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Although gold's still well off its December 2009 highs, the price has strengthened in recent weeks; on Thursday, it hit $1,118.40/oz. Not half bad for a metal whose bubble has supposedly popped. But gold still has much further to go, says Andrew Schectman, co-founder of precious metals dealer Miles Franklin.

Schectman and his father founded Miles Franklin in 1990, which has since grown into a highly respected precious metals firm offering everything from bullion to numismatics. Schectman also publishes a weekly newsletter, and travels around the U.S. speaking about the role of precious metals in one's portfolio and the trouble with paper currencies.

Recently, HAI Associate Editor Lara Crigger spoke with Schectman about the current gold market, including an impending metals shortage, the role manipulation plays in the market and why the best days are still ahead for gold investors.

Lara Crigger, associate editor, HardAsetsInvestor.com (Crigger): In one of Miles Franklin's recent newsletters, you described gold and silver as "stealth" bull markets. With all the attention this sector has garnered lately, is this still true?

Andrew Schectman, co-founder, Miles Franklin (Schectman): Well, most people in the country, they still don't have a clue. We're so up to the moment with information, via the Internet, e-mail, BlackBerries, CNBC on every street corner—everywhere you turn, there's more information. Yet most people don't have a clue that gold has outperformed every major asset class for a decade straight. In 2002, gold was $250 an ounce, and silver was $4.25/oz. So you're looking at a gain somewhere in the neighborhood of 500 percent.

When you think about how rapidly information disseminates to the public, it's absolutely embarrassing that the financial advisers of the world—and the people who work so hard to obtain their money—don't realize that, indeed, this has been a bull market that has trumped all others for the past decade.

Crigger: What's the biggest change you've noticed in the bullion industry over the past few years?

Schectman: The one thing that's very different is that there's a complete and total absence of a secondary market. What I mean by that is that all you can buy nowadays is brand-new product. The only people who are selling anything are the people who are selling grandma's candlesticks and bracelets to Cash 4 Gold to make ends meet.

But look and see what's going on in this industry—like mints shutting down, as they've been doing for the past 2 1/2 years. For example, take silver eagles out of the U.S. Mint. There's nothing to be had. We work with one of the largest mint distributors in the world, and when we tried to place an order earlier today [Feb. 18, 2010] for silver eagles, they wouldn't even take it. The U.S. Mint is completely and totally out of silver eagles right now, and they're running things on a rationing basis.

Crigger: So do you foresee a supply shortage in the near future?

Schectman: A major supply shortage. I think that's the key to this industry. In 2008, the U.S. Mint shut down several times. The Canadian Mint was running 12-16 weeks back-ordered. The Austrian Mint was working 24 hours a day, three 8-hour shifts just to meet demand, and they were also 12-16 weeks back-ordered. It was not uncommon back in 2008 for me to say to a client, "Listen, I'll lock in your order, but you're not going to get any product for at least two, maybe three months."

The availability of product to me is the key to understanding the importance of buying gold and silver now, irrespective of what the price is doing, because since October 2007, the U.S. Mint has been the model of inefficiency. Show me another business that turns away immeasurable amount of sales, based on the fact that it's too difficult to get the product. They really have created a situation where everything else is becoming more and more expensive.

I think by the time people realize what's going on, it's my opinion that it will not be a hugely escalated price that will be the hindrance to them getting into the market, although that might attract their attention. But the main hindrance will be the lack of availability of refined product.

Crigger: You just mentioned a "hugely escalated price" for gold. Does that mean the gold bull market is still intact?

Schectman: One hundred percent. If you look at what gold and silver have done in terms of their movement over the past decade, the volatility we've seen has kept many people out of the market. This pullback has happened too many times to count over the past decade; it even rattles the die-hard gold bugs. At the same time, by the end of the year, gold continues to move higher.

So I think you're looking at a tremendous amount of demand from every corner of the Earth. You have the Arabs choking on petro-dollars. You have sovereign wealth funds in the Orient. You have India, Russia, Japan—they're all buying gold and silver.

I also believe that there is a tremendous concerted effort by some of the large, Western commercial and central banks to mitigate the rise of gold and silver.

Crigger: Why would they do that?

Schectman: There are large short positions on COMEX that I believe they're trying to escape from. They're trying to allow an orderly retreat from these abnormally large short positions that were developed mostly in the ‘90s, back when nobody wanted gold and silver. These short positions have gotten so large that the last thing that the U.S. government and the large commercial banks want is for the price to explode.

I do believe they realize they can no longer manipulate the market, and instead, I think they're trying to organize an orderly retreat. As a result, volatility is something that is to be expected. And it really frightens most of the public out of the market. It is not unusual to see gold run up, suck in all the speculators, and then they hammer it. And they hammer it to a point where the speculators get squeezed out, the people on margin get squeezed out, and those people vow not to come back in. But a few months later, we're right back to where we were.

In 2008, back when all the product disappeared, gold was $1000/oz. and then all of a sudden it went down to $700/oz. So the difference between the price that's quoted on COMEX—which is paper and is easy for the big banks to manipulate by selling contracts—is vastly disconnected from how hard it is to get the real product. But even a price that fell by over 35 percent was not enough to rattle investors. Like I said, demand for the physical product was so high, it was not unusual to wait two or three months to get gold eagles or bars, and so on.

