Latest / Merryn Talks Money / What to Make of Gold’s Tremendous Rise

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What to Make of Gold’s Tremendous Rise · Merryn Talks Money

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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
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Speaker 2: Welcome to Maren Talk's Money.
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Speaker 3: The podcast in which people who know the markers explain
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Speaker 3: the markers.
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Speaker 2: I'm mere in Sunset Web Now.
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Speaker 3: Regular listeners will know that I am a little bit
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Speaker 3: of a gold bug, so it should be no particular
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Speaker 3: surprise to you that we wanted to record an emergency
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Speaker 3: pod on the recent surge in the price of gold.
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Speaker 3: We are recording this conversation on Monday, for the gold
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Speaker 3: price has just gone over twenty nine hundred dollars the process.
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Speaker 3: Metal is enjoying a bit of a bump after President
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Speaker 3: Donald Trump announced tariffs on US steel and aluminium imports
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Speaker 3: over the weekend, but it had been on the rise
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Speaker 3: long before that. According to report released last week by
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Speaker 3: the World Gold Council, total annual global gold demanded a
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Speaker 3: new record high in twenty twenty four, and the biggest
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Speaker 3: driver behind this and I quote strong sustained central bank
1:03
Speaker 3: buying and growth in investment demand. In addition, concerns about
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Speaker 3: geopolitical instability and a return of global inflation have left
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Speaker 3: investors looking for a safe way to hedge their bets.
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Speaker 2: Hence, gold is on the up. On today's show.
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Speaker 3: We're going to dig into all of this with Jack
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Speaker 3: Ryan or a Border at Bloomberg News who covers mining
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Speaker 3: and precious metals.
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Speaker 4: Hi, Marion, thanks for having me on.
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Speaker 3: Also joining me today is Charlie Morris, chief investment officer
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Speaker 3: at Bike Tree, to discuss the old goals.
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Speaker 2: To play in your portfolio.
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Speaker 5: Hi Marin, pleasure to be here. Thank you.
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Speaker 3: Okay, these podcasts are supposed to be recently short, but
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Speaker 3: I feel like we've got quite a lot to cover.
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Speaker 2: So we better get going. Let's start if we can
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Speaker 2: with you, Jack.
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Speaker 3: Will you just run us through what you think is
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Speaker 3: happening in the gold market today? What is happening with
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Speaker 3: this price section.
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Speaker 4: Today it's pushed over twenty nine hundred for the first
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Speaker 4: time ever. It's been on this kind of continuous rise
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Speaker 4: really since the start of the new year. So it's
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Speaker 4: up a I think just north of ten percent through January,
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Speaker 4: which is pretty chunky increase, particularly for gold. Going back
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Speaker 4: a bit further, it's set a lot of records, new records.
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Speaker 4: Last year. It pulled back a bit after the election
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Speaker 4: of Donald Trump when the dollar rallied and a more
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Speaker 4: expensive dollar is not good for gold. It makes it
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Speaker 4: more expensive for buyers and other currencies since then risen
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Speaker 4: over the last couple of weeks, and it's really ridden
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Speaker 4: the wave of instability that's come from some of the
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Speaker 4: tariff threats that Trump and his administration have kind of
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Speaker 4: directed at some of their foes and also some of
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Speaker 4: their friends, Mexico and Canada in particular, and so all
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Speaker 4: of that instability creates a really attractive environment for gold.
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Speaker 4: It's traditionally seen as a safe haven asset and as
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Speaker 4: a way to hedge against risks to maybe your equities
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Speaker 4: that you're holding, or various different other parts of your portfolio.
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Speaker 4: So that is kind of the fund mental driver that's
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Speaker 4: been driving it higher in the last couple of weeks.
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Speaker 6: So it's finally fulfilling its role as effectively the everything
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Speaker 6: hedge doesn't matter what's going wrong, Gold is the answer
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Speaker 6: the inflation be geopolitical instability.
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Speaker 2: And then we have this other driver that is a bit.
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Speaker 3: More long term that we wrote about and talked about
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Speaker 3: quite a lot last year, which is central bank buying.
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Speaker 3: And the central bank buyers are going to be a
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Speaker 3: lot more price and sensitive than say an investment buyer.
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Speaker 2: Right, So that's the longer term driver.
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Speaker 4: Yeah, I think that's a really interesting driver of the
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Speaker 4: gold price. And really that story really picks up after
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Speaker 4: the invasion of Ukraine and obviously there was sanctions and
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Speaker 4: there was various measures and freezing of various Russian assets,
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Speaker 4: and it became difficult for Russia to use dollars that
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Speaker 4: they had because they'd been pushed out of the swift
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Speaker 4: banking communication system. And so as a result of that,
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Speaker 4: a lot of reserve managers of central banks around the
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Speaker 4: world looked at that situation and thought, maybe we should
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Speaker 4: diversify further from from dollar holdings in our foreign exchange
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Speaker 4: holdings because we hold, you know, tens of billions, hundreds
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Speaker 4: of billions of dollars. This may well be used as
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Speaker 4: a weapon against us in the future, we don't know.
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Speaker 4: And that kind of made gold more. That made gold
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Speaker 4: appealing because both gold was somewhere you could go from dollars.
