Equities the Way to Benefit from Gold's Strength: Henk Krasenberg

Source: Brian Sylvester of The Gold Report  (7/2/12)

http://www.theaureport.com/pub/na/13778

Henk J. Krasenberg, analyst and founder of the European Gold Centre and author and publisher of the GOLDVIEW newsletter, sees no lack of potential among small-cap equities, especially for investors willing to look beyond the U.S. borders. He offers names in Europe and Africa-what he calls "the poorest and richest continent"-and reminds us that Mexico produces a lot more than silver. In this exclusive Gold Report interview, Krasenberg counsels patience because "you have to wait for the development."

The Gold Report: Henk, what did you make of the June 17 Greek election? What does the country's apparent decision to stay in the Eurozone say about the sustainability of the European Union (EU)?

Henk Krasenberg: I am happy with the result because it shows that common sense prevailed. It seems that Greece will do everything to stay in the EU. Also, it prevented immediate chaos in the European markets.

Of course, it does not mean all the problems are over, but the immediate threat of a chain reaction in Spain, Portugal and Italy is gone for the time being. I don't think the Eurozone will fall apart. It would be awkward for us all to go back to our own currencies again. I am confident that the EU and the euro will stay.

TGR: Do you think the average European retail investor is as concerned about European debt problems as investors in North America?

HK: I do not think the European retail investor is really a party. In general, European private investors are pretty quiet and not so spontaneous in their investment reactions.

What is more important is the attitude and investment behavior of the institutions. They are concerned about European and American debt. In general, we are confident that the EU, the European central banks and the International Monetary Fund will come up with solutions, although most of those solutions are political.

TGR: The interest rate on Spain's 10-year Treasuries is now 7% and its economic growth is less than 1%. How does that affect the stability of the EU?

HK: Interest rates are important for governments, institutions and corporations, but not so much for investors. I remember a prominent Dutch investment manager saying 20 years ago, "I only talk about interest rates when I'm drunk." I have always remembered that.

People cannot influence interest rates. They are beyond our reach. We can look at interest rates, we can comment on them, but someone else is deciding what will happen.

TGR: In the past, you have said the real problem with the global economy is that the U.S. refuses to admit that it is bankrupt. Yet, over the last two years, U.S. markets have outperformed European markets by nearly 40%. How do you argue against that?

HK: If you are big enough, you usually do not go bankrupt. So, the U.S. will not go bankrupt. But if you look at its financial situation, it is in fact bankrupt. If it were to really fail, the impact would be too severe, so it will be saved.

The Federal Reserve is handling the situation quite well, manipulating a lot of things, including gold. And I think the Fed is doing everything to hide the real situation.

I think there is excessive optimism in the American markets, and I think the pessimism in the European markets is an overreaction.

TGR: Fed Chairman Ben Bernanke announced a continuation of the Twist program, basically an exchange of short-term debt for long-term debt. What do you make of that?

HK: Bernanke is in a terrible position. The Fed will not make any statement that would really hurt itself or change things overnight. If you change short-term debt for long-term debt, it is only delaying the execution. Sooner or later, you have to admit that you cannot pay your debts.

TGR: You like gold because you believe it will hold its purchasing power over time, but you like small-cap gold equities because they offer what you call flexibility. What do you mean by that?