Sprott's John Embry:“The Current Financial System Will Be Totally Destroyed“

Tyler Durden's picture

Sprott strategist John Embry has never been a fan of the existing financial system. Today, he makes that once again quite clear in this interview with Egon von Grayerz' Matterhorn Asset Management in which he says: "I think that the current financial system, as we know it, will be totally destroyed, probably sooner rather than later. The next system will require gold backing to have any legitimacy. This has happened many times in history." Needless to say, he proceeds to explain why a monetary system based on gold, one in which one, gasp, lives according to one's means, is better. Logically, he also explains why the status quo, whose insolvent welfare world has nearly a third of a quadrillion in the form of unfunded future liabilities, will never let this happen. Much more inside.

From Matterhorn Asset Management

“The Current Financial System Will Be Totally Destroyed“

John Embry, the chief investment strategist at Sprott Asset Management, talks in this exclusive interview about the motives and the means of certain interests to prevent a free gold market; tells the reason why the gold price will remain high; shows the opportunities in silver; and explains: “Gold is about the furthest thing from a bubble that I can think of.“
By Lars Schall
An industry expert in precious metals, his experience as a portfolio management specialist spans more than 45 years: John Embry, the chief investment strategist at Sprott Asset Management. He began his investment career as a Stock Selection Analyst and Portfolio Manager at Great West Life. Mr. Embry then became a Vice President of Pension Investments for the entire firm. After 23 years with the firm, he became a Partner at United Bond and Share, the investment counseling firm acquired by Royal Bank in 1987. Afterwards he was named Vice-President, Equities and Portfolio Manager at RBC Global Investment Management, a $33 billion organization where he oversaw $5 billion in assets, including the Royal Canadian Equity Fund and the Royal Precious Metals Fund. In March 2003 Mr. Embry joined  Sprott Asset Management with focus on the Sprott Gold and Precious Minerals Fund and the Sprott Strategic Offshore Gold Fund Ltd. He plays an instrumental role in the corporate and investment policy of the firm.

Mr. Embry, the perhaps best report I have ever read on the gold market was “Not Free, Not Fair: The Long-Term Manipulation of the Gold Price,” written by Andrew Hepburn and you. (1) I would like to talk with you at the beginning about the findings of that report. First of all, why do you think it is relevant whether the gold price is free or not?

John Embry: Thank you for the very generous compliment. It is essential that the gold market be free. It functions as the so called “canary in the coal mine” and its price should be allowed to reflect excesses in a pure fiat monetary system. The continued suppression of the gold price was a key factor in the many financial bubbles which have essentially wrecked the monetary system as we know it.

What has the evidence been that the gold market isn’t a free market?

John Embry: Our report which was written 7 ½ years ago revealed all sorts of chicanery in the gold market and we only used evidence which could be corroborated. Considerable additional evidence has piled up subsequently but two smoking guns are the repetitive counter intuitive price action and evidence of widespread clandestine leasing of western central bank gold.

Who are the ones that don’t like a free gold market and which objectives do they have in mind by preventing a free gold market?

John Embry: The western governments, their central banks and the allied bullion banks are the culprits. They view gold as a mortal enemy of the fiat currency system. Gold has been real money for centuries and every paper money system in history has ultimately collapsed. This drives them to continuously denigrate and manipulate gold.

Through which tools is the gold price “managed“?

John Embry: The worst damage occurs in the so-called paper gold market where derivatives, naked shorting, vicious margin hikes, etc. are employed to fleece the long side who don’t have as deep pockets. In addition, the western central banks have supplied the physical gold necessary to effect the plan through their leasing.

Recently, I was told by a former chairman of the Federal Reserve, Paul A. Volcker, that to his best knowledge “the U.S. has not intervened in the gold market for more than 40 years.“ (2) Do you think Mr. Volcker has the truth on his side?

John Embry: Mr. Volcker admitted that the U.S. had made a mistake by not intervening at one point in the gold market some 40 years, so to think that nothing has happened subsequently is extremely naïve. Technically he might be correct in the sense that swaps could have been employed and the intervention using U.S. gold could have been conducted by another party. Recently retired Fed Governor Kevin Warsh acknowledged U.S. gold swaps in correspondence with GATA just last year. (3)

Furthermore, Mr. Volcker seemed to suggest that central banks have some interest in the price of gold because of its effect on the currency markets. (4) What kind of relationship does exist between gold and the currency markets which are much bigger than the gold market?