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Speaker 4: So we know that. Prior to the Ukraine invasion, central
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Speaker 4: banks for buying about five hundred tons a year. Since
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Speaker 4: then they've been buying an average one thousand tons of year,
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Speaker 4: so they've really they've doubled their pace of buying and
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Speaker 4: they've been quite a consistent buyer, because unlike the kind
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Speaker 4: of quite skittish hedge funds or various buyers who are
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Speaker 4: looking for kind of short term, tact tactical gains, central
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Speaker 4: banks tend to be looking for more strategic tend to
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Speaker 4: have more strategic goals in mind, and therefore when they buy,
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Speaker 4: they tend not to sell, or at least they tend
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Speaker 4: not to sell for a long time.
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Speaker 2: Okay, thank you, Charlie.
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Speaker 3: When you listen to that list that Jack and I
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Speaker 3: have just gone for, is there anything else that you
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Speaker 3: think is driving the price that we haven't mentioned.
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Speaker 5: I think you've got most of the main points there,
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Speaker 5: but I just add one more thing there, and that's
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Speaker 5: I think the world's underweight gold. And what do I
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Speaker 5: mean by that? You know, if you go back about
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Speaker 5: fifty or sixty years to the early seventies, when you know,
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Speaker 5: gold had a formal role in the financial system, where
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Speaker 5: it was pegged or fixed to different the value of
5:30
Speaker 5: different currencies around the world. You know, in ninety seventy one,
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Speaker 5: things changed, and I think that's quite important because before
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Speaker 5: that it had always had this formal role, and the
5:41
Speaker 5: reason for that was it was the original fintech, the
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Speaker 5: original financial technology where you go around the world and
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Speaker 5: it's a sailing ship or on a camel across the
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Speaker 5: Silk roads, and an ounce of gold was worth the
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Speaker 5: same on one side of the worlds it was on
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Speaker 5: the other. And the whole fit system came about as
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Speaker 5: a result of telecommunications and computers the seventies and so forth.
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Speaker 5: Prior to that, you wouldn't have been able to have that.
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Speaker 5: So I think it's very important that gold took its
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Speaker 5: role as an alternative asset rather than a more formal asset.
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Speaker 5: After the seventies. There was a time when we had
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Speaker 5: so much faith in the money system that we didn't
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Speaker 5: really need gold in the eighties and nineties, when there
6:17
Speaker 5: was quite a hard minding environment with Thatcher and Reagan
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Speaker 5: and people like that in charge. But then in you know,
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Speaker 5: twenty five years ago, the non OECD countries started to
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Speaker 5: increase their results slowly, and then after the credit crisis
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Speaker 5: more quickly, and as Jack Ryan, who I'm sitting next
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Speaker 5: to rightley says, you know, after the Ukraine invasion, they
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Speaker 5: started to really accelerate those purchases. And there's one more
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Speaker 5: thing I'd mention before I had it back, and that
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Speaker 5: is in recent days, we've heard rumors of Scott Person
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Speaker 5: in the treasury sector in the US and the Trump
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Speaker 5: administration and this sort of thing talking about revaluing gold
6:58
Speaker 5: and so forth now in all over Twitter, So it
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Speaker 5: must be true. But I think what's really important is
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Speaker 5: the fact it's the first time a Western central bank
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Speaker 5: has really mentioned gold since nineteen seventy one. So we've
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Speaker 5: had the non oecd central banks talking about it since
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Speaker 5: two thousand and nine and then buying it that the
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Speaker 5: Western or the developed nations haven't, haven't touched it or
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Speaker 5: talked about it, and maybe that's about to change.
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Speaker 3: Okay, I want to come back to so many things
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Speaker 3: in that list that you've given us so many things
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Speaker 3: to pick up. But before I did that, there's one
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Speaker 3: thing that I thought you would mention at the beginning
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Speaker 3: that maybe I can ask Jack about, which is this
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Speaker 3: story it's been on Bloomberg today about China allowing insurers
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Speaker 3: to buy gold for the first time and the many,
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Speaker 3: many billions that that will redirect into the market. There
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Speaker 3: are ten insurance companies are allowed to start buying gold
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Speaker 3: for the first time, and this is new because up
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Speaker 3: until now the insurers have only been allowed to invest
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Speaker 3: in things that offer them and I wrote.
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Speaker 2: Stable cash returns.
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Speaker 3: So there's a new source of demand for gold, and
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Speaker 3: that maybe driving the price a little bit in a
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Speaker 3: short term.
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Speaker 4: Yeah yeah, well, I mean it's a massive, massive pool
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Speaker 4: of capital Chinese inshores. So even that notional one percent,
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Speaker 4: if this pilot scheme is expanded and continued, I mean
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Speaker 4: that that could be a huge source of demand for gold.
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Speaker 4: But China generally has been probably the world's most important
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Speaker 4: buyer over recent decades. Gold is attractive, I know to
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Speaker 4: a lot of Chinese retail investors because if you have
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Speaker 4: a very volatile equity market and then say you go
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Speaker 4: into a situation where your property market is under pressure
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Speaker 4: and that becomes a less appealing investment, there's not many
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Speaker 4: options to move your capital out of China or to
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Speaker 4: essentially to essentially engage in capital flight, but gold Buying
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Speaker 4: gold is basically a way to do that, where you're
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Speaker 4: essentially taking your money out of your own domestic financial
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Speaker 4: system and then holding it in this separate asset. So
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Speaker 4: because of that, gold has been in the past quite
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Speaker 4: an attractive asset to a lot of Chinese retail buyers.
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Speaker 4: And then on top of that, the Chinese Central Bank,
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Speaker 4: the PBOC has been a really significant buyer of gold.
