With significant volatility in the gold market today, King World News interviewed the legendary Pierre Lassonde. Pierre is current Chairman of Franco-Nevada and former President of Newmont Mining. He co-founded Franco-Nevada Mining Corporation in 1982, and over a 20 year period provided shareholders with a staggering 36% annualized rate of return.

Pierre Lassonde:

“We’re dancing around at all all- time highs so I think you can expect some volatility. As we reach these levels, some are taking profit while others are entering the gold market.”

“While traveling last week I was speaking with an individual from a top bullion bank from Europe. He said his trading desk has seen their Chinese business go up to record levels in the last two weeks. The most interesting aspect to me is the fact that the Chinese central bank is diversifying their reserves away from the dollar, and they are literally buying all of the local gold production inside China.”

“Because of this the Chinese jewelers are not getting any gold, so they are having to purchase all of their gold on the open market. Internal Chinese citizen demand is already 350 tons per year, and growing by about 15% per year relentlessly.”

“Chinese demand is already at high levels, so another 15% added to existing demand raises their citizen’s appetite for gold to over 400 tons next year. If the Chinese central bank continues to consume internal production at the rate they are, it would be difficult for the gold market to experience a major correction. The Chinese central bank would have to back off purchases of internal production for 3 months or 6 months to get a major reaction in the gold market.”

“The Chinese are worried that the world will discover that they are getting out of the dollar and buying gold. If they are seen as buying gold on the open market, their fear is that will be viewed as repudiating the US dollar. Then they’ve got a real Excedrin 3 (headache) problem. That would create more competition for gold, driving the price of gold higher and the dollar lower. They would then have to buy even more dollars to keep the peg.”

“They keep buying the US dollar, but they know it is not sustainable. The risk there is that they create significant inflation, thus destabilizing the country. High inflation inside of China would be extremely dangerous and could literally spark a revolution. They want the gold, but they have to balance that with stability.”

“They should take their medicine now and let the Reminibi revalue 40 to 50% immediately.”

When asked if he thought the immediate revaluation was a radical idea Pierre replied, “That is not too radical at all, the Reminibi is worth 40 to 50% more than it is valued at today.”

“The Japanese had the same problem in 1970, and during the next ten years the Japanese Yen went from around 360 down to 180. And guess what happened to the Japanese exports? They kept going up and up during that time. You know why, the Japanese were smart because they went up the quality curve and increased their productivity.”

“The Chinese central bank is doing the right thing, they are using gold as one of their underlying assets, but the problem is that they should have a lot more gold then they currently possess. This is one of the major factors driving the gold market today.”

Pierre is without a doubt one of the greatest leaders in the history of the mining business, and his input was greatly appreciated at this critical juncture in the gold market.

Eric King