Nations who can produce gold at reasonable prices are actually mining money.

ALEC HOGG: In this special podcast, Jim Sinclair - who is a highly knowledgeable man in the metals industry, the chairman of the Tanzanian Royalty Exploration, and a man who has been following gold for many years - joins us.

Jim the first time our paths crossed was in the early 1980s - there was an organisation called the National Committee for Monetary Reform - even back then you had an interest in gold - what attracted you to the metal?

JIM SINCLAIR: That was a very fine fellow who started that - Jim Blanchard - with a very serious purpose. That was a great organisation but I was an over-the-counter trader in the middle 1950s and as you can see, I'm a little bit long in the tooth here. I came from a European family - you know marriage was a little complicated, but my father was Bert Seligman, one of the great traders that existed in the Street and it was very much in our blood that gold was part and parcel of the monetary system, as reserves - pretty much the Austrian school.

ALEC HOGG: It's interesting this, because young people find it hard to understand the allure of gold. Do you think it is a generational thing?

JIM SINCLAIR: Well none of them had any schooling in it - it's not a part of the curriculum, it's been looked at as a barbaric relic for three generations, but I would suggest to you that the gold market has brought a lot of intention on itself, and as the central banks are changing, so in fact are our major fund managers and therefore the younger generation is at least starting to look.

ALEC HOGG: Certainly in the recent few months with the gold price getting to new records - looking back to 1980 it got to $850 an ounce - in fact I think it almost got to $1 000 in inter-day trading in the US...

JIM SINCLAIR: ...$887.50 was the highest tick I saw in the comments.

ALEC HOGG: ...$887.50 - and then it slid and went almost into obscurity in the early 2000s - looking back on that slide before we have a look at the uptick, what would have caused that?

JIM SINCLAIR: The gold has performed as it always has - it is a quintessent currency - so in its lock-up to the dollar in the inverse - that was the beginning of a major 25-year rally in the US dollar. And accordingly it was the beginning of a major bear market in gold so gold did what it should do and that is lock itself to the dollar. But when gold rises, it's recognised as a currency, and when gold falls even though it shouldn't be, it receives the label as a commodity.

ALEC HOGG: So there really is this direct relationship between how many dollars are being printed, how many have been put into circulation and the gold price.

JIM SINCLAIR: It always has been and I suggest it always will be.

ALEC HOGG: Gata (Gold Anti-Trust Action), the organisation from the US has been saying that the gold price has been suppressed for many years. I suppose if you want to keep confidence in paper currencies, it might make sense if you were a central bank. What's your position on that thought?

JIM SINCLAIR: Well if I feel that way then I can't understand the market and I have a tremendous respect for gold marketing and for GATA - they've done some terrific work right on that subject. But bear in mind that my lineage goes back to being a very market sensitive person. As I said, I am a specialist in 35 markets so I have to look at it as not being influenced by an outside source but being an entity alive to itself in order to understand it. There is a bit of juxtapose between GATA and myself even though I would not deny for a moment that GATA is right. In fact recently some declassified papers do indicate clearly and without any doubt that the Federal Reserve back in the last gold market was in fact contrary to the gold price. Now, I don't think the Federal Reserve wants to take on a gold war - all of that exists as long as governments don't participate in the gold market.

ALEC HOGG: Since 2001 gold has been rising consistently - by your thesis then it's the contra to the US dollar.

JIM SINCLAIR: Not only that - yes, that is my thesis and recently the statements out of our Federal Reserve that interest rates would remain extremely low until 2012, is really a go-ahead signal, a green light for gold to perform as it should as a currency until at least 2012.

ALEC HOGG: Jim how far can it go - have you done any calculations on that?

JIM SINCLAIR: I've been very strong with one price, which is $1,650, and I felt that it would come at the end of 2010 and the very early part of January 2011. Although I'm starting to feel that, my estimate is probably wrong.

ALEC HOGG: Why is that?

JIM SINCLAIR: Because of the way the foreign debt here is just about touching in the US, $3trn. And because our economy is not responding as China has. We have very serious systemic problems, which have resulted in high unemployment, and I can't buy on to a new normal economic recovery devoid of hiring people. We are beginning to apply now, fiscal stimulus in terms of the very classic road building, schools, etcetera and not have a habit of sucking inflation out of monetary expansion. So I do think we're going to begin to see the currency influenced inflationary event which is very hard for people to understand in an environment of very difficult conditions in the employment market and with the only boom in business being Wall Street.

ALEC HOGG: On the other side, those who point to the East would say that many of the products that are coming from China are having a deflationary impact. Now that's worked pretty well for a few years. Do you feel that what America is doing with the creation of debt and the printing of dollars is going to turn that equation upside down?