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Speaker 4: Less so in the last year it took a six
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Speaker 4: month pause where it was not declaring purchases, but it
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Speaker 4: has been a very significant buyer over the last ten
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Speaker 4: years or so and particularly recently.
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Speaker 3: Okay, interesting, So what we're really talking about is there
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Speaker 3: in change in the way that people looking.
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Speaker 2: At gold and talking about God. So, Charlie, I want
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Speaker 2: to go back to.
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Speaker 3: What you were saying that there was this period, the
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Speaker 3: hard money period, when we felt we didn't need gold,
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Speaker 3: and this goes to the same as time when Gordon
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Speaker 3: Brown sold the large percentage of the UK's gold or
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Speaker 3: what now looks like a ridiculous price, but there was
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Speaker 3: the sense that you didn't need anything to back.
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Speaker 2: Up a fair currency. But I think the extraordinary thing
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Speaker 2: to many listeners who aren't necessarily childing, you know, little
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Speaker 2: gold bugs like you and.
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Speaker 3: Me, would be to think, well, why is gold still
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Speaker 3: money after all this time? Why is it that central
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Speaker 3: banks have been holding gold at the Gordon Brown view
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Speaker 3: that's not necessary?
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Speaker 2: Then what is it for the point of it? Why
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Speaker 2: is it money?
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Speaker 3: That makes a lot of sense to a lot of people,
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Speaker 3: And the idea that central bankers should now be go
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Speaker 3: central banks should now be going filling their vaults with
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Speaker 3: actual physical gold seems bizarre to a lot of people.
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Speaker 3: Can you explain it a little more? Why is it
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Speaker 3: that gold is still money in this sense?
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Speaker 5: I think that's a very very good question, and in
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Speaker 5: a formal sense it isn't at all, and it's you know,
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Speaker 5: it's deformalized in ninety seventy one. Now, during that hard
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Speaker 5: money era that are referred to, I'm talking about you know, Europe, UK,
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Speaker 5: Japan and the United States and Canada and so forth.
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Speaker 5: I'm not talking about the non OECD countries, many of
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Speaker 5: which had a currency crisis during that time. There was
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Speaker 5: the Asia currency crisis. Turkey had hyperinflation, as did Brazil
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Speaker 5: and Argentina and all these sorts of places, and so
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Speaker 5: currency is in the emerging markets at that time were
10:56
Speaker 5: pretty horrendous. But in the Western world, the whole fear
11:00
Speaker 5: system seemed to work quite well. Let's not forget in
11:04
Speaker 5: the eighties, you know, we had sky high double digit
11:06
Speaker 5: interest rates, and infation came down, and so we could
11:09
Speaker 5: cut those rates, and so there was a good runway
11:12
Speaker 5: from which to demonstrate the prowess of the system. But
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Speaker 5: it was only when we started touring with zero rates
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Speaker 5: when it really started to go wrong and accumulating all
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Speaker 5: the debt and the uncertainty with it, and you know,
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Speaker 5: the successive bailouts from one crisis to another, and I
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Speaker 5: think that, God, this is the really interesting bit I
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Speaker 5: find is that as you rightly say that European central
11:33
Speaker 5: banks were selling gold in the late nineteen nineties, I
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Speaker 5: think the final sale was done by the Bank of England,
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Speaker 5: famously at Brown's bottom at two hundred and fifty five
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Speaker 5: dollars an ounce, And as Jack was saying, I'll over
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Speaker 5: twenty nine hundred dollars an ounce today, you know, water
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Speaker 5: return more than the S and P five hundred over
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Speaker 5: the last twenty five years. The original sort of my gosh,
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Speaker 5: two hundred and fifty to five dollars is far too
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Speaker 5: low for the gold price. I think some smart family
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Speaker 5: offices and private investors figured it out first. Then, as
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Speaker 5: I say, it was some non OECD central banks who
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Speaker 5: basically wanted to protect themselves from inflation and so forth,
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Speaker 5: and then it was the credit crisis. It moved on.
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Speaker 5: Then The best bit about this whole thing is that
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Speaker 5: no one in a jurisdiction like Basel or at some
12:17
Speaker 5: big investment bankers or central bankers conference, no one wrote
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Speaker 5: down you should own gold or you should have ten
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Speaker 5: percent of your national central bank reserves in gold. They
12:28
Speaker 5: figured it out from themselves. So Qatar and Saudi Arabia
12:32
Speaker 5: and China and all these places just came to the
12:35
Speaker 5: same conclusion on their own, without anything written down. That
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Speaker 5: is not a bad idea to diversify more of their reserves,
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Speaker 5: not pile into gold, not a leverage better of gold,
12:45
Speaker 5: but just to increase the percentage of their reserves committed
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Speaker 5: to gold. And I say one last thing, and that was,
12:52
Speaker 5: you know, when Mark Carney, who's about to be the
12:55
Speaker 5: Prime Minister of Canada as far as I can see,
12:57
Speaker 5: when he was the government Bank of England, he was
13:00
Speaker 5: asked why we still held gold at the Bank of
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Speaker 5: England and his answer was tradition, As if it was
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Speaker 5: just some sort of toy or a trophy or an
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Speaker 5: old painting on the wall, it's quite fun to have downstairs.
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Speaker 5: And I think that that's now changing. As I said,
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Speaker 5: you know, the Americans are just about to start talking
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Speaker 5: about gold publicly for the first time. Since nineteen seventy one,
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Speaker 5: no one's ever talked about it, apart from Gordon Brown
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Speaker 5: pretending was a good idea to sell gold in nineteen
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Speaker 5: ninety nine and ninety eight and diversify into Europe.
