$2,000 gold. A few years ago, that seemed like a crazy prediction. But with gold hitting an all-time high over $1,900 less than five months ago, that figure is very possible in 2012.
Of course, one person thinks $2,000 is just the beginning. Nick Barisheff, President and CEO of Bullion Management Group Inc., has his sights set on $10,000 gold.
His reasons? They are varied, but it all comes back to the fact that government-sponsored currency is worthless — and that gold is the only asset that will really have any value.
The only thing standing in the way? Ron Paul.
Barisheff heads a management company that offers mutual fund trusts and a bullion purchasing program. He regularly appears on CNBC, writes for finance publications and gives speeches to explain his bold call — and, of course, to tout his upcoming book with the apt title $10,000 Gold. He recently spoke with InvestorPlace.com to discuss precious metals and his bold prediction.
Q: You keep pretty busy talking about gold these days. Do you think people are more interested in gold now than ever before?
A: The interest is certainly growing, but it’s surprising how there’s little adoption. The bulk of investors have no gold in their portfolios, and the institutions have less than 0.3% allocations — that includes bullion and mining stocks. Even though it’s had solid performance for 10 years, it’s still not readily adopted by the public in general or by the financial community.
Q: So why do you think people are becoming more interested in gold?
A: Concerns are growing about the financial management of the economy, whether it’s the U.S., Europe or other countries, and the fact that governments are having to resort to continuously increasing levels of debt and … printing more and more currency. As you do that, the currency is going to be worth less and less in terms of purchasing power, and particularly against “real” money, such as gold and silver.
Q: Your upcoming book is called $10,000 Gold. Are you talking about 2012, 2013? This seems like it would have to be a long-term prediction.
A: This would be at least a five-year time frame. I’ve resisted doing predictions in the past for any long term, but what changed my mind is watching the U.S. debt ceiling debate. There’s no will to do what’s necessary. You’re going to see budget deficits running $1.5 trillion and likely increase year after year. That’s a huge amount of debt to keep compounding, and the issue that the U.S. is reaching is the ability to tax the people to reduce the deficit is dwindling or nonexistent. So the only course of action is to simply print the money. That’s how you get into the high-gold scenario — not that gold’s going up, but the currency will be devalued.
When you take the true debt position of the U.S. — when you add in the things like Social Security and Medicare — then you get the real national debt not being $15 trillion but $120 trillion. And when you try to put meaning against that, you find $120 trillion represents $1 million per taxpayer. Tell me: How that’s going to be paid back?
Q: Sounds like investors will have much bigger problems than their 401(k) statements.
A: Exactly. $5,000 or $10,000 gold isn’t going to be a pleasant society to live in. There’s going to be many other social problems to deal with — it’s not going to be that if you’re a gold investor, you’re living happily ever after. But you’d be better off having it than not having it.
Q: What’s the most important thing investors should know about gold right now?
A: Well, I think the important thing to understand is that gold is money. There’s a big deal of confusion. It’s also a commodity, and you can also look at it as an investment. But it’s been money for 3,000 years, and it still is today.
People say, “You can’t eat gold,” “You can’t put (gold) in your gas tank,” “(Gold) doesn’t pay any interest or dividends.” But if you put $100 bills in a safe, it’s not going to bear any interest or dividends, either. And that currency in your pocket doesn’t taste very good and it doesn’t work in your gas tank …
The difference is that currency in the safe is devaluating daily while gold has been increasing in purchasing power. So, in the case of currency you’re effectively losing principal value day in and day out, even if it’s staying in the safe.
Q: BMG’s products include mutual funds that purchase bullion, as well as an actual direct-ownership bullion bar program. Can you explain the differences between owning physical gold and owning a gold fund, and how investors can choose the right option?
A: I originally set (the mutual funds) up so they qualified for registered retirement plans in Canada, and we’re now working with a company to work it into U.S. IRAs and so on. But the funds are for smaller investors — the minimum subscription is $1,000, so that pretty much covers everyone. The fund itself buys physical bullion. We don’t market-time, we don’t hedge … it’s a pure bullion holding.
But once you have high-net-worth investors … we provide allocated storage for the bigger investment-grade bars. And when you get to that, you have 400-ounce gold bars worth $600,000.
Q: Do you think gold miners are a good investment right now?
That’s more of a speculation. The problem: The gold miners haven’t been keeping pace with even bullion. Because the gold miners as a whole are a relatively thin market — I think for all of the miners, the (combined) market cap is less than a Microsoft (NASDAQ:MSFT) or a Google (NASDAQ:GOOG) — the problem is if you have a broad market decline, mining stocks will have a much bigger decline, even if the price of gold is rising. Under certain circumstances they might outperform, but the investor has to understand the difference.
Q: What about other precious metals, such as silver and platinum?
That’s why we set up the original fund with gold, silver and platinum, because then you have diversification in all three metals, and each of the metals has its own bullish story to tell. Platinum, for instance, is geographically dependent on South Africa. South Africa has 80% of reserves and production, so if there’s any sort of glitch in South Africa, prices rise regardless of what else may or may not be happening.
Q: What do you consider the greatest threat to an eventual explosion in gold?
Ron Paul getting elected and getting things right. *laughing* That’s the greatest threat. Because then the erosion of the currency, by getting into fiscal responsibility, may improve.
I think at some point we’re going to have a massive short-covering rally which is going to cause a spike, and when that short covering is over there’s going to be a decline, and people will think that the bull market in gold is over. No — it was just (lower) after the short-covering correction, and then it’ll go back to normal.
The thing to look at is the strength of the currencies — has anything really changed? Have the governments of the world gotten fiscally responsible? Then there’ll be less need for gold. But the way things are going, it doesn’t look like it’s going to happen.