From the May 01, 2012 issue of Futures Magazine • Subscribe!

Jim Sinclair has something to say

Q&A

FM: You also mentioned the Brics having a bloc.

JS: The Brics [met on March 29] in India. According to the release on the meeting [they were] to discuss their own bank of an IMF type and also look toward increased settlement in contracts in their own currencies. Now the dollar will remain a major settlement currency, but the question of value deals with momentum of utilization, not with political opinions.

FM: How will that affect the U.S. economy?

JS: The net effect in the change of settlement is a mirror reflection of the emerging economic impact of others. I am not suggesting the U.S. goes down, I am only suggesting that when you have billions of citizens and you enfranchise a very small percentage of those in the position of consumers, you get the tremendous economic impact that you’ve noticed in China. China and India are headed to leading the world economies with the United States. Now who is going to be first, second and third is something that can be argued but the three major economic powers in the world are going to be the U.S., India and China.

FM: There are benefits to having the reserve currency. How will that change?

JS: There is a serendipitous but huge demand factor that a reserve currency enjoys as the settlement mechanism for international contracts. That is the dollar weakness now. Part of that demand factor will be going away as a result of utilization of other currencies that didn’t exist prior to the machinations that we just have gone through since 2008. It will take away some of the predominance--politically, socially and economically--that is inherent with a reserve currency and with sound monetary management of that reserve currency. This is what gold is all about. Gold is the currency of choice. The difference between gold as a currency of choice is that gold has no liabilities attached to it. It owes nobody anything, while every currency has liabilities attached to it that have to be [considered] in its international valuation through the market mechanism.

FM: Are you talking for individuals or for governments?

JS: It’s both. The period we just have come through has shown an increase in public interest in gold through central banks who see selling and began accumulating. It also has shown a significant alternative investment that very large investors have selected and participated in.

FM: Is it in periods of stress that gold changes from a commodity to a currency?

JS: That is one viewpoint, but gold was perfectly valued at $248 in terms of the U.S. dollar. When you get down to price of production it is rare than any commodity can exist for a significant time below the cost [of production]. The argument that gold was a commodity at $248 has its basis in the cost of production but the argument that gold is a commodity is a failure to compare it to its currency role, which it was performing perfectly by declining for 20 years.

FM: What about silver?

JS: Silver is not money for one practical reason: It is too heavy. Gold is extremely portable. If you wanted to buy a pick-up truck you could put the money in your lefty pocket in gold but if you wanted to buy it with silver even at today’s prices you would need a pick-up truck full of silver. Silver is not as monetary as gold.

FM: You have gone from a gold trader to a producer with your involvement in Tanzania American International. Talk a little about the company and your plans for it.

JS: My plans haven’t changed since 2001. My game plan back then and now is to accumulate as much gold as I can in minable form in the ground for extraction.

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