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Speaker 3: I suppose if you changed the word tradition for history,
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Speaker 3: it makes more sense, doesn't it, Because what you've just
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Speaker 3: been saying is that there isn't anything like gold, anything
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Speaker 3: with the historical record of gold, anything with the.
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Speaker 2: Global acceptance of gold.
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Speaker 3: There's nothing you can replace it with. There's no currency
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Speaker 3: that can be gold. And that's maybe that's what Mark
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Speaker 3: Kurney meant. Maybe what he was saying wasn't something quite
13:49
Speaker 3: as idiotic.
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Speaker 2: As as as you'd think.
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Speaker 3: Maybe, as you say, maybe he was just saying, it's
13:55
Speaker 3: the only thing with a monetary history such that it.
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Speaker 2: Has to be a Central banks portfolio. Or am I
14:02
Speaker 2: being too kind? Am I being too kind?
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Speaker 5: Well? He said he said tradition, and I think tradition.
14:07
Speaker 5: I think what he meant was it was the sort
14:09
Speaker 5: of he'd come in and just like the bank convenion
14:11
Speaker 5: has got ratherwise paintings and walls and marble columns and things.
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Speaker 5: I think he just associated it with that it is
14:17
Speaker 5: a good question, but I would argue I would remind
14:19
Speaker 5: you that when we talk about gold, gold's not really
14:22
Speaker 5: a currency. It's an asset. It's a commodity, and that's
14:25
Speaker 5: really important. And it's also the most liquid alternative asset
14:30
Speaker 5: in the world. So alternative assets don't have cash flows.
14:33
Speaker 5: Companies have cash flows, bonds have cash flows, fear currencies
14:37
Speaker 5: have cash flows, all sorts of things do. But alternative assets,
14:40
Speaker 5: which are commodities, of which gold is the king of commodities.
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Speaker 5: It's the least volatile and by far the most liquid
14:46
Speaker 5: in financial sense, and you can hold it in physical forms.
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Speaker 5: So it's ideal as an alternative asset to be held
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Speaker 5: for the long term bi central banks, family offices, private individuals,
14:56
Speaker 5: and so forth.
14:56
Speaker 3: Okay, let's go back briefly to this bit that you
14:58
Speaker 3: mentioned earlier about this the idea that the Federal Reserve
15:01
Speaker 3: is planning to revalue the gold that it holds, and
15:05
Speaker 3: how that might affect the price of gold.
15:08
Speaker 2: There's a lot of talk about this is on Twitter.
15:09
Speaker 2: Therefore it's got to be true. Yeah, I do know
15:12
Speaker 2: anything about this story, because it rather.
15:13
Speaker 3: Seems to be that if you can change the price
15:15
Speaker 3: at which you hold the gold, but that doesn't make
15:18
Speaker 3: any difference to the demand for gold.
15:20
Speaker 4: I think Charlie would be better at answering that, to
15:22
Speaker 4: be honest.
15:22
Speaker 5: I mean, I do my best here. But it's speculation.
15:25
Speaker 2: But we like it. Bit of speculation.
15:27
Speaker 3: And everyone's on Twitter, right or most of our lesness,
15:30
Speaker 3: I think you're on Twitter.
15:31
Speaker 2: They're hearing this.
15:32
Speaker 3: What does it mean for the US to revalue its
15:35
Speaker 3: gold deserves to currently on at forty two dollars?
15:37
Speaker 2: An ounce right?
15:39
Speaker 5: My defense for speculation, you're honor was Merin told me
15:41
Speaker 5: to do it. So here we go, go to forty
15:44
Speaker 5: two dollars. So the US gold reserves, the best of
15:48
Speaker 5: my understanding, are in the books at forty two dollars,
15:52
Speaker 5: and which is a strange old thing, but that's that's
15:54
Speaker 5: really just a historic thing. It's probably legally conflicts to
15:56
Speaker 5: change it because it all relates to back to the thick,
16:00
Speaker 5: you know, where all the currencies were pegged to the
16:02
Speaker 5: price of gold for a long period of time. We
16:05
Speaker 5: don't need to go into history, so we'll just sort
16:07
Speaker 5: of spring it forward. What would happen if you revalued
16:09
Speaker 5: it to the well, there's a spot price and they're
16:11
Speaker 5: also talking about four thousand. I don't really understand why
16:13
Speaker 5: you choose four thousand. That bit was lost on me.
16:17
Speaker 5: But I'm told that if you know, it's in a
16:19
Speaker 5: sort of accounting quirk that if you did revalue goal
16:22
Speaker 5: to a much higher price, then that benefit would be
16:24
Speaker 5: shown up in the Treasury General Account the TGA. And
16:28
Speaker 5: that's something that the US Treasurer can have some fun with.
16:32
Speaker 5: The prop up asset markets, and certainly that's what the
16:35
Speaker 5: Biden deministration we're doing. And so you know, you just
16:37
Speaker 5: need juice to keep stock markets and financial markets in
16:40
Speaker 5: general going, plenty of liquidity and this sort of thing.
16:45
Speaker 5: So there is a feeling out there that that might happen.
16:47
Speaker 5: But if I say, I sort to reiterate this point,
16:49
Speaker 5: no one's mentioned gold from the US government for fifty years,
16:53
Speaker 5: and now they're talking about it, and I think just
16:55
Speaker 5: talking about it, it's worth worth about a thousand bucks announced.
