James Turk: Erosion of Trust Will Drive Gold Higher

Tyler Durden's picture

Submitted by Casey Research

James Turk: Erosion of Trust Will Drive Gold Higher

James Turk, founder of precious metals accumulation pioneer GoldMoney, has over 40 years' experience in international banking, finance, and investments. He began his career at the Chase Manhattan Bank and in 1983 was appointed manager of the commodity department of the Abu Dhabi Investment Authority.

In his new book The Money Bubble: What to Do Before It Pops, James and coauthor John Rubino warn that history is about to repeat. Instead of addressing the causes of the 2008 financial crisis, the world's governments have continued along the same path. Another—even bigger—crisis is coming, and this one, say the authors, will change everything.

One central tenet of your book is that the dollar's international importance has peaked and is now declining. What will the implications be if the dollar loses its reserve status?

In a word, momentous. Although the dollar's role in world trade has been declining in recent years while the euro and more recently the Chinese yuan have been gaining share, the dollar remains the world's dominant currency. So crude oil and many other goods and services are priced in dollars. If goods and services begin being priced in other currencies, the demand for the dollar falls.

Supply and demand determine the value of everything, including money. So a declining demand for the dollar means its purchasing power will fall, assuming its supply remains unchanged. But a constant supply of dollars is an implausible assumption given that the Federal Reserve is constantly expanding the quantity of dollars through various forms of "money printing." So as the dollar's reserve status erodes, its purchasing power will decline too, adding to the inflationary pressures already building up within the system from the Federal Reserve's quantitative easing program that began after the 2008 financial collapse.

Most governments of the world are fighting a currency war, trying to devalue their currencies to gain a competitive advantage over one another. You predict that China will "win" this currency war (to the extent there is a winner). What is China doing right that other countries aren't? How would the investment world change if China did "win"?

As you say, nobody really wins a currency war. All currencies are debased when the war ends. What's important is what happens then. Countries reestablish their currency in a sound way, and that means rebuilding on a base of gold. So the winner of a currency war is the country that ends up with the most gold.

For the past decade, gold has been flowing to China—both newly mined gold as well as from existing stocks. But that flow from West to East has accelerated over the past year, and there are unofficial estimates that China now has the world's third-largest gold reserve.

The implications for the investment world as well as the global monetary system are profound. Why should China use dollars to pay for its imports of crude oil from the Middle East? What if Saudi Arabia and other exporters are willing to price their product and get paid in Chinese yuan? Venezuela is already doing that, so it is not a far-fetched notion that other oil exporters will too. China is a huge importer of crude oil, and its energy needs are likely to grow. So it is becoming a dominant player in global oil trading as the US imports less oil because of the surge in its own domestic fossil fuel production.

Changes in the way oil is traded represent only one potential impact on the investment world, but it indicates what may lie ahead as the value of the dollar continues to erode and gold flows from West to East. So if China ends up with the most gold, it could emerge as the dominant player in global investments and markets. It already has become the dominant player in the market for physical gold.

You draw a distinction between "financial" and "tangible" assets, noting that we go through a recurring cycle where each falls in and out of favor. Where are we in that cycle? With US stocks at all-time highs and gold down over 30% since the summer of 2011, is it possible that the cycle is rolling over?

Our monetary system suffers recurring booms and busts because of the fractional reserve practice of banks, which allows them to create money "out of thin air," as the saying goes. During booms—all of which are caused by too much money that banks have created by expanding credit—financial assets outperform, but they eventually become overvalued relative to tangible assets. The cycle then reverses. The fractional reserve system goes into reverse and credit contracts, causing a lot of promises made during the good times to be broken. Loans don't get repaid, unnerving bankers and investors alike. So money flees out of financial assets and the counterparty risk these assets entail, and into the safety of tangible assets, until eventually tangible assets become overvalued, and the cycle reverses again.

So for example, the boom in financial assets that ended in 1967 led to a reversal in the cycle until tangible assets became overvalued in 1981. The cycle reversed again, and financial assets boomed until the popping of the dot-com bubble in 2000. We are still in the cycle favoring tangible assets, but there is no way to predict when it will end. We know it will end when tangible assets become overvalued, but as John and I explain in The Money Bubble, we are not even close to that moment yet.

