gold standard, not because it is ideal, but it is because
it is the only thing we know for sure that works to balance international
payments on an appropriate scale that people can trust. So you have
heard certainly Robert Zoellick talk about it Â– [former] President
of the World Bank, I believe Â– so what are your thoughts on
the potential for gold to get remonetized on the international stage;
any chance of that?

Jeff
Clark: I certainly think it is possible, Chris. Going to
a gold standard is certainly possible at some point, and I think
the forces leading us to it will grow. I think the cries for going
to a gold standard will increase, especially as we get deeper into
debt, as our deficit spending does not get under control, as our
borrowing continues to increases. All of these things, and of course,
inflation. So I think it is very possible that there could be serious
consideration for going back to a gold standard. We have many states
saying that they are going to be making gold money, so you have
a lot of these kinds of issues underway at this point.

How it all
plays out is anybody’s guess, I do think that it is certainly possible,
and if we get to that point, gold is going to become even more valuable.
The issue that could happen at that point is the price could be
fixed again. So my personal feeling is, I hope that we have some
kind of mania or bubble before then, because then that is when I
am going to sell for hopefully a huge profit and get out before
they do that. So who really knows. I am not an economist so it is
a difficult topic for me to really comment knowledgeably on, but
that is my sense for it.

Chris
Martenson: So let us talk about the flow of gold, then,
“from West to East,” as one precious metal dealer described
it to me. This is a gentleman out of California who does a lot of
gold dealing and noted that a lot of his biggest buyers are coming
in from Shanghai and other places. And that a lot of the sellers
Â– there were a couple of ways of selling. First there was retail-level
selling, where people were taking the dregs of what coins had been
handed to them, potentially the same as the coins you got from your
grandparents, and that way went by, that was for
economic reasons. But still, the heavy buying is mainly concentrated
in the East, so we are seeing this flow of gold as it were going
in one direction predominantly at this point in time. What are your
thoughts on those buying pressures? Will that just continue until
all the gold ends up in the East, or will we have to settle that
out with a price mechanism? Or is there Â– shudder
Â– the possibility of capital control put in place at some point?
How does this resolve itself, in your mind?

Jeff
Clark: Well, it is interesting that you bring this up.
First of all, the demand for gold and silver is primarily in the
East already. Only about 8% or 9% of investment demand for gold
occurs in North America, and that includes Canada. 52% percent of
demand comes from India and China alone, so you are looking at roughly
two thirds of demand coming from all of Asia, and again I am speaking
of investment demand. So they already get it; they understand the
role of gold, whereas a lot of North Americans do not. So by the
time North Americans are buying, the price is probably going to
be a lot higher, but that could tip us over into a mania when this
population here starts to see the true value of gold and silver
when demand increases. But it has already shifted, and I think that
shift is A) really underway and B) is going to continue.

Now, capital
controls, who knows. I think gold would have to be viewed a lot
more valuable in North America than it is now before something like
that would ever happen. But capital controls for our money, absolutely;
most of the Casey researchers are convinced that there is going
to be some type of capital controls before this is all over. That
seems almost inevitable to us at this point.

Chris
Martenson: This is not an unthinkable thought to me, because
we did have a gold capital control, as it were, that happened in
1971 with the slamming of the gold window. So the official levels
of flows of gold were frozen. That is the essence of what I am talking
about here, but you mentioned that two thirds of demand is already
coming out of the East. There is a lot of money printing going on
all across the world; there is potential for black swan; there are
all kinds of thing that fundamentally say you should own gold. Now
let’s imagine for a moment that I am listening to this, and I happened
to be somebody who has no exposure to gold or silver at this point
in time, but now I feel like I should. How would I start?

Jeff
Clark: Well, first of all, you want to focus on how many
ounces you own, not necessarily looking at whether the price is
five dollars higher today than it was yesterday. How many ounces
do you own? That is really the question you want to ask yourself,
so you can focus on how much you are really going to need, and the
amount really comes down to this. For me, I am probably going to
use some of this gold if we get high inflation. How are you going
to protect your standard of living if we get some kind of runaway
inflation? And let’s say it is not runaway hyperinflation; let’s
just say it is high inflation, 10%, 15%. Remember it was 14% in
1980, so the odds of us getting high inflation are realistic. So
if I am going to use that gold to cover my standard of living, you
are going to need about two thirds of an ounce of gold for every
thousand dollars of monthly expenses. If you want to protect your
standard of living and not have your house be ravaged by inflation,
so to speak, so that is a good guideline to follow.

