Gold Shines in Periods of "Massive Deflation," says Andy Schectman

Precious Metals

Andy Schectman, president of Miles Franklin, shares his thoughts on the gold market and how he expects the metal to perform in the coming months.

Many investors have flocked to gold this year in the wake of economic uncertainty. Speaking to the Investing News Network (INN) at the 2017 Vancouver Resource Investment Conference (VRIC), Andy Schectman, president of Miles Franklin, shared his thoughts about the situation and what he sees happening to gold as the year progresses.
Overall, Schectman said he thinks gold will do “very, very well right now,” and noted that Donald Trump has “ignited the inflation machine.” He added, “whether it’s inflation or deflation, gold will perform well. In fact, it has been proven that gold performs best in a period of massive deflation.”
Other highlights of the conversation include:
  • what it means to travel with gold
  • further elaboration on how Schectman believes gold will perform in the months ahead
  • what investors should keep in mind during times of economic uncertainty
  • what investors should consider with respect to the gold price when interest rates are changed
  • what gold stocks Schectman is watching this year

Below is a transcript of the interview. It has been edited for clarity and brevity. To watch the video, please scroll to the top of the article.

INN: Miles Franklin notes that one reason for buying gold is that it’s “extremely portable and is liquid just about anywhere in the world.” Can you elaborate a bit more on traveling with gold?
AS: I can give you the short answer and I can give you the long answer. The short answer is — in traveling with gold — it’s legal tender. People ask me to tell this story just about everywhere I go. A year and a half ago in Montreal, I was coming back into the US with 240 ounces of gold, 1 ounce Canadian Maple Leafs. They weren’t mine; they were from a client. I’ve been advising my clients for the better part of two decades that when you travel across the border, it’s the legal tender face value amount that’s stamped on the coin that matters.
As I get up to customs knowing that I’m a Homeland Security vetted traveler (I have what’s called global entry, it allows me to go through customs very easily), a gentleman asked me what I had, and I said, “well I have 241 ounce gold Maple Leafs. They’re $50 face value coins, I’m declaring $12,000.” He says to me, “well that’s beyond my pay grade, I think we’re going to go to further screening.”
So he parades me down a long hallway into the bottom of the Montreal airport where I sat. He says, “don’t touch your bags. Sit down, someone will be with you in 20 minutes.” So I sat there for what seemed like an hour in a room that was about half this size. But it was all mirrors and you know they’re watching me, waiting for me to shove things down my pants or what have you. I sat there for what seemed like forever.
Finally, a Homeland Security supervisor came out and asked me what I had. I told him I had 241 ounce golden Maple Leafs and I was declaring $12,000. He said to me “okay, I’m inclined to believe you, but how much is gold today?”
I said, “well gold is about $1,200.” He says, “well isn’t that about $300,000, Mr. Schectman?” And I said, “well yes sir, it is. Look at the back of the coin, it’s $50. If you were crazy enough you could take it out into the airport and they would have to accept it as $50.”
I said it’s legal tender. He says, “I’m really inclined to believe you. I’m going to go and do some further research. In the meantime you fill out this Fincen form.” A Fincen form is something you don’t ever want to see. The acronym is something to the extent a financial enforcement network.
I begrudgingly fill it out. He comes back and he says to me, “you know you’re right, it is legal tender. Let me see your Fincen form,” and I hand it to him. He says to me, “oh I almost forgot. Do you have any money in your wallet?” I said, “yes I have $37 in my wallet.” He said, “do you have any other money you want to tell me about.” And I said no. He says, “are you sure?” I said yes. He said okay. And he tears up the Fincen form and he says, “you’re free to go.”
Now I said, “I don’t mean to look a gift horse in the mouth, but can you explain to me why I’m free to go.”
He says, “sure. You are entering the US today with $12,000 Canadian legal tender, we have verified that. Today’s conversion rate in the US puts that at $9,400. Along with the $37 in your wallet and the change in the bottom of your backpack, that’s under the $10,000 threshold. You’re free to go.”
Moral of the story is, I was able to come across the border with $300,000 worth of gold that preempted them to declare it, and I was told I didn’t have to. So in terms of portability of money, there is no form of money that is as transportable and flexible as gold.