You cite the "shrinking trust horizon" as one of the long-term factors that will drive gold higher. Can you explain?

Yes, this is an important point that we make. Our economy, and indeed, our society, is based on trust. We expect the bread we buy from a baker or the gasoline we buy for our car to be reliable. We expect our money on deposit in a bank to be safe. But if we find the baker is putting sawdust in our bread and governments are using depositor money to bail out banks, as happened in Cyprus last year, trust begins to erode.

An erosion of trust means that people are less willing to accept the counterparty risk that comes with financial assets, so the erosion of trust occurs during financial busts. People as a consequence move their wealth into tangible assets, be it investments in tangible things like farmland, oil wells, or mines, or in tangible forms of money, which of course means gold.

Obviously, gold has been in a painful slump since the summer of 2011. What near-term catalysts—let's say in 2014—could wake it from its slumber?

We have to put 2013 into perspective, because portfolio management is a marathon, not a 100-meter sprint. Gold had risen 12 years in a row prior to last year's price decline. And even after last year, gold has appreciated 13% per annum on average, making it one of the world's best-performing asset classes since the current financial bust began with the popping of the dot-com bubble.

Looking to the year ahead, there are many potential catalysts, but it is impossible to predict which event will be the trigger. The derivatives time bomb? Failure of a big bank? The sovereign debt crisis returns to the boil? The Japanese yen collapses? It could be any of these or something we can't even imagine. But one thing is certain: as long as central banks continue their present money-printing ways, the price of gold will rise over time to reflect the debasement of national currencies. The gold price might not jump to its fair value immediately because of government intervention, but it will rise eventually and inevitably.

So the most important thing to keep in mind is the money printing that pretty much every central bank around the world is doing. The central bankers have given it a fancy name—"quantitative easing." But regardless of what it is called, it is still creating money out of thin air, which debases the currency that central bankers are supposed to be prudently managing to preserve the currency's purchasing power.

Money printing does the exact opposite; it destroys purchasing power, and the gold price in terms of that currency rises as a consequence. The gold price is a barometer of how well—or perhaps more to the point, how poorly—central bankers are doing their job.

Governments have been debasing currencies since the Roman denarius. Why do you expect the consequences of this particular era of debasement to be so severe?

Yes, they have, and to use Rome as the example, its empire collapsed when the currency was debased. Worryingly, after the collapse of the Roman Empire, the world went into the so-called Dark Ages. Countries grow and prosper on sound money. They dissipate and eventually collapse when money becomes unsound. This pattern recurs throughout history.

Rome of course did not collapse overnight. The debasement of their currency cannot be precisely measured, but it lasted over 100 years. The important point we need to recognize is that the debasement of the dollar that began with the formation of the Federal Reserve in 1913 has now lasted over 100 years too. A penny in 1913 had the same purchasing power as a dollar has today, which, interestingly, is not too different from the rate at which Rome's denarius was debased.

After discussing how the government of Cyprus raided its citizens' bank accounts in 2013, you suggest that it's a near certainty that more countries will introduce capital controls and asset confiscations in the next few years. What form might those seizures take, and how can people protect their assets?

It is impossible to predict, of course, because central planners can be very creative in coming up with different forms of financial repression that prevent you from doing what you want with your money. In fact, look at the creativity they have already used.

For example, not only did bank depositors in Cyprus lose much of their money, much of what was left was given to them in the forms of shares of the banks they bailed out, forcing them to become shareholders. And the US has imposed a creative type of capital control that makes it nearly impossible for its citizens to open a bank account outside the US. Pension plans are the most vulnerable because they are easy to get at. Keep in mind that Argentina, Ireland, Spain, and Poland raided private pensions when those countries ran into financial trouble.

Protecting one's assets in today's environment is difficult. John and I have some suggestions in the book, such as global diversification and internationalizing oneself to become as flexible as possible.

You dedicated an entire chapter of your book to silver. Which do you think will appreciate more in the next year, gold or silver? How about in the next 10 years?

