Latest / The Money Puzzle / Gold: Can it keep going up?

Transcript

Gold: Can it keep going up? · The Money Puzzle

0:09
Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
0:12
Speaker 1: James Kirkby. Welcome aboard everybody. Now, the outstanding investment in
0:16
Speaker 1: recent times has been gold, gold in any form, gold bars,
0:20
Speaker 1: gold bullion, gold coins. For most of our listeners it
0:25
Speaker 1: would be gold based exchange traded funds and listed gold miners.
0:30
Speaker 1: Even this year to date, gold is up at about
0:33
Speaker 1: twenty three percent so far. This is over the year
0:36
Speaker 1: to date the ASX is up by about two percent.
0:39
Speaker 1: It's moving ten times faster. My guest today, appropriately enough,
0:45
Speaker 1: is oh a man I called mister Gold. We've known
0:47
Speaker 1: each other for a long time. I used to talk
0:49
Speaker 1: to him at the Perth Mint at various other jobs
0:51
Speaker 1: over the years. He is now the general manager of
0:54
Speaker 1: ABC Bullion. That is the place where there was recently
0:58
Speaker 1: queues outside the front door at Martian Place in Sydney,
1:01
Speaker 1: which gives you some idea of what's going on in
1:02
Speaker 1: this area.
1:03
Speaker 2: How are you, Jordan Lovely to love it to be here, James,
1:06
Speaker 2: thanks for the invitation.
1:07
Speaker 3: You're welcome.
1:08
Speaker 1: And Jordan Alicia Folks as I see, he's a deep
1:11
Speaker 1: specialist in gold and he's stuck with it all his
1:13
Speaker 1: career to the listener who's just starting to find out
1:17
Speaker 1: about good just tell us, first of all, what's been happening.
1:20
Speaker 1: They qualify if you with the price change that we've seen.
1:23
Speaker 4: Certainly so.
1:24
Speaker 2: If you look in Australian dollars through to the end
1:27
Speaker 2: of April, the price returned for gold was around forty
1:33
Speaker 2: five percent for the year, so it had gone from
1:36
Speaker 2: around three thousand, five hundred dollars an ounce to about
1:40
Speaker 2: five two hundred dollars an ounce in that one year period,
1:45
Speaker 2: about double the return of silver. Silver had done pretty
1:48
Speaker 2: well as well, but it was only up about twenty percent. Obviously,
1:52
Speaker 2: prices have pulled back a little bit in the last
1:55
Speaker 2: two weeks, so we've seen a correction that was very
1:58
Speaker 2: much expected given just how fast gold had run. But
2:03
Speaker 2: the strong performance of gold isn't just isolated to the
2:07
Speaker 2: last the last twelve months. If you look at sort
2:10
Speaker 2: of three year, five year or ten year returns, you're
2:16
Speaker 2: talking around over three years about twenty four percent per
2:20
Speaker 2: annum annualized, which is about ninety percent in total, and
2:23
Speaker 2: the ten year number is about thirteen percent annualized, which
2:27
Speaker 2: if you compound for ten years, comes out at almost
2:30
Speaker 2: two hundred and fifty percent.
2:33
Speaker 4: The price is rallied.
2:34
Speaker 1: Wow, we're talking strictly good billion here, that's right in
2:37
Speaker 1: Australian dollars, are in US dollars.
2:38
Speaker 2: Yeah, no, that's the Australian dollar return in the last
2:41
Speaker 2: twelve months. The return in US dollars has basically been
2:45
Speaker 2: the same. So whilst the currency moves up and down
2:48
Speaker 2: on a daily basis, actually over the last twelve months
2:51
Speaker 2: it's been relatively stables.
2:54
Speaker 4: As a whole.
2:55
Speaker 2: If you take the ten year window, the Australian dollar
2:58
Speaker 2: gold price has outperformed the US dollar goal price, and
3:03
Speaker 2: that's largely a function of the fact that obviously the
3:06
Speaker 2: Aussie has been under pressure really since it peaked back
3:09
Speaker 2: in twenty eleven, when you know, back then you could
3:12
Speaker 2: get a I think it was almost at a dollar
3:13
Speaker 2: ten versus the American dollar, and now it's closer to
3:17
Speaker 2: sixty five cents.
3:19
Speaker 1: So the weakness of the Australian dollar against the US
3:24
Speaker 1: is actually propelling this even faster. But for people who
3:29
Speaker 1: are listening and for you the investor at home, when
3:33
Speaker 1: you see gold prices mentioned in the press or wherever,
3:35
Speaker 1: it's actually US, isn't it. It's the that's the one
3:38
Speaker 1: that everyone uses.
3:39
Speaker 2: More often than not that that is correct, and you
3:42
Speaker 2: know that's why, you know, bullion dealers like us will
3:45
Speaker 2: show whilst we transact in Australian dollars with our clients,
3:49
Speaker 2: will show the US dollars bot price as a reference point,
3:52
Speaker 2: because that's what people are used to seeing or seeing
3:55
Speaker 2: on the news. Interestingly, from a portfolio point of view
3:59
Speaker 2: or from an investment point of you because the Australian
4:03
Speaker 2: dollar is a commodity currency, in part driven by the
4:05
Speaker 2: fact that we're such a huge gold mining nation, but
4:07
Speaker 2: also you know, iron ore and coal and other things.
4:11
Speaker 2: What you tend to find is that gold is potentially
4:15
Speaker 2: an even more useful asset for Australian investors than it
4:18
Speaker 2: is for people in other countries for the very reason
4:21
Speaker 2: that during periods where equity markets are a little bit
4:25
Speaker 2: weak and there's more uncertainty in the economy, not only
4:28
Speaker 2: does gold in US dollars tend to do well, but
4:31
Speaker 2: the Australian dollar often falls, So you sort of get
4:33
Speaker 2: this double benefit as an Australian dollar gold investor in
4:37
Speaker 2: those times of uncertainty.
4:39
Speaker 4: So you know, it doesn't happen all day every day.
4:41
Speaker 2: But it's an interesting sort of factoid that helps drive
4:44
Speaker 2: Australian investors towards gold, be it in bullion form metfs
4:49
Speaker 2: or sometimes through gold miners as well.
