Transcription
The 17,000 to my mind is absolute, you know, in the bag. The 17,000 is sort of like a floor to what where I think gold is going to end up be going.
Greetings and welcome to our Wealthy Show. My name is Trey Reich. I'm GBI's chief economist and we're here today with Pierre Lassand, uh, a man in the gold industry who frankly really needs no introduction and I'm tired of reading them over the years, but anyway, uh, Pierre, his career stretches from inventing the gold royalty model back in 1985 with Seymour Shoulick and founding Franco all the way to the development of his hit pan. anonymous lan curve uh which has become the industry standard in explaining risks and rewards in the life cycle of developing a mine. Pierre, the last time we spoke was about eight months ago in early October. So, thanks for joining us again today.
My pleasure. It's always a pleasure to be on your show and uh now is a good time. like there's so much going on in the world that um sometimes you know people need to just like a you know a set um a new um kind of like reset type of thing. So, and because you are so generous uh with your time as one of the industry's leading proponents and spokesman, you have in recent months uh spent some time with the good folks at Kitco and Gold Telegraph. And I encourage uh Wealthon viewers to check out both of those. But again, to try to break a bit of new ground and take a a little bit of a a sort of level two approach, um, I'm going to skip the typical discussions of the royalty model and all the things you've been involved with in the past and jump into a few topics. I've thought about this for a day or so that I think Wealthy viewers are most uh, tuned into.
So, I think starting at the top, back in October, you introduced this $17,250 price target. And to be honest with you, I spend my days trying to figure out where you came up with the last $250 in that total. Um, but the $17,000 uh gold price target, and I'm just going to jump in and put you a little on the spot. what is the uh you know specificity in terms of reasoning and methodology on how you came up with that number?
Well, it's very simple. Uh Trey, the period that we're living today is very very similar to what I lived through in the 1970s. Okay? Particularly the period 1976 1981. All right? And if you look at interest rate, you look at gold, you look at the dollar, uh, and you look at oil price, what you're going to see is a repeat of, uh, that period. And when you look at the gold price on a 120-year basis, uh twice in the last 100 years, in 1980 and in 1934, the uh gold price peaked on a ratio basis at 1 one to the Dow, the Dow Jones. Okay. In 1934, the Dow after being 360 in 1929 went down to 36 and the gold price from $20 went up to $35. So it was one to1. In 1980, the gold price, which in 1971 was $35, ran up to $800. And the Dow which in 1966 was a thousand had actually gone down to 600 but by 90 by 1980 had rallied to 800 one to one. So if we're look at it today the Dow is 50,000.
And I'm like scratching my head. I says like you know can we really see $50,000 gold price? I I I I cringe at that thought. And so and I look at the current market. I look at the, you know, impossible ratios that we have on the AI stocks and I say to myself, okay, let's say that the Dow loses between now and 2030 30%. And then instead of one one, it's going to be 2:1 ratio. That's how you get to $17,250.
That that's where I got the number.
And um yeah, go ahead.
So, you know what I see here is Washington in particular uh there is absolutely no political will to deal with the US budget deficit and that applies to both the Republicans and the Democrat. And 80% of the value of gold on a daily basis is related to the US dollar. So think about this. You're going to have a US budget deficit this year. The are looking the the office of congressional budget office is looking at 1.9 trillion. Okay. Um call it two trillion. The debt is going to reach 40 trillion. Interest rates if they go to 5% that's two trillion a year. That's twice the size of just the um the the the the the budget.
Just for defense.
Think about this. In 1980, Vulkar jacked up interest rates to 20%. The US Federal Reserve rate in March 1980 was 20%. Okay, that's what it took to reverse inflation. Today we have embedded inflation. The Iran war, what it has done, it's created a reaction with the food chain, with everything that goes down the road with energy that is embedded for the next 18 months that whatever even if we have peace tomorrow, you're not going to be able to change. So you're going to see inflation by it was 3.8% last month in the US CPI, you're going to see four, you're going to see 4 and a.5%. And then what is the Federal Reserve going to do? Are they going to increase interest rate or are they going to do what Trump wants to do which is the repression of interest rate, financial repression? There's going to be a bit of both, but 4% of 4 trillion is 1.6 trillion. You just do the math. And then on top of that, if you think of, you know, the social security fund, it will run out of money in 2032. And the Medicare fund runs out of money in 2033. So, think of the incredible amount of money that, you know, will have to be invented somewhere or they're going to have to tighten their belt. But you know, have you ever heard of a politician telling the voters, "Vote for me because I'm going to raise your taxes and I'm going to cut your benefits?" No. And that's why at the end of the day, gold is going to go up. The 17,000 to my mind is absolute, you know, in the bag. The question is, is it going to be like 1.5 to one or even one? And where's the Dow going to be? But I think the 17,000 is sort of like a floor to what where I think goal is going to end up be going.
