In the following interview of IBTimes with Jonathan Rose, President and CEO of Capital Gold Group, he talks about the recent cool down of the gold price, the impact of the non-results of the G-20 summit, the different mentality of investors in the U.S. and Britain regarding gold, and several other topics.
IBTimes: Let us start with a comment on the sudden slump of gold prices right after the G-20 summit.
Jonathan Rose: I think it will be another one of those short lived corrections, as so much demand is coming in with each move down in prices. Many people are now scared about a potential dollar collapse, and they see themselves in a very dangerous situation. That's why you see now even sophisticated daytraders or hedgefund managers, not just the general population, looking for the next big move. So I think whenever some profit-taking is going on, people come back to the table to take out bigger positions in gold.
IBTimes: What do you say about Robert Zoellick's proposal for a quasi gold standard to avert an escalating Currency War?
Jonathan Rose: The World Bank chief Robert Zoellick said to consider gold as an international reference point of market expectiations about inflation, deflation and future currency values, and I actually agree with him. And when people hear about it, having such a high profile figure as Zoellick saying gold should be included as a kind of hedge or reserve currency, ideally that's what other countries are on board with too. The ongoing Currency Wars, where China tries to keep the value of the yuan low to achieve higher exports, and other countries are unable to agree on a solution, add to all the other economic problems we [the U.S.] have. With banks collapsing and problems further down the road, that are actually not that far in the future, such as Social Security and MediCare, it's a melting pot of problems that need to be addressed. And unfortunately the Currency or rather Trade War right now is one of them. But besides that we have other problems at hand. And the $600 billion QE2 package that was initiated just now, will it really fix everything? Or is it rather a band-aid, as they are already talking about a QE3.
IBTimes: Regarding the QE2 program, some people said that it would't have any impact on inflation as it is simply too small, and also most of it would go to emerging markets or stay on the bank balance sheets. The bigger problem seems to be, that this band-aid will just delay any real solutions, and thus let the problems in the financial system grow even bigger.
Jonathan Rose: Some people are maybe pro the QE2, saying yes, we really need this money to survive. But they have to realize that there were already $780 billion spent in stimulus money. And what about the $709 billion the U.S. spent on the Iraq War, and all the other hundreds of billions dollars that G. W. Bush spent during his administration. At some point, although yes, we have to spend money, there needs to be results! If results are not to be seen soon, we can come into a situation like Greece. Debt does matter, and you cannot just keep spending out of debt. So this [crisis] was already ten years in the making, and reversing it will likewise not happen overnight. So this mess could go on for another ten years, and depending on the outcome it will be our grand-children paying for this in terms of higher taxes and less entitlements.
IBTimes: How are the imbalances in the world economy, which were a big topic at the G-20 summit last week, but are still unsolved, affecting gold?
Jonathan Rose: A big part of the reason that the U.S. is stagnating is the gigantic $250 billion trade imbalance with China per year! This is the kind of bigger picture that people need to focus on. This mess will take time to unravel, and in the meantime the smart money, and people who read the writing on the wall, move up to higher grounds, as they see a big tsunami coming. These are the people who have gold in their portfolio as part of a diversification strategy.
Its really a great mess we're in, and obviously thats great for gold.
IBTimes: That brings us to the next question - how can investors step up the share of gold in their portfolio? There are different ways, especially ETFs became very popular recently. As you have a background in the banking industry in London, it would be interesting to hear your opinion on this.
Jonathan Rose: When people talk about gold, I am a big believer in owning gold in a tangible form. Not gold mining stocks or certificates, but only gold is worth gold. I recently founded the company Physical Gold Ltd. in London, which is the first to work together with professional financial advisors to supply their clients with physical gold, which we either store for them in a vault in London, or also deliver. Even big brokers now approach us on their own, to get their financial advisors trained on how to position their clients in gold in this troubled economic climate.
The issue is that people in Britain have a completely different mentality towards gold than Americans. In the U.S. many people know that they should have gold in a physical form, and those people are often the same who also have weapons and food storages to be insured against crisis. In Britain, people generally don't know anything about gold, they don't understand it. But since 2006, it is possible to add a gold component to your pension, called SIPP in the UK. This is a brand new concept, and resulted in a strong increase in demand over the past few years. It is more attractive for people in the UK, because they don't want to have large amounts of gold at home, they are afraid to be robbed, and prefer to have it hold by financial institutions where they can see it on their account statements. Also, people in Britain look at gold more from an analytical standpoint and analyze the underlying trends that drive the gold price, whereas in the U.S. you mostly just hear the same old reasons that it is a hedge against inflation, and that you should have it because people are, or can be in panic. But the world will not end tomorrow, nor in our lifetime - the governments won't allow a total crash. And the collapse of the dollar will only happen gradually, losing ever more value.
IBTimes: But in that case, without a major systemic failure, without the big crash, it should be fine to participate of the continued rise of the gold price with paper instruments as well, isn't it? And ETFs should be also secure against counter-party risk, except that they are an all-out fraud and are not actually backed by physical gold, as they say they are.
Jonathan Rose: The counter-party risk remains in many instruments. And are the ETFs fraud - well I don't want to accuse anyone, but I feel it would be good if some auditing could be done, not just on the Federal Reserve in America, but also in England where those ETFs are being traded. There are stories saying that only 10 percent of the traded ETF value is backed by actual gold. So it is still reasonable and understandable that people prefer to own gold coins or bars.