16:58
Speaker 3: Well, I think that they're talking about it and this
17:00
Speaker 3: business in China of ensurers being allowed to buy it,
17:03
Speaker 3: for example, there's this this change in the tone of
17:06
Speaker 3: the conversation about the extent week gold should be used
17:09
Speaker 3: as an athic class.
17:12
Speaker 5: Yes, the world's most liquid alternative.
17:14
Speaker 2: Well, the only thing I.
17:15
Speaker 7: Would say, Charlie, is it Let's say, for example, that
17:18
Speaker 7: gold reserves are revalued save from forty two dollars to
17:21
Speaker 7: let's pretend four thousand dollars or three thousand dollars orever
17:24
Speaker 7: lucky enough to get to that.
17:27
Speaker 2: In turn, I read ONCT but.
17:29
Speaker 3: Effectively flash US debt. Right, But if the US has
17:34
Speaker 3: a lower debt, then doesn't the demand for gold fall?
17:37
Speaker 3: If it's on everything edge and suddenly we managed to
17:40
Speaker 3: magic away a large chunk of US debt, Well, let's.
17:42
Speaker 5: Not forget US debt's thirty six trillions. And as so,
17:45
Speaker 5: I keep get excited by saying, Jack, Ryan, it's.
17:52
Speaker 2: Locked and lots of trillions. I'll give you that.
17:54
Speaker 3: But if for every four thousand dollars revaluation in the
17:56
Speaker 3: price of gold you get to take a trillion off,
17:59
Speaker 3: makes it different?
18:00
Speaker 5: Yeah, it makes it a little different.
18:01
Speaker 4: You know, three percent I think a bigger risk at gold. Well,
18:06
Speaker 4: it's highly unlikely, at least in the short term. But
18:10
Speaker 4: so you have these developed economy central banks who have
18:14
Speaker 4: huge dashes of gold. So the US is more than
18:17
Speaker 4: eight thousand tons, Germany has more than three thousand tons.
18:21
Speaker 4: Those are the two big holders, and then even the
18:24
Speaker 4: Swiss and the UK who sold some, they still have
18:26
Speaker 4: a lot compared to some of these large growing emerging
18:31
Speaker 4: market economies like Chaida, India and Turkey and so of this.
18:39
Speaker 4: One of the risks to gold could be if you
18:41
Speaker 4: got to a situation where some of those developed economy
18:45
Speaker 4: central banks look at the gold price and start thinking
18:49
Speaker 4: we should start pairing down our holdings, we should sell
18:52
Speaker 4: into this and that kind of selling, which was obviously
18:57
Speaker 4: what characterized the nineteen nineties up until nineteen ninety nine. Effectively,
19:03
Speaker 4: that would be very verish for the gold price. But
19:05
Speaker 4: there's no indication that that's going to happen. But that's
19:08
Speaker 4: kind of one of those small tail risks. Just to
19:10
Speaker 4: prevent this from becoming the gold Bug podcast.
19:13
Speaker 3: I'd just like to say that Jack is misunderstood the podcast.
19:16
Speaker 2: It is the gold we have none.
19:19
Speaker 4: Of You can edit that out. Cut it out after
19:23
Speaker 4: we will.
19:24
Speaker 2: Be editing it out, Courtiner. We weren't, not really, Charlie.
19:27
Speaker 5: I think the biggest risk to the goal price is
19:29
Speaker 5: all the governments balanced the books and and and start
19:33
Speaker 5: to repay national debt. So that is a huge risk,
19:37
Speaker 5: but not in the next ten years.
19:38
Speaker 2: I'm surprised you said ten. I would have said not
19:41
Speaker 2: for rather longer than that anyway.
19:42
Speaker 3: Right, So let's go back to one of the drivers, Jack,
19:45
Speaker 3: what do you expect to be the main driver of
19:46
Speaker 3: the gold price going forward, because obviously you're fully on
19:49
Speaker 3: board with three thousands soon then four thousand and five thousand, right, Yeah.
19:53
Speaker 4: Well, I mean often it's periods of extreme instability create
19:57
Speaker 4: price spikes that then sometimes are mainined. So for example,
20:01
Speaker 4: gold broke one thousand dollars announce in two thousand and
20:05
Speaker 4: nine in the wake of the financial crisis. It broke
20:08
Speaker 4: two thousand dollars announce in twenty twenty during the outbreak
20:12
Speaker 4: of COVID. So in what situation will it break three
20:15
Speaker 4: thousand dollars anounce? It might be Trump instability and fears
20:21
Speaker 4: about tariffs and what they might mean for global growth,
20:24
Speaker 4: for inflation, and then gold's appeal as a hedge against
20:28
Speaker 4: those things. I think in the longer run, I think
20:32
Speaker 4: central bank buying may well be a more important driver
20:36
Speaker 4: of the price.
20:37
Speaker 3: Okay, Charlie, what do you think the big grabbers will
20:39
Speaker 3: be over the next For the short term, should we
20:41
Speaker 3: say short to medium time.
20:43
Speaker 5: Well, I mean, using simple round numbers, the world's asset base,
20:47
Speaker 5: which is stocks, bonds, real estate in the main and
20:50
Speaker 5: a few other wacky things, that would be about five
20:54
Speaker 5: hundred trillion dollars. The value of all the gold in
20:57
Speaker 5: the world's probably something like twenty trillion dollars, and so
21:01
Speaker 5: you've got to wonder what the waiting should be of
21:03
Speaker 5: all the gold in the world. And if you look
21:06
Speaker 5: at things like the private wealth industry, they're massively underweight.
