Clive Maund: Gold to Profit from Economic
Source: Special to
The Gold Report
The mountains of debt engulfing Western economies is likely to
lead to hyperinflation according to Clive Maund, president of
clivemaund.com. In this exclusive interview with
The Gold Report,
Maund details the scenario he sees for collapse and reveals
several gold stocks that could benefit.
The Gold Report:
Clive, on clivemaund.com you said "for fundamental and technical
reasons the U.S stock markets look set to plunge soon." So, it
seems we're headed for either deflation or hyperinflation. The
course seems set for hyperinflation, but what's your best guess
as to what's going to happen?
The key point to grasp is that the world needs a "reset" and
sooner or later it is going to get it. By that I mean that all
the dross of debt and derivatives that have accumulated over many
years and are now dragging the world economy into the mire are
going to have to be cleared away before the world can move
forward again. Many readers will be familiar with the experience
of working at a computer that "locks up" when too many
applications and programs are open. When you arrive at this
point, you cannot move forward or back, and there is nothing else
for it but to hit the reset or restart button. That is the point
the world economy has now arrived at with this debt crisis, and
the longer business leaders and politicians take to grasp the
nettle and write all this debt and derivative mess off, the worse
it is going to get. So what if banks go bust? You can always
create new ones later.
The debt and derivative mountains are now so enormous that
there is no way they can ever be repaid, and that means that they
either have to be written off-the drastic but most effective
solution-or hyperinflated away into oblivion, which is the
politicians' preferred way of dealing with them because this
route buys them the most time. The major underlying economic
force at work is deflation-a period of severe contraction is
required to purge the system of debt and to eliminate distortions
and inefficiencies that have become a huge burden.
Deflation, however, involves widespread economic hardship,
involving reductions in wages and massive unemployment and can
create political instability, with the masses taking to the
streets and rioting. This is why politicians fear it so much and
will choose inflation or even hyperinflation over deflation. So
they have been fighting tooth and nail to hold back the forces of
deflation principally by expanding the money supply and bailing
out failing entities.
The situation has now become dangerously unstable, as we are
right on the cusp between plunging headlong towards a major
hyperinflationary episode that would see most Western economies
end up like Zimbabwe-hyperinflation is the route that politicians
are trying to steer us along-and tipping back into severe
deflation. The reason it is dangerously unstable is all the major
world players have to play their part in staving off a liquidity
crisis by printing money as necessary, flooring interest rates,
and fighting hotspots, which flare up and threaten to create a
liquidity crunch or drive up interest rates. Thus, Republicans
not playing ball by trying to make a significant reduction in the
deficit, or the discordant buffoons in Europe failing to stop
interest rates on bonds skyrocketing are "letting the side down"
and by so doing are risking a collapse in the markets, which will
bring about the deflation they dread so much. This could happen
any time, which is why the situation is so tricky for
I believe that politicians will hold out for hyperinflation as
long as they can, but at some point, which could be soon, they
are going to lose control completely, and the world economy will
collapse back into a deflationary depression, which is actually
what it really needs to get this mess sorted out once and for
all. Europe could well be the trigger for this, as its debts are
totally unmanageable and its leaders lack the cohesion and
decisiveness to flood the market with the liquidity needed to get
things back under control.
You use a lot of technical charts to predict economic outcomes.
One pattern you're seeing on these charts are "Broadening Tops,"
which you suggest are "notoriously treacherous and dangerous
patterns that are little understood by the general investing
public." In simple terms, please explain how these patterns come
about and why investors should be concerned.
After a major uptrend, the market, in this case the precious
metals sector, starts trending sideways in a series of increasing
wide swings, as has been happening with both the AMEX Gold BUGS
and PHLX Gold/Silver Sector indices, and I can do no better than
to repeat what Robert D. Edwards and John Magee, the authors of
the "bible" of technical analysis (
Technical Analysis of Stock Trends,
had to say about these patterns:
"If the Symmetrical Triangle represents a picture of 'doubt'
awaiting clarification, and the Rectangle a picture of
'controlled conflict,' the Broadening Formation may be said to
represent a market lacking intelligent sponsorship and out of
control-a situation, usually, in which the 'public' is excitedly
committed and being whipped around by wild rumors. Note that we
only say that it suggests such a market. There are times when it
is obvious that those are precisely the conditions that create a
Broadening Pattern in prices, and there are other times when the
reasons for it are obscure or undiscoverable. Nevertheless, the
very fact that chart pictures of this type make their appearance,
as a rule, only at the end or at the final phases of a long Bull
Market, lends credence to our characterization of them. Hence,
after studying the charts for some 20 years and watching what
market action has followed the appearance of Broadening Price
Patterns, we have come to the conclusion that they are definitely
bearish in purport, that, while further advance in price is not
ruled out, the situation is, nevertheless, approaching a
dangerous stage. New commitments (purchases) should not be made
in a stock that produces a chart of this type, and any previous
commitments should be switched at once, or cashed in at the first
Part of your thesis for global economic demise involves American
politics. On clivemaund.com you wrote: "(American) politicians
are bowing to public pressure to do something serious regarding
reducing the deficits, which is setting the stage for an economic
implosion." If you were with the Fed or part of the Obama
Administration, what measures would you have taken to avoid an
I would take exactly the measures they have taken up to now,
which is to "kick the can down the road" in the hope that some
other schmuck will have to clear up the (bigger) mess later. That
has been their "modus operandi" up to now and the only reason
they are considering the "nuclear" option of actually trying to
rein in the deficits is because they are coming under massive
pressure from their constituencies to do so. The best way to
avoid an economic implosion is not to allow the debts to become
unmanageably large in the first place, but that would have
involved restraint and sacrifice-something they were not prepared
to accept-they wanted to "party now" and to hell with the future
consequences-now they, or rather we, are slipping into the
massive hole they have dug for us.
