Gold
Most Likely to Double: Puru Saxena By John Dourekas
Of Kitco News - 23 April 2010, 04:37 p.m. EST
Hong
Kong (Kitco News) --
Gold will most likely double from its current $1150
an ounce during the course of the bull market, according
to Puru Saxena, founder of Puru Saxena Wealth Management.
In an exclusive interview with Kitco
News, Saxena said one major factor in gold’s
favor "is that central banks have now become
net buyers of gold. So that reduces supply from the
market,” said Saxena.
Investment demand will appreciate
over time as people become more dubious over currencies
and they transfer assets into gold as a hedge, said
the investment adviser from his Hong Kong office.
He thinks inflation will occur at
an accelerated pace over the next few years. "Real
interest rates are negative in most countries, so
gold should continue to benefit purely as an anti-currency
because people lost faith in the euro and the dollar,"
he said. "At some point people are going to say
well, ‘we don’t want to lose purchasing
power in currencies that are dubious, we want gold
as an insurance.’”
Saxena is not so optimistic, however,
for base metals, which he said are likely to struggle.
“If you look at the inventory levels at the
London Metals Exchange, the stockpiles are extremely
elevated and inflated," he said. "So even
though copper, lead and zinc have had a big run-up
since last August, inventory levels have actually
increased, so that leads us to believe it is speculation.”
As for the sudden rise of palladium,
Saxena cautions against this metal for now. “Palladium
has gone parabolic. Usually when you have a parabolic
spike they are followed by a parabolic collapse,"
he said. "I think palladium will have a big correction
and when it does, that will be the time to buy."
Currently, Saxena said he is fully
invested in his preferred companies. “We think
the bull market will run for another couple of years
– in my view we will see a big boom again in
all asset classes,” he said.
Saxena sees more opportunities in
precious metals and energy. He said that he is invested
35% in energy and 15% in precious metals. On currencies
he prefers the Canadian and Australian dollar, as
well as the Singaporean Dollar, Chinese Yuan and the
Indian rupee.
American Revival?
Saxena does not subscribe to the bearish
view that has America on the wane. “The US is
still the world’s largest economy,” he
said. “Surely it is losing its dominance as
countries in Asia climb-up the prosperity ladder but
it will be a gradual transition. I don’t think
the US is going to go down in flames. Ultimately the
American consumer will come roaring back.”
He is, however, skeptical of the lack
of clean-up of the financial system. Throughout the
recession the total debt in America has continued
to expand and this is the crux of the problem, he
said. “You cannot solve a problem of over-leverage
and excess debt by taking on more and more debt. You
can’t put band-aids on the problem or you will
eventually have a currency crisis,” said Saxena.
Saxena said that over time the consequences
of this will be twofold: longer term interest rates
will increase substantially over the next decade and
the CPI, which he calls a “terribly flawed barometer
of inflation” will double in seven to eight
years. In turn, he said, the US dollar’s purchasing
power will diminish against hard assets.
The US has three options for survival,
said Saxena, “It can either accept a painful
recession. They can default because it cannot pay
back liabilities or the third option is monetary inflation.
I suspect they will continue to debase the value of
the dollar and print greenbacks.”
In the future, Saxena said that he
predicts the financial industry will become more heavily
regulated. “A bank should either operate as
a commercial bank with no investment banking or if
you go into investment banking the government should
not bail you out." "If you make mistakes
you should be penalized and the bond and shareholders
lose everything.”
EU Debt Crisis
Saxena is not a big fan of Europe.
“I think the IMF or European Union will bail
out offenders but that is a band-aid on the problem
and it will be a long-term negative effect for the
euro," he said. "I think the euro is a terribly
flawed currency because you have so many different
nations with different objectives, requirements and
problems all lumped into one basket.”
The problems with Western Europe are
the same as in the US, said Saxena. “Too many
excesses; too much credit; too much consumption and
not enough savings.”
No End for Goldman
Saxena said Goldman Sachs has been
made a scapegoat and will survive the tribulation.
“The biggest offenders are Freddie Mac, Fannie
Mae and the regulators themselves because all these
shenanigans were occurring right under their noses,"
he said. "Regulators knew what was going on…
So I think to come back at Goldman alone is a bit
unfair –I think you have to go after everyone.”
He said that in five years from now people will have
forgotten about this ordeal.
China Correction
Property in certain cities in China
are certainly overvalued, said Saxena. “If you
look at Beijing and Shanghai the properties have become
incredibly unaffordable -- it takes 20 years of income
for the average household to buy a property,”
he said.
A correction in China will occur when
there is more monetary tightening, said Saxena. When
this will happen? Saxena does not know. “One
thing working in favor of Chinese assets is that China
doesn’t allow the Chinese to invest overseas
– so the money is all contained within the economy,”
he said.
As for the purchase of the IMF’s
191.3 tonnes of gold, Saxena forecasts Asian Central
Banks will purchase a significant amount. “Over
time as these cash piles for China and India continue
to get bigger and bigger with foreign exchange reserves,
they will turn towards buying hard assets,”
said Saxena. He does not think IMF gold sales are
a big threat to the markets as they were four or five
years ago.
Market Manipulation?
Regarding rumored gold market manipulation
by the major banking powers, Saxena has some suspicions
and would not be surprised if some paper selling was
occurring to keep the gold price down.
“The central and private banks
make their money by promoting the fiat money system
–if the price of gold suddenly jumps fivefold,
that is a red flag that there is something seriously
wrong with the system," he said. "It would
not be surprising for me to hear that they are suppressing
the price of gold – we had the biggest financial
crisis in decades and rather than increasing in value,
the price of gold actually fell.”
Saxena said he has been following
the work of GATA for a long time and "they make
a reasonable case for that, but my argument is; what
market is not manipulated? Everything is manipulated,”
he added.