GoldMoney founder sees more upside with the white metal in 2012.

James Turk is founder and chairman of GoldMoney.com, which is a European-based precious metals firm that presently safeguards $2.1 billion of precious metals assets owned by customers. Turk is a popular speaker at conferences as well as on radio and television. His latest book is “The Coming Collapse of the Dollar.” HAI Managing Editor Drew Voros caught up with Turk to discuss central bank gold buying, the debasing of the dollar and why he favors silver over gold.

Hard Assets Investor: You’ve written that once silver crosses $35 an ounce, you expect it to hit $70 in two to three months. You're attributing this to a descending wedge price pattern. Could you explain this for readers?

James Turk: I said it would hit $68 to $70. And the descending wedge pattern is really only part of the overall analysis I’m resting this forecast on. I am both a technician as well as a fundamental analyst. The technicals are very good with this pattern that’s being formed. It looks very powerful. Silver was up 19 percent in January, so it’s been a great start for the year. But the fundamentals are also very bullish, which suggests to me that silver has significant upside potential once we take out this level. It’s just a combination of demand relative to limited supply. People are exiting currencies everywhere around the world and moving into the precious metals.

Another big factor is China, which up until 18 months to two years ago, was an exporter of silver. They’ve recently become an importer of silver. This is really changing the supply/demand equation for not only silver, but also for gold, because at about the same time, the Chinese have also become an importer of gold. Domestic production in China is no longer sufficient to handle domestic demand.

HAI: What’s driving the silver demand?

Turk: Silver is a bit more complicated than gold since it is both a monetary and an industrial metal. Demand for gold comes almost entirely because of its demand as money. Because silver has both a monetary and industrial demand, it’s more volatile than gold. But the basic driver is that silver is cheap relative to gold itself. At the moment, about 52 ounces of silver do the same thing as 1 ounce of gold, namely, in terms of providing protection of purchasing power with no counterparty risk. And historically, that ratio is normally about 16 ounces of silver to 1 ounce of gold.

As bullish as I am on gold going forward, I’m even more bullish on silver, because my expectation is that their ratio is going to continue to fall as this precious metals bull market continues to move forward. There is another technical factor that’s important regarding silver, aside from that chart pattern. Every bull market has three stages.

In stage one, you get the apathy, neglect and the worry. People just aren't paying attention, regardless of the fact that the item might be doing very well. So, for example, gold was in stage one of its bull market until it went over $1,000 an ounce, and then it went into stage two. And stage two is the longest. During stage two, more people become aware of the bull market. So more people start to understand the factors driving the bull market. And more and more people become involved. Stage three is the speculative stage, when everybody jumps in, and your neighbors are telling you to buy whatever the item happens to be.

Now silver, interestingly, is still in stage one of its bull market. And that’s why it gets so little attention worldwide, compared to gold, for example. But when silver goes above $50, it will be just as significant as when gold went above $1,000. Silver will be entering stage two of its bull market.

HAI: When silver begins these run-ups, like last year, they seem more volatile than when gold is on its ascension. What is that attributed to, simple profit-taking?

Turk: Silver’s price nearly tripled in a period of approximately nine months. No market goes straight up. A lot of people who got onboard earlier wanted to take some profits, and rightly so. There is nothing wrong with that if you are a trader, as opposed to a buy-and-hold investor. My view is that you just continue to accumulate throughout the whole bull market. When stage three arrives, the speculative stage, that’s when you start unloading because you’ll know the metal is starting to be very, very overvalued.

HAI: Do you consider gold and silver to be in the same asset class?

Turk: Yes. They're both money, but they're slightly different. The value of something comes from its utility. Gold’s utility is its usefulness in economic calculation; in other words, its money. Silver, though, has two different utilities. It has an industrial component and it has a monetary component. So it’s driven by different factors.

As far as money is concerned, silver is a money substitute for gold itself. You want to own silver when it’s cheap relative to gold, and gold itself is cheap. But you get this volatility in silver because it also has a very huge industrial demand, which affects the price in the supply/demand equation and causes this volatility.

To put it in economic terms, the demand for gold is inelastic, meaning that people want it regardless of the price. Whereas the demand for silver is elastic, meaning that people are very sensitive to changes in price. That sensitivity causes volatility. I like to explain it by saying that if owning gold is like flying in a 747, owning silver is like flying in an F-16. They both will get you there, and silver might get you there faster. But be prepared for a lot of twists and turns and bumps along the way when you're in silver.

