James Turk: Hello, I’m James Turk. I’m a director of the GoldMoney Foundation. And I’m here in Munich, Germany with Swiss money manager, Egon von Greyerz, the founder of Matterhorn Asset Management. Egon, it’s a pleasure. I appreciate you taking out the time to come and speak with us today.

Egon von Greyerz: Thank you.

James: I’ve been following your work for many years. I know we’re on the same line of thought with regard to sound money and the precious metals. But just provide a little bit of background information about yourself and your thinking about gold and silver and their role as money.

Egon: Well, I can go back a long time. I’ve been worried about this world for quite a long time, like you. And I saw it coming, certainly, in the ’90s. I was surprised how governments managed to fool the people by continuing to print money. I thought, actually, that the world would discover that the emperor was naked a lot earlier than they did. But it suited everyone, of course. Everyone had a vested interest, whether it’s government or the bankers, politicians, to continue to print money and to continue to deceive the people.

I founded Matterhorn Asset Management in the late ’90s, but it was really a private company then, just for private investors. But in 2002 I went official and said to all our investors that you should have 50 per cent of your liquid assets in gold, which was quite unique then. Gold was $300 then.

Of course, just like when you started, some people listened and they are extremely happy, a lot of people didn’t listen. As you are, I’m sure, experiencing now, people like buying high. But I’m sure you’ll come to that. I don’t think we are high yet, we’re just higher. We’ve gone five times since we recommended people to have 50 per cent of their assets in gold. But we’re still at the very beginning of the move, in my view.

James: Yeah, I agree with you completely on this. People get hung up on the price. What they really should be looking at is value. Value can be very, very different. When you’re looking at price because the dollar is being debased, the euro is being debased; they’re losing purchasing power because of bad decisions being made my central banks, inflation and all of that. Gold may look like it’s expensive, but the reality is it’s almost as good a value as it was 10 years ago. It’s slightly undervalued than it was 10 years ago. But on historical norm, it’s still very much undervalued. Even silver, given that silver has risen the way it has, do you also look at silver as a form of liquidity?

Egon: Yes, we do silver also, definitely. We actually also have… Our precious metals division is called Gold Switzerland. We also have the name Silver Switzerland registered, but we’re not using that as a separate website. But lately, we’ve done a lot of silver. Again, of course, people like to buy things when they move. As you know, it’s more complicated in Europe to buy silver because of the VAT situation. There’s no problem buying it and storing it in a bonded warehouse, of course. But people can’t use it as money in the same way without paying VAT on it. So in my view, silver is not the same degree of wealth preservation. It’s a very interesting investment, currently. I think people should have some silver. I think they should have more gold because of the volatility of silver.

At some point, I actually see gold peaking in a number of years and staying at that level, because I think gold is going to become part of reserve currency. I doubt that silver will be because there is no silver stock around the world and governments don’t have silver. Therefore, I think silver will correct more. So I think that investors should be careful in not buying silver only.

James: Yeah. I agree with you. The volatility of silver means it’s not for everyone. Whereas, gold is the form of international money and that role as international money, I think, continues to emerge as more and more people are starting to say that there are no safe havens anymore. You can’t go to the Deutsche Mark, even their questions about the Swiss franc and how closely tied it’s going to be to the euro. So the natural safe haven would be gold. Actually, let me ask you about the Swiss franc. Do you have any views on that as a safe haven currency? They tried buying a lot of euros and, the Swiss National Bank took huge losses as a consequence of that on their foreign exchange trading. But how do you see the Swiss franc, going forward from here?

Egon: Well, I think, since 1972, the dollar is down about 80 per cent against the Swiss franc, if I remember correctly.

James: That’s probably pretty accurate.

Egon: Yeah. The interesting thing is, then you compare all the currencies to gold, Swiss franc is also down dramatically against gold.

James: Yes.