4:51
Speaker 1: I mean, I played Devil's advocate here. If I didn't
4:54
Speaker 1: know anything about gold, well, I'd say, well, you know
4:56
Speaker 1: you're from a gold bullying company, you're going to see
4:58
Speaker 1: gold is always going to go. But as would you
5:01
Speaker 1: say if I said to a really said agent when
5:02
Speaker 1: it's a good time to buy property, they've got to
5:04
Speaker 1: say They're always got to say. Now, sure, I think
5:06
Speaker 1: that's only reasonable to put on the table.
5:08
Speaker 3: But for someone who doesn't know anything.
5:10
Speaker 1: About gold, what are the key drivers? Okay, but we
5:13
Speaker 1: know at the moment there's a driver in particular of
5:16
Speaker 1: late being uncertainty because of the tariffs and the whole
5:22
Speaker 1: Trump regime over the US markets. But what drives the
5:27
Speaker 1: price and what has driven that long period of gains
5:30
Speaker 1: that we've seen that you explained at the start of
5:32
Speaker 1: the show.
5:33
Speaker 4: Yeah, it's a great question.
5:34
Speaker 2: So I think, you know, if we go back to
5:36
Speaker 2: I suppose economics who are investing one O one, you know,
5:39
Speaker 2: what drives the prompts of anything? It's a combination of
5:41
Speaker 2: supply demand. So let's quickly address the supply side for
5:45
Speaker 2: investors with gold, there is an absolutely mammoth supply of
5:50
Speaker 2: gold that already exists in the market, a couple hundred
5:53
Speaker 2: thousand tons of gold that have been mined across the
5:55
Speaker 2: course of human history and that are still owned by investors.
6:00
Speaker 4: Supply is pretty static.
6:01
Speaker 2: It grows a little bit every year based on the
6:03
Speaker 2: mind output, as it were. When it comes to demand,
6:06
Speaker 2: you've really got three let's call it primary buckets of
6:10
Speaker 2: buying or of demand. You've got jewelry buyers, which we
6:13
Speaker 2: can deal with quickly in the sense that that is
6:15
Speaker 2: an important long term part of the gold market.
6:17
Speaker 4: People buy jewelry because it looks.
6:19
Speaker 2: Beautiful, and gold is obviously a timeless asset, But actually
6:24
Speaker 2: there's very little correlation between jewelry demand and movements in
6:27
Speaker 2: the goal price. The two other elements one you touched
6:31
Speaker 2: on before, it's central bank buying, and then you've got
6:34
Speaker 2: private investors. Now why do central banks buy gold. They
6:38
Speaker 2: buy for a handful of reasons. First and foremost, because
6:43
Speaker 2: the gold market is big enough, it's liquid enough, it's
6:47
Speaker 2: of substantial enough size that central banks can play in it.
6:51
Speaker 2: So when central banks are investing, they're investing obviously huge
6:54
Speaker 2: sums of money.
6:55
Speaker 1: Big licks of money. They're not put ten grand worth
6:59
Speaker 1: of gold, that's right.
7:00
Speaker 2: But also by definition they can't really go and buy
7:04
Speaker 2: private equity.
7:04
Speaker 4: They're not going to buy small cap stocks.
7:06
Speaker 2: Like there's a suite of investments as it were, that
7:10
Speaker 2: are just not appropriate due to their size, due to
7:14
Speaker 2: their liquidity, due to their risk profile. Gold like the
7:19
Speaker 2: US treasury market, like the eurobond market, the Japanese government
7:22
Speaker 2: bond market, it's one of the few asset classes that
7:25
Speaker 2: is big enough, deep enough and liquid enough that central
7:29
Speaker 2: banks can play in the gold market.
7:31
Speaker 4: And so they do. And it has this.
7:33
Speaker 2: Added advantage obviously, or advantage that is increasingly favorable to
7:37
Speaker 2: central banks, that it has no credit risk. Over the
7:40
Speaker 2: long run, it has demonstrated that it doesn't really have
7:44
Speaker 2: inflation risk as well. It's kept up with or outpaced inflation,
7:48
Speaker 2: and I think increasingly importantly now there's this question around ownership,
7:56
Speaker 2: which has only been exacerbated since the the invasion of
8:01
Speaker 2: the Ukraine by Russia, where Russian central bank assets.
8:05
Speaker 4: And the like have been frozen.
8:07
Speaker 2: You know, if you own gold and you've got it
8:08
Speaker 2: on shore, then really that can't be done. And so
8:11
Speaker 2: what we have seen not only since the invasion of Ukraine,
8:16
Speaker 2: but really going back to the global financial crisis fifteen
8:19
Speaker 2: years ago, is central banks have been buying gold in
8:23
Speaker 2: vast quantities every single year, and the speed at which
8:26
Speaker 2: they're buying has been accelerating. So that's the central bank
8:29
Speaker 2: part of the market. And then the last bit is
8:32
Speaker 2: your private investors that are either buying ETFs, are buying coins,
8:36
Speaker 2: or are buying bars, and fundamentally they're buying is driven
8:40
Speaker 2: by two things. The desire to increase the value of
8:43
Speaker 2: their portfolio. And obviously, in periods like what we've seen
8:47
Speaker 2: in the last year, gold has been a terrific asset
8:50
Speaker 2: from a pure return perspective. But more importantly, and you
8:53
Speaker 2: sort of alluded to yourself, gold has always been that
8:56
Speaker 2: trusted safe haven asset. So in periods of uncertainty, heightened
9:00
Speaker 2: volatility in the share market, you know, question marks over
9:05
Speaker 2: the outlook for growth, investors gravitate towards gold as a
9:09
Speaker 2: safe haven because they feel comfortable that it will preserve
9:12
Speaker 2: their wealth, and that's driven by the fact that it
9:14
Speaker 2: has preserved wealth for so long.
9:16
Speaker 1: Well when we talked during the week, I went back
9:18
Speaker 1: and looked at gold and how it performed, and yes.
9:22
Speaker 3: What you see, of course is true through the ages.
