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Hong Kong (Kitco News) -- Gold will most likely double from its current $1150 an ounce during the course of the bull market, according to Puru Saxena, founder of Puru Saxena Wealth Management.
In an exclusive interview with Kitco News, Saxena said one major factor in gold’s favor "is that central banks have now become net buyers of gold. So that reduces supply from the market,” said Saxena.
Investment demand will appreciate over time as people become more dubious over currencies and they transfer assets into gold as a hedge, said the investment adviser from his Hong Kong office.
He thinks inflation will occur at an accelerated pace over the next few years. "Real interest rates are negative in most countries, so gold should continue to benefit purely as an anti-currency because people lost faith in the euro and the dollar," he said. "At some point people are going to say well, ‘we don’t want to lose purchasing power in currencies that are dubious, we want gold as an insurance.’”
Saxena is not so optimistic, however, for base metals, which he said are likely to struggle. “If you look at the inventory levels at the London Metals Exchange, the stockpiles are extremely elevated and inflated," he said. "So even though copper, lead and zinc have had a big run-up since last August, inventory levels have actually increased, so that leads us to believe it is speculation.”
As for the sudden rise of palladium, Saxena cautions against this metal for now. “Palladium has gone parabolic. Usually when you have a parabolic spike they are followed by a parabolic collapse," he said. "I think palladium will have a big correction and when it does, that will be the time to buy."
Currently, Saxena said he is fully invested in his preferred companies. “We think the bull market will run for another couple of years – in my view we will see a big boom again in all asset classes,” he said.
Saxena sees more opportunities in precious metals and energy. He said that he is invested 35% in energy and 15% in precious metals. On currencies he prefers the Canadian and Australian dollar, as well as the Singaporean Dollar, Chinese Yuan and the Indian rupee.
American Revival?
Saxena does not subscribe to the bearish view that has America on the wane. “The US is still the world’s largest economy,” he said. “Surely it is losing its dominance as countries in Asia climb-up the prosperity ladder but it will be a gradual transition. I don’t think the US is going to go down in flames. Ultimately the American consumer will come roaring back.”
He is, however, skeptical of the lack of clean-up of the financial system. Throughout the recession the total debt in America has continued to expand and this is the crux of the problem, he said. “You cannot solve a problem of over-leverage and excess debt by taking on more and more debt. You can’t put band-aids on the problem or you will eventually have a currency crisis,” said Saxena.
Saxena said that over time the consequences of this will be twofold: longer term interest rates will increase substantially over the next decade and the CPI, which he calls a “terribly flawed barometer of inflation” will double in seven to eight years. In turn, he said, the US dollar’s purchasing power will diminish against hard assets.
The US has three options for survival, said Saxena, “It can either accept a painful recession. They can default because it cannot pay back liabilities or the third option is monetary inflation. I suspect they will continue to debase the value of the dollar and print greenbacks.”
In the future, Saxena said that he predicts the financial industry will become more heavily regulated. “A bank should either operate as a commercial bank with no investment banking or if you go into investment banking the government should not bail you out." "If you make mistakes you should be penalized and the bond and shareholders lose everything.”
EU Debt Crisis
Saxena is not a big fan of Europe. “I think the IMF or European Union will bail out offenders but that is a band-aid on the problem and it will be a long-term negative effect for the euro," he said. "I think the euro is a terribly flawed currency because you have so many different nations with different objectives, requirements and problems all lumped into one basket.”
The problems with Western Europe are the same as in the US, said Saxena. “Too many excesses; too much credit; too much consumption and not enough savings.”
No End for Goldman
Saxena said Goldman Sachs has been made a scapegoat and will survive the tribulation. “The biggest offenders are Freddie Mac, Fannie Mae and the regulators themselves because all these shenanigans were occurring right under their noses," he said. "Regulators knew what was going on… So I think to come back at Goldman alone is a bit unfair –I think you have to go after everyone.” He said that in five years from now people will have forgotten about this ordeal.
China Correction
Property in certain cities in China are certainly overvalued, said Saxena. “If you look at Beijing and Shanghai the properties have become incredibly unaffordable -- it takes 20 years of income for the average household to buy a property,” he said.
A correction in China will occur when there is more monetary tightening, said Saxena. When this will happen? Saxena does not know. “One thing working in favor of Chinese assets is that China doesn’t allow the Chinese to invest overseas – so the money is all contained within the economy,” he said.
As for the purchase of the IMF’s 191.3 tonnes of gold, Saxena forecasts Asian Central Banks will purchase a significant amount. “Over time as these cash piles for China and India continue to get bigger and bigger with foreign exchange reserves, they will turn towards buying hard assets,” said Saxena. He does not think IMF gold sales are a big threat to the markets as they were four or five years ago.
Market Manipulation?
Regarding rumored gold market manipulation by the major banking powers, Saxena has some suspicions and would not be surprised if some paper selling was occurring to keep the gold price down.
“The central and private banks make their money by promoting the fiat money system –if the price of gold suddenly jumps fivefold, that is a red flag that there is something seriously wrong with the system," he said. "It would not be surprising for me to hear that they are suppressing the price of gold – we had the biggest financial crisis in decades and rather than increasing in value, the price of gold actually fell.”
Saxena said he has been following the work of GATA for a long time and "they make a reasonable case for that, but my argument is; what market is not manipulated? Everything is manipulated,” he added.
--By John Dourekas of Kitco News, jd@kitco.com
(Daniela Cambone contributed to this report)
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