Egon: As we know, all currencies are going down against real money, just at slightly different rates. The Swiss franc has always been, as we know, a currency that people go to when there’s concern in the world about the financial system. Now, the high Swiss franc is a real problem for Switzerland, from the point of view of terms of trade. It’s too expensive. As you know, they always protected or defended the Swiss franc against the euro, until they lost billions and gave up that game. Now the Swiss franc is too expensive for the Swiss. And I’m concerned about Switzerland, also, from the point of view that they are a very strong and stable economy. But they cannot withstand the pressures from the rest of the world.

So I think that the Swiss franc will continue to strengthen against the dollar. There’s no question about it. I had a target years ago of 50. We’re now 87 today, dollar against the Swiss franc. My target was 50. So we still have a long way to go. But I’d much rather own gold than the Swiss franc, because I think gold will go up against all currencies, including the Swiss franc. James: Yeah. In a world where the printing presses are going wild at central banks, the Swiss National Bank can’t, on its own, really stop it. They can’t buy up all of these extra currencies that are being created without incurring huge losses like they did on their foreign exchange trading with the euro.

Egon: No.

James: One force is not enough to stop all of the bad money processes going on around the world. But what would you suggest is the thinking within the Swiss National Bank itself? Back in the 1970s, it was quite clear that the Swiss National Bank was committed to sound money. And there was even a period of time when they went to negative interest rates to discourage hot money from coming into Switzerland. But back then, of course, its partner was the Bundesbank, and maintaining the Deutsche Mark as sound money as well. But now the Swiss National Bank is pretty much on its own because the European Central Bank doesn’t really seem too committed to sound money, given the fact that they’ve been buying so much sovereign debt.

So do you see the Swiss National Bank, more or less, throwing in the towel and giving up to maintain any kind of pretense for sound money?

Egon: I think they have gradually, over the years… They sold off some of their gold as you know. Then, the Swiss banks used to be the most conservative banks in the world from the point of view of investments. Now they are like any international bank. They have enormous positions. And relative to the size of the country, of course, one has to be concerned about the Swiss banking system.

James: You mean the big banks, the UBS and Credit Suisse?

Egon: Yeah.

James: Not the smaller cantonal banks or the private banks.

Egon: No, I’m talking about the big banks, of course. They have enormous exposure. And if we get a problem in the banking system, which I think we will get worldwide, the Swiss bank… The Swiss government is too small in relation to the big bank’s exposure. So that, to me, is a real concern. Now, if something happens to the financial system, if we have a systemic problem, it doesn’t matter if you have the most conservative Swiss bank or if you have one with bigger exposure. Because even the smallest banks, if they get dollar deposits, what do they do with the dollar deposits? They put it in New York. If they have a foreign exchange position, where the dollar is counter-party, they have that with a US bank.

So sadly, in my view, if we do get a systemic problem in the world, no bank can withstand that pressure and the problems.

James: Is that causing Switzerland to lose its status as a safe haven, because it’s now part of the global economy in a way that was different than back in the 1970s when the big banks in Switzerland were basically Swiss focused and not globally focused?

Egon: Yes. I think it’s a major change there.

James: Does that mean the rule of law in Switzerland is being eroded, property rights and things of that nature?

Egon: No, not yet. Definitely not. I’m a dual citizen. I’m Swedish and Swiss. So I can look at Switzerland from the outside also, not just as a Swiss. I still think that it’s one of the soundest economies and countries, and best governed countries, in the world still, Switzerland.

James: What about as a place to store metal? An old friend of mine, Marc Faber, who you may know, who is Swiss, has indicated that he is less confident about Switzerland looking in the future in terms of confiscation issues. If they had pressure brought to bear on Switzerland during a banking crisis and governments around the world, the US government, particularly, put pressure on the Swiss government to confiscate metals. Do you see that as a risk in Switzerland?

Egon: I know he said that, and I am surprised. It must be his influence from Thailand or the Far East that has made him think that. I think that gold in Switzerland is an old tradition of actually putting part of your savings into gold. I remember when I was a young man working in a bank in Switzerland, most people in the bank bought a few Swiss coins every month for their salary to save. So there is this old established tradition in Switzerland for everybody to own gold. Whilst, as you know, in most European countries in the last 50 years, no bank sells gold. Even in the UK today, you can’t go into a bank and buy gold coins or in most other European countries. Now you’ve got Internet companies selling it.