HAI: How long do you think central banks will be net buyers of gold?

Turk: My expectation is that, given all of the international monetary problems that we’re facing worldwide, gold is going to become increasingly important to central banks. As a consequence, I think you're going to see more central banks continue to accumulate gold. In fact, gold reserves as a percentage of foreign currency reserves are pretty close to historical lows. What that’s basically saying is central banks own a lot of paper, and they own relatively few tangible assets. The true reserve is a tangible asset, not a piece of paper. Central banks will remain a big factor in the gold market for the foreseeable future, as a buyer.

HAI: Is central bank buying the biggest influence on gold right now?

HAI: No. The biggest influence on gold right now is the fact that no national currency is being managed properly by a central bank. They're all being inflated or being debased in some way. The most notorious examples, of course, are the euro and the dollar, which is supposed to serve as the world’s reserve currency. Federal Reserve action is debasing the dollar. Money printing is reaching new heights. And the same thing is going on in Europe with the ECB [European Central Bank]. They're printing a lot of euros.

To answer your question, yes, central banks are a factor. But the biggest factor is people around the world who understand that national currencies are not doing what they're supposed to do and are therefore seeking safe-haven alternatives.

HAI: Do you expect gold to continue to move in opposite direction inverse from the U.S. dollar?

Turk: That’s an interesting question, because you have to look at it from a long-term perspective. At any given moment, the dollar can be strong and gold can be strong or weak in dollar terms. We’ve seen that repeatedly over the years. In today’s world of floating currencies, currencies bob up and down relative to each other, depending on what one central bank is doing relative to another country’s central bank.

A couple years ago, for example, the euro was strong and the dollar was weak. Now the dollar is strong and euro is weak. But the important point is, when you look at it over the sweep of many years, all of these floating currencies that bob up and down relative to each other are sinking relative to gold. You can't really say that gold is going to trade inverse to the dollar or the euro. It may do so for three months or six months. But as long as currencies are mismanaged, gold is going to continue climbing against all of those national currencies, continuing the pattern that’s been in place for the past 11 years.

HAI: Is gold the best way to profit from a falling dollar?

Turk: It’s the safest way. I’m not going to say it’s the best way. Secondly, regarding your point about profiting from it, you have to remember that gold is a sterile asset. It doesn’t generate cash flow. It doesn’t have a balance sheet and doesn’t have a management team. So, as a consequence, it’s not really an investment: it’s money. When the price of gold goes up, it is not creating wealth. All it’s doing is moving wealth from people who own fiat currencies into the hands of people who own gold. So it’s a reshuffling of wealth, not a creation of wealth when the gold price rises.

HAI: Do you consider the Federal Reserve’s recent announcement of near-zero interest rates through 2014 to be a form of quantitative easing?

Turk: Yes, exactly. What the Federal Reserve does—and, in fact, all governments do this—when they intervene in markets it's to intervene with propaganda and then with action. Now, propaganda is cheap, because it doesn’t require using the limited financial capacity of the Federal Reserve's or a government's balance sheet. So the central bankers prefer intervening with propaganda.

But they do then actually intervene, from time to time, by running the money printing presses. We’ve been on the same policy, now, for many, many decades, since the dollar went off the gold standard, to debase the dollar. The Fed will talk down the dollar by promising all kinds of things to keep money cheap. And then, from time to time, they back up those words by actually intervening to debase the dollar. So it’s really a two-step process.

And this announcement to keep interest rates low, it’s not just debasing the dollar. The impact is much more profound. You're actually destroying savers, because the interest income that a saver earns on his money is now less than the inflation rate. The backbone of capitalism is savings. If you don’t have savings, you can't really grow the economy. When you're borrowing, you can only borrow from the existing pool of savings. If a government borrows more than the existing pool of savings, you're creating money out of thin air. And that’s debasing the currency, which explains exactly what’s happening — not only in the United States, but pretty much worldwide.

HAI: You touched on China, and purportedly, they're the world’s largest gold producer. What do they do with their gold? Do they use it for reserves? Where does it go?

Turk: I used to live in Asia. And in China, gold is money. If you were to say to a Chinese person that gold is not money, they would think you landed from Mars or were completely crazy. They own gold, and they save it. And that’s true, not only at the individual level, but also with the Chinese government. It’s been accumulating gold reserves as well. And I personally believe they have more gold in their vault than they’ve actually been reporting. So the accumulation of gold continues to expand the Chinese pool of accumulated capital, their accumulated savings