21:11
Speaker 5: You know. When I talk to my old friends in
21:12
Speaker 5: that industry which I came from, most of them say, well,
21:15
Speaker 5: they still own a bit of gold, but that all
21:16
Speaker 5: the youngsters and the officers managing other people's money don't.
21:19
Speaker 5: And so it's become far less popular. It's been more
21:23
Speaker 5: with investors generally. So I think that that is a
21:27
Speaker 5: you know, a change that's happened that there's and the
21:32
Speaker 5: main reason for that is I wrote about recently, actually
21:34
Speaker 5: is because there's so much faith in the stock market.
21:37
Speaker 5: So investors tend to buy gold when they're worried that
21:40
Speaker 5: the stock market is going to go wrong or they
21:41
Speaker 5: know it's going wrong. And certainly in the two thousand
21:44
Speaker 5: and two thousand and two dot com bear market era,
21:46
Speaker 5: gold did very well, and it did pretty well over
21:49
Speaker 5: the credit crisis era as well, notwithstanding a dollar spike.
21:53
Speaker 5: Certainly it was up in the Stirling and euros.
21:55
Speaker 1: And so.
21:57
Speaker 5: You know, financial investors when the stock market is not working,
22:00
Speaker 5: they're happy to buy gold. But because we've had so
22:03
Speaker 5: much fun with the big tech in the last few
22:06
Speaker 5: years that they really haven't put it the full So.
22:09
Speaker 3: The Penance nistory as a whole as massively underweight.
22:11
Speaker 2: Okay, so that's gold, silver, Charlie.
22:16
Speaker 5: Silver's fascinating. I mean, if you go back thirty years,
22:19
Speaker 5: the return of silver and the return at gold are
22:21
Speaker 5: basically the same. There's very very little in it. And
22:24
Speaker 5: you would normally say that in the same way that
22:27
Speaker 5: if you think the stock market's going up, your tech
22:30
Speaker 5: stocks will outperform your your your defensive stocks. It's pretty
22:34
Speaker 5: pretty reasonable thing to say you expect your silver to
22:37
Speaker 5: do much better than your gold. And so in twenty
22:41
Speaker 5: eleven we had a big high. We had some other
22:44
Speaker 5: silver spikes over the years, and right now silver is
22:48
Speaker 5: really cheap relative to gold, you'd expect it to be
22:51
Speaker 5: at least twice as good as gold in a bull market.
22:55
Speaker 5: So for the fact that they've done the same thing
22:57
Speaker 5: over the last thirty years, I would think that silver
22:59
Speaker 5: has the potential to do two to three times better
23:02
Speaker 5: than gold over any reasonable period of time, so long
23:05
Speaker 5: as this bull market continues. That's that's the historic relationship.
23:10
Speaker 5: And there's been very little interest in silver. The ETFs
23:13
Speaker 5: have been sold. The amount of silver held by the
23:16
Speaker 5: global silver e tescotes down. The silver miners aren't playing
23:21
Speaker 5: and say once again, you know, we've got this audience
23:24
Speaker 5: that there would have been there in twenty ten eleven.
23:27
Speaker 5: Don't know where they went. They're not back.
23:29
Speaker 3: So let's talk briefly then about the miners, because you
23:34
Speaker 3: would expect, wouldn't you, generally speaking, when the gold price
23:37
Speaker 3: and a silver prize rise, a gold price, particularly in
23:39
Speaker 3: this case, the gold miners to massively outperformed. But that
23:43
Speaker 3: hasn't quite happened, has it.
23:45
Speaker 5: Yeah, it's a very very similar argument, not quite the
23:48
Speaker 5: same thing. One difference between silver and the gold miners
23:51
Speaker 5: is that the gold miners have operating businesses, whereas announce
23:54
Speaker 5: of silver doesn't. And in a silver mine or a
23:58
Speaker 5: gold mine, probably one third of your costs approximately our energy.
24:03
Speaker 5: So the price of oil matters a great deal. So
24:05
Speaker 5: for proa profitability of a gold miner, the spread between
24:09
Speaker 5: gold and oil matters quite a great deal, and so
24:13
Speaker 5: that really is on side for them. But I think
24:15
Speaker 5: what you've got to expect over the next year is
24:19
Speaker 5: if you look at the free cash flow of the
24:21
Speaker 5: mining sector, you can you can you can put it
24:24
Speaker 5: forward one year and make assumptions about where we'll be
24:27
Speaker 5: this time next year. And it's quite clear to me
24:29
Speaker 5: that the margins at these prices of you know, low silver,
24:33
Speaker 5: sorry I picked about low oil and high gold silver,
24:36
Speaker 5: particularly gold, then the margins of these miners is going
24:40
Speaker 5: to going to improve quite markedly. And I think so
24:42
Speaker 5: much trading these days is algorithmic and database and that
24:46
Speaker 5: maybe they're just waiting to see to see the whites
24:49
Speaker 5: of their eyes. And the miners, of course, have been
24:51
Speaker 5: hugely disappointing of a long period of time because it's
24:55
Speaker 5: a difficult industry, you know, digging huge holes in the
24:58
Speaker 5: ground with huge machines and tires, tires as tall as
25:02
Speaker 5: your house. You know, this is this is tough stuff.