But Switzerland has always had that tradition that you go into your bank and you buy a gold coin. This is the way many Swiss have been saving. So I think that it would be unacceptable and unlikely that the Swiss will actually ban an old, established tradition of putting your savings into gold.

James: Is it in the culture of the way the Swiss people think?

Egon: I think it is. They have always been savers, and they will always looked at gold as part of the savings.

James: So it’s, in many respects, similar to the culture here in Germany where it’s a hard currency country. There’s a concept of saving rather than incurring debt.

Egon: Exactly.

James: And even though they have a younger, newer generation, those old traditions still prevail.

Egon: They do. And you still find that Swiss is very much of a cash economy. Credit cards are accepted in more and more places now. Of course all shops accept them. But a lot of restaurants haven’t accepted them until in the last few years. And people like paying with cash in Switzerland, which is very unusual compared to the UK or the US.

James: What’s the biggest risk that Switzerland faces today in your view? Is it the strong…?

Egon: Yes, I think that’s…

James: Potentially, the strong Swiss franc potentially undermining or making the Swiss economy under-performing.

Egon: Yes, I think that’s a big, big problem.

James: Does that also have an impact on the financial and banking sector within Switzerland?

Egon: Well, it could do because it will impact the country as a whole and it will mean that the country’s economy will deteriorate, which could be also bad for the banking system.

James: Let’s move away from Switzerland and look, first, at Europe and then more globally. How do you see Europe evolving over the next year or two, specifically with regard to the euro in the ECB?

Egon: What is so fascinating about this period that we’re in now is the whole world is in a mess. It’s not just the dollar. It’s not just the US. Although, in my view, that’s the biggest problem because that is the engine of the financial world and the world economy, the US and the dollar has been. But the problems in euro-land are massive. But relatively, I think, Europe will fair better than the US. But if you take… We know, I don’t need to mention all the names of all the countries that are in real trouble, the Portugals and the Spains of this world. That will move on to Italy, to France, in my view. UK is in an absolutely mess. And I think, after the US, they are the most likely country for hyperinflation, in my view, the UK.

James: I agree with you on that. I think it’s a horse race. Which one’s going to fall over the finish line first? And I mean fall literally, because it’s not a horse race you want to win.

Egon: No, definitely not. This is why, when you think about it, the world has never, ever had a situation where virtually every major economy worldwide is in a total mess and is bankrupt and this is why when it started, in my view it’s starting now. Now it’s the dollar which is the trigger. The dollar is starting to fall more rapidly now. And I think we are now going to see the first signs of this period of decline and hyperinflation starting. It’ll take time, but the acceleration is now at the very beginning.

James: You can sense a break in confidence of people’s view of what the dollar is?

Egon: Absolutely.

James: So it will gain momentum. Will the impact be the euro?

Egon: People love comparing currencies and say, „Which one shall I have, the euro or the dollar or the Swiss franc?“ It’s a fallacy to think about currencies in relative terms because, you know, when one currency goes down another one has to go up. But as we both know, in the last 100 years every currency has fallen between 97 and 99 per cent against gold. Voltaire said, in 1729, paper money eventually reaches its intrinsic value, which is zero. And they’re on the way. All currencies are on the way, it’s just a slightly different speed. Now, I think the next one to fall is the dollar against the euro.

So the euro will continue to gain in value against the dollar. But currency speculators in the world will attack one currency at a time, because they can’t attack them all on a relative basis at the same time.

But the only thing investors should look at is the value of currencies against gold. I’ve said they’ve gone down 97 to 99 per cent in the last 100 years, and then, in the last 10 years, they’ve gone down 80 per cent against gold.

James: You’ve mentioned currency speculators. Is that really what’s driving it or is it people looking for a safe home for their money? It’s been my perception that it’s really people looking for safety and security with their money. And they go here thinking that’s safe or they go there thinking that’s safe, rather than currency speculators themselves. Obviously, currency speculators jump on when they see the trend going or the momentum building. But isn’t the big driver really people looking for a safe place to put their money?