9:25
Speaker 1: And the last time that was really I'm going to
9:28
Speaker 1: exclude COVID, the last time there was really deep uncertainty
9:32
Speaker 1: in the market. That is uncertainty about how the markets
9:36
Speaker 1: actually work, the order in financial system and how it's
9:40
Speaker 1: ordered and how it functions, which is what we have
9:43
Speaker 1: now with this issue about the US in particular and
9:47
Speaker 1: the US dollar system, which we've known on our lives, etc.
9:51
Speaker 1: So there's uncertainty about that. The last time there was
9:53
Speaker 1: uncertainty of parallel was the GFC. And yes, gold really
9:57
Speaker 1: did lift after the GFC, very substantially. When the fear passed,
10:03
Speaker 1: Gold fell by thirty percent roughly in two eleven, at
10:08
Speaker 1: which stage most people were pretty convinced it's over. I mean,
10:12
Speaker 1: it ended in two or nine, but we weren't to know,
10:14
Speaker 1: were we. It took at least a year and a
10:15
Speaker 1: half before people said, oh my god, that whole crisis
10:18
Speaker 1: is over. So there is that passion that if it
10:22
Speaker 1: goes up in times of uncertainty, it does drop in
10:25
Speaker 1: times of how we say a peacetime in the markets.
10:29
Speaker 4: One hundred percent agree.
10:30
Speaker 2: So you know, gold in the short term has similar
10:33
Speaker 2: volatility to equities, and so you know it's sort of
10:37
Speaker 2: almost only natural that after periods where it's raced ahead
10:40
Speaker 2: quite a bit, it's going to consolidate fall back. In
10:44
Speaker 2: the case of twenty eleven in US dollar terms, you're right,
10:48
Speaker 2: it sort of fell into a cyclical bear market that
10:51
Speaker 2: lasted a couple of years before I came onto the
10:54
Speaker 2: show today. I actually was looking at some of the
10:57
Speaker 2: charts and the tables of returns from back in that era,
11:01
Speaker 2: and to put it in, to put it in context.
11:04
Speaker 4: You know, if you look at you know, back.
11:06
Speaker 2: In two thousand and nine twenty ten, you could buy
11:09
Speaker 2: an ounce of gold this is in Australian dollars at
11:12
Speaker 2: around fifteen hundred dollars an ounce.
11:15
Speaker 4: Now, over the next year or so, you.
11:17
Speaker 2: Probably wouldn't have been thrilled with your investment because a
11:20
Speaker 2: bit of heat came out of the gold market as
11:22
Speaker 2: investors rotated back towards equities.
11:25
Speaker 4: And the like.
11:26
Speaker 2: But again I'll just use that price point as an anchor,
11:28
Speaker 2: around fifteen hundred dollars an ounce back, then the price
11:31
Speaker 2: is closer to five thousand today.
11:33
Speaker 4: So whilst in the short term, you know, had you bought.
11:37
Speaker 2: In during that period of let's call it heightened uncertainty
11:41
Speaker 2: and heightened froth in the gold market over the next three, six,
11:45
Speaker 2: twelve months, you might have felt great about yourself as
11:48
Speaker 2: a long term holding, though you've done pretty well having
11:51
Speaker 2: that allocation to gold. So and I think we're probably
11:54
Speaker 2: in a similar period now. Bit of froth coming out
11:56
Speaker 2: of the market quite a healthy thing, but I believe
12:00
Speaker 2: the fundamentals driving gold are still very much in place.
12:03
Speaker 1: Okay, what we might do is in the next part
12:06
Speaker 1: of the show we should talk about where you think
12:09
Speaker 1: gold is going. But also I think the biggest change
12:13
Speaker 1: is what in terms of the choices people have, which
12:18
Speaker 1: has changed so much. In terms of gold, it was
12:20
Speaker 1: a very specialist, refined area once upon a time, refined
12:23
Speaker 1: excuse upon Now it's something that you can buy quite easily.
12:27
Speaker 1: You can buy a thousand dollars worth of gold, five
12:30
Speaker 1: hundred worth if you wish, through exchange traded funds, which
12:33
Speaker 1: have really sort of blossomed in the market.
12:35
Speaker 3: So we'll talk about that in a moment. We take
12:37
Speaker 3: a break.
12:45
Speaker 1: Hello and welcome back. To the Australian's money puzzle. I'm
12:47
Speaker 1: James Kirby talking to Jordan Elisio, general manager of ABC
12:51
Speaker 1: Bullion in Sydney. Mister Gold, Now, mister Gold, tell us
12:56
Speaker 1: about the cues that were forming outside your office at
12:59
Speaker 1: once day. That's arkable, really, had that ever happened before?
13:02
Speaker 1: That happened in April right at the depth of the
13:05
Speaker 1: tariff of scare.
13:07
Speaker 2: Yes, it has happened before, So it happens. So we've
13:11
Speaker 2: been in our global flagship store in Martin Place for
13:14
Speaker 2: just over two years now. We opened in March of
13:16
Speaker 2: twenty twenty three, and as coincidence, it was almost like
13:19
Speaker 2: it was written in the stars. The day that we
13:21
Speaker 2: opened in Martin Place was the day that the Australian
13:26
Speaker 2: dollar gold price first touched three thousand dollars an ounce, right,
13:30
Speaker 2: and there was huge demand for gold back then.
13:34
Speaker 4: I think it would still be in a lot of
13:35
Speaker 4: people's minds.
13:36
Speaker 2: But that was around the period where Silicon Valley Bank
13:40
Speaker 2: fell over in the United States. Remember that was always
13:43
Speaker 2: almost two years ago to the day, or sorry, two
13:46
Speaker 2: years and a month or so, given we're now in mayhere,
13:49
Speaker 2: and so what we found then was obviously gold was
13:51
Speaker 2: performing quite well, but particularly whenever there's any fears around
13:55
Speaker 2: sort of the safety and security of the banking system,
13:59
Speaker 2: you see physical gold demands and it wasn't just us
14:02
Speaker 2: at ABC Bully and this was a global phenomena at
14:04
Speaker 2: the time. Physical gold demands surged in that period. And
14:08
Speaker 2: so yeah, we had days where we were having cues
14:11
Speaker 2: with a.
