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

Jim Sinclair has something to say


FM: The bear market in gold that began after the 1980 peak lasted 20 years. Where are we in the lifespan of the current bull market?

JS: My first prediction was 15 years, so I was wrong, it lasted 20 years. Right now, in Gann terms, we are at the beginning of the fifth wave. I would say in terms of time, the first possible period for maximizing a price on gold is early 2015. [Currently the market] simply might be the same as when gold went over $1,000 the first time and went back down to $750-$800. That was a shift in Gann terms; we may be in a similar shift right now.

FM: Gann?

JS: I am primarily a fundamentalist, but I have a tremendous respect for timing and timing is technical.

FM: What are the factors that are affecting gold? Do you look at traditional supply and demand factors, or is gold being moved by larger geopolitical concerns?

JS: You have to look at traditional supply/demand first, but the question is, are we dealing with a commodity or are we dealing with a currency? Historically gold has been a currency; [currently] gold is acting as if it is a currency. The price that gold went to [on its low] at $248 per oz. was perfect performance in terms of a currency. The price that gold is now, $1,660, is perfect performance in terms of a currency. We were in a unique period of time where we may very well be changing our monetary system as a product of the various strains and as a product of the means of meeting these crises in the marketplace. The great default was handled magnificently in terms of public relations and in terms of financial underpinnings to the point that it almost became a non-event. Yet it is an event, and the failure of sovereign debt is something that factors into all currencies, not only the currency of the debtor who failed. This period we are going through now, which I believe is a pause similar to the [one] that took place the first time it went over $1,000, is not terminal in terms of the market having maxed out its price but rather a shift during a period of psychology where the means to overcome the problems have, in a market sense, been successful. Yet, everything has consequences and the consequences for the means of overcoming the problems are yet to be faced.

FM: What do you mean by changing our currency status?

JS: Well, government moving more into the system than away from the system; more into central banks than out of central banks. We are not making a voluntary change, but circumstances are bringing about a change. There was a meeting of the BRICS (Brazil, Russia, India, China and South Africa) [recently] that discussed setting up their own [International Monetary Fund] and also their own currency bloc. The euro is inexplicable right now above $1.30 if you heard all of the bearishness on it. The euro is probably going to be with us for a very long time and will come through change solidly. The dollar was the reserve currency of choice and became the reserve currency by default, meaning you just had it and it has recently begun to be replaced by other currencies as an international settlement mechanism.

FM: Our last profile suggested it would take at least 20 years to replace the dollar as a reserve currency.

JS: I think that is wrong. The dollar isn’t going to be replaced; [it] always will be there, but as far as a settlement currency, weekly, almost daily, you see the dollar mechanism for settlement being replaced by other currencies. Especially by the internationalization of the Chinese currency. Nothing is going to replace the dollar, but it is the utilization and value that factor into markets.

FM: Will it be replaced as a global reserve currency?

JS: [It is] a global reserve currency by default. If the dollar was a global reserve currency by choice, international purchasing of U.S. Treasury instruments [would] be rising, not falling. All these headwinds against the dollar do not change it as a reserve currency but take it from a reserve currency of choice to a reserve currency by default. We are going to break down into three trading blocs: the yuan bloc, the euro block and the U.S. bloc. You already can see that by the Swiss having attached their currency to the euro instead of the dollar. That is the beginning of a currency bloc.

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