The other side of the coin

In terms of ‘exchange rate/result’, a hundreds-of-dollars per ounce drop is forecasted by one of the most influential expert of the field. The publications of Harvey Campbell have been in the centre of attention since he, in 2012, tried to scientifically prove that the price per ounce would have to drop at least to 1000 dollars (from the 1700 dollar price). His forecast was proved right. According to the professor of the Duke University, North Carolina, the American capital markets are ready for price corrections. He believes that the chances for the euro to survive are quite low: ‘It seems like Germany just cannot wait for France, Italy or any other great euro using country to leave the euro-zone, so they could do so as well.’

Péter Zentai: Your predictions five years ago have been proven right: the price of gold (ounce) dropped under 1100 dollars. Is that the bottom? What will your new analysis say?
Harvey Campbell
: The fundamental message has not changed. We took the result of our earlier study which said that gold – aside from geopolitical, world economic, and psychological circumstances bound to it that can affect price movements – is nothing but a form of defence against inflation.
However, the only actual basis of gold price (realistic) is the correlation which links it to inflation.
So we believe that gold should be viewed as a type of share for which primarily the state of P/E (exchange rate/profit) index provides standard. For gold, the main standard is the ratio of the average realistic price an ounce and the consumer price index in the United States because the price of gold is recorded in USD.

What is the realistic price?
It is 825 an ounce. We calculated the same price in 2012 too. Just like back then, we give the same warning: if we look at the historical behaviour of gold, it can be seen that the market often exceeds or falls below the realistic price with extreme dynamics. Price movements of the last one and a half, two years (in the gold market) show a falling tendency and we believe if the price of this noble metal drops below 1000 dollars, it will be more extreme. There is only a small chance for stopping at the realistic 825 dollar level; we think it will be far below. We concluded from historical examples that the absolute low point will be under 500 dollars, around 350 dollars. When will it happen? We cannot answer that.

What do you think of the current state of capital markets? Do you have any conclusions?
In terms of capital market, the American is the most transparent, so it can be analysed with scientific rigour.
I would not advise buying shares or bonds. The interest rate environment has been permanently low, which is unacceptable. The interest rate increase has to start, so fairly soon, everyone will want to get rid of their bonds.
The American economy has been growing steadily for 73 months. Parallel to this, stock market boom has become more powerful. Never before have we seen so many exchange rate records at the same time in the stock exchange, than last month. Among such circumstances, ‘getting in’ would not be very wise, ‘getting out’ would be so: realizing profit is the advised action. All in all, a serious price correction has to happen in the American stock markets within a reasonable time.

I read that the growth rate of the American economy will decline somewhat, and the American productivity has already been weak…
I am afraid, I cannot agree with this. With my presentations and researches, I always aim for proving how outdated those methods are which are used for analysing the economic and productive power of the United States. The standards which were laid down in the 1930s and have been used by economist to form their opinions on the state of economy have lost their significance. If we look around in this country, we can clearly see that it is a pioneer in sciences, technology, research, and productivity. The rate of employment is high, while unemployment is low. This is going to stay like this. America has an exceptional ability of renewal. There is a significant growth in every leading technological field, and they will provide the most jobs too. In these fields – almost with no exception – America has become the best. We can predict a steady economic growth for the next five years…

Then I do not see why you turn investors away from stock markets…
At the beginning of the 2000s, there were around 7 thousand listed American companies. Today, this number has dropped to 4 thousand. Non-listed companies are beginning to take the lead in the economy. From the moment of their establishment, the shares of these companies are traded on ‘shadow markets’, so there is really no point of IPO. Most of them – if they do decide listing on the open market – are already overpriced when they enter. Trading with the securities of these companies at real market value has already been done by venture capital companies.
For instance, Uber has a 51-million-dollar capital. I think it is rather absurd.
The stock price of valuable listed companies, accessible by anyone, is very high, independently from the fact that there is a serious growth potential in these companies and the American economy.

In the meantime, troubles with the euro are multiplying in Europe. How do you – someone who is qualified in this area – see the future of the euro?
There is only a little chance for the survival of the euro. The current system will collapse within 5-10 years.
It’s founding was based on political reasons, so it overlooked rational economic points. The euro needed luck to survive the last couple of years. However, the moment of truth is approaching. The members of the euro-zone should carry out reforms that would make fiscal union possible; a real bank union, operating the ECB the way the American Fed works. However, politics intervenes again, making the implementation of these reforms impossible.

Do you think Germany, the strongest economy in Europe, should leave the euro-zone?
Germany will never be the first to leave in such a field. The German political-economic elite are absolutely afraid of any condition where as a result, Germany would have to take the blame. However, the leaders of Germany feel that their economy will only suffer from the euro on the long run. It is a burden for them, even though it has been beneficial apparently. The cheap and underappreciated euro is an obstacle to the economy and modernization. Due to this, fields and jobs have managed to survive which otherwise – if the currency would mirror the actual economic productivity – would have disappeared.

Germany would rather remove Greece and other weaker members from the euro-zone…
Germans are waiting for France or Italy to ‘disturb’ the zone, and if they do so, Germany will join. German decision-makers have already more or less realized that the exit of Greece or any other smaller economy would not make any difference to solving the fundamental problems of the euro-zone. However, if France or Italy was be in the – unlikely – situation where they wanted to leave or had no choice but leaving, then Germany would dare to follow them.

Original date of Hungarian publication:
 August 11, 2015