Could we still see some version of quantitative easing 3?
Yes, we could and all it will do is create an inflationary
depression that is later followed by a deflationary depression
anyway, instead of just "taking their lumps" and allowing the
deflationary forces to proceed and do their necessary cleansing
work and run their course, which is going to happen eventually
whether they like it or not. They are pushing on a piece of
string-economies are so beset with distortions arising from
excess debt and excessively low interest rates that they can
print all the money they like, it won't drag the economy out of
That's the American economic picture. Let's look at Europe.
Italy's 10-year yield recently climbed above 7%, while Spain
recently sold less than its maximum target of debt as financing
costs went up. And the extra yield investors demand to hold
10-year bonds from France, Belgium and Austria instead of German
bonds of similar maturity, all increased to euro-era records. It
certainly doesn't inspire investor confidence. What are your
I have long referred to European leaders as a bunch of
self-serving buffoons and that is all they are. They have been
assiduously digging a massive crater beneath Europe for years and
now it is falling in and nothing can stop it. They have neither
the money nor the ability to cooperate to stop Europe from
sliding into chaos and disintegration.
The way to address the otherwise intractable European debt
crisis is to simply write down all the debts to zero and say to
the creditors, "Tough luck, you are not getting a cent." Chaos
would ensue, of course, and banks would collapse, etc., but it
really is the only way-to wipe the slate clean and start afresh.
They won't do this of course. Instead, as in the U.S., they will
possibly attempt bailouts and socialize the losses of large
creditors like banks and major corporations and institutions by
pushing the bill onto the general public in the form of austerity
measures and tax hikes, and it is interesting to ponder the
reason for this.
Why do European leaders put the interests of big business
ahead of their electorates? The reason is that big business has
much more power over them than the electorate has-big business
essentially decides whether they have a chance at office or not,
and how their careers develop when they are in office. We are all
aware of the lobbying system in the U.S. and the persuasive power
of campaign contributions, for example, and we can surmise that
similar incentives exist in Europe. All the public has is its
vote and its ability to protest, which only becomes a force to be
reckoned with when the masses start to aggregate in the streets
in sufficient numbers.
Austerity measures won't work, of course; they will simply
reduce economic activity and tax revenues and so the debts will
continue to grow and the vicious downward spiral will intensify.
European leaders, by kidding themselves that they can ever pay
down these debts, are like a man trying to swim with a
refrigerator strapped to his back-he is going down and the only
hope is to cut loose the refrigerator. Their only hope is to
totally write off the debts and let the pieces fall where they
will. If they are too mule-headed to do this, down goes Europe
and the U.S. and the rest of the world into the bargain.
How should investors protect themselves from a plunge in global
Cash, bear exchange-traded funds (ETFs) and possibly options.
Moreover, is there a strategy or two that you're using to profit
from the plunge?
Cash, bear ETFs and options.
Despite all the signs pointing toward a market crash, you
continue to recommend precious metals equities. This seems
counterintuitive. What is your rationale for continuing to
support these equities?
It is counterintuitive. We have had to contend with conflicting
indications, the principal contradiction having been between the
ominous broadening patterns forming in the precious metal stock
indices and until now the strongly bullish commitments of traders
) data, particularly for silver, which led us to adopt a bullish
stance in recent weeks. So far this has paid off, as the sector
has rallied from its October lows. However, with the latest COT
data looking less bullish, and an increasingly dangerous pattern
emerging for the broad U.S. stock markets, we have been cashing
in our chips and adopting a more defensive posture.
Clive, you're based in Santiago and some Latin American
countries, including Peru and Argentina, are imposing new
royalties and/or taxes on mining companies. Do you believe this
will prohibit direct foreign investment and deter the average
precious metals investor? What's your perspective?
