James Turk is one of the most recognizable names in sound money. His career started at Chase Manhattan Bank with assignments in Thailand, the Philippines, and Hong Kong. He thereafter became the manager of the Commodity Department of the Abu Dhabi Investment Authority and held various advisory roles in money management.
In 2001, he co-founded Goldmoney with son Geoff Turk, and remains an active board member and advisor. He then founded the Lend & Borrow Trust, the first fully authorized and regulated P2P lending platform on which loans are secured by precious metals. Mr. Turk appears regularly at conferences worldwide, providing commentary for publications and newswires and producing articles for Free Gold Money Report and GoldMoney.
Q. There is more paper gold and silver issued than actual gold held in banks. How might this play out? What does history have to say about that?
Turk: History is very clear. Look at what happened in 1932 and 1933 as just one example. Too much debt had been created in the 1920s. The amount was far beyond what the country could reasonably repay, which meant there were only two alternatives. Maintain sound money or debase the dollar to lessen the debt burden.
As it became apparent that the second alternative would be chosen, there was in the early 1930s a frenetic rush out of financial assets into gold. Back then the dollar was defined as 23.22 grains of gold and redeemable into gold, and silver too. But President Roosevelt changed the prevailing monetary order by devaluing the dollar to define it as only 13.71 grains of gold. That meant it took $35 to exchange for one ounce of gold instead of $20.67.
This debasement of the dollar brought a reprieve to the crippling monetary and banking crisis then underway, but not a solution, just like the bailout in 2008 failed to deliver a solution to an age-old problem. Namely, when banks get into trouble, do you bail them out or let depositors bear the consequences of bank failures? Do you maintain sound money, which benefits everyone, or debase the currency, which hurts savers and pensioners in particular but has an insidious effect throughout the economy?
To answer these questions it is useful to keep in mind Lenin’s warning that to destroy a society you need to debase the currency. To attest to the accuracy of his admonition, look at what is happening in Venezuela.
Q. Over the last ten years, Bitcoin has won the imaginations of people interested in alternatives to traditional financial assets. This has played out in Venezuela, where some have turned to Bitcoin as a safe-harbor from currency debasement. What effect, if any, has the emergence of Bitcoin had on the gold market?
Turk: Many in the gold industry believe that cryptocurrencies have been harmful to gold, but I take the opposite point of view. Cryptos have educated people that there is a better alternative available than fiat currencies.
This result is particularly true for millennials because they have never had the opportunity to use sound money as currency, unlike the baby-boomers and previous generations. Remember, it was only in 1971 when President Nixon stopped defining the dollar as a weight of gold, giving birth to fiat currency and the perennial inflation that has robbed wealth in the form of purchasing power from everyone who uses dollars, but particularly savers.
The best way to save money today is to accumulate physical gold and physical silver. You won’t earn interest on your precious metals, unless you choose to lend them but I do not recommend taking that risk. When you own gold and silver, you preserve your wealth because the precious metals retain their purchasing power when viewed over the long-term.
For example, an ounce of gold today purchases the same amount of crude oil it purchased back in 1950. You can’t match that exemplary track record with the dollar or any other fiat currency, and gold achieved that result without any counter-party risk. Gold is money you own. It’s purchasing power is dependent on the market and its 5,000 year history as money, and not some government or central bank promise. So to return to your question, I see cryptos as a stepping-stone to better money. Younger generations who have not experienced sound money or read from history books the benefits sound money offers will eventually recognise and therefore move their wealth to gold and silver as better alternatives than cryptos.
Q. What is your outlook for silver and why?
Turk: I’m bullish. Presently about 85 ounces of silver equal one ounce of gold. That’s high. In 2011 at the last peak in the precious metals, it took 32 ounces. In the 1980 peak it took 17 ounces. So when measuring performance in US dollars, silver clearly does better than gold in precious metal bull markets. Here’s why – silver is a gold-substitute.
It does the same thing for you that gold does; silver is a liquid tangible asset without counter-party risk, which an increasing number of people discover when metal prices are rising. So when money moves into the precious metals during their bull markets, it moves into silver as well, but with a bigger impact for one simple reason. The aboveground stock of silver is much smaller than the available supply of physical gold.
Q. “We should be happier to have a job than to have our savings protected,” said Christine Lagarde, President of the European Central Bank. What do you make of this statement?
Turk: It is an outrageous statement, and it is no wonder that central bankers are held in such low esteem by the general population, no matter how much the mainstream media tries to pump them up as heroes or masters of the universe. It also gives us a clear message about the aims of central banks––they are going to continue debasing fiat currencies. So take Lagarde’s warning seriously. Don’t save euros, dollars, pounds or any other fiat currency. Accumulate gold and silver as your savings. I generally recommend putting two-thirds of your savings in gold and the rest in silver, but everyone will need to decide for themselves what proportion is comfortable for them.
Q. The media has also contended that the Fed’s October bond buying QE4. Do you disagree? Is it QE4?
Turk: Of course it is. Central bankers tell you what they want you to hear. But if it looks like a duck and quacks like a duck, it is still a duck even if a central banker tells you it is something different. The point is that central bankers don’t just print money; they also flog propaganda. To attain complete control the monetary system, which is their aim, they need to control your actions. To do that, they need to control what you think, so incessant propaganda is one of their principle tools.
Q. What are you keeping your eye on in relation to the gold and silver markets?
Turk: Let me refer again to 1932 and 1933. People back then were scared of losing their hard-earned money. They began moving out of paper promises into tangible assets. The mountain of debt existing today makes the early 1930’s look like a cakewalk, but let’s look at one part of that debt mountain more closely. A lot of people think they own gold, but in reality, they are part of that debt mountain. They own gold promises that give them exposure to the gold price, but they don’t own gold.
ETFs are just one of many examples. So I am watching these paper structures closely. Just like the banks in the early 1930s owed more gold than they had gold on hand, which was a principal reason causing banks runs and their inevitable collapse, there exists today essentially identical paper structures. So when holders of paper start converting these promises they hold into physical metal, expect a panic rush out of paper promises to the safety of tangible assets.
When the music stops, there won’t be enough chairs – physical gold and silver – for everyone. The unanswerable question is, when? Let me paraphrase Bernard Baruch, who claimed he made money in the 1920s stock market boom by selling too early. Don’t leave it too late to convert the paper promises you hold into physical gold and physical silver.