John Embry: Very simple. Gold is a currency. Arguably it is the ultimate currency and the central bankers are acutely aware of this fact. Gold’s role as currency is once again coming to the  fore and the central bankers hate that fact.

Are gold swap arrangements between central banks a) important for the “management“ of the gold price, and b) do they represent a means of intervention in the gold market?

John Embry: They are most certainly important because it allows central bankers to technically tell the truth because it is always another central bank that is utilizing the swapped gold to intervene in the market.  It is a subterfuge.

Do you think the Western central banks have as much gold as they claim they have?

John Embry: I strongly suspect that they have materially less than they try to represent. The IMF permits a one line entry on their balance sheets which aggregates physical gold with gold receivables. That’s ridiculous and it is done to deceive analysts. For example, if the Americans had the 8,161 tonnes that they say they have, they would be delighted to submit to an outside audit and shut their detractors up. However, they stonewall all requests.

With its “QE to infinity“ program: would you say the Fed has exposed itself in a way as a hardcore goldbug entity?

John Embry: I believe they are fully aware of the extent to which they are debasing their money. We, the public, have to be the hardcore gold bugs to protect our wealth from their depredations.

It seems as if more and more gold is moving towards certain central banks and not away from them.  Is this a solid assurance that the gold price will remain high?

John Embry: I believe so. The eastern central banks (China, Russia, et al) have accumulated a lot of dollars and realize they are at risk. Ergo, they buy gold. At the same time, I think the western central banks have run their inventories down to levels beyond which they won’t go. Thus, I think central banks collective gold buying will have a salutary impact on the price going forward.

In the event of another market meltdown, which seems rather likely, do you expect a sell-off in gold?

John Embry: There could be a minor sell-off just because there are so many algorhythyms influencing the market.  It would be short lived because big money in the world now knows they need gold for protection.

Gold is in a bull market for ten years now. So an increasing number of people say it is in a bubble. Why would you say, in Gershwin’s words, “it ain’t necessarily so“?

John Embry: Gold’s price is directly related to the constant debasement of the currencies in which it is denominated. The creation of new paper money is dwarfing the amount of gold available. Gold is about the furthest thing from a bubble that I can think of.

What do you think in particular about Warren Buffett’s constant “Gold is in a bubble, I go for stocks“ talk? Does he serve here as an influential opinion maker in a specific role because he gets a lot of public attention? In other words: is he a fool or does he only act like a fool? (5)

John Embry: Warren Buffet sold out a long time ago. It’s too bad because he was a great stock picker once. Now he owns insurance companies, Wells Fargo and was a buyer of Goldman Sachs and G.E. in the global financial crisis. He is a member of the American establishment and has a lot to lose. He should have listened to his father Howard Buffett who was a U.S. Congressman and a true “hard money” advocate.

In your view, gold will gain in importance as a monetary asset in the years ahead, likely regaining an official role in the world’s financial system. Why do you think so?

John Embry: I think that the current financial system, as we know it, will be totally destroyed, probably sooner rather than later. The next system will require gold backing to have any legitimacy. This has happened many times in history.

The mining stocks both in gold and silver seem to me extremely undervalued. Do you agree?

John Embry: They are indeed, and they are being heavily manipulated by the same entities active in suppressing the gold price. In addition, many nefarious hedge funds now are active on the short side. The U.S. financial scene has become a  total cesspool.

Are there key levels in the XAU and HUI that one should pay attention to as starting points of a mining stock rally?

John Embry: I tend to pay more attention to the HUI because it is the pure gold index.  When the HUI takes out the 555 level with gusto, I think we are away to the races. However, this level is being aggressively defended by the bad guys. A higher gold price (through $2000 per oz.) will rectify this issue.

Why are you at Sprott Asset MGMT so very bullish related to silver?

John Embry: We think the supply-demand equation is ultimately better than even that of gold. New industrial and medical uses are exploding and because silver is “poor man’s gold,” investment demand for silver will go crazy when gold gets priced out of the average citizen’s capacity to buy. Given the small size of the market and very limited inventory, the price should go ballistic.

