As the Fed runs low on ammunition to further suppress the gold price, Ian Gordon, founder and chairman of the Longwave Group, is extremely bullish on gold. In this interview with The Gold Report, he recounts his history of the manipulation of the gold price and its implications for the global economy. He also expands on research showing that juniors are more effective and cost efficient at making discoveries.
The Gold Report: Gold was among the worst performing assets in 2013. How have its trading patterns and performance over the last two years informed your predictions for 2014?
Ian Gordon: I'm extremely bullish for the gold price in 2014. Part of that bullishness is related to my work on cycles. Indeed, I am confident that 2014 will see the beginning of the 4th long-term cycle for precious metals and precious metals stocks and the bullish phase of this cycle should last about three years.
The prices of precious metals and precious metals stocks have been badly bruised following their price peaks in 2011, due in part to what I consider to be manipulation in the COMEX. There is a long history of gold price manipulation: In the 1960s, the London Gold Pool was formed to try to hold the price at $35/ounce ($35/oz)—the price the U.S. dollar was pegged to—because gold was leaving the U.S. The London Gold Pool lasted for six years, at which point it became impossible to maintain the $35/oz price and that effectively forced the U.S. off gold in 1971. In the 1970s, the gold price rose, eventually reaching $800/oz in 1980. In an attempt to contain the rising gold price, the International Monetary Fund and the U.S. sold gold during the late 1970s. In 1999, the price of gold bottomed at $250/oz, then started to bubble up.
As the price of gold started to rise, the U.S. inveigled countries like Canada, the United Kingdom and several others to sell their physical gold, in an effort to contain the price. When those overt gold sales failed to stop the price from rising, Western central banks moved to gold leasing. That was done so funds that were borrowing the gold could sell it to suppress the price. That came to an end when there was no more gold to lease, perhaps evidenced by the fact that U.S. cannot return just 300 tons of gold to Germany.
The final battlefield for the U.S. war on gold is being waged in the COMEX. Gold was down $480/oz during 2013, and on two days in April, it was down $246/oz, which is more than half the total drop in the gold price for all of 2013. The ratio on the COMEX of paper gold to physical gold is now effectively 100:1.
It seems to me the U.S. is running out of ammunition to suppress the price of gold, to convince people that the paper dollar is better than gold. All the physical gold has been moving to Asia. The war will end in 2014. The manipulation will be exposed for what it is. When that happens, the gold price will rise dramatically.
TGR: Is there any evidence that gold's previous price performance can be used to forecast its future performance, or are we in uncharted territory?
IG: Whenever we have manipulation in markets it becomes much more difficult to make forecasts. For example, the stock market is being driven higher through massive monetary stimulus on the part of the central banks, particularly the Federal Reserve.
Our research demonstrates that cycles of secular bull and bear markets occur within what we call the longwave cycle seasons. We are now in the winter of the longwave cycle, when debt is effectively taken out of the economy. The central banks are resisting that process and have been since 2000. During the winter of the longwave season, gold is in a secular bull market and stocks should be in a secular bear market.
We've been in a secular bull market for gold and the gold stocks effectively since 2000. The HUI Gold BUGS Index bottomed at $35.50 in 2000; today it's just above $200. The gold price bottomed at $251/oz and today is above $1,225/oz. Within these secular cycles there are long-term and intermediate cycles. Long-term cycles last between four and five years and there are four and a half of these long-term cycles in each secular cycle. I have written about how these cycles fit together; this can be seen on mywebsite.
We should be in a price bottom of the 3rd long-term cycle and beginning the bullish phase of the 4th long-term cycle for precious metals and precious metals stocks. In my cycle work I have estimated that this bullish phase should take the price of gold to $3,300/oz and the HUI Index to $990 sometime early in 2017. It won't be straight up; there will be intermediate corrections along the way.