QUESTION: Marty, at the Berlin cocktail party you said we may yet see gold sales from oil producing countries if oil breaks your yearly number of $35 for year end and gold closes below 1044 or so I think. You said gold could then reach that $——- level you mentioned in the conference. It looks like that is happening. Socrates on the monthly level is now warning of a possible Waterfall Event in gold. Are we seeing the risk of official gold sales from Russia, Norway and Saudi Arabia?
Thanks for a spectacular conference.
ANSWER: Yes. We got the rate hike. A stronger dollar is still on the agenda, and yes, I warned we could get that waterfall in commodities for the first quarter, particularly in oil. The continuing collapse of oil prices under $35 for year-end will bring tremendous distress to several countries. Cash-strapped governments are looking at substantially lower revenue from oil and they are likely to liquidate positions in gold and in their sovereign wealth funds. They will draw down cash from gold and a portion of their funds to close budget gaps.
Gold produces zero income and costs money to store while the yields on wealth funds currently produce way too little to compensate for the deficits. This crisis, in turn, could cause several nations to liquidate portions of their funds to sell off gold to raise cash. It would appear that the selling will be in debt markets more so than stocks. They will focus on declining asset values like gold and bonds more so than U.S. equities. When they get into a real jam, it becomes whatever they can sell to raise cash irrespective of the fundamentals.