I think silver will do better for the foreseeable future. It is still very cheap compared to gold. As but one example to illustrate this point, even though gold underwent a big price correction last year, it is still trading above the record high it made in January 1980, which was the top of the bull run that began in the 1960s.

In contrast, not only has silver not yet broken above its January 1980 peak of $50 per ounce, it is still far from that price. So silver has a lot of catching up to do.

Silver is a good substitute for gold in that silver, too, can be viewed as money outside the banking system, which is an important objective to keep wealth liquid and safe today. But silver may not be for everyone, because it is volatile. This volatility can be measured with the gold/silver ratio, which is the number of ounces of silver needed to equal one ounce of gold. The ratio was 30 to 1 in 2011, and several months later jumped to 60 to 1.

So you can see how volatile silver is. But because I expect silver to do better than gold, I believe that the ratio will fall to 16 to 1 eventually, which is the same level it reached in January 1980. It is also the ratio that generally applied when national currencies used to be backed by precious metals.

Besides gold, what one secular trend would you be most comfortable betting a large portion of your nest egg on?

Own things, rather than promises. Avoid financial assets. Own tangible assets of all sorts, like farmland, timberland, oil wells, etc. Near-tangibles like the equities of companies that own tangible assets are okay too, but avoid the equities of banks, credit card companies, mortgage companies, and any other equities tied to financial assets.

What asset class are you most bearish on?

Without any doubt, it is government debt in particular and more generally, government promises. They have promised more than they can possibly deliver, so a lot of their promises are going to be broken before we see the end of this current bust that began in 2000. And that outcome of broken promises describes the huge task that we all face. There will be a day of reckoning. There always is when an economy and governments take on more debt than is prudent, and the world is far beyond that point.

So everyone needs to plan and prepare for that day of reckoning. We can't predict when it is coming, but we know from monetary history that busts follow booms, and more to the point, that currencies collapse when governments make promises that they cannot possibly fulfill. Their central banks print the currency the government wants to spend until the currency eventually collapses, which is a key point of The Money Bubble. The world has lost sight of what money is.

What today is considered to be money is only a money substitute circulating in place of money. J.P. Morgan had it right when in testimony before the US Congress in 1912 he said: "Money is gold, nothing else." Because we have lost sight of this wisdom, a "money bubble" has been created. And it will pop. Bubbles always do.

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wmbz's picture

"There is no way of avoiding the final collapse" - Ludwig von Mises

That is 100% correct. However it can take a long,long time to get there, and it has.

Landotfree's picture

That is correct, if the equation is used there a temporary expansion followed by collapse and liquidation.   Usually 60-80 years.

"Trust" or "breakdown of Trust" has nothing to do with the coming storm, it's simple Math i.e. Truth.  

Arius's picture

it could take a long time to get there, and it has, and most certainly it will .... generations have been making the same predictions for hunderds of years.


about JP Morgan, if he was so smart, why did he die so poor ... i think he had a few millions to his name when he died unless his stash is stashed away.... some "JPM island treasure"

boogerbently's picture


"Erosion of Trust Will Drive Gold Higher"

I've been thinking this for 7 years, now !?

lickspitler's picture

Turk has gotta be right one day Maybe

MeelionDollerBogus's picture

no such thing as double-bottom, triple-top, head-and-shoulders, etc.

What puts in a bottom in gold & silver is that they move together & have real physical energy costs to extract & refine and those costs set the real limit on acquisition cost elsewhere. What sets a bottom in trading is no one else willing to go leveraged long & people who went leveraged short get hurt bad enough not to try it again. Then come the bonds. Bonds collapsing & stocks being rife with fraud leaves people with gold, oil & land as choices.

Inbetween is pain's picture

JP Morgan did not die poor.  His estate was worth over the equivalent of a billion in today's dollars when he died.

Transformer's picture

But, the point is, he was worth far, far less than the financial community thought.  And that was because the majority owner of his bank was in Europe, as it is today.


Drifter's picture

It has less to do with math and more to do with "generational forgetfulness".  It takes 3 generations to forget a monetary collapse and what caused it.  Along with a healthy dose "revisionist history" perhaps.