25:05
Speaker 2: It is tough stuff.
25:06
Speaker 3: But once you've got phold Doug, you know, you've paid
25:09
Speaker 3: most of the cost.
25:10
Speaker 2: Right, so the operational leverage should be pretty high on hopes.
25:15
Speaker 3: And we used to say that the gold mine is
25:16
Speaker 3: in particular or horribly runs, so you know you can
25:19
Speaker 3: never rely on that happening.
25:21
Speaker 2: But there'd be better run now.
25:23
Speaker 5: That certainly the things like the air ESG which is
25:25
Speaker 5: not not at the forefront of my financial analysis, but
25:28
Speaker 5: it's certainly a good indicator of that people are doing
25:31
Speaker 5: the right thing and doing things thoroughly. That seems to
25:35
Speaker 5: improve enormously over the years. I think there are always
25:38
Speaker 5: going to be geopolitical issues about where you do business,
25:41
Speaker 5: and so some of the mind in Marley haven't worked
25:44
Speaker 5: out too well. But if you're sticking to Canada, America, Mexico,
25:48
Speaker 5: Australia and so forth, or even eager the profits are
25:54
Speaker 5: coming through, I just think the stock markets being just
25:58
Speaker 5: not that interested in the moment in any thing to
26:00
Speaker 5: do with commodities more generally.
26:02
Speaker 6: So, if the industry has a whole is missing a trip,
26:05
Speaker 6: perhaps an opportunity for our ordinary.
26:08
Speaker 2: Investors, right, I would think, so, okay, so.
26:11
Speaker 3: How can our ordinary investors invest in the gold market
26:15
Speaker 3: and in the selvern market.
26:17
Speaker 2: Jack Charlie who wants to day Baus.
26:19
Speaker 4: I'll Charlie say that he's the expert on that the expert.
26:23
Speaker 2: That's a terrible word, isn't it definitely the expert?
26:25
Speaker 5: Yeah? So I mean, are we talking to British citizens
26:27
Speaker 5: I assume, or we're talking to people all over the world.
26:30
Speaker 5: But if you're a British citizen and you want to
26:32
Speaker 5: invest in gold, you know, why not treat yourself to
26:35
Speaker 5: a sovereid or a Britannia a real piece of metal
26:38
Speaker 5: which you can buy in Sharp's Pixie at the top
26:40
Speaker 5: of Saint James's Street, or in one of these reputable
26:44
Speaker 5: online firms. Don't not be which ones are reputable, but
26:47
Speaker 5: so they just go to Sharp Pixley.
26:48
Speaker 2: Then, but Charlie, I have to say, oh, Dubai Airport.
26:52
Speaker 2: I just got it from Dubai and I'm impressed by
26:55
Speaker 2: how much gold you can buy at the airport.
26:57
Speaker 3: You can buy pretty much any size of anger you
26:59
Speaker 3: like and take.
26:59
Speaker 5: It away with you, and you can get the sovereigns,
27:01
Speaker 5: can you and the Britannias No.
27:03
Speaker 2: I don't think you can see just a little ingers.
27:05
Speaker 5: Of course you could buy them from the Royal Mint.
27:06
Speaker 5: Silly me, I should have said that. But the reason
27:08
Speaker 5: you do that is because it's capital against tax free
27:11
Speaker 5: until Rachel Reeves changed the tactical against capital against tax rules.
27:14
Speaker 5: So maybe that doesn't last forever, but it's certainly true
27:16
Speaker 5: at the moment. But what I tell my clients that
27:19
Speaker 5: buy Tree is to buy the ETF. And there's one
27:21
Speaker 5: by Ice Shares, one by Wisdom Tree, there are plenty
27:24
Speaker 5: of from these days. You have to pay much very
27:27
Speaker 5: simple way to do that through your SIP or ISA
27:29
Speaker 5: or your breaking account. You can do the same with
27:32
Speaker 5: a silver ETF. Make sure you buy a UK or
27:35
Speaker 5: a European one because you can't buy the American ones
27:38
Speaker 5: because American ETFs basically are not we're not designed for
27:41
Speaker 5: UK investors from a tax perspective, and so forth you'll broke.
27:44
Speaker 5: Will probably prevent you anyway. And then if you want
27:47
Speaker 5: the gold mining ets, there's a there's one called GDX,
27:50
Speaker 5: the tickets GDX, that's the van X gold mine. And
27:54
Speaker 5: then you've got the junior GDXJ, which is a little
27:58
Speaker 5: bit more volatile, but a little bit so Yeah, the
28:00
Speaker 5: junior miners ought to do better in a ball market.
28:03
Speaker 5: But all of these things, you know, gold. Gold is fine.
28:06
Speaker 5: It's a very low risk or not low risk, but
28:08
Speaker 5: low medium risk long term asset. Silver it's probably a
28:12
Speaker 5: medium risk asset. And the miners in a basket of
28:14
Speaker 5: miners would be a medium high risk asset. I would say,
28:17
Speaker 5: an individual miner with not making any money, of course,
28:20
Speaker 5: would be ultra high risk. So bear that in mind.
28:22
Speaker 5: You know, you buy a basket of these things, you
28:24
Speaker 5: have diversified a large point of your risk. And as
28:27
Speaker 5: I said to Bry earlier, that the worst thing that
28:29
Speaker 5: could happen to gold is really highly powered, credible, competent,
28:34
Speaker 5: economically well educated chances of exchequers. If we have those,
28:37
Speaker 5: then the gold press is in trouble.
