Ian Gordon has said it before: We're on the edge of an economic maelstrom that will breathe new life into the gold exploration industry. While his cautionary tales may be beginning to sound like the boy who cried wolf, Gordon, the founder and chairman of Longwave Group, gives some persuasive evidence to support his doomsday scenario for the greater market. In this Gold Report interview, Gordon talks about what he forecasts as an unprecedented period of growth and investment in gold, which is just about to get underway as the market sinks.
The Gold Report: Ian, you believe that 2013 is likely to be an economic and financial disaster. But you have been saying similar things for years. Why is 2013 likely to be different?
Ian Gordon: Yes, I have been saying similar things for years. However, I know through my work that we are in a longwave winter. The whole purpose of the longwave winter is to cleanse the economy of debt.
The longwave winter began with the stock market peak when the Dow Jones Industrial Average hit 11,750 in January 2000. That was akin to the 1929 stock market peak. Following the 1929 peak, the worst of the longwave winter that followed was over by 1933. Between 1929 and 1933, 10,000 U.S. banks failed, the U.S. stock market lost 90% of its value, U.S. unemployment reached a peak of 25% and U.S. gross domestic product collapsed by 45%.
This time around, it's been 13 years since the peak and the process of debt elimination hasn't occurred. If anything, we've added to the debt issue. I'm convinced that the worst is still in front of us. We haven't had a catastrophic economic decline that forced massive unemployment rates and collapsed the U.S. banking system. This is the year that is going to occur because I believe there's going to be a major peak in stock prices that is going to start a decline that will be every bit as vicious as the bear market decline between 1929 and 1932. The Federal Reserve Bank has been able to hold back the ravages of winter this time around. It wasn't nearly as active between 1929 and 1933 as it has been during this period.
TGR: Some believe that the Fed and other market manipulators will be able to hold back those ravages in perpetuity until the economy does permanently get on its feet again. Why do you believe they're not likely to succeed?
IG: That's an impossible task because we haven't gotten rid of the debt. Economies function on savings. The purpose of this winter is to get rid of the debt. It appears to be a very benign winter, but we're convinced that all markets are ultimately governed by natural law and that man is powerless to hold back the natural occurrences. What goes up has to come down. We've had an economy that has been rising since 1949. Total worldwide debt is about $200 trillion ($200T). Total debt is the U.S. is about $56T. It has to be washed out. It's going to be very painful during that process.
TGR: If you are correct, one would expect the gold price to climb dramatically in 2013. Won't global governments do all they can to stanch gold's upward momentum?
IG: They've been trying to do that since the late 1950s, when the U.S. set up the London Gold Pool to try and keep the price of gold down to $35/ounce ($35/oz). That was a six-year fiasco where if the price was bubbling above $35, the members of the London Gold Pool sold gold. Eventually, it collapsed because the French, who were 10% of the London Gold Pool, gave up on it.
In the late 1970s, when the gold price was starting to rise, the International Monetary Fund and the U.S. government sold gold to try and hold down the price.
There was no reason to control the price of gold in the 1980s and 1990s because it collapsed.
Then it started to look as if the gold price wanted to bubble again, so that countries like the U.K. were inveigled to sell huge portions of their gold. In 1999, European countries set up the Washington Agreement on Gold that controlled the amount of gold that they could sell.
The gold price has been controlled in the COMEX market. Once the gold price really starts to get away and demand overwhelms that, which I suspect will occur this year, then governments are going to lose control of the gold price through COMEX. The mining industry only produces about 80 million ounces (80 Moz) gold/year. It's a very small amount.