Okay, great answer. And I, as you know, agree with pretty much every syllable. What I'm going to do is put you a teeny bit on your heels because you're Pierre Land and I'm just Trey Reich. But what I'm trying to do to viewers is build confidence that these types of comparisons make sense. So here here's my rough question and you can answer it however you like. What types of building blocks or proof or correlations can both you and I come up with that make 2026 such a believable correlary to the late7s. In other words, it's easy to point to these and I've been following the Dow to gold ratio for 25 years and I could go over, you know, the parameters and how low we've gotten. I think the lowest in my career is 11.2 um uh excuse me, it got down to 5:1 in 2011. So when gold hit its peak in 2011, the Dow got down to or the Dow to gold ratio got down to 5 to1 and we were all waiting for the next little bit. But but when you think just you know uh colloally, why can we be so confident? What are the signs that are the same today as they were in the 70s?
Well, it all starts with energy. uh energy is life and uh in the 1970s it was a 1973 uh you know essentially Iran uh revolution and then in 1978 like you know the uh the OPEC you know uh essentially shut the tap and you saw oil prices go to $120 and it created an inflation chain that moved everything. And here we have exactly the same kind of situation where the Iran war is choking 20% of the supply and every every week that goes by it's got someone like you know choking your throat and then like you know like slowly by slowly uh and the world is going to end up gasping. Okay. And we're like within weeks of that very point and um it creates inflation in China and it it repro you know like um the the uh oil um and oil and gas it goes into fertilizers. Well the cost of fertilizers double. So what happens? People planted less and also applied less fertilizer. So that's already caked in the bake. Bake in the cake in the sense that, you know, the crops are going to be smaller this year. Uh and on top of that, the U Noah in the United States is saying that we're going to have an El Nino that's going to devastate the crops in South America. Well, if you have that, you have a combination where you could have massive food inflation. You're going to have food inflation no other. And people who go to the grocery store and they go gas up their car, they feel it immediately. You know, that's like they that there's less money to spend. So inflation hits them in the pocket. Well, what do you think next wage and you know what they want? They want higher wages and it just keeps and the expectation is going to be more and more of that. And that's the same kind of attitude that we saw in the 1970s. I say that once you start inflation going, it takes a life of its own. It just takes a life of its own and you you think you can control it, it took 20% interest rate in the United States before they were able to control it. Do you think 3 and a half% will do? Do you think 3.75 will do? No. Not gonna happen.
Would you bring up uh a question I was going to ask a bit later which is um gold's been getting a bit of heat I think in the media for uh declining during and we can go over what happened in January etc in a minute but since you mentioned the inflation I was going to ask you uh gold's getting a lot of heat for not living up to its reputation as quote unquote a geopolitical hedge and an inflation hedge in the past say 6 to 8 weeks and um this is a bit of a softball question but uh I have my own views on the topic. I was going to ask you uh over history have you looked at gold as an appropriate hedge for CPI type inflation or geopolitical developments?
Absolutely. I mean, you know, again, if you go back to the 70s, every year between 19 essentially 71 and 19 except for 1974, uh, inflation went up every year. Um, the interest rate went up every year, the dollar went up every year, and guess what? Gold went up every year. They all went in tandem. Okay? So when I hear people say, "Oh, you know, like uh the gold price is dropping because inflation is going up." Are you kidding me? It's the opposite. Okay. But you do have to understand something on a daily basis. U there are probably 20 factors that affects the gold price.
Totally.
And some of it is definitely real rates of interest. Some of it the Iran war has shut off 20% of the gold market. Okay. I mean, you look at the entire Middle East, including Iran and Saudi Arabia. I mean, that's about 20% of the gold market. And the Iran war shuts off the tourists, everything else. It seized the whole part of the the gold trade. So, that has an impact. Um, recession, in the early phase of a recession, gold doesn't do well. It never does well.
Simply because people have less money to spend. and governments have not started to spend, you know, the money yet to get the economy going. As soon as they start to, you know, print money, then gold does well again. But in the early phase of a recession, it doesn't. And what the Iran war is doing is essentially it's producing little by little a worldwide recession. Okay? And if they keep it going for like a couple of months, two, three months, we will have a worldwide recession. So, and I'm sure that President Trump knows that. Okay. And why do you think he wants a deal so badly? He wants out of there. Okay. He's got election to fight in November. So, um I think that they will solve the issue. But in short term, the gold price can go down, but when Trump was inaugurated, you know, um the gold price was 2500. It's 4,500. anyone complaining like hello you know that's not like inflation proof I think so.