INN: That’s quite the story. Gold has performed well this year overall. Now that Donald Trump is president, how do you expect it to do in the months ahead?
AS: I think gold and silver will do very, very well right now. I think Trump has ignited the inflation machine. He’s talking about a currency that’s too expensive. I think inflation is on the horizon, but whether it’s inflation or whether it’s deflation, or whether they turn Trump into the next Herbert Hoover.
If you look at the similarities between Trump and Hoover, they were both wealthy businessmen with investments all over the world. They were both outsiders who didn’t take office until the day they were sworn in, and they both once brought and talked about isolationism.
Hoover was known for building the Hoover Dam. Hoover is known for the Mexican repatriation — something like a half a million Mexicans back across the border — and he’s also known for igniting the Great Depression. Seven months after he took office, the Fed raised interest rates, and in the 1920s they let interest rates go and the easy money created the stock market bubbles of the 1920s. When they raised interest rates seven months later in August 1929, the market collapsed and [Hoover] is known for being the steward of the Great Depression. I hope that doesn’t happen to Mr. Trump.
Whether it’s inflation or deflation, gold will perform well. In fact, it has been proven that gold performs best in a period of massive deflation because it is one of the only objects — as Doug Casey says — in an asset class that is not simultaneously someone else’s liability. So whether it’s inflation or deflation, gold is a place to be in. Over 5,000 years, nothing has preserved wealth better than gold, and especially in times of uncertainty like we see right now.
INN: That actually leads into my next question. During times of economic uncertainty, what is the most important thing for investors to keep in mind?
AS: For my money, the most important thing to keep in mind is that a return of your money trumps a return on your money, and there is no pun intended there. I think return of your money is very important. Then again, gold and silver have been — for 5,000 plus years — a store of value, perhaps better than any other currency ever. In terms of lasting purchasing power and preserving wealth, I think gold and silver is the place to be, especially in times of great uncertainty.

INN: It’s expected that the Federal Reserve will raise interest rates three times in 2017. As investors tend to get nervous when interest rates are raised, what should they consider when factoring in the gold price?
AS: First of all, I don’t think interest rates will get raised, no matter what they’re saying. I think if you raise interest rates you throw a nuclear bomb on the economy. When you look at what’s happening in the economy right now — especially to the middle class economy – you see stores like Macy’s (NYSE:M), JC Penney (NYSE:JCP), Kohl’s (NYSE:KSS), The Gap (NYSE:GPS) — they’re all reporting record losses.
Macy’s is laying off 10,000 people and closing a whole bunch of stores, including their Bellwether store where I live in Minneapolis. Unemployment is not what they say it is, there are many disenfranchised workers. The unemployment rate is much higher than they claim it to be. The economy is much worse than they claim it to be. If they raise interest rates – and I think they know this – they are going to set off a bomb on the economy.
I would bet – contrary to popular belief – that they don’t raise interest rates, and if they do it’s a token quarter percent. You have to remember, as it pertains to gold, go back to 1979, we are the largest creditor in the world, not the largest debtor that we are now.
When interest rates by Paul Volcker were raised to 18 percent in 1979 to stop the inflation and kill the gold run, they could do that. You can’t do that now. Every 1 percent increase in interest rates with a $20-trillion debt is $200 billion in interest payments that they have to pay. They can’t raise interest rates, and if they do it will be nothing more than a token mirage. We will witness the greatest depression of all time if they substantially try to raise interest rates. Anything more than a token trying to save face.
INN: One last question. Are there any gold stocks that you’re currently watching out for this year?
AS: I like anything that Keith Neumeyer is behind. I like Silver One (TSXV:SVE), I like First Majestic (TSX:FR,NYSE:AG). I don’t watch any really, really, closely, I watch from afar. But I will tell you that anything Keith Neumeyer’s behind, I’m on board with.
INN: Those are all my questions today. Thank you for joining me today.
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in contributed article. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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