Egon: Yes, absolutely. I agree with you. The big trends are always where people want to have their money.

James: So if the dollar falls, the knee jerk reaction might be, „We’ll go to the euro, but the euro has its own problems.“ What people should really be saying is, „Look, rather than going into the euro just go into gold because that is the ultimate safe haven.“

Egon: Yes, absolutely. People should only think about their wealth in relation to gold, or possibly silver, but preferably gold in my view. And of course, the Americans, they don’t understand what’s happening. They don’t understand that, as I’ve said, the currency has lost 80 per cent against gold in the last 10 years. They don’t understand that their stock market investments have also lost 80 per cent against gold in the last 10 years because the Dow is still at 12,000 or above 12,000, so the Americans think that I’m alright, I’m not losing on my stocks. But they are losing massively.

James: In terms of purchasing power.

Egon: Exactly.

James: Yeah. But, you know, that’s very understandable from the point of view when you’re in a country and you’re getting paid in dollars and you’re using dollars at the gas station, at the super market you sort of lose sight of what’s really happening to the currency because you sort of get used to it. It’s people outside of the country that understand better what’s actually happening within the country. Because, in Europe, you don’t have to hold dollars. Or, if you’re in Asia, you don’t have to hold dollars. And if you don’t like what’s going on in the States, you dump those dollars. And that’s basically what China is saying, for example.

When a currency collapses, the demand for the currency collapses first outside the country. Only within the country does the currency collapse, the demand falls. But that’s at a later stage, once the signs are clearly there. Turning to a global aspect, what are the big factors, in your view, affecting the global monetary and economic scene today? Is it China still?

Egon: Yes. China is extremely important today, and will be long term. But China cannot exist in isolation when the rest of the world collapses, which I think it will do into this hyperinflation scenario starting with the US. And China will suffer because they are totally dependent today on their exports. Long term, hopefully they’ll be building up their domestic economy, but that is long term. And before that, they’re going to have problems. And one must hope that won’t lead to any social disorder or problems within the country where there will be these pressures because we know the banking system is massively inflated in China also.

James: There is this talk about global cooperation trying to find additional reserve currencies or minimising the role of the dollar as a world reserve currency and at the surface the discussion between various governments seems to be cordial, but behind the scenes would you think that China is probably considering or possibly considering going its own way, creating a currency backed by gold?

Egon: I think a few countries are and I’m sure China is also. Because China is one of the few countries that is actually thinking about what is happening in the world and planning for it, both when it comes to sound money and when it comes to investing their money in the right places, buying resources, investing in countries with resources. I don’t know what they are planning, but I know that they are certainly thinking more than anyone else about the role of gold. Can they do it in isolation? Yeah, they could do it.

James: It seems to me that China is building a commercial empire, globally. They’re using their foreign exchange reserves to buy resources in Africa, to try to buy companies. You saw Barrick competing with Minmetals, I guess it was, to buy Equinox, the copper company. One of the reasons that the British Empire was successful as a commercial empire was that the term of British pound and gold were synonymous with one another. So I’m sort of wondering whether China sees that aspect, and to build a successful global commercial empire they’re ultimately moving that way, too.

Egon: I’m sure that’s what they’d like to. Before that, in my view, gold has to be revalued substantially to function as money, and I think it will be.

James: You want to give us a target? I’m on record as $8,000 by 2013-2015 for an ounce of gold, and I’m sticking to that. Although, I’m thinking maybe that’s going to be conservative given what’s happening to the dollar. What’s your longer term view?

Egon: It’s a very good question, that. Because I’m also on record as saying that, between $6,000 and $12,000, but I add in today’s money and I think, now, I’m going to change my mind about this because it is not worthwhile any longer to talk about today’s money, because we’re not going to have today’s money. Nobody’s going to see today’s money. We’re going to see hyperinflation money. So to talk about $6,000 or $12,000 is meaningless because what people have to protect themselves against is gold at 100-million or 100-billion or 100-trillion.

