War drums will hasten dollar’s collapse, says currency expert

PREDICTING a gold-price boom usually prompts one’s audience to don tin-foil hats and whisper about conspiracies. Yet author James Rickards believes bullion is poised to shoot up exponentially on the inevitable collapse of the US dollar.

This would place the South African economy in position for a robust recovery.

Rickards, author of Currency Wars and managing director of Tangent Capital, was the keynote speaker at the Sanlam Africa Cup of Investment in Cape Town this week. He expects gold to rocket as high as $7 000/oz in the next five years as the dollar-based global economy collapses and is replaced by a more viable, goldbased currency.

“Gold is not an investment, it is not a commodity. Essentially, gold is money,” said Rickards.

While this sounds like great news for South African gold miners, Rickards said the country would not benefit unless the South African Reserve Bank increased its gold reserves.

A lawyer by training, Rickards was involved in the sequestration of Long Term Capital Management, an asset manager that collapsed in the late 1990s and shook people’s belief in the market.

“The dollar-based global financial system is unstable. I see it collapsing in the next three to five years.

“It will either be replaced by a new gold standard, or a new currency like the Special Drawing Rights of the International Monetary Fund or a combination of the two.

“The US Federal Reserve Bank takes confidence in the dollar for granted, and we know something as fragile as confidence can vanish very rapidly.”

Rickards said the war drums beating over Syria would hasten the dollar’s fall. The implications for South Africa were tremen-

Gold is not an investment, it is not a commodity. Essentially, gold is money

dous — not only was it a large gold producer, it also had one of the largest gold reserves in the world.

With the gold price moving in the opposite direction to the dollar, any sudden and steep fall in the value of the dollar would inevitably lead to an increase in the gold dollar price.

According to Rickards, this is not as unthinkable as it seems. The world came to the brink of a similar collapse in 1978. From 1977 to 1981, the value of the dollar was halved.

In 2010, the US embarked on a policy of cheapening the dollar. That has had ripple effects on the world ever since.

According to Rickards, September 18 will be a crucial date in the history of the world, as that is when the US Federal Reserve will announce whether it will stop printing its currency faster than the Zimbabwe Reserve Bank did at the height of the hyper-inflation era.

Although the markets seem to have priced in a slowdown in the rate of money printing by the Fed on this date, Rickards said he was sceptical it would actually happen.

As far as he was concerned, the “imminent” military strike in Syria by the US and its allies would make the US central bank reluctant to start tightening money supply.

“If you look at Fed policy during World War 2 and the Vietnam War, it was very accommodating. I’d be surprised if the Fed started tightening during a shooting war with Syria,” he said.

Rickards said the US had “no moral standing” to encourage good economic policy, especially as it was the main perpetrator of the present currency war.

“Do not watch what countries say, rather watch what they do. And the US government is determined to weaken the dollar so as to encourage inflation in their economy.

“Unfortunately they underestimate the destructive nature of this policy.”