Bankers are well aware of this phenomenon.

In 80 years we've gone from gold/silver redeemable currency to currency that has no redeemability and no backing, and nobody fusses about it.

But after the US dollar collapse the cycle starts over.  Next currency will be gold/silver redeemable again, or it won't be taken seriously.

Squid-puppets a-go-go's picture

exactly. in the global negotiations to come, the parties will twist and squirm all different ways to try and exclude gold backing from the equation, but in the end it will be the only viable source for the restoration of trust

LawsofPhysics's picture

Math?  Please, math is still a human construct.  The laws of Nature and physics are what they are.  Apparently some really big lizards thought they could "rule the earth" at one point as well...


hedge accordingly.

MeelionDollerBogus's picture

There is nothing of physics that isn't math, humans have not nearly seen all of it.

Sean7k's picture

Then perhaps you can explain how all the same families avoided the collapse of 1929, 1931 and 1938?  Think Keynes and Austrians as the opposite sides in the dialectic. Austrians filled with economic validity, but no influence. Keynes filled with little validity and all the influence. It gives a lot to argue about, but the system remains the same. 

You have to ignore the noise and get to the heart of the matter. Produce more than you consume. Save more than you spend. Invest, live, love and tell the slavemasters to fuck off. All the rest takes care of itself.

Arius's picture

fair question!  let me try my two cents...

two possibilities, one is coincidence, which i presume from your line of reasoning must be reluctant to admit, and second and more importantly it is the gens; smart people tend to pass their gens to other smart paople and so on, hence the reason for kingdom (you must not believe that right?)...

well out of amunition, almost, but here is a question back to you ... how do you explain that Kennedy the father (followed the advice of the guy who tied his shoes, bet all his fortune on his clever advice, won, and what happened to his sons if we are to believe the conspirators??? just sayin'


i love a good question from someone who has done his homework ... that way we can develop the thought and learn in the process from each-other ... that is the reason of my attempt to address your question on big famillia

Sean7k's picture

Unfortunately, there are lots of intelligent people whom never wield influence. There are plenty of average mentalities whom do wield influence- think John Kennedy- IQ of about 105. Still, he was but a puppet and when he stopped dancing? You notice GW has come out just fine and he is a VERY average intelligence. 

Kennedy was well connected through Illuminati ties. The shoe shine boy? You really believe that? All stock market action is front run by the holders of seats on the exchange and even more by a powerful circle within that group. The crash was he result of capital withdrawn by central bankers in the US and Europe- think Rothschild. 

His sons misbehaved. That is what happens when you challenge the Illuminati/zionist nexus. They have no problem killing family members. Or saving them: Ted Kennedy- Chappaquidick?


Arius's picture

"family members" ... Sean do not take this personally, but that is a bit too high, more like a short term contractor, i wondered where the old man got the job from, when he was in London or his father in law ... not important though, they were really short term contractors, just one job it seems to me

kliguy38's picture

for someone that is curious enough to ask the questions I must ask why you have not researched these issues more......most of these issues are covered in detail by books and publication that are well researched and Sean does not need to be a "conspiracist" when indeed the facts portray this as exactly that...a global conspiracy.....but of course if "random" events make you feel more comfortable by all means have a nice lazy internet debate

Arius's picture

not sure you got what i said .... just trying to learn thats all ... not trying to insult anybody - apologies if thet is how it came accross

kliguy38's picture

i apologize.......the evidence to support Sean is out there in overwhelming amounts and millions know this and have researched it.....the problem is the masses (billions) for a variety of complex reasons do not care or care to research this and rely upon the MSM and football for their education......just use your search engine and you will be amazed.......

machop's picture

James Turk who shouted gold/silver will go much much higher in 2011.


You keep calling, calling, one day, you will be correct.

Silver Garbage Man's picture

Anyone with half a brain and is well informed can see that this is going to collapse. It could happen any time..are you ready asshole?

Landotfree's picture

Europe was the 1st or 2nd largest holder of gold in World durning the last liquidation cycle.   Didn't stop a damn thing. 