It depends on the magnitude of these royalties and taxes. If they
get too greedy and keep raising them, it will turn out to be
counterproductive. It also depends on what the raised monies are
being used for. If the mining companies are doing nothing to help
local communities other than paying wages and are not making
provision to rehabilitate land after mining activities, etc.,
then these levies are justified if they are used to achieve these
aims. But if they are simply siphoned off into government
coffers, then it is nothing more than government parasitism, like
What are some juniors you're following and that could offer some
AlthoughAlix Resources Corp. (AIX:TSX.V) has been drifting
lower since early this month, technically its picture looks
positive, as this reaction has been on light volume and it was
preceded by two high-volume gap up moves, which is bullish. In
adverse market conditions, it could drift back further towards
the support at the early October lows at about CA$0.105, but with
more drill results believed to be pending, it could turn higher
again at any time. Around these levels and especially down
towards CA$0.11, I like it as a speculative play with the
potential for large percentage gains.
Following a big rise late last year and into this year, which
led to its being very overbought,Aguila American Gold Ltd.
(AGL:TSX.V) has reacted back and now appears to be basing above
strong support at about CA$0.20. In adverse market conditions it
could react back towards this support again, in which case it
will be viewed as a buy. Volume and volume indicators are strong,
which further suggest that it has bottomed and is basing.
Others that look promising include the Colombian gold
explorerGalway Resources Ltd. (GWY:TSX.V) , which is shaping up
well on the charts with positively aligned moving averages. If it
can take out the important resistance approaching CA$2, it should
make further substantial gains.GoGold Resources (GGD:TSX.V) is
well run, has been in a steady uptrend that shows no signs of
ending and is viewed as attractive after its recent reaction
between its August high and its low in mid-October at about
CA$1.12.PMI Gold Corp.'s (PMV:TSX.V; PVM:ASX; PN3N.F:Fkft) recent
big high volume gap up is viewed as a sign of higher prices to
come. The gap move was due to a tripling of the company's gold
resource at its Obotan gold project in Ghana.
What's your near-term outlook for precious metals, namely gold
and silver, as we head into 2012?
The near-term outlook for gold and silver is for a correction
that should not see silver go below its recent panic lows set in
September. Then everything depends on the manner in which the
debt crisis is handled. If unlimited liquidity is created in an
effort to paper over the cracks both in Europe and the U.S., then
the sky is the limit for precious metal prices. But if deflation
takes hold, then gold and silver are likely to drop with most
everything else, although not as fast, as there will be few other
safe havens in which to put your money.
Thank you for your insights.
has been president of www.clivemaund.com, a successful
resource sector website, since its inception in 2003. He has 30
years of experience in technical analysis and has worked for
banks, commodity brokers and stockbrokers in the City of
London. He holds a diploma in technical analysis from the UK
Society of Technical Analysts. He lives in southern Chile.
Want to read more exclusive
interviews like this?Sign up for our free e-newsletter, and
you'll learn when new articles have been published. To see a list
of recent interviews with industry analysts and commentators,
visit ourExclusive Interviews page.
1) From time to time, Streetwise Reports LLC and its directors,
officers, employees or members of their families, as well as
persons interviewed for articles on the site, may have a long or
short position in securities mentioned and may make purchases
and/or sales of those securities in the open market or otherwise.
2) The following companies mentioned in the interview are
The Gold Report:
Alix Resources Corp., Aguila American Gold Ltd.
3) Clive Maund: I personally and/or my family own shares of the
following companies mentioned in this interview: None. I
personally and/or my family am paid by the following companies
mentioned in this interview: None.
is Copyright © 2011 by Streetwise Reports LLC. All rights are
reserved. Streetwise Reports LLC hereby grants an unrestricted
license to use or disseminate this copyrighted material (i) only
in whole (and always including this disclaimer), but (ii) never
The Gold Report does not render general or specific investment
advice and does not endorse or recommend the business, products,
services or securities of any industry or company mentioned in
From time to time, Streetwise Reports LLC and its
directors, officers, employees or members of their families, as
well as persons interviewed for articles on the site, may have a
long or short position in securities mentioned and may make
purchases and/or sales of those securities in the open market or
Streetwise Reports LLC does not guarantee the accuracy or
thoroughness of the information reported.
Streetwise Reports LLC receives a fee from companies that are
listed on the home page in the In This Issue section. Their
sponsor pages may be considered advertising for the purposes of
18 U.S.C. 1734.
Participating companies provide the logos used in The Gold
Report. These logos are trademarks and are the property of the
101 Second St., Suite 110
Petaluma, CA 94952
Tel.: (707) 981-8999
Fax: (707) 981-8998