So if inflation
lasts a couple years, well, you are going to need 15 ounces of gold
for every thousand dollars of monthly expenses. That is a good guideline
to think about. And if your expenses are more per month, you are
going to need more gold than that. If inflation lasts longer than
two years, you are going to need more than that, but you can actually
use the sales of gold and silver to protect your standard of living.
You sell some gold and silver, you are going to get U.S. dollars
or Canadian dollars with it and you can use the increase in the
gold and silver price to offset the increase in the goods and services
you are buying.

So I think
that is the way to view it, to look at how you are going to use
it. And so the focus again comes back to how many ounces do
you own? So if you do not have any, you need to obviously start
buying. And the couple programs I would probably recommend: I really
like Silver Saver Â– the title is Silver Saver, but they do
have gold as well Â– they have an automatic program where they
will deduct right from your checking account and buy you gold and
silver on any day of the month or week that you want. And the minimums
are pretty low; it is only fifty dollars a month or twenty five
dollars a week. So I really like that program, and I use it all
the time still.

The other one
is Hard Assets Alliance, and the minimum there is five grand for
purchase, so it is probably for a medium- or high-net-worth person.
But if that is you, and you do not have any gold, boy, that is a
really attractive program. Because first of all, it can all be done
online. It is very simple; it is no more complicated than buying
GLD. The premiums are very low, and the reason they are so low is
because they actually bid your order out to a network of dealers
Â– anywhere from ten, twelve, fourteen dealers that are competing
for your order Â– so you always get the lowest price automatically
in terms of premium. So the commission is very low, and then they
can store it for you as well. Now you can take delivery domestically
or store it internationally. When you go to sell, you can do it
all online and get the proceeds wired to you in a day or two, so
it is a very attractive program; it actually replaces the need to
even own GLD, for that matter. But if you do not own any, the bottom
line is, you need to start buying, and those are two good programs
that I would look at.

Chris
Martenson: Absolutely, and in the interest of disclosure
I should note here that Peak Prosperity does have a relationship
with Hard Assets Alliance. You can find out more about that Â–
I will put a little link on the bottom of this that you can follow.
It is a great program; we are one of the founding members with Casey
on that because we really like what that program has to offer. And
I want to echo here that the one thing that makes sense to me is
if somebody does not have exposure to gold or silver Â–

But let us
start with gold first; they really have to get that going. You should
really have some. And I am totally price insensitive; when I first
started buying gold and silver, I have to tell you, Jeff, I was
watching the price like 20 times a day; every wiggle counted and
I felt it really mattered; I might even lose some sleep. Now I almost
do not even track the price anymore because I set my ounces aside
a while ago, and I have the luxury of being heavily in the green
on those. But at the same time, I no longer really care about the
dollar price of gold; I care about gold tracking against all kinds
of other things. And that would be gold against the SP, gold
against house prices, gold against college tuition, and gold against
the price of oil.

On all of these
bases and many more, I find that gold Â– all the charts when
you look at those relationships Â– gold is doing just fine.
It is exactly where I want to be, and I know there is going to be
a day when I am going to need to transition out of my gold into
something else. I do not feel we are there yet; in fact, I feel
that we are still years away from that moment. In your own sense,
where do you think we are in this gold story, this inflation that
might be arising? Is that something that could arise next Tuesday,
or is this something you set your dial for several years from now?

Jeff
Clark: You know, I do not have a dial set; I am just holding
gold and continuing to accumulate until it comes, because I am personally
convinced that it is going to come. So the longer it takes, the
more time I have to get myself prepared for it and accumulate enough
metal to make a difference. For my income level and portfolio size,
I own a fairly high percentage of bullion Â– it is about 13%,
14%, I do not mind sharing with you Â– and my theory is, that
is not enough. So Doug Casey, as you might imagine, owns a lot of
gold and silver bullion. He is still buying; he is afraid he does
not have enough. So our view is that it is going to come at some
point and it could be nasty; it may not. Let’s hope it is not, but
if it is, you want to be prepared.

And if there
was ever a time to be overweight gold and silver in a period of
history, this is it. All the signs are there. So when does it occur,
who really knows Â– my personal sense is, it is probably not
going to be in 2013, it will be more like 2014, but that is okay
with me, because it gives me time to make sure I am as prepared
as I really want to be.

Chris
Martenson: Three great points there for me, Jeff. One is
no time like the present, the second is we still have
the gift of time, so let us use it wisely, and then the third
is around this idea of shifting baselines. Meaning, if you took
Chris from eight years ago and just dropped me in my seat today
and allowed me to look at what the Federal Reserve, the ECB, and
the Bank of Japan are doing, I literally would jump out of my chair
with my hair on fire. I would be absolutely scared witless.