14:12
Speaker 4: Norm rather than the exception.
14:14
Speaker 2: There are also then cultural buying periods, particularly when Dwali
14:19
Speaker 2: and Dan Terras for the Indian community ques of people
14:23
Speaker 2: down Martin Place buying gold of the norm over that period, right, But.
14:27
Speaker 4: Yeah, no, it's not an all day, every day phenomenon.
14:29
Speaker 1: Yes, yes, but of what was explort I suppose extraordinary
14:32
Speaker 1: was this site of people actually quing for God. The
14:35
Speaker 1: last time I saw people cuing for gold. Well, you
14:37
Speaker 1: would see the course all the time in Hong Kong
14:39
Speaker 1: and I lived there because they used to have gold
14:41
Speaker 1: accounts and people used to just use them like current accounts.
14:43
Speaker 1: It was amazing. Was that's very much a thing. Similarly,
14:48
Speaker 1: I can remember being in Zurich and seeing people sort
14:52
Speaker 1: of going in and out of the gold vaart there,
14:55
Speaker 1: which you would get under banhaf Strass where all the
14:58
Speaker 1: big Swiss banks were famous and all the gold was
15:00
Speaker 1: in the basement.
15:00
Speaker 3: So this is people's image of gold.
15:02
Speaker 1: But it is not much easier to buy gold now
15:04
Speaker 1: because you have, apart from the traditional area which you
15:07
Speaker 1: represent to some degree the gold bars held in the vold,
15:11
Speaker 1: you can buy ETFs, which are similarly they are backed
15:16
Speaker 1: by goldy repp, so you're buying a paper certificate over
15:21
Speaker 1: an amount of gold. And that actually has been I
15:24
Speaker 1: mean ETFs have been growing, but it's really been a
15:27
Speaker 1: boom area for the local market and we have seen
15:32
Speaker 1: a lot of investors go into gold ETFs. Similarly, gold
15:36
Speaker 1: miners so good of course this year, like the entire
15:41
Speaker 1: sector is of thirty three percent. Some of the favorites
15:43
Speaker 1: in the market, Regius Resources is up about seventy percent,
15:47
Speaker 1: Evolution Mining is up. I think it's let me see
15:51
Speaker 1: sixty percent. This is so far this year. These are
15:55
Speaker 1: remarkable figures. Now the thing is Jordan. Where is it
15:58
Speaker 1: going to.
15:59
Speaker 3: Go from here? Gold hit a record a few months
16:03
Speaker 3: ago at three five was it? What was the record hit?
16:07
Speaker 2: Yeah, close to that and in Australian dollar terms that
16:09
Speaker 2: went above five four hundred in mid April. Basically so
16:13
Speaker 2: about a month ago.
16:14
Speaker 1: Which cordcides with the peak fear I suppose to around
16:17
Speaker 1: this tariff, I said, scare, but who knows how it's
16:19
Speaker 1: going to play out? But tariff incident, yes, okay, and
16:22
Speaker 1: then it has retriced a bit since then. What's pushing
16:25
Speaker 1: it higher and what's what could be pushing against it
16:28
Speaker 1: in the months ahead.
16:30
Speaker 2: Let's start with what's pushing against it first and foremost.
16:34
Speaker 2: What we're seeing now is really a textbook correction after
16:37
Speaker 2: such a period of elevated games. You know, a forty
16:42
Speaker 2: annual return for gold is not something that people should
16:45
Speaker 2: expect to see repeated year on year. That is an exception, Ferniger.
16:49
Speaker 2: You need to see some froth coming out. So you know,
16:52
Speaker 2: in US and Aussie dollar terms, it's down roughly ten
16:54
Speaker 2: percent from its peak there or thereabouts, which is you know, again,
16:59
Speaker 2: whether we're looking at gold, equities, you name it. Those
17:01
Speaker 2: are sort of textbook corrections that you see in markets.
17:04
Speaker 2: What's pushing against it right now is also, for one
17:08
Speaker 2: of a better term, the short term calm that appears
17:12
Speaker 2: to be in play regarding tariffs that sort of China
17:15
Speaker 2: US sort of appear to have for one of a
17:17
Speaker 2: better term, lowered their guns for ninety days, and that's
17:20
Speaker 2: given people a little bit of confidence.
17:22
Speaker 4: So that's obviously helped.
17:23
Speaker 2: I mean, I think the SMP's now almost recovered all
17:25
Speaker 2: of its losses, so obviously investors do feel more confident
17:29
Speaker 2: going back into.
17:29
Speaker 4: Two equities, and that's taking away some of golds.
17:34
Speaker 2: Let's call it risk off bid that you'd expect to
17:36
Speaker 2: see as people gravitate out of equities into gold. The
17:40
Speaker 2: other one, as well, is that markets appear to have
17:43
Speaker 2: ever so slightly priced out a couple of rate cuts,
17:46
Speaker 2: so everyone still thinks rates are coming down, but maybe
17:49
Speaker 2: not as fast as what they thought they would a
17:51
Speaker 2: month or so ago.
17:52
Speaker 4: So those are the things that are weighing against gold.
17:55
Speaker 1: The theory is, and it's it's more than a theory,
17:57
Speaker 1: it's a it's a key aspect of gold that as
18:01
Speaker 1: rates go down, that's good for gold. Could you explain why.
18:07
Speaker 2: Yeah, it's it's probably a fraction more nuanced than that,
18:10
Speaker 2: And I can get out that it's not just about
18:12
Speaker 2: where interest rates are. It's the interplay between interest rates
18:15
Speaker 2: and inflation. So you know, if rates are going up
18:18
Speaker 2: but inflation's going up by more, then all other things
18:22
Speaker 2: being equal, the money you're earning in a bank account
18:24
Speaker 2: is worse off, if that makes sense, right.
18:26
Speaker 4: A world of.