We have no idea how many zeros there will be because we have no idea how much money will be printed. But it’s not likely to be less, bearing in mind the massive, massive exposure of the world economy, just take the derivatives of one quadrillion outstanding, which most of them are worthless. So the money that has to be printed is probably more than we’ve ever seen in a similar situation. And therefore, it’s impossible to say how many zeros there will be.

But people must think in terms, not of the fact that gold might go up three or four times from here, but the fact that they might lose all of their money because they haven’t got it in a safe currency. And I think, therefore, it’s impossible to give a forecast of what gold’s going to be. But it’s not going to be $10,000 or $12,000, in my view. It’s going to have a lot of views after it in today’s money.

James: Will gold basically, then, reemerge as the form of international money, which is traditional and classical, or is it already international money?

Egon: There are two stages. Even in Zimbabwe, for example, they found gold in the rivers and paid for their bread in gold, as you know. So initially it will be a trading currency before the system is reorganized, which could take a very long time. I hope gold will be part of a future reserve currency, and it’s my view that it should be. But before governments agree on that worldwide, that could take many, many years. What’s your view on that?

James: Well, I think gold is already emerging as a form of international money. I mean, we see it in terms of people going to gold as a safe haven an d even talking to general mainstream media that gold is emerging once again as a form of international money. I think, given the bad experience that people are having with paper currencies, fiat currencies on both sides of the line, I think, as well as other currencies around the world, that it’s inevitable that gold goes back to its rightful role. After all, gold has, as you very well know, 5,000 years of history and the attributes that made gold as money in the first place have not been lost.

All that’s changed is people’s perceptions over the past few decades. People have been taught to believe that gold is not money, that paper is as good as gold, et cetera.

Those perceptions have changed, but the attributes that made gold money in the first place have not. And I think what we’re seeing now is this relearning of what gold’s attributes are. And as more and more people start to understand that, these higher gold prices that we’ve been talking about seem inevitable as people move out of paper, move out of fiat currencies into a safe haven, which is what gold offers.

Tangible asset, doesn’t have counter-party risk, and preserves purchasing power for a long term of time, which makes it an ideal form of money and, in fact, which is why it became money in the first place chosen by the market. Anything that you’d like to add as we wrap up our little discussion here? Any particular comments or advice for people that are going to be doing this?

Egon: Well, the pressure on gold will, be twofold. One is the collapsing currencies. We talked about the dollar, but also, every other currency will also go down, maybe not at the same speed. But they will. So that’s one pressure. The other pressure is combined with the fact that gold will go up just because currencies are going down, you have the pressure that only one per cent of world financial assets are in gold today and, in spite of that, gold has gone up five, six times depending on the currency in the last 11 years, which is quite amazing that you’ve actually seen a stout market where gold has gone up so much without anybody owning it.

Gold money’s seen a major increase, we’ve seen very good increases in investments. But that’s nothing compared to world financial assets. What you’re seeing now, the first signs, people are now becoming more desperate.

People want to buy gold now, but it’s still a very, very small percentage. But when major funds and major asset managers and major pension funds start buying gold, as we both know… And they will also buy physical gold because they won’t trust the paper market, which they shouldn’t anyway. And when that starts there won’t be the gold around. And even the gold that they say is there won’t be there because central banks won’t have the gold they say they have and it’ll be lent out, et cetera. Therefore, the pressure of the price will be enormous and this is what’s going to move gold so fast.

James: So you’re a firm believer, along with me and a number of other people, that you really want to own physical gold and not paper gold.

Egon: People must have physical gold. I think that they must have it outside of the banking system, and they must have it in their own name. They must know that the gold is actually there. In my view, one shouldn’t store it at home. Of course, I think that’s a bad thing. So your system or our system is absolutely the right way of doing it.

James: Egon, I thank you very much. This is a real pressure. I’ve been speaking to Egon von Greyerz, the founder of Matterhorn Asset Management in Switzerland. Thank you very much.

Egon: Thank you, Jim. Thank you.