For your physical silver ETF you want to re-acquire physical silver in a big way. Do you think you could be pioneers (for other fund managers) in direct engagement with mines through direct and forward transactions, instead of going to the Comex? You certainly don’t want to “whoop” the silver price by your own buying, correct?

John Embry: I think that is a potential avenue particularly when the supply-demand equation gets progressively tighter in the future.

Is the silver market also subject of surreptitious interventions?

John Embry: Without question. In many ways it may be worse because it is a smaller market and J.P. Morgan Chase’s activities have been egregious. The fact that the CFTC has been investigating this for nearly four years without resolution is one of the great jokes of all time.

What is your information: to which extent the US silver ETFs are short and how many stocks of those have been used for covering future short contracts?

John Embry: I believe that they are but I can’t provide any information on the extent. When the very same organizations that have manipulated the market for years act as custodians for the ETF’s, it would be wise to be wary.

One highly interesting issue for me personally is the point in time when the Middle East countries will no longer sell their oil and natural gas for paper money. When do you think  they will be paid for it with precious metals?

John Embry: I suspect this whole phenomenon could occur very quickly. When confidence in paper money is lost and I think we are rapidly approaching that moment, something like that would undoubtedly come to pass.

How do you think about the conflict around Iran viewed from a perspective of the petrodollar?

John Embry: The whole Iranian issue is very disturbing and I think the U.S ‘s motives might have more to do with the petrodollar than Iran’s nuclear ambitions.

One final question. IF the financial system goes under, one can expect massive supply shortfalls and disruptions in goods and services, particularly in the energy sector. Would you recommend to our readers to take precautions for such a scenario instead of hoping for the best outcome of the global financial crisis?

John Embry: Unfortunately yes. I am a great believer in cognitive dissonance. Most individuals don’t want to face the truth, particularly if it is very unpleasant. Those that do not suffer from this condition should take precautions because the world situation is presently very dangerous.

Thank you very much for taking your time, Mr. Embry!

SOURCES:

(1) John Embry / Andrew Hepburn: “Not Free, Not Fair: The Long-Term Manipulation of the Gold Price”, published by Sprott Asset Management in August 2004 under:

http://www.sprott.com/Docs/SpecialReports/08_2004_NotFreeNotFair.pdf.

(2) See Rob Kirby: “Manifest Destiny Derailed: Treason from Within“, published at Goldseek on January 31, 2012 under:

http://news.goldseek.com/GoldSeek/1328037291.php.

(3) Compare http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf.

The relevant passage of Mr. Warsh’s letter to GATA said:

“In connection with your appeal, I have confirmed that the information withheld under Exemption 4? — that’s Exemption 4 of the Freedom of Information Act — “consists of confidential commercial or financial information relating to the operations of the Federal Reserve Banks that was obtained within the meaning of Exemption 4. This includes information relating to swap arrangements with foreign banks on behalf of the Federal Reserve System and is not the type of information that is customarily disclosed to the public. This information was properly withheld from you.”

(4) See Rob Kirby: “Manifest Destiny Derailed: Treason from Within,“ Footnote 2.

(5) Compare for example in this context what Marshall Auerback has said in an interview about the supression of the silver price:

“It’s in contrast to the gold suppression, which is a central-bank orchestrated scheme. You’ve got a situation now where it seems to be being done amongst the banking community, but I have no doubt that it has being done with official encouragement, explicit or implicit. To give you an example, 10 years ago Warren Buffet bought a silver position, and he liquidated it a few months later. The story I heard from one of his dealers was that he basically told them, “Boys, it’s not politically correct to speculate in silver.” Now who told him that I don’t actually know; I suspect it came from government sources. More interesting to me is that he had had a significant position, and it was liquidated with a great degree of ease with a loss at time when it wasn’t easy to do. This suggests that there was an external agency involved. I have no doubt that there is some degree of government involvement as well, but the primary agents are the investment banks, the commercial banks here.”

See: http://resourceclips.com/2011/04/05/marshall-auerback-on-silver/.

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NotApplicable's picture

"There is not enough gold to support World trade."

AT CURRENT PRICES!

Why do people have such a hard time understanding that a gold standard is a standard of measurement?

Geez, go read some Rothbard, and get a fucking clue, already.

hamurobby's picture

250k per oz or so, and there will be enough.

bob_dabolina's picture

When this guy buys PMs does he go to the coin shop and pay 6% over spot, or to the futures market and take physical delivery?

