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Back for another thought-provoking conversation with The GOLD Report, John Embry sees both good and bad news in the weeks, months and years ahead. For example, John - Sprott Asset Management's chief investment strategist - is braced for "an ugly summer," with "another significant test in the equity market." Before year-end, he anticipates $1,500 gold - but also the beginning of worldwide hyperinflation that may take many Americans by surprise. And while John is bearish on world economies for the next few years, within that same time he looks toward "numerous 5- and 10-baggers" among small-cap gold producers and junior explorers with solid projects.

The Gold Report: Quite a bit's happened since the last time we spoke with you back in September of '08. Gold was $874 at that point, and then dropped considerably in Q4. It has come back in '09, trading in the range of $850 to $950. Is gold still tethered to the dollar?

John Embry: I don't know that it's tethered to the dollar per se. Basically, there's a major problem with the dollar. I believe it is absolutely fated to fall dramatically against everything, but more against real assets than against other currencies. When I look at the other currencies, they don't look very good either, particularly the Euro and the Japanese yen.

They're trying to create the impression that paper currency is still good; so they go out of their way to try to pound gold at every opportunity. A week ago, clearly gold was tethered to the dollar on the downside, but on the other hand, for the prior few weeks when the dollar was under enormous pressure, there was still restraint in the gold price. It went up, but it should have gone up a lot more. They put pressure on to keep it from going up too much, and with an opportunity for a stronger dollar, they knock gold down. It's been the same format for a long time. But we're getting close to the end of that.

TGR: Why's that? What's going to push it over?

JE: There's no question what's going to push it - the realization that the U.S. is broke.

TGR: Who doesn't realize that already?

JE: Well, 90% of the people don't. Ask the average citizen. They don't have a clue what's going on.

TGR: So we need the public to figure this out.

JE: Absolutely. The U.S. budget deficit is going to be 13% of GDP. That's unheard of for the world's reserve currency. There's no way you get out of that easily.

TGR: But most people aren't in the market anyway, so why would their realization affect the price of gold?

JE: Oh, it's not them; it's the people with the money - the people in the Far East and the Middle East. They will just want out of currency and as quickly as possible.

TGR: Why aren't they buying gold now?

JE: They are. They've already started.

TGR: So why hasn't the price gone up?

JE: It has gone up. But the fact is that, with the paper gold market, if you look at the short positions that the commercials, that the bullion banks, which are the agents of the U.S. government are running, it's a complete fraud.

TGR: How so?

JE: Because they couldn't possibly deliver on their paper promises if they were called by the people on the other side of the trade. The gold isn't there to deliver. They've cleaned out most of the western central banks. So we're real close. I think gold will be $1,500 before the end of the year.

TGR: When we had the last spike in gold back in 1979 and 1980, was that predominately U.S. individuals or were people buying it globally?

JE: It was more U.S. then because, at that point, the U.S. was still the richest nation in the world. Now, the money has gone primarily to the East. They're the ones that own all the dollars and the ones becoming more and more concerned about it. This charade with Geithner over in China, what a joke that was. He spoke to a bunch of students, who broke out laughing when he said the Chinese assets in the U.S. were safe. He couldn't even fool the kids.