28:40
Speaker 2: Yeah, who's worried.
28:42
Speaker 4: I heard there was a great trick back in the
28:44
Speaker 4: eighties in the city, and Charlie probably knows more about this,
28:47
Speaker 4: whereby you could be paid a gold sovereign whereby its
28:51
Speaker 4: nominal its nominal value was way below its real value,
28:54
Speaker 4: and so you could be paid basically in a very
28:56
Speaker 4: tax efficient way if you receive a one pound gold
29:01
Speaker 4: sovereign that's actually worth you know, five hundred pounds or
29:04
Speaker 4: something like that.
29:05
Speaker 5: Well, in the eighties, I hate to disappoint you. It's
29:07
Speaker 5: actually at school. I wasn't not that old yet, but
29:10
Speaker 5: I did hear that some of the tax weeks is
29:12
Speaker 5: back in the day was to pay people in the
29:15
Speaker 5: city with pork contracts, you know, pork bellies like in
29:20
Speaker 5: temperating places, and so you got paid in pork belly contracts.
29:24
Speaker 5: Futures contracts. You have to pay tax, but I don't think.
29:26
Speaker 5: I'm not sure if that lasted long or if any people.
29:28
Speaker 4: Took it up inconvenience.
29:30
Speaker 3: Yes, well, there were all sorts of thinker and this
29:33
Speaker 3: is something we're going off topic, but it's definitely something
29:35
Speaker 3: that you know, those who set income tax rates in
29:38
Speaker 3: the UK and Scotland might want to look at how
29:41
Speaker 3: quickly and easily people in the seventies in particular found
29:44
Speaker 3: ways to avoid the higher rates of income tax and
29:47
Speaker 3: Hobviously lots of those ways have been taken away now,
29:49
Speaker 3: but I've.
29:51
Speaker 2: Had about a lot of them.
29:51
Speaker 3: Probably shouldn't repeat them here or I don't want to
29:54
Speaker 3: get anyone into trouble at this point.
29:56
Speaker 2: Is there anything else that we should say about gold?
30:00
Speaker 5: Yeah, I would say the final point is to reiterate
30:02
Speaker 5: the fact that I think I started out this way,
30:04
Speaker 5: which I think the global financial system, whether that's private
30:08
Speaker 5: wealth or whether that's institutional wealth. Orthough it's Western central banks,
30:13
Speaker 5: I think they just structurally underweight an asset that's become
30:17
Speaker 5: increasingly relevant again in today's world.
30:20
Speaker 3: Okay, so young people, young people, take it with your
30:22
Speaker 3: bitcoin holdings. I said we were going to get to
30:24
Speaker 3: the Amazon mentioning bitcoin, but I have just mentioned it.
30:26
Speaker 2: Taken with your bitcoin holdings.
30:28
Speaker 3: Are wonder if maybe maybe you should diversify into a
30:31
Speaker 3: little gold jack.
30:32
Speaker 2: You're young, you got bitcoin.
30:33
Speaker 5: I don't.
30:34
Speaker 4: I think I'd rather go for gold. I had a bitcoin. Actually,
30:37
Speaker 4: to pick up on one of Charlie's points earlier, the
30:39
Speaker 4: fact that gold isn't attached to an income stream, doesn't
30:43
Speaker 4: have a counterparty, it's trustless and inverticoma is similar to
30:47
Speaker 4: the kind of intellectual case for bitcoin. So in many
30:50
Speaker 4: ways they are similar. And the fact that it's not
30:53
Speaker 4: attached to an income stream in the same way as
30:57
Speaker 4: other investments like bonds or stocks, it's either a very
31:01
Speaker 4: exciting thing or a very worrying thing, because the price
31:05
Speaker 4: may go as high or as low as anyone else
31:08
Speaker 4: is willing to pay for it. It's not anchored by
31:10
Speaker 4: that kind of income stream. Yes, you can have some
31:13
Speaker 4: sort of supply response eventually if the gold price gets
31:16
Speaker 4: super high and people come back to pawn shops and
31:19
Speaker 4: trading their gold. But it takes a long time to
31:22
Speaker 4: build mine and it could get very high in the
31:25
Speaker 4: meantime in the interim, so that I think is depending
31:30
Speaker 4: on your perspective, very exciting or very worrying about those
31:33
Speaker 4: two assets.
31:34
Speaker 2: Okay, and now we have a new gold bug at Bloomberg.
31:37
Speaker 2: Welcome Jack. Thanks for listening to this week's Marrying groups Money.
31:43
Speaker 3: If you like USh are rate, review and subscribe wherever
31:45
Speaker 3: you listen to podcasts and keep sending questions or comments
31:48
Speaker 3: the marrin Money at Bloomberg dot net. You can also
31:50
Speaker 3: follow me and John on Twitter or x I'm at
31:53
Speaker 3: marins w and John is John and discourse that you're
31:56
Speaker 3: on Twitter deck.
31:57
Speaker 4: I am not Sally, Yes.
31:59
Speaker 5: My hand Liz atlas as in map and pulse as
32:03
Speaker 5: in blood round your wrist.
32:05
Speaker 2: Perfect.
32:06
Speaker 3: This episode was hosted by me marresma Web. The show
32:09
Speaker 3: is produced by Someasadi and Moses and them sound resigned
32:12
Speaker 3: by Blake Maples and obviously very special things to Charlie Morris,
32:16
Speaker 3: and to Jack Ryan