SeattleBruce's picture

And the locus of power shifted away from Europe to the US - which held, controlled gold, gold based reserve currency and oil transaction settlements. And in the next reset, that power may slip through TPTB fingers again into a new set of hands - with many being in the East/Russia. This isn't to say the well heeled manipulators of the banksta mafia, won't persist in some form, of course.

I agree that human society at large haven't learned our lessons, or been able to establish more just systems, unless perhaps incrementally, or symbolically - "democracy" and the supposed "rule of law". We can prepare for the reset, but unless many more are awakened (Ron Paul, et al), we will not see any advancements in just society and economics...

Sean7k's picture

Why would I listen to any one with half a brain, regardless of how well informed? If there is a "collapse" it will be engineered to create a society with greater control and tyranny, yet the same people will stay on top. Further, unless you are one of those families, your position will be jeopardized. 

You want to have control and think you can create it, an island away from totalitarianism. Sorry, it doesn.t work that way. The only way this changes is if we all refuse to accept the system. You have to eliminate the system of law, because that is the machinery of slavery.

silvermail's picture

He's smart and he speaks well. But he not ready, so he will not be able to survive.
He surely die.
Because knowledge and beautiful words can not replace stock of food supplies and medicines.

MeelionDollerBogus's picture

Thankfully pure silver is in fact an antibacterial medicine.

Ignatius's picture

"James Turk who shouted gold/silver will go much much higher..."

Wait, you're saying Turk said gold was going higher?

Now I'm really confused.

machop's picture

Those so called "expert" (people like Turk)  can call whatever they want, they think they know what they are doing, if you pull those articles from 2011, they had been saying "back your truck up" how many f*&king times?

You keep saying "buy , buy, buy" long enough, you will get one or twice right. Go back to King's world news, when did they say "gold has a major top, time to run"? never.

This has nothing to do with gold fundmental. 

You have limited capital, you follow those guys, in no time you lose all your money.


JimS's picture

Well, the converse of what you say, would be: listen to Jim Cramer and you'll always make money, correct?

joak's picture

They say buy buy buy because they forecast a collapse and PM are the only insurance one can get. It has all to do with the fundamentals ! It's the same than Faber repeating all the time : "I buy gold every month, whatever the price". When did you read on KWN "now sell your gold and take profits". Never as well.

silvermail's picture

You can not "lose all your money" on the  buying physical gold. Because physical gold is never converted to zero.

Titan Uranus's picture

They did both go much higher in 2011.  However, the bottom dropped out afterwards as well - to a degree that is close to statistically impossible without illicit intervention/manipulation.  Was Tuirk supposed to  foresee that also?  Maybe - Moriarty called the silver top about right, so I guess he had his 20-20 glasses on at the time. 

Haager's picture

Nice article, it came as if it's ordered just in time. I am betting on a drop in paper-gold value this week, albeit not that much (about 30$ btw low/high of the week). We all saw lately that gold and stocks (and bonds partially) went up more or less in line, so a drop in stocks will lead to a drop in paper-value price, too.


Hindenburg...Oh Man's picture

I agree. Although if gold hangs in there and goes higher, watch the fuck out. Even this week, when the markets were pulling back on "bad" news (usually during the pre-market hours), gold held in there, along with the mining stocks, and even pushed higher. So--if we do get some kind of stock market correction, I wouldn't be surprised to see Gold still chug upwards.

cpnscarlet's picture

I believe in the fundamental function of Gold in finances. I believe Gold in the financial realm is analagous to God in the spiritual realm - it is the basis for everything. And just like the way America has abandoned God, it has also abandoned Gold. Neither decision will bring about any good and things will get worse from here.

With that said, let's be clear. James Turk and Jim Sinclair have been dead wrong in everything they have said since August of 2011. They may have alot of knowledge about precious metals, but their forecasts have lacked anything that can been defined as "precision", although everything they say can be termed as "accurate".

So have they just been "talking their books"? I don't think so. I think 80% of their errors can be attirbuted to the fact that very few (and I mean FEW) people saw how controlled the markets could be and the length of time they could be controlled by the squids and cartels.

