McEwen - gold is the ultimate currencyRob McEwen is sticking to his guns and his predictions when it comes to the price of the yellow metal.
Author: Geoff Candy
Posted: Thursday , 01 Apr 2010
Groningen -
Speaking on the Mineweb Gold Weekly podcast, Rob McEwen, the CEO of US Gold and the founder and former Chairman of Goldcorp, retains his long-held views on the gold price (he has recently been quoted as suggesting gold will hit $2,000 this year on its way to $5,000). He says that gold is being driven up by the massive amount of debt that's in place right now and the huge spending programmes by the governments of the west.
These countries, he says, are debasing their currencies in an effort to kick start their respective economies and, while this may work in the short term he says, "long and intermediate term we're going to see the ramifications of this and it will look something like the Weimar Republic of the twenties".
He adds, "First you have to appreciate that gold is money. Here it is an alternative currency, the ultimate currency because it can't be manufactured the way all the paper currencies of the world are, the FIAT currencies. The supply of gold can only expand at the rate of annual production and that's about 1% a year whereas the paper supply is just a question of how many zeros you put in and you can print out as much as you want."
While McEwen admits that other factors, such as demand from Asia have a role to play in boosting the price of the yellow metal, in the end it comes down to money, how people keep it, store it and ensure its value doesn't diminish.
"August 2007, to me that was the turning point," he says, "that was the first time in probably the last 30 or 40 years that suddenly the entire banking system of the world appeared to be in jeopardy and the question was not of ‘how much do I earn on my money', it is ‘how do I protect my money', and gold has served that role over the millennium and it's about to do it again."
Asked about the other side of the scenario, McEwen agrees that these things are never a one way bet. He says the price of gold will advance, correct, consolidate and then go up.
McEwen says that to date biggest correction came when the debt problems in Europe first began to emerge. People started to sell out of the euro and into dollars because they were afraid the euro was looking fragile. And, as the dollar started to rise so gold and other commodity prices started to decline because "there is no place that all the money in the world can go easily, in a short space of time, other than the dollar."
"You may have these periods where you have shocks to the system and people are looking to move their assets out of one currency into another, and they still have to resort to the dollar, so you'll have this bumpy road. But I can see the dollar falling over time as well as the euro and others. So it's going to be a relative gain of which currency is in favour at a particular time."
Part of the reason for this is that the dollar's influence is waning somewhat and its status as a world's reserve currency, its, go-to crisis currency is diminishing.
"Clearly you can see China has their eyes focused on having the reserve currency of the world. The Russians have been playing that game and the euro was supposed to take some of the lustre away from the dollar. So you're probably going to see increasing demands for the dollar to be replaced, particularly because Washington with being so irresponsible with its printing of money, that it's just at a massive level that can only lead to a debasement of that currency."
He adds, that if one looks at the last time the world saw its reserve currency change, when the British pound ceased to serve that role, the impact on the UK was significant. "On a relative basis, relative to other currencies in the world, they lost 20% to 30% of their wealth when that currency ceased to be the reserve currency. You can see something happening like that in the US - your purchasing power in the world becomes diminished greatly. We are going down that road - I don't know how long that will take, but it is certainly going to have an impact on the price of gold and other commodities."