HurricaneSeason's picture

I bought his course. He buys teeth at Detroit pawn shops.

ChrisFromMorningside's picture

It's amazing to see that turning in gold to get some paper in return is now a major industry in America. Individuals on here warn of gold confiscation ... Why do they need to confiscate gold when millions are willing to voluntarily turn it in for soon-to-be-worthless paper?

Be afraid. Be very afraid.

HurricaneSeason's picture

Gold has never been that popular. Why would you buy gold when you can go to the bank and have them wave their magic wand and let you spend 10 or 20 times as much through a low interest, low deposit loan? Now, foreclosure victims might buy gold to protect their wealth and avoid their bank accounts being confiscated from foreclosures or student loans and the like. The current system and industries haven't been around that long. Cash For Gold is a short term thing and I predict you'll see them start closing down. I like the new buffalo coin with 14 MILLIGRAMS of gold(probably 18K gold LOL). Yeah, Americans aren't too well at math, but the Asians and Europeans and Arabs will pick up the slack soon.

Socratic Dog's picture

14 mg of gold?  A troy ounce is 31,103 mg.  Sure you don't mean 14 grams?

GeezerGeek's picture

Buy the gold-clad buffalo coins to give the Feds when they come knocking...keep the real stuff for yourself.

smiler03's picture

Why do they need to confiscate gold when millions are willing to voluntarily turn it in for soon-to-be-worthless paper?

It is very simple and clearly beyond your comprehension. They have no money they do have gold. Now do they continue to live, or die?

 

 

Quinvarius's picture

He goes directly to miners and refiners.  The people at Sprott are not screwing around.

rsnoble's picture

Well im to fkn poor to buy pm's having gone from a good job to nothing and no prospects. I have a paid off house and a few acres to grow food that's it.  Not sure if the paid off part is any good or not, if the whole thing crashes not very many people are going to be sending a mortgage payment. I'm starting to think paying it off was a bad idea.

I really wasn't wanting to see this shit transpire in my lifetime but it almost looks inevitable. I'd just assume deal with it now while I have a chance vs being 60 years old and get my ass beat. Which could still happen anyhow lmao.

ChrisFromMorningside's picture

>>Well im to fkn poor to buy pm's having gone from a good job to nothing and no prospects.

I feel you. Silver is not too expensive though. If you can hustle yourself an income, even a meager one, you can probably buy a few coins here and there.

>>I have a paid off house and a few acres to grow food that's it.

That's far more than what millions of urbanites have, so you're already better off than a huge swath of our national population. Start working the land now, before it's too late. Don't give up yet.

>>I'd just assume deal with it now while I have a chance vs being 60 years old and get my ass beat.

+1. The baby boomers and old-timers I know in real life all seem dejected, resigned and defeated. It's sad. What a way to go out, eh? Knowing your generation ruined things for your children and grandchildren, in large part due to the unwavering greed and narcissism many i that generation embraced. I'm glad I'm facing this crisis when I still have my vitality and fighting spirit. I'm hoping that once we go through this madness I'll be able to spend the latter part of my adult life in a far more peaceful, sane world with a sound economy. That would be nice.

delacroix's picture

rent a room out. share utilities

falak pema's picture

Reports say India pays Iran in gold bullion. But how much gold bullion is there to buy Oil at 150$/bbl?

China buys 5 million bbl/d = 250 Million T/yr. = 273 billion$/y. 

At todays price of 1700 $/oz = 4600 tons of gold.

Total world supply of gold is = 168 000 Tons; less than 36 years supply of oil for a country like China.

It limits the role of gold as direct payment medium. We need some paper currency to back it. 

rsnoble's picture

Right. I thought about that also. Either paper money or barter for other stuff.  Not sure if the barter system would fully work either? How many tons of rice can you have?

 

DoChenRollingBearing's picture

India would be stupid to pay for oil with their gold.  Not until the price goes MUCH higher.

Big Corked Boots's picture

Just thinking out loud, but, could it be that the only thing propping the dollar up is the fact that gold is continuously manipulated down? In other words, why not buy oil in useless paper when you can get a lot more of it for your gold much later?