But even if you can take that into account, men like Sincalir and Turk are in great need of a "mea culpa" moment. I need to hear "I was wrong for two years and this is why..." from several pundits. It's been a tough 30 months and it's time for a good soul cleansing for many out there. Until I get some of that, I ignore them and just keep stacking.

highly debtful's picture

Predicting major trends is not too difficult and even within the grap of anyone with basic common sense. However, timing these same trends i.e. determining a precise timetable of when it will all play out, is virtually impossible. Too many variables and possible black swans along the road. Even knowledgeable guys like Jim Sinclair often pull the trigger much too early. 

Me, I'm just glad I have some general idea of where all of this is heading. Knowing when seems less important.

JimS's picture

You are correct, sir. That is why I treat gold/silver as an "insurance" policy against currency debasement , as opposed to an "investment".

silverserfer's picture

Turk's knowledge of the current state of finances is analagous to a geologist being knowlegeable about earthquakes. Its easy to see what causes them and what the do when the happen but event the smartest geologists cant predict when they are going to occur. But they at least tell people where they shouldn't live and how to prepare for an earthquake when and where they will likely come.

Presure builds up then a bird shits on the ground and the whole thing starts shaking. 

Silver Garbage Man's picture

Remember , there is a big difference between being wrong and being early.

GVB's picture

I completely agree. All fundamentals were in place when they launched their calls. All of them. 

cpnscarlet's picture

I agree and that's why I tried to make the point between being "accurate" versus being "precise". I also hope I have made the point that they still need to discuss their lack of "precision" in an honest forum instead of pretending like their bad calls never happened. This goes double for James Turk who I have lost all respect for along with Jim Willie.

Although I must admit that I did receive an email from Santa where he didn't run from it. Now, he has to go public with the admission and some critical analysis of his own views.

GVB's picture

Nice post, but the only reason why they should apologize is for underestimating the extent to which the markets are manipulated (ask Germany). Give me "the mechanism to manipulate" and I will convince 99% ("sheep") that the one who told the truth, was wrong. It's just a splendid piece of "mindfuck"


“In the beginning of a change the patriot is a scarce man, and brave, and hated and scorned. When his cause succeeds, the timid join him, for then it costs nothing to be a patriot.” - Mark Twain



kliguy38's picture

look you pompous internet douche.......just WHAT should he specifically go public on that he has NOT already covered for two years now on this takedown.......THAT HE WARNED YOU to get into bullion AND THAT ALL PAPER was going to get crushed........are you pissed because you didn't get rich last year .........taking "precise" advice on timing will get you destroyed in this game........OBVIOUSLY you do NOT learn

cpnscarlet's picture

'guy -

Good to see that you still have  a fine sense of posting etiquette that got you booted from TFM.

I'm not pissed that I didn't get rich, I'm angry that I took these people at their word and got set back a year. If they want to be known as "experts", they need to know what that entails. I know that Sinclair takes it to heart most of the time. I don't think Turk understands that at all.

Shmuck...there...happy now, you increible egotisitcal closet case.

I_rikey_lice's picture

Turk advises to buy precious metals with the same dollar amount the same time each month. This way you are averaging in. Many people put the majority of their life savings into silver in the $30's and $40's because all the pumpers on Turd Ferguson's and other pumper sites convinced them that silver was going to the moon and if you don't get some now you will be left out forever.

James Turk NEVER advised people to go all in on gold or silver, always advised averaging in. His price forecasts were horrible, but if you took his buying advise you would not be underwater today!

cpnscarlet must have gone all in on silver alot higher than today's price because most of his posts on TFM are whining about James Turk's bad calls!

Grow a pair and take responsibility for your own decisions.

MeelionDollerBogus's picture

I never saw a person on Earth do what I did, plot gold prices nearly daily in the future for outcome, months in advance.
My charts failed only when I sent one on twitter TO the Federal Reserve.
The math was my own, http://www.youtube.com/ytgv3fc7 for the videos on how they were made, and I came to the same prices as Sinclair.
I'll cut him some slack. No one else was more accurate.