And this is
one of the surprises to me: I never thought we could get this far
into the printing game with things remaining as roughly quiet as
they are. But I have this sense that it is rather like snow building
up on a cornice. We have been lulled into this sense of complacency.
Now people go, oh, trillion dollar deficits, oh another trillion
dollars of QE. We cannot make sense of those numbers, and at
the same time, those represent to me the additional accumulation
of potential energy for something that could happen.

And like you,
I am really hopeful Â– double fingers crossed Â– that it
is not going to be bad. But history suggests that A) it is going
to happen and there is really no way to avoid it, and B) I am worried
that the risks seem to be accumulating, not being minimized or lessened,
as we go forward in time. Do you share that?

Jeff
Clark: Oh, what the politicians are doing is the exact
opposite of what they need to be doing. We continue adding to our
debt, we continue raising the debt ceiling, we continue deficit
spending, we continue borrowing money, and, of course, we continue
printing money. We are doing the exact opposite of all the things
that would lead us away from inflation. So yes, I think that is
an important point.

You know, I
will add that inflation has occurred very quickly, very rapidly,
very suddenly many times in the past, just in recent history. If
you look back at the high inflationary times, just in the past 100
years here in the U.S., many of those that hit 12%, 14%, 15% two
years prior. Then the CPI was completely benign, it was 1%, 2% Â–
I think at one point it was 4% Â– and then all of a sudden within
24 months, it was 12%, 14%. So it can happen very suddenly, and
my fear is that is what is going to happen this time. People just
like you said, they are in a lull; no one is expecting it; the
CPI is low; nothing is really happening with all this money printing;
there has been no fallout. But I think that is the critical
point. You cannot do these kinds of things we are doing forever
and not experience any consequences. Sooner or later there are going
to be consequences to what we are doing, and my fear is that it
is going to be nasty, catch a lot of people off guard, and really
hurt our society. The bottom line for me is, that is why I am buying
gold and silver, still, to this day.

Chris
Martenson: I think it is just fascinating how you put it,
two thirds of an ounce per thousand dollars of monthly expenses;
think about the ounces you want to have set aside; that is your
core position. Of course, then if you want to go on top of that
and potentially shoot for some larger returns, if you pick the stocks
in the mining territory carefully Â– you have some great ideas
there as well.

I really want
to thank you, Jeff, for your time today. Very illuminating, and
I love those ideas and the conversation itself. How can people follow
your work more closely if they want to?

Jeff
Clark: It is really easy, just go onto the www.caseyresearch.com)
website” target=”_blank”Casey Research (www.caseyresearch.com)
website and you will see the letters that we publish. I think we
have something like 11 letters now. But the entry-level letter is
Big
Gold, and it is very inexpensive Â– I think it is $79 now
a year Â– and it is a great little letter, if I do say so myself.
But it is really designed for someone who wants to initially get
some basic exposure to gold and silver and to the stocks. We recommend
only the producers in that letter, so there is no speculation with
juniors going on in there; we do have that and that is our specialty
in our other letters. But for this letter, very entry-level. It
is a great place to start.

In fact, the
current issue now has a discount on our gold bullion coins, and
it is a fractional gold bullion coin where you can get a significant
discount that you just cannot find out there in the market. We were
able to negotiate with a bullion dealer where you can get a half-ounce
fractional gold eagle at basically the same price as a full ounce.
So that could have a real practical purpose Â– for example,
in the future ,where if you are actually going to use your gold
and silver during a period of high inflation to cover some of your
expenses, a fractional gold coin could be very practical. So it
is those kind of things we like to do in that letter that make me
think I am really on the right track here with what I am bringing
to subscribers.

Chris
Martenson: Well, fantastic. We have been talking with Jeff
Clark. Hey, Jeff, I really enjoyed myself, and I hope we can do
this again sometime.

Jeff
Clark: Very good; glad to be here. Yes, let’s do it again.

About
the guest

The son of
an award winning gold panner, Jeff Clark helps work his familyâ€™s
placer claims in California, Nevada, and Arizona. Gold is never
far from his mind or his heart.

While working
as a psychological counselor, Jeff invested in the IPO of Snapple,
made a bundle, and discovered how very profitable speculating can
be. Investing in precious metals and mining became the most natural
thing in the world for him.

Making money
in the precious metals industry Â– both for himself and his
subscribers Â– is what drives Jeff. He is constantly researching
companies to recommend, analyzing the big trends in metals, and
looking for safe and profitable ways to capitalize on the gold and
silver bull market. He puts his money where his mouth is, and is
completely committed to making BIG GOLD the best precious metals
advisory for the prudent investor.

November
24, 2012

Jeff
Clark is editor of BIG
GOLD in Casey’s Daily Dispatch.

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