By Terry Wooten, Interviewed by Daniela Cambone of Kitco News
New York -- (Kitco News) -- Gold isn't in a bubble yet but concerns over inflation, soaring debt and the U.S. dollar have many people eyeing the precious metal as a hedge, according to John Doody, author and publisher of the Gold Stock Analyst.
When asked if gold was in the bubble stage, Doody countered with a question of whether taxi drivers were telling their passengers that they should buy gold. If not, he said, "We're not in a bubble. Isn't that the classic definition of a bubble--when everybody has gold?"
Doody said it may be on people's minds to buy gold because of the economic crises in Europe , the possibility of inflation and the health of the U.S. dollar. "It may be on people's minds, but we are not there yet," he said.
He said during the past two years of the economic crises, there has been too much paper created by governments to try and float the economy out of the deep waters.
"Now they are creating a lot more paper and a lot more inflation is going to come out of that," Doody said in an interview with Kitco News on the sidelines of the Hard Assets Investment Conference in New York. China is also seeing record inflation too, he said "People are thinking about buying gold but they aren't buying it yet.”Until your taxi driver starts telling you to buy gold, I think you are safe buying it."
Gold's rally has been driven in part by momentum funds, Doody said, but he said the printing presses working overtime were also a substantial contributor. He noted the U.S. is showing budget deficits of a trillion dollars a year, and that Europe just did a debt guarantee program that will create another trillion a year deficit.
"They're trying to paper over problems with more paper," Doody said. "That doesn't get you out of a financial crisis.... it just delays the inevitable."
Doody said in Europe there are still memories of the Weimar Republic and visions of housewives going to the market with a basket of cash because it took that much to buy a basket of groceries. "They know what rampant inflation is," he said. "And I think we are closing in on that mode. When the US economy and the world economy start running again, and recovering from the crash of 2008, all the money that is in the system is going to show up in increased inflation."
As for concerns over China, Doody said the huge country will have its ups and downs because its growth has been so rapid. "It's going to take tremendous amounts of electric power to handle the growing move from the farms to the urban areas, it's going to take more factories producing things," he said.
The rapid growth China has experienced makes it likely there will be some slowing, he said. "I don't think they are in a bubble in the sense that they are going to collapse," said Doody.
Gold Stock Analyst is known for its 10 top stock picks and Doody was asked what he looks for in a company and its stock. He said he wants companies that are producers. If they are not yet a producer, he wants to see an independent feasibility study by an independent engineering firm that shows drilling results, capital costs to build a mine, the recoveries and the metallurgy.
Such a report blesses the deposit the same way an independent accounting firm blesses the financial statements, he said. "Are they always right? No. But are accounting firms always right? No. But most of the time they are. "
Doody said he's often asked to name his favorite stock. "I say, what is your favourite child? I don't know the answer to that. If I did, I wouldn't be here. I'd be on my 200-foot yacht in the Mediterranean.”
--By Terry Wooten twooten@kitco.com and Daniela Cambone dcambone@kitco.com of Kitco News
