Michael Berry is the CEO of Discovery Investing, which has created a model for pinpointing lucrative opportunities for mining, bio-tech, high-tech and infrastructure companies. He spoke on a panel and in an individual presentation titled “Gold and Quality of Life: Convergence, Debt, De-Leveraging, and Sustaining Value” at the Initiatives in Art and Culture gold conference in New York last week. Berry talked to editor/producer Nicole V. Rohr about how an expanding global economy impacts our dependence on metals and how he helps educate investors.
Q: What are commodity shocks and how do they affect metals?
A: First of all, there’s great demand for commodities because the overwhelming driver is quality of life. Two or three books have been written on convergence, and it’s well established in the literature. So, when you have that [commodity shocks], all of the sudden, the quality-of-life commodities (water, copper, nickel, lead) all start to go up in price. And that’s inflationary, and it also makes gold go up in price.
Then countries decide, “Well, we’re giving up our copper, but maybe we shouldn’t be. So, let’s put an export tax on it.” The Chinese are good at this. The Chinese have done this with rare earth elements, for example. All of the sudden, you have taxes and you have constrained access and that forces the price up. That’s a commodity shock. And then when copper goes [up], that shocks the system because it becomes all the more expensive to deal with it, because that fits into roads and highways. The infrastructure becomes a lot more expensive to build up.
Q: Why do you say that gold has not risen in dollars, and how do you help investors rethink their beliefs?
A: I talk about the issue of debasement of currencies and make them [investors] realize that really it’s the other way around. What’s really happening is with respect to fiat currencies, and of course, everything is priced in reserve currencies. But if you looked across the spectrum of currencies, you’d see that gold has risen in all of them. So, it’s not particular to any one currency, it’s happening to all fiat currencies as debasement goes around.
Q: How will a future monetary system include gold?
A: I think it will include gold. It might include a basket of commodities, I don’t know. What I am sure of is that as the rest of the world joins us, as the next three billion people have higher qualities of life, they’re going to have trade. They’re going to want to trade. They’re going to need to have a currency system that doesn’t favor one country over another. And so we’ll need some kind of an independently based currency system, and it might take 10 or 20 years to develop, but I think the era of the reserve currency as high-powered money, the dollar, the euro and so on — I think they’re pretty much done.