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Paul Brodsky continues:

When it (gold) drops, we feel the fundamentals are still in place and the timeline is moving forward where there will be significant global money printing. So we think price drops are a gift. We tend to scale in when the price of precious metals drops, we take that as an opportunity. We tend not to run around with our hair on fire.

It could happen (a gold correction), anything could happen. So I don’t completely discount the fact that there might be a significant down move in the precious metals complex. But we’re trying not to get too cute by anticipating a down trade.

The fundamentals are such that we feel gold is trading at what appears to us to be an almost 80% discount to its intrinsic value based on past monetary inflation. This does not even include potential future monetary inflation that we anticipate, but past monetary inflation.

With that as a backdrop we are not going to be, frankly, too bothered if the price of gold drops $100, $200, $300 or even $400 an ounce. Again, we would see that as a washout. As you mentioned, there is a significant central bank bid for gold specifically. Therefore, any down trade is probably the result of balance sheet liquidations or near term sentiment turning the other way, and we see that as weak hands....

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When asked about destructive policies by Western central planners, Brodsky replied, “I would distinguish between the West and western currencies. I think western currencies are being destroyed. It’s a natural occurrence and I think it had to happen. It was inevitable and we’re seeing that process being played out.

One of the things we mentioned in our last note to investors was the fact that this long period of the financialization of money, at some point, must lead to the monetization of finance. We have had 40 years of creating credit that was not backed by actual money. We can look at the big numbers for credit, say $53 trillion in the US alone, and base money which is not quite $3 trillion. That deleveraging has to occur.

So we are going to have to make money real again and what we are seeing now is that very process. There is all of this credit outstanding and it can either be left to deteriorate on its own or more money can be printed to repay the debt. It seems perfectly natural to us.”

Brodsky also noted, “Some people are mistaking deleveraging for deflation. They are mistaking a contraction in the real economy for deflation. This is a central point, Eric. The economy can contract and I don’t dispute that point. It is and probably will continue to do that, but it has nothing to do with the price level.

The price level can rise while the economy contracts in unit terms. So I think that’s what is lost on people that are looking at deflation. Again, what they are really saying is they anticipate economic contraction and I don’t dispute that, but it has nothing to do with the price level.”

Eric King

KingWorldNews.com

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Paul Brodsky - Gold Trading at 80% Discount to Intrinsic Value

With gold trading, at one point, down over $50 intraday, today KWN wanted to speak with the firm that is calling for $10,000 gold. Paul Brodsky, who co-founded QB Asset Management Company, had this to say about bearish predictions which anticipate a significant drop in the price of gold, “What we do specifically is take a strategic approach rather than a tactical approach. When we look at day to day flows we tend not to be concerned about any significant drops or for that matter increases in the spot price of gold.”

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November 17, 2011

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