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Eric Sprott, Blackstone's Byron Wien, Like Gold

Release Date: 
Friday, July 13, 2012

Gold rose on Friday despite disappointment on Thursday over the Federal Reserve's failure to signal plans for a new round of imminent quantitative easing. Gold was $20.10 higher at 7:57 a.m. Pacific Time on the New York Spot Market, trading at $1,593.40 per ounce. Spot silver was $0.25 higher, trading at $27.46 per ounce. (Click here for the most current spot prices.)

Gold will climb to a record by year end as the global economy slows from the weight of too much debt, said Eric Sprott of Sprott Asset Management. "I just can't imagine the demand for gold is going down," he said. "I don't personally see a solution to the problem that we're in, the financial leveraging issue that we all have where everybody wants to shed debt and there's no buyers." According to Sprott, gold "should go to new highs before year end." He added, "gold has blown away every financial market in the world since 2000, let's not forget that."

Sprott cites late U.S. economist Hyman Minsky, whose Financial Instability Hypothesis argues that capitalist economies first trigger waves of credit expansion and asset inflation and then credit contraction and asset deflation. "Minsky said that if you expand your economy by increasing debt, there comes a point where the productive engine can't deal with the debt," Sprott said. "I've thought that there will be many, many Minsky moments for many banks and countries."

The debt crisis "should be incredible for gold," said Sprott. He said the world may eventually return to the gold standard. "Ultimately, if there's a currency crisis, which one could argue we are in the throes of it right now, how do sovereigns and banks back things up? What do you back it up with?" he said. "I can imagine that the most logical thing is gold."

Byron Wien, vice chairman of Blackstone Group LP's advisory services unit, likes gold "because people are going to want to own something real, and gold is real." Wien characterized gold as a defensive opportunity. "What you see is that the major currencies…the yen, the dollar and the euro…the central banks in all of those countries are expanding the money supply. Eventually the currencies have to be weaker, and you're going to want to own something to offset that, and gold will offset that."

(Sources: "Gold 22% Rally To Record Seen By Eric Sprott: Commodities," Bloomberg, July 12, 2012; "Wien Likes Gold as ‘Defensive Opportunity," Bloomberg, July 12, 2012; "Gold falls 1 percent after Fed gives no hint of stimulus," Reuters, July 12, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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