JIM SINCLAIR: I don't think so - in fact if you examined it very closely because of the outflow of dollars that we're experiencing and have experienced significantly with the international debt, you might find out that the cost of products coming from China with their own boom and increase in prices might actually have an inflationary impact in a most unusual manner. Now please let me give you the source of that - Martin Armstrong's recent write-up - I know that and feel that way, but I don't steal another man's thunder.

ALEC HOGG: What about the dollar's position as a reserve currency - might that be under threat?

JIM SINCLAIR: I don't think it's under threat as much as it is going to find that there's an alternative that's developed so that the dollar isnt - and we clearly know it isnt - the universal reserve currency that it was back in 2000. And currency values come from momentum so you don't need to have outright selling of a currency for it to decline - you simply need less buying. So I would suggest that yes, the dollar will always be around at whatever value the market makes for it and the dollar will always be part of reserves, but it wont be the universal reserve currency as you have a super sovereign currency unit which really is almost like the USDX (US dollar Index) - the dollar index of various currencies - that will be part and parcel of the IMF that I believe is becoming the world central bank.

ALEC HOGG: Jim you are a student of history and maybe I'd like to take you back a few years - in 1868 Britain had the gold standard - many of the other countries at the time as you well know, were on the metallic standard and many on the silver standard. They all moved on to the gold standard and then when Britain came off the gold standard it seemed to be the end of its reserve currency or the sterling. Is there something similar happening with ends of empires or declines of empires and declines of its currencies right now with the US dollar?

JIM SINCLAIR: Well the national strength and influence, socially and politically and possibly even militaristically always have followed the strength of currencies and there's no reason at all in my mind to deny the lessons of history and it's very clear that Wall Street is no longer the financial centre of the world and that Asia is rising very sharply and nations who can produce gold at reasonable prices are going to find out that they're actually mining money which by the way most mining companies haven't the slightest idea of. So, the answer to your question is definitively yes.

ALEC HOGG: And if you were to advise a novice in the investment game the gold price now at $1 140 - is it too late to get in?

JIM SINCLAIR: No, its not too late because look at the contrary advice you'd be giving him - if you didn't give that advice you'd be saying stay long dollars, it's a wonderful investment. And although there are technical reasons why and a great deal of discussion of the thing called the carry-trade, that's more in my opinion, verbal intervention. The fundamentals for the dollar remain extremely weak and if I might quote Paul Volcker, past chairman of the Federal Reserve back in the 1980s, and I do believe he is a serious, well intentioned individual who says that the dollar will continue to decline until policies are adopted which have an historical precedent of being able to change deficits towards surpluses. So the long term view of the dollar is negative and if I didn't tell this individual that you're talking about hypothetically, that they should invest in gold, I would be saying invest in the dollar - or if they weren't dollar based I would be saying invest in Fiat currencies as something that will guarantee to you that your buying power will remain intact. And the listeners and you and I know that that will be a stretch.

ALEC HOGG: Jim just to close off with, I've been going to Warren Buffett's annual general meeting in Omaha for a few years now and it's interesting to me that he agrees or he speaks in very much the same language that you do - he's concerned about inflation, he's concerned about the build up of debt in the US, yet he wont buy gold. Now why is that - is that a blind spot do you think...

JIM SINCLAIR: No - but he'll buy a railroad in order to be in a competitive position where goods can be transported at a much lower price than trucking and other alternative transportations. Now the price of oil, the price of energy is a product not of demand for energy because right now it's extremely difficult to explain why we should be trading in the $70 to $80 range with significant negative impact, so let me mark that back - that's a product of the dollar. Now let's go one step further - gold is tied to the dollar in the inverse. So, he just has other ways of doing the same thing, but you've got to see clearly the reasoning for buying a railroad - it's the same reason for buying gold. He's interested in the size of his investments and is not convinced of the liquidity of the gold market. While John Paulson, another extremely well-healed investor with a great reputation is quite positive on gold. Not only did he buy extraordinary amount of physical but he's also starting a gold fund and so he sees quite a future in it. I think the answer is look at the rationale of why the last investments made by the popular speakers taking place - run down that track and see that that track exactly leads you right back to gold - it's a preference and you have to respect people's preferences.

ALEC HOGG: Jim Sinclair, the chairman of Tanzanian Royal Exploration and a man who tells it like it is and has been doing so for many years...

The SAfm Market Update with Moneyweb is broadcast on SAfm 104-107fm, weekdays at 18:00 to 18:30.

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