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As gold continues its sell-off, a book by a Toronto bullion fund manager predicts better things lie ahead.
It’s been a dreadful stretch for gold bugs. The past three months have seen a record quarterly drop in gold’s price. In the bigger picture, gold is more than a third below its peak of $1,900 (U.S.) an ounce, reached in 2011. Last week, the spot price tumbled anew, settling near $1,225.
Goldman Sachs now sees a price of $1,050 by the end of next year. Barrick Gold, one of the world’s biggest gold miners trimmed 100 head office jobs mostly in Toronto. And Australia’s Newcrest Mining wrote down the value of its assets by $5.5 billion. With news like that who’s buying gold now? Nick Barisheff, CEO of Toronto’s Bullion Management Group for one.
Barisheff runs several precious metal mutual funds, so always likes gold’s lustre. His funds have been around since 2002 and own gold, silver and platinum bars, rather than mining stocks. BMG’s holdings are stored in bank vaults and the funds are RRSP and TFSA eligible.
Barisheff is the author of the recently published $10,000 Gold: Why Gold’s Inevitable Rise Is The Investor’s Safe Haven (Wiley, $39.95). As the title boldly predicts, he sees the metal at $10,000 an ounce, and soon — within seven or eight years. The timing of the book’s release couldn’t be worse, but even so Barisheff says bullion is down, but by no means out.
“Nothing goes up in a straight line,” he said in an interview. “Every market has pullbacks, but (global) debt problems haven’t been fixed and they’re getting worse.”
His book took five years to write and walks through the history of gold and its relationship to paper money. The book’s central thesis is that, in all cases where financial systems disconnect from a gold standard as the U.S. did in 1971, politicians and central banks gradually lose fiscal discipline. The gold standard forces paper money to be backed by bullion in a vault, so limits the amount of money that can be created.
His oft-cited examples of hyperinflation include Rome, the 1920s Weimar Germany and current day Zimbabwe. Inflation in the African country reached 231,000,000 per cent in 2008. The list could also have included Argentina (1975-1991) and Brazil (1980-1994).
n the book, Barisheff argues there are five stages that lead to runaway inflation and we’re in phase three. In the first two, the gold standard is abandoned. Looser restrictions lead to more money in circulation. Inflation is low. The political focus shifts from repaying debt to using it as a tool for growth.
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