18:28
Speaker 2: Zero percent interest rates and zero percent inflation is almost
18:32
Speaker 2: better for someone with money in a bank account than
18:35
Speaker 2: a world of three percent interest rates but five percent inflation,
18:38
Speaker 2: if that makes sense. So, but the general rule has
18:42
Speaker 2: been that as interest rates in real terms come down,
18:46
Speaker 2: gold tends to do better because you've got less of
18:49
Speaker 2: an opportunity cost in holding this physical asset that doesn't
18:52
Speaker 2: give you an income. So, you know, it sort of
18:55
Speaker 2: stands to reason that if I can make five percent
18:57
Speaker 2: after inflation putting my money in the bank, then that's
19:02
Speaker 2: kind of what I'm giving up by buying gold, Whereas
19:04
Speaker 2: if I can only earn one percent after inflation, it's
19:08
Speaker 2: not so much to be giving away key. And so
19:11
Speaker 2: I think if you look at the outlook for both
19:13
Speaker 2: rates and inflation combined, it feels like we're through the worst. Well,
19:18
Speaker 2: very clearly, we're through the worst of that inflationary spike
19:21
Speaker 2: that we saw after COVID. However, we're now seeing rates
19:25
Speaker 2: start to come down and they're likely to go go
19:27
Speaker 2: further down, and so investors are starting to think, well,
19:31
Speaker 2: hang on, I'm not going to earn much leaving my
19:33
Speaker 2: money in a bank account or tying it up in
19:35
Speaker 2: its term deposit. I'm better to go and look for
19:38
Speaker 2: other investments. And that's not just gold. It's residential real estate,
19:42
Speaker 2: it's equities, it's crypto, it's other things as well. But
19:45
Speaker 2: gold is one of the assets that's likely to benefit
19:48
Speaker 2: from that.
19:49
Speaker 1: But the thing about goold, of course, if you go
19:51
Speaker 1: to financial advisor and you see I'm convincedchoolers good, I'm
19:56
Speaker 1: convincedchoolers on the way up, I'm convinced that gold has
19:59
Speaker 1: been good for you and will continue to be. The
20:01
Speaker 1: infinancial advisor will say the problem with gold is there's
20:04
Speaker 1: no income, and almost every other serious asset class has income.
20:10
Speaker 1: And then there's this sort of residual notion that it
20:12
Speaker 1: was okay, if you're very wealthy, that you can have
20:15
Speaker 1: gold in whatever form you wish, including in bullion, which
20:19
Speaker 1: you obviously have and involves, but there's no income, so
20:23
Speaker 1: you are totally dependent on the price going up. Finally,
20:26
Speaker 1: if you have property, you actually have income.
20:28
Speaker 4: Yeah, So I mean, look, that's true.
20:31
Speaker 2: The way I would look at it, having been in
20:33
Speaker 2: bullion for a long time, but also having worked in
20:35
Speaker 2: other markets, the way I look at things is every
20:40
Speaker 2: single asset class has at least one drawback, right there
20:43
Speaker 2: is you know, if I look at cash, well, cash
20:47
Speaker 2: is stable, right, but it offers no potential for capital growth,
20:51
Speaker 2: and you are exposed on the inflation front, and you
20:54
Speaker 2: hope the interest you earn is enough to compensate for
20:57
Speaker 2: the inflation and hopefully a little.
20:58
Speaker 4: Bit more above.
21:00
Speaker 2: So every asset has some kind of drawback. You know,
21:02
Speaker 2: with gold, the criticism for one of a better term,
21:06
Speaker 2: that it doesn't pay an income is one hundred percent true.
21:10
Speaker 2: At the same time, it has always been true. It
21:13
Speaker 2: has not stopped gold from going up about nine percent
21:17
Speaker 2: perannum annualized over the long run.
21:20
Speaker 4: So you sort of have.
21:20
Speaker 2: To ask yourself, well, if from nineteen seventy one to
21:24
Speaker 2: twenty and twenty five gold was able to go up
21:28
Speaker 2: by nine percent perannum even though it didn't pay an
21:30
Speaker 2: income and has no possibility of paying an income, why
21:34
Speaker 2: would that trajectory change. What is it that would make
21:37
Speaker 2: you think, oh, that's no longer going to continue into
21:41
Speaker 2: the long run. You know read you mentioned before real
21:44
Speaker 2: estate as the alternative, whether it's real estate, whether it's
21:48
Speaker 2: money in the bank, whether it's in shares, whether it's bonds.
21:51
Speaker 2: For that entire fifty year period, they've all been paying
21:53
Speaker 2: income or offered the opportunity for income. Still hasn't stopped
21:57
Speaker 2: gold from going up nine percent paranum, if that makes sense.
22:00
Speaker 1: And naprosp is the long term, really long term, like
22:03
Speaker 1: century long average. And then you were seeing at the
22:06
Speaker 1: start of the show that in more recent terms it's
22:09
Speaker 1: been twenty percent or so per anum.
22:11
Speaker 4: In the last few years.
22:12
Speaker 2: Yes, if you look at gold's returns, what you tend
22:16
Speaker 2: to find is yes, so that nine ish mark is
22:18
Speaker 2: the long run figure. What you tend to find is
22:21
Speaker 2: in periods where inflation is higher than average, so like
22:25
Speaker 2: three percent or higher, then the average return of gold's
22:28
Speaker 2: closer to fifteen percent perannum.
22:30
Speaker 4: And again that makes sense.
22:31
Speaker 2: You know, if we're in a higher inflation world, all
22:34
Speaker 2: other things being equal, things like bonds, things like cash
22:37
Speaker 2: in the bank are less attractive. So it's only natural
22:41
Speaker 2: that you're going to see more people gravitate towards gold
22:44
Speaker 2: in those environments, and that's going to.
22:46
Speaker 4: Push the return up a little bit.
22:47
Speaker 2: Yeah, there's no guarantees that's what happens in the future,
22:50
Speaker 2: but at least that is what the past has shown.
22:52
Speaker 1: No, there's no guarantees. We know that if buying gold
22:55
Speaker 1: in the traditional form of bullion, well, how much does
22:59
Speaker 1: the standard world bar? Now, let's see how match of
23:01
Speaker 1: culture and I don't know anything. How much is the
23:02
Speaker 1: standard gold bar?
23:04
Speaker 4: Well?