ParkAveFlasher's picture

Gold doesn't have to 100% fill the currency basket, it just has to weigh it down to earth. 

And, I like your math but I don't think a China/anyone has to pay for 36 years, just long enough to manuever away from dollar assets.  That's what threatens dollar hegemony.

eddiebe's picture

Here is what you do. You look for a piece of property with a house and a couple of outbuildings, maybe a couple of acres enough for a good garden and bearing trees. In the mid west where property values are now rock bottom. It's a buyers market biiig time. There are properties galore for around 50 grand. You pay minimum down and finance the rest on a 30 year fixed mortgage.     This will run you roughly $250. a month.

 As inflation starts to go ballistic, those $250. a month will cost you about $25. a month and if the world keeps printing the way they do in 20 years that payment will be half that.

Other than buying gold and silver this is one of the only ways to personally profit from the scam that we are subjected to by our lords. 

they are showering us with gifts. Don't whine about them, use them. 

rsnoble's picture

Problem is will wages increase?  What if you still only make $300wk and inflation makes everything go up 50x? It would be hard to make a $250month payment when your income hasn't risen and gas is $20gallon would it not? Not trying to argue just wondering about this.

Rubbish's picture

Not a good plan, money and credit are contracting, only expanding for the upper 1/2%. Tell me why a rich guy wants your run down oasis in middle America?

eddiebe's picture

Well personally I don't want to live with the 1/2% anyway.

DosZap's picture

eddiebe,

In the mid west where property values are now rock bottom.

SERIOUSLY......

Care to elaborate on where in the Midwest?.

There are smokin deals in Detroit,but too damn cold, and dark.

Ferrriners are buying up Fla coastal RE.

eddiebe's picture

Very serious! Look at Missouri or Arkansas, if you like it mild. Iowa Ohio Indiana etc are colder in the winter but there is plenty of hardwoods to be had for that wood stove. Plus if you wish, look near Amish or Mennonite settlements so your food source is reasonably safe. If you want to get into a real house in the upper penisula of michigan you don't have to look far to find something for 20 grand, and I don't mean a fixer upper, but then yeah, you will be feeding the stove for 7 months a year. Of course you won't find a job working for IBM in any of those areas, but if you have a bit of a nest egg, you could do worse than investing in a place to call home at some time while the gettin's good. I'm not just talking, I've been there and checked it out!

Rubbish's picture

My family has owned property in Arkansas for 30 yrs., it doesn't really go up. Commercial somewhat, depends, location location location.

eddiebe's picture

I think we are fast approaching the time when preservation of whatever capital you may have becomes supremely important. Of course if you want to gamble, well there are plenty of 'sure things' out there like maybe U.S. IOU's.

Rubbish's picture

I think for the most part were in lock set. 40 yrs ago I used to think this all couldn't last and knew savings wasn't the way and you should hock yourself to the gills and invest with other peoples money since that was the only way to beat inflation. Today seems different and I only preach survival methods to my kids.

I was a registered independent in 1973 and have been since. Now that its cool to be one, I think I'll go cave dweller soon.

Lndmvr's picture

Red Oak, IA here. Uncles farm just sold in November . Farmland is 7000 to 14,000 an acre. He was almost 96, bought for 100 acre and used horses to plow when he started.  Left it to his only daughter. They knew best to get the hell out of Iowa.

Crimedog's picture

There is no way that we are ever going back to the gold standard.  Not gonna happen.  You really think we can afford to go back to living within our means?  You think we are going to let future expansion of credit and growth be decided by how much additional gold we can extract from the earth?  This is just wishful thinking of goldbugs.

Temporalist's picture

It is a control mechanism, the credit derived, the derivatives, will be kept in check and only when necessary will someone actually demand the gold as payment.  The problem is that demand function has been manipulated into seeming useless in recent history, also at the behest of the fiat money masters, which is why people like Jeffrey Christian will get away with admitting there are 100 to 1 or more ounces of paper gold than physical and nobody seems to care. Could that be done with oil or cattle or soybeans when people are actually taking delivery?

Gold is the ultimate payment that is all. If it were more understood most of these problems would not have come about. There already is a defacto gold standard now which is why central banks are buying and countries are willing to trade in it.

The miners are fools for not listening to Sprott and Embry who are trying to wake them up to the fact they are not just selling pretty rocks but the most valuable means of valuation and trade the world has known.

