boomers age. Older people have most of the stuff that they need and are just trying to hang on to their savings.
Also, we have the freest trade since the glory days of the British Empire. We are still benefiting from the opening of free trade with the creation of the World Trade Organization, although the low hanging fruit has been harvested. In other words, this could have been the best of all times for the global economy.
TGR: What is going on?
DC: Milton Friedman said that proper monetary policy will guarantee reasonable economic growth without inflation, for which he won the Nobel Prize, which shocked the Keynesians. But at some point, printing money is going to lead to inflation. It was frustrating for gold enthusiasts when the Bank of Switzerland expanded its monetary base by 700% in a mere two years. At the moment, the Swiss are applauding their central bank for weakening the currency. It makes the Swiss watchmakers more competitive, and the Swiss consumers are not traveling to France to go shopping.
TGR: How are the devaluations affecting the dollar?
DC: The dollar is benefiting, because the United States is importing less energy. Energy prices are strong everywhere in the world, except in the United States and in Qatar, where oil and natural gas are cheap. The dollar is still the world’s No. 1 currency. The euro, somewhat surprisingly, is No. 2. But there is an election coming up in Italy in a week, and talk that Silvio Berlusconi could come back shows that Italian politics are unstable.
The dollar has long been the international currency of first resort and last resort. Some 85% of currency trades are done with the dollar on one side of the trade. Of course, the euro is a currency backed by no about 2–3% to the total existing supply of gold.” country, no tax system, no army and no navy. It’s backed by theory, a theory that Europe has been violating virtually every month for the last five years by creating deficits. And the dollar benefits. We were told in the last election campaign that the Chinese are financing the U.S. deficit. That is a myth. In fact, the Federal Reserve has purchased about two-thirds of the increase in the national debt.
TGR: Does that mean that central banks around the world are not holding their reserves in dollar denominations as much as they were previously?
DC: As a percentage of their assets, the answer is absolutely yes. But because central banks are expanding their monetary bases, the dollar’s share of the total pile of accumulating paper money is shrinking. That does not yet mean that there is net liquidation of dollars, and central banks are dramatically increasing their consumption of gold. Of course, as a percentage of the total monetary supply, the rise in gold consumption is tiny.
TGR: So when you say central banks are increasing their gold holdings, how does that impact the exploration and development sector for gold?
DC: The appetite for gold exploration and development is a complete contrast to five years ago—years in which the price of gold rose every year. Investors do not believe that companies will be able to find and develop gold mines at a reasonable cost because the gold milling return is often less than 1 gram per ton (g/t) of ore. There is a growing fear that if the miners develop technology to extract more gold, governments will jump in and make life miserable for them. Or that radicals will stop production because of alleged pollution, destruction of water or just plain because the miners are capitalists. The flow of capital for developing new gold mines has been choked off over unprecedented price increases. The situation is a total disconnect.
TGR: Are you saying that there’s a perception that gold has reached a price ceiling?
DC: People are wondering where the next price floor is, which is a different type of concern. When gold was moving up, the debate was about how high it might go. Now investors are afraid that gold will collapse. Investors who believed that gold was doomed to collapse back in 2005, 2006 and 2007 were totally destroyed because gold soared to new, all-time peaks. Is gold an animal that has to keep growing or die? I don’t believe that, but we have no record of a stock market that’s gone up 12 straight years. And if a stock market that had gone up for 12 straight years sagged back by 15%,