23:04
Speaker 2: You know, obviously one of the beauties of gold is
23:07
Speaker 2: that it can be fabricated into multiple shapes and sizes.
23:10
Speaker 2: But okay, for a one ounce bar, I mean the price,
23:13
Speaker 2: the spot price of gold right now is almost bang
23:15
Speaker 2: on five thousand dollars an ounce, So you're going to
23:18
Speaker 2: pay about five one hundred dollars to buy a one
23:21
Speaker 2: ounce bar right now?
23:22
Speaker 3: Which is about to say, is a little chocolate.
23:24
Speaker 2: Yeah kind of yeah, like a tiny easter egg, the
23:28
Speaker 2: kind of easter egg. Yeah, the kind of easter egged
23:30
Speaker 2: kid and grandkid will be unhappy you gave him because
23:32
Speaker 2: it's not big enough.
23:33
Speaker 1: And if you if I, if I then say I
23:35
Speaker 1: don't want to bring this helm, I've never where to
23:38
Speaker 1: put it. You and you want to keep it in
23:39
Speaker 1: a vault yep, you pay a holding cost obviously, and
23:42
Speaker 1: insurance costs for that.
23:44
Speaker 2: Yeah, so you can put you know, you can use
23:45
Speaker 2: private vaults and to maybe put some numbers around this.
23:48
Speaker 2: And again let's give a practical example. Let's say a
23:53
Speaker 2: self managed super fund who's put fifteen percent of their
23:57
Speaker 2: portfolio in gold, a million dollar portfolio.
24:00
Speaker 1: Which would be on the high side. The advisors will
24:02
Speaker 1: generally see if you've got to do it somewhere between
24:05
Speaker 1: five five to ten. So let's but that's all right,
24:09
Speaker 1: I'm just putting in some perspective here.
24:11
Speaker 4: Yeah, yeah, that's fair. So let's say it's one.
24:13
Speaker 2: Hundred to one hundred and fifty thousand dollars investment into billion.
24:17
Speaker 2: You could put that into a small vault that would
24:19
Speaker 2: cost you about three hundred dollars a year to store
24:23
Speaker 2: it basically, which in percentage terms is.
24:26
Speaker 4: About point three ofer percent. Is not a huge number.
24:30
Speaker 4: So that is one way of buying gold.
24:33
Speaker 2: You mentioned ets before, which I think have been really
24:36
Speaker 2: beneficial for the gold market. That ETFs exist, even though
24:40
Speaker 2: a lot of people would say, well they compete with
24:42
Speaker 2: the core business that I'm in.
24:43
Speaker 4: That's okay.
24:44
Speaker 2: There are lots of different ways to buy shares or
24:46
Speaker 2: have exposure to the equity market.
24:47
Speaker 4: No reason that goal shouldn't be the same.
24:49
Speaker 2: You've got the ETFs, you also have what are called
24:53
Speaker 2: pooled accounts that organizations like ours offer, So you are
24:57
Speaker 2: buying effectively a share of a pool of gold that
25:00
Speaker 2: that we're storing. Yeah, you can take it out in
25:02
Speaker 2: physical gold at any time. That's another way, very popular,
25:05
Speaker 2: particularly with SMSs. And then increasingly what you're seeing, and
25:09
Speaker 2: you know, we've been at the forefront of this is
25:10
Speaker 2: things like gold savings accounts as well, where people can
25:13
Speaker 2: sign up to a direct debit plan and put fifty
25:16
Speaker 2: or one hundred dollars a week or a month away
25:18
Speaker 2: into gold. That's really popular for people that are saving
25:21
Speaker 2: lots of actually lots of people that use it then for.
25:23
Speaker 4: Their kids or grandkids.
25:25
Speaker 2: So a little bit like you know, I think if
25:27
Speaker 2: you look at investing full stop, as technology has moved forward,
25:32
Speaker 2: the way people can access various markets has only gotten better, right,
25:35
Speaker 2: which I think is a good thing.
25:37
Speaker 1: What's the argument you put forward if I say I
25:39
Speaker 1: just got to buy an ETF because it's just so easy. Yeah,
25:42
Speaker 1: I have a brooking account to just click and there's
25:45
Speaker 1: the amount I want. Is there any price advantage that
25:50
Speaker 1: billion has over paper certificate?
25:52
Speaker 2: Base school basically, look in a lot of cases, it
25:56
Speaker 2: would be your transaction costs will be cheaper buying the ETA,
26:00
Speaker 2: There's no doubt about that. One thing to keep in mind, though,
26:02
Speaker 2: is that when you buy an ETF, like, not only
26:06
Speaker 2: are you not buying gold, you're buying an instrument that's
26:08
Speaker 2: linked to gold. But obviously there's a management expense that
26:12
Speaker 2: effectively gets eaten out of the gold that you are
26:15
Speaker 2: exposed to every single day, Right, So that management expense
26:20
Speaker 2: needs to be factored in as well. So again, if
26:22
Speaker 2: I use an example, one hundred thousand dollars in physical
26:26
Speaker 2: bullion put in a vault for three hundred dollars a year,
26:30
Speaker 2: or I buy one hundred thousand dollars in a gold
26:32
Speaker 2: ETF that charges point four of a percent, Well, my
26:35
Speaker 2: point four of a percent fee is four hundred bucks.
26:38
Speaker 4: Not only that, if the goal price.
26:40
Speaker 2: Goes up and let's say doubles over ten years, I'm
26:43
Speaker 2: still paying point four percent. Now I'm paying eight hundred
26:45
Speaker 2: bucks a year for the ETF. Now I don't see
26:47
Speaker 2: that fee because I'm not getting sent a bill, but
26:50
Speaker 2: I am.
26:50
Speaker 4: You are paying it.
26:51
Speaker 3: It's built in.
26:52
Speaker 4: It's built in, So there's the cost element.
26:54
Speaker 2: And look again there's no one hundred percent right way
26:57
Speaker 2: or one hundred percent wrong way of doing this.
26:59
Speaker 4: But the other thing, James, that's worth.
