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Exclusive Interview: Gold's Volatility, Part of Its Tradition: Former Presidential Candidate Ron Paul

By Daniela Cambone of Kitco News
Tuesday May 27, 2013 2:55 PM

New York (Kitco News) – Gold’s recent ups and downs are simply keeping with its tradition of being volatile, said former U.S. congressman Dr. Ron Paul in an exclusive Interview with Kitco News.

Former U.S. congressman Dr. Ron Paul sat down with Kitco News’ Daniela Cambone at the Metals and Minerals Investment Conference in New York. He said that historically there have been high periods of volatility with gold but it is important to look past these short-term corrections.

“It is up and down, and it has been doing that a lot lately,” Paul said. “If (investors) are in gold for a short time to make a quick killing that ought to make them very nervous,” he said of gold’s recent correction in April.  Prices plunged 14 percent in the two sessions to April 15, the most since 1983, and hit a low of $1,321.95 an ounce on April 16.

Paul said that historically there have been high periods of volatility but it is important to look past these short-term corrections. Looking back, Paul reflected that in the 1970s gold went up to almost $200 an ounce then plummeted back down to close to $100 an ounce two years later.

“Everybody thought the world had ended for gold,“ he said. Paul added these should have been seen as simply corrections in a roaring bull market.

Soothing nervous investors Paul had this advice to offer, “I was told one time that you shouldn’t be concentrating so much on the price of gold. What you should ask is, ‘how many ounces of gold do you own?’”

Paul said investors should be prepared for the scenario of the US dollar being in “bad shape” – one needs to see if they have enough gold to cover themselves for that day “we all expect will come,” he said.

On three occasions, Paul ran for thepresidency of the United States: as the Libertarian Party candidate in 1988 and as a candidate in the Republican primaries in 2008 and 2012. This past January, however he retired from his 23 years of service with Congress.

“In the last year or so, the dollar has been strong compared to the other currencies. But it hasn’t been strong in purchasing power,” said former U.S. congressman Dr. Ron Paul in an exclusive interview with Kitco News.

As a politician, rather than focusing on gold, Paul says he has spent most of his time watching the dollar.

“I’ve been watching it for a long time, and I usually talk about watching the dollar rather than just watching gold because my interest in monetary ideas and monetary policies started when we got rid of Bretton Woods -- the last link to gold,” said Paul.

Under Bretton Woods, government regulations mandated that banks hold a fixed ratio of gold as currency reserves. There was a greater need for gold as economies expanded.

In 1971 the U.S. stopped allowing dollars to be converted into gold. The gold window shut and foreign governments could no longer trade dollars for gold at $35/ounce. The U.S. dollar became a fiat currency and the world’s only reserve currency. No nation has yet to return to the gold standard.

Since 1976, Paul has been promoting a return to a gold coin standard and is the author of four books on the topic.  Though he admits there were shortcomings with the system.

“It was not the best gold standard. It was bimetallism and there were always cheating going on, and States inflated, and they suspended gold for the civil war; so, instead of me arguing the case we need to go back to the gold standard, I think we should allow the markets to decide,” Paul said.  

“But we need the market to make the decision with one rule; you can’t defraud people,” he added.

Current Strength of US dollar

Paul said there is an illusion that the United States is the economic and military power house of the world.

“In the last year or so, the dollar has been strong compared to the other currencies. But it hasn’t been strong in purchasing power,” said Paul.

A lot of people are suffering, he noted.  “I travel a lot and talk to a lot of people, and they’re still talking about not having much money being left at the end of the month.”

 As for an end to quantitative easing, Paul said the Federal Reserve has no choice but to continue printing money. “They’re trapped,” he said.

An outspoken opponent of the U.S. central banking system, Paul has said in the past that the Fed should not exist.  Paul’s opponents have argued that before the creation of the Federal Reserve however, the US saw 16 recessions from 1850 to 1910; they averaged 22 months long. During this time, the U.S. was in recession 60 out of 91 months.

Paul responded that since the Fed’s creation in 1913 the dollar has lost more than 96% of its value, and by inflating the money supply the Fed continues to distort interest rates and intentionally erodes the value of the dollar.

He added that he has never singled out Fed Chairman Ben Bernanke in his disapproval of the Fed or compared to previous chairmen.  

“I attack him as just another manager. Whether you have Alan Greenspan or Bernanke, there’s no difference; even though I’ve been softer in my criticism of Volcker, it’s still the same thing.”  

With Bernanke’s tenure coming to an end, the only person Paul said he would like to see as a replacement is James Grant, the founder of Grant's Interest Rate Observer, a twice-monthly journal of the financial markets.

On the Gold Audit

In a past interview with Kitco News, Paul broke the news first-hand that he was calling for a new bill that would allow for an audit of the US gold reserves.

If the audit were to come around one day, what would it do to the price of gold? Paul said that if an honest audit was conducted and it was proven the U.S. has no real control of its gold, it would push the price upwards, not instantaneously, but it would happen.

Currently, gold is 17 percent lower this year as some investors have lost faith in the metal as a store of value. According to some analysts, investors have jumped into stocks and other higher yielding investments.

However, despite the recent price declines, Paul still sees gold as the ultimate protection.

“I believe we have the right to protect ourselves, and the constitution gives us the right to and an obligation to protect our families. Financially, I think the ultimate protection financially for our families would be the holding of gold,” he said.

By Daniela Cambone of Kitco News dcambone@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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