So really, the gyrations we see in the gold price is all paper-derived. It's all on the COMEX. And as far as I'm concerned, manipulation does not do one thing to change the primary trend of a bull market, which I believe is still in its earliest stages.

Crigger: So, long term, the gold market is still driven by supply and demand fundamentals?

Schectman: Yes. Although I think to a large degree the price is manipulated through COMEX and paper contracts, demand for physical gold couldn't be higher. The Central Bank of India bought 400 metric tons. The Chinese are buying as much as they can. So are the Russians. The demand in this industry is enormous.

Crigger: What evidence is there of manipulation?

Schectman: There's a vast amount of evidence pointing to it, mostly through a term called Gibson's Paradox. Gibson's Paradox is an economic term—in fact, Lawrence Summers wrote a report about Gibson's Paradox, which basically said that real interest rates and the price of gold move inverse of each other.

Through the mid-90s, when it was a good time to be in middle-class America, when your home was worth more the next day when you woke up, when you could refinance and pay off debt and buy a car and house, and the payments were even less than they were the month before—with those super-low interest rates, gold, according to Gibson's Paradox, should have taken off. But through the manipulation and the suppression of gold, it enabled the U.S. to have artificially low interest rates while still attracting foreign investment.

So in the ‘90s, it was very easy to manipulate gold, because nobody wanted it anyway.

Crigger: Then why manipulate the price in the first place, if nobody wanted to buy it?

Schectman: That's a good question. But before I even get into that, understand that Blanchard, a competitor of mine in Louisiana, sued J.P. Morgan Chase and Barrick Gold Corporation in federal court in Louisiana a few years ago [on the charge of price-fixing and monopoly in the gold market]. The case went to discovery, and when it did, Barrick said, "Fine, we have been manipulating gold, but we did so at the behest of the central bank of the U.S., who has sovereign immunity. Therefore we claim sovereign immunity."

So they admitted in federal court that they had been doing it; and the reason that they did it is because if you're trying to make the dollar look stronger than it is, the one benchmark you must blur is the price of gold.

Gold was easy to manipulate. Basically, the Western central banks would lease gold to a handful of very large commercial banks, with the only stipulation being that they had to sell it forward to the COMEX, to the TOCOM (the Tokyo Commodity Exchange), and the London Metals Exchange. So by 2001, five commercial banks held the largest short position in any commodity ever traded.

But prior to that, they had these super-low interest rates in order to stimulate the stock market and housing market, as we're losing all our manufacturing base, to keep things looking strong. They told the commercial banks, "Look, we're going to lease you our gold at less than 1 percent. All you need to do is sell it: Drop the price, make the dollar and the British pound seem stronger than they really are by blurring the one benchmark that they use to gauge the real value of a currency, that being gold." So they smashed it so much that it enabled the interest rates to be super low, and it kept people investing in our dollar-based instruments. With those super-low interest rates, gold should have been a whole lot higher.

Back to your question. When nobody wanted gold, manipulating the price was an easy thing to do. The central banks were happy because nobody was questioning the value of their paper that they kept on printing and monetizing. The commercial banks were happy because they were being told by the highest of the high-up to break the law, and by doing such, they were given free reign to borrow huge sums of money at less than one-half of 1 percent, sell it to the marketplace, suppress the price of gold, take the proceeds and buy Treasurys, and earn 5 or 6 percent. They made untold hundreds and hundreds of millions of dollars with no risk.

But when 2001 rolled around, all of a sudden you have two airplanes hitting the World Trade Center, and we're in Afghanistan and Iraq. Everything changes. This country is not considered the bastion of safety that it once was. The rest of the world started to buy gold, and then things changed.

Crigger: If this is true, why hasn't it caught more attention from the mainstream media?

Schectman: Think about it this way; you tell me: How is it that gold can go up almost 500 percent since 2002 (and silver the same thing), and every financial adviser, from Jim Cramer all the way down, isn't screaming to own it? So if they're powerful enough to manipulate the price of gold and violate antitrade laws, then they're probably powerful enough to tell the media to be quiet.

If you look at all the people spewing advice on CNBC and Bloomberg, the whole public has been given nothing but bad advice about gold: told it was too expensive, or that it was in a bubble, or that you shouldn't own it, or that it was an archaic relic that nobody wanted. Yet gold has well outperformed every single asset class over the past decade.

Crigger: So given all this, where should gold be headed?

Schectman: I think it's tough to put a number on it. There are people who say $1650/oz. is a slam dunk, and $2000/oz. and beyond. There's a fine line between conspiracy and plausibility.

A lot of people believe that because the debt burden is so enormously high in this country, that what the government will try to do through monetization and inflation is manage the debt as best they can, and let gold rise to huge, huge levels, and at some point, back it with a new world reserve currency. They'll peg gold to the dollar or a new currency.

Bottom line, it would not surprise me one bit to see gold at $3000, $4000, $5000/oz. Now I know that sounds crazy, but that's no more crazy than in 1991, when the Dow Jones was 2100, saying that it would one day reach 14,000. I do believe that bull markets go higher than anyone ever thinks possible, and bull markets go lower than anyone thinks possible, and I think without question, the best days are ahead for anyone who owns gold.