27:01
Speaker 2: Mentioning is, and again we're at the forefront of this,
27:04
Speaker 2: We see this every day, is that when people buy gold,
27:08
Speaker 2: and this isn't everyone, but it's an increasingly large number
27:10
Speaker 2: of people, they don't just want the price exposure. In
27:14
Speaker 2: many cases, they also want the comfort that comes with
27:18
Speaker 2: holding the physical asset.
27:19
Speaker 1: Yeah, it's like bricks and mortar and property. There is
27:22
Speaker 1: a tangible aspect. You haven't mentioned, an argument put forward
27:28
Speaker 1: which sometimes flares up a lot of the ETFs. You know,
27:32
Speaker 1: the promises they're back to one hundred percent by golds
27:34
Speaker 1: held somewhere, invariably in London. I understand. Is there a
27:38
Speaker 1: danger that ETFs couldn't cover the amount of gold they
27:42
Speaker 1: say they have?
27:43
Speaker 2: Ah, Look, I can't really comment on that in any
27:47
Speaker 2: great detail because the reason I say that is that
27:51
Speaker 2: globally there's more than one hundred gold ETFs listed now
27:54
Speaker 2: across various exchanges. The legal structure of those investments where
27:59
Speaker 2: that gold stores, it's not like they're all exactly the
28:02
Speaker 2: same and you can just make one sort of cast
28:04
Speaker 2: all observation. So I don't want to sort of sit
28:08
Speaker 2: here and for one of a better term, talk down
28:11
Speaker 2: a potentially competitive way of accessing bullion in a portfolio.
28:15
Speaker 2: What I would say is that you know, if you
28:18
Speaker 2: buy the physical gold, you have the economic exposure and
28:22
Speaker 2: you own the real thing. If you buy an ETF,
28:25
Speaker 2: you just have the economic exposure and hopefully you can
28:28
Speaker 2: get your hands on the real thing if you decide
28:30
Speaker 2: you want it, right, I think that's that's probably as
28:33
Speaker 2: you knows, as much as I can say on that.
28:35
Speaker 1: Okay, No, I thought it was both bringing up and
28:38
Speaker 1: I think you were very I think you were very
28:39
Speaker 1: fair and balanced in your explanation of that issue, which
28:45
Speaker 1: does flare up at times, and it flares up of
28:47
Speaker 1: course when.
28:48
Speaker 3: There is a crisis absolutely.
28:51
Speaker 1: And then there's always this theory about ETFs. Would they
28:54
Speaker 1: be able to if everyone's certainly the ETF they promised
28:57
Speaker 1: the convertibility of gold, could they actually all produce the
29:01
Speaker 1: gold to back the ETF? So if I had one
29:04
Speaker 1: hundred thousands, can I get that one hundred thousand gold?
29:07
Speaker 1: It's yet to be proved they can't, and it hasn't
29:09
Speaker 1: been an issue, but as they get bigger, of course
29:12
Speaker 1: the issue becomes a larger issue in itself. Okay, really
29:16
Speaker 1: really interesting. I think I hope that listeners have got
29:21
Speaker 1: a good grasp on that. I imagine if you're thinking
29:24
Speaker 1: of gold as a part of the portfolio, the numbers
29:27
Speaker 1: so far are terribly convincing. You have to say, then
29:31
Speaker 1: the issue for you is whether you do it, and
29:35
Speaker 1: the extent to do it and the method by which
29:38
Speaker 1: you do it. And we see some of the funds now,
29:42
Speaker 1: some of the private funds making a lot of play
29:44
Speaker 1: about gold. It's definitely a period that is very has
29:48
Speaker 1: been extremely good for them. The issue is can that continue?
29:53
Speaker 1: But some of the drivers I think that Jordan explained
29:56
Speaker 1: are their perennial They're not just to do with Trump.
30:00
Speaker 1: Trump has just basically put an extra spice I think,
30:03
Speaker 1: on the gold price in recent times because of that
30:06
Speaker 1: and uncertainty. A lot of that uncertainty obviously is not
30:08
Speaker 1: going to go away overnight. Okay, Now, we have some
30:11
Speaker 1: really good questions which have arisen from recent shows, and
30:16
Speaker 1: I want to get to them in a moment, particularly
30:19
Speaker 1: to clarify a few things about SMSFS which came up
30:22
Speaker 1: and also some off budget items. And I just want
30:25
Speaker 1: to give a little shout out to James Gerard on
30:28
Speaker 1: Monday show. We got a lot of questions. Actually, I
30:31
Speaker 1: didn't realize so many of you were so interested in
30:35
Speaker 1: home batteries and solar panels and saving money.
30:39
Speaker 3: But why wouldn't you be? And it was a very
30:41
Speaker 3: good show.
30:41
Speaker 1: Okay, back in a moment, Hello, Welcome back to The
30:52
Speaker 1: Australian's Money Positive podcast. James Kirby talking to Jordan Licio
30:57
Speaker 1: of ABC Bullion the Gold Company.
31:00
Speaker 3: Now.
31:01
Speaker 1: Marian Emmy Ion says, I listened to your podcast, find
31:06
Speaker 1: it very relevant. A couple of times on recent shows
31:09
Speaker 1: you said around the new government of what was going on.
31:12
Speaker 1: I heard you comment that that unlike the transfer balance
31:16
Speaker 1: cap and super the concession and contribution caps are not indexed.
31:19
Speaker 3: That is not correct.
31:21
Speaker 1: And then Marian goes to the trouble of showing me
31:23
Speaker 1: part of the ATO website where it's all proved. Yes,
31:26
Speaker 1: Marian absolutely maya culpa. I should never have said they're
31:29
Speaker 1: not indexed. I should have said they are not being
31:32
Speaker 1: indexed this time around, believe it or not, in our
31:38
Speaker 1: crazy supersystem, the indexing on how much you can have
31:43
Speaker 1: tax free and Super is linked to the CPI. The
31:46
Speaker 1: indexing on how much you can put into super pre
31:49
Speaker 1: tax or as they say, concessional is linked with the.
31:55
Speaker 3: Industrial wage. Can you believe this?
31:57
Speaker 1: So they go on different indices, and that's that's why
32:00
Speaker 1: the cap went up. It's going off to two million
32:02
Speaker 1: on July one, but the amount you can put in
32:04
Speaker 1: each year at thirty thousand is not going up.