HurricaneSeason's picture

It'll be a 2 tier system. China will sell their rare earth minerals for gold and Iran will sell their oil for gold, but a gallon of milk will still be a bunch of pictures of dead presidents. China already hads the full collection, but the farmer doesn't.

LynRobison's picture

So, do you really believe that everyone can live beyond their means forever? Not gonna happen. 

 

We might not go back to the gold standard. We might go back to good old fashioned chaos instead.

rsnoble's picture

BTW im still not convinced gold is the answer. Don't get me wrong if I had the $ id buy some for sure just in case.  Does anyone really see the US gov't saying ok we're screwed. We'll just step aside. Do what you want. Ha. Yeah right.  I could see them outlawing gold, giving us some new currency etc.  For things to transpire to the point people running around paying for shit with gold rocks would equate to total collapse in which millions will die regardless.  I suppose a quadrillion in derivatives could support such a thing.  Personally I see massive wars as a result. In any case yeah I think we're screwed.

The Watchman's picture

Gold smold - this is just another jackass with a stack of it that he doesn't want to see be worthless soon. There is nowhere to hide from the tsunami coming. Silver coins maybe, but Gold is a fantasy.

NotApplicable's picture

Sayeth the man with his ass in his hand.

Gold bashers are out in full force today, I see.

Zeff's picture

More like a 21st century Book of revelation. 

Yen Cross's picture

GREAT QUOTE! I'm not Catholic. Well done+1

rsnoble's picture

This could be the beer talking but is there a possibility that the current world couldn't survive on a system of real assets since we have taken it to this height with phony bologna bullshit? Not sure what im trying to say.  I guess that if the endless supply of digital zeros that are required to sustain life disappeared would that = death?  I need another cold one.

DoChenRollingBearing's picture

+ 1

Yes, another cold beer is the answer.  But, don't neglect "Solid Beer": GOLD!

Socratic Dog's picture

Look, it's not money we can't survive without, and it's not beer (close), it's CHEAP OIL.  7 billion people cannot live on this earth without CHEAP OIL.  That's the bottom line.  EVERYTHING we have and take for granted is based on a neverending supply of CHEAP OIL.  Don't forget it.

UP Forester's picture

Build a gasifier, fueled with wood.

Temporalist's picture

To answer your question, when people travel abroad can they get accustomed to the change in monetary systems and valuation of goods and services?

 

Yes people could become accustomed to making half or less their salaries...if it bought twice or more the goods and services they pay for.

A simpler way to put it is would people like paying $0.30 for a coffee insead of $3 and would they get used to it?  

SillySalesmanQuestion's picture

Banks manipulating gold...banks manipulating silver...nah...can't be true.

RobotTrader's picture

Embry and many other KWN "Experts" have been dead wrong.

 

Gold will skyrocket only when the stock market makes new highs.

Any "Endgame" or "Financial Market Destruction" will send gold into a tailspin and it will go down at least 2x faster than the NY Composite.  And gold equities will go down 3x faster, and gold juniors will go down 4x faster.

When stocks go up, gold and the gold equities are dragged up kicking and screaming for the ride.

If the gold equities go up even faster, then that is going to slingshot the NY Composite Index to the moon on a "Weimar Run".

Cheerleading a "collapse" is the absolute worst thing that a gold bug could do.

They should be cheering for:

- Biggest consumer spending boom of all time.

- Outright monetization of stock index ETF's

- Infinite number of bailouts and rescues for all lending institutions

- Heaping Helpings of LTRO's for all sovereign countries with liquidity problems

- Bigger expansion of Fractional Reserve Banking

- Bigger OTC Derivative expansion

Why these guys can't get it through their thick skulls is beyond me....

falak pema's picture

you must believe the bankruptcy of Law was a fairy tale, the tulip bubble never occured, and 1929 was when they held the great Charleston contest; during the greatest "candy for a baby" type stock asset expansion of all time that never went bang and WW2 never resulted. 

Auschwitz never existed and oil is unlimited. The world is one big happy family and world population is around 1 billion. 

 

DavidPierre's picture

Listen Up... CockSucker!

http://www.youtube.com/watch?v=I6p60gHuyu8

"I'm going to take this place down ... like Gomorrah"