32:07
Speaker 3: Absolutely silly, But.
32:09
Speaker 1: I should have been careful to clarify that.
32:11
Speaker 3: Okay, there's a.
32:12
Speaker 1: Question here that and I know you you're an economist
32:15
Speaker 1: by training, aren't you, Jordan, And that was your original
32:18
Speaker 1: I think you were the economists at ABC billion.
32:20
Speaker 3: What's upon a time when you started.
32:22
Speaker 2: Yeah, my background was in was in funds management originally,
32:26
Speaker 2: so you know, I sort of came to gold as
32:28
Speaker 2: a diversified investor originally.
32:30
Speaker 4: That was my original interest in bullion.
32:32
Speaker 2: So I'll tell you what that first question from Mariyan,
32:34
Speaker 2: I was glad that didn't come to me. I was
32:36
Speaker 2: just thinking I'd need to be a financial advisor to
32:38
Speaker 2: have any idea about how to answer that.
32:40
Speaker 1: Oh, look, you know it's I can answer them for
32:43
Speaker 1: the simple reason that I do this every week.
32:45
Speaker 3: And it's like learning a language.
32:47
Speaker 1: You know, if you if you didn't speak it for
32:48
Speaker 1: a while, you'd forget a lot of it because it
32:50
Speaker 1: is not necessarily intuitive or indeed logical. But I that
32:54
Speaker 1: that is how it goes now. Andrew asks, this is
32:57
Speaker 1: about we were talking about X and we mentioned on
33:02
Speaker 1: the show when the new government was elected that there
33:05
Speaker 1: was various sort of goodies that they had handed out
33:08
Speaker 1: in during the election. One of them which our list
33:11
Speaker 1: is very interested in, was hex. Your hex bill would
33:13
Speaker 1: be cut by twenty percent straight up if ALP were elected,
33:17
Speaker 1: and they have been re elected with an improved majority, consequently,
33:21
Speaker 1: your hex bill, whatever it may be.
33:23
Speaker 3: Is going to go down by twenty percent. Now.
33:25
Speaker 1: The point I was making on the show was that
33:29
Speaker 1: this isn't even in the budget. It's what they call
33:31
Speaker 1: off budget. And Andrew asks, thank you for touching on
33:35
Speaker 1: off budget items.
33:36
Speaker 3: What a joke that is.
33:38
Speaker 1: I challenge any of our leaders political leaders to go
33:42
Speaker 1: to the shops to purchase groceries and when they are
33:44
Speaker 1: asked for their credit card for payment, that they instead
33:47
Speaker 1: asked the cashier that they would like to pay for
33:50
Speaker 1: the groceries off the credit card. It's true though, isn't
33:53
Speaker 1: it this after do you remember this whole thing about
33:55
Speaker 1: off budget items. I mean it used to be a
33:57
Speaker 1: small thing that they used to put a couple of
33:59
Speaker 1: things through. But it's like they're both both sides are
34:02
Speaker 1: doing it at nauseam now idea so that the budget
34:04
Speaker 1: is it's kind of well, we cover the budget.
34:06
Speaker 3: It's incomplete, really, isn't it.
34:08
Speaker 4: Yes?
34:08
Speaker 2: I would think that it's amazing that that that, for
34:13
Speaker 2: one of a better term, the rules are written in
34:14
Speaker 2: such a way that that can be done. It's probably
34:17
Speaker 2: doesn't encourage the most discipline, I think. Look, and it
34:22
Speaker 2: feeds into, frankly, this concern that more and more people
34:26
Speaker 2: have around the trajectory of public finances, you know. And
34:28
Speaker 2: that's not a red versus blue comment, either in Australia
34:33
Speaker 2: or overseas. It's a reality that we're going to have
34:36
Speaker 2: to deal with one way or the other. And I
34:38
Speaker 2: think it's why a lot of people think that over
34:40
Speaker 2: the next few years inflation is going to have to
34:43
Speaker 2: be higher, because it's really the only way to deal
34:46
Speaker 2: with some of the debt that's been accumulated to date
34:49
Speaker 2: and the debt that is going to be accumulated given
34:51
Speaker 2: the size of budget deficits been run.
34:53
Speaker 1: Specifically, you're talking about the debt that we see that
34:56
Speaker 1: we talk about being the budget deficit, but the debt's
34:58
Speaker 1: much bigger than that because the all these off budget
35:01
Speaker 1: items that are not visible in the budget that don't
35:03
Speaker 1: get mentioned, and they are literally like throwaway lines in
35:06
Speaker 1: economic articles that many people would struggle to understand in
35:09
Speaker 1: the first place. Yeah, it's very interesting. It's definitely an issue.
35:13
Speaker 1: Thanks for that, Andrew. Okay, and thank you very much
35:16
Speaker 1: Jordan Elicio, ABC bully in General manager for being on
35:19
Speaker 1: the show today.
35:20
Speaker 3: That was great.
35:22
Speaker 1: I think you were very balanced about gold considering that's
35:24
Speaker 1: your full time job all your life.
35:26
Speaker 4: Pleasure.
35:27
Speaker 1: Great to have you, thank you and really informative and
35:30
Speaker 1: thanks everyone for the questions we've got. I've definitely got
35:34
Speaker 1: quite an upticking questions. As I say off James Gerard's
35:38
Speaker 1: show Monday. If you've missed that, make sure you hear it.
35:41
Speaker 1: It was all about talking about the government's goodies. Another
35:45
Speaker 1: one was, of course that they're cutting the discount on
35:49
Speaker 1: the battery on the home batteries for powering your solar panels.
35:54
Speaker 1: Most people thought they were too dear, but James made
35:56
Speaker 1: the point that in fact, coupled with stake Ground still
35:58
Speaker 1: now be literally cutting half. The price will be cut
36:01
Speaker 1: in half and I think it will bring a lot
36:03
Speaker 1: more people into UH into green energy. I keep the
36:06
Speaker 1: emails rolling the money puzzle at the Australian dot com
36:10
Speaker 1: dot au dot you soon m