March 7, 2025 • 55 mins
As market uncertainties rise, an age-old asset is regaining its allure—gold. In this episode, we delve into the shifting dynamics of the gold market, featuring insights from experts who navigate this fertile landscape. With gold prices climbing, there's palpable excitement among industry players, but is it justified? Our discussion uncovers the reasons behind the renewed interest in gold mining stocks, contrasting the performance of larger companies versus promising junior miners.
We take you through the upcoming BMO conference, where executives gather to discuss the future of the gold sector—a hotspot for the latest investment opportunities. With insights into recent U.S. gold import data and the implications of political and economic factors, our guests help clarify what investors should watch for moving forward.
Join us as we explore the dispersion of returns within the gold mining sector and underscore the importance of active management. We’ll guide you through the complexities of investing in gold and emphasize how macroeconomic trends affect gold prices. It’s a golden opportunity to be informed about an asset that has historically weathered economic storms.
Whether you're a seasoned investor or new to the gold game, this episode promises rich insights that could elevate your investment strategy. Tune in, engage with our content, and navigate this intriguing financial landscape with us. Don’t forget to subscribe and share your thoughts!
DISCLAIMER – PLEASE READ: This is a sponsored episode for which Lead-Lag Publishing, LLC has been paid a fee. Lead-Lag Publishing, LLC does not guarantee the accuracy or completeness of the information provided in the episode or make any representation as to its quality. All statements and expressions provided in this episode are the sole opinion of Merk Investments and Lead-Lag Publishing, LLC expressly disclaims any responsibility for action taken in connection with the information provided in the discussion. The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:07):
I think it's been over a year, I think, since I've
hosted a space.
I used to do spaces like allthe time back in the day and
then I opted to do more videos.
Hopefully, this will be aninteractive, solid space.
So everybody that's here, Iwant to make this engaging,
which means I'm going to inviteseveral of you up.
(00:28):
I want to make this asconversational as possible, so
feel free to ask questions to me, to Axel Merck.
Axel, I can assume you hear me,ok, I hear you.
Well, yes, ok, cool, hi,everybody, perfect, all right.
So, folks, I appreciate thosethat follow.
Cool, hi, everybody, perfect,all right.
So, folks, I appreciate thosethat follow.
Obviously, and you know, we'regoing to touch on a whole bunch
of different topics, from goldto markets, to flight, to safety
(00:52):
, to everything you can imagine.
Do me a favor, as we're livehere Like repost, try to get
this room as full as possible.
Any kind of help any of you canprovide, we'd much appreciate
it for the rough hour here.
This conversation is sponsoredby Axel Merck's firm, merck
Investments.
He is one of my clients, friend, partner and overall good human
being to have in my life.
(01:13):
So, with all that said, my nameis Michael Guyatt, publisher of
the Lead Lagaport.
Again, I'm going to be invitingseveral of you up here.
Axel, I want to get right intoit.
You had mentioned that there'ssome kind of major conference
that either you're attending orthat you're going to be
attending fairly soon, talkingabout gold and gold's been
absolutely unbelievable, reallysince October of 2023.
(01:33):
I'm curious, industry wise, areyou seeing more and more
excitement, more and more hype?
Are these conferences gettingmore and more full, or is there
still a lot of skepticism?
Speaker 2 (01:43):
Yeah, the conference I'm referring to is the BMO
conference.
Bmo is one of the majorbrokerage firms that is active
in the space, facilitating manyof the deals, and both our
portfolio managers and ourclosed end fund are at the
conference.
It's a conference that helpscatch up with many executives,
(02:08):
especially of the smaller miningcompanies as well Just about
every company that we invest inand then many more are present
there.
We, of course, see themanagement team throughout the
year as well.
In recent years the attendancehas been somewhat lukewarm from
the generalists.
Obviously, portfolio managersshow up, but then it's always
(02:30):
interesting who else shows up?
And Peter and Jamie, who runour closed-end fund.
They are busy there so theyhaven't had time to brief me on
all their conversations and theyobviously they brief us on
non-mergers that are beingannounced and whatnot.
But overall, as I think anybodyknows, the gold mining space
continues to be underloved.
But things are happening thereand the good news about the
(02:54):
space being underloved is thatwe think that, despite the
run-up we've seen in many of thesecurities, it still has good
values.
By the way, to make thisinteresting, one of the things
that I think many people may notbe aware of, in our analysis,
the gold mining space is the onewith the greatest dispersion of
(03:17):
returns in any S&P sector.
What that means is that thedifferent mining companies have
vastly different return profiles, and the reason I mention it is
because it's one of the spaceswhere I think an excellent
argument can be made for activemanagement and we can talk about
kind of the downsides of theindex hogging in that space.
(03:37):
But it's an actively, it's aspace for the active manager,
and these conferences are partof it?
Speaker 1 (03:43):
Are the CEOs of these companies, or are the
executives getting more and morebulled up and excited?
I mean, let's face it, it'sbeen kind of a long period of
nothingness for gold in a lot ofthese companies in general.
So is there, is the moodshifting?
Speaker 2 (03:56):
Well, I mean, of course, a higher gold price is a
positive, but the reason I kindof toned out what you say is
these guys are in the businessof shoveling gold out of the
ground.
Right, they are not you and Iand many, many folks listening.
They get all excited aboutthese things, but you think
about it when you have to run abusiness and you have to get
(04:17):
gold out of the ground, youworry about operational things
and, importantly, you worryabout containing your costs, and
you would not be able to raisemoney if you said, okay, we need
$3,000 an ounce to get gold outof the ground.
Now, that said, it is, ofcourse, a tailwind to have a
higher gold price and many ofthe small miners they need to go
(04:41):
back to the market once a yearor once every other year to
raise additional capital, and so, of course, it helps to have a
positive environment.
In that sense, the mood isturning more positive, but it is
far from euphoric.
They've just been burned toomany times, they've been around
for too many years, so they'reexecuting, so they're executing.
(05:02):
And ultimately, what happens atthe other end of the spectrum,
from the investor side?
It continues to be the guysthat get to raise capital are
the ones who have had successfulexits, and it's the same thing
(05:30):
in the gold mining side, and sothey.
Of course, higher gold pricesis a positive, but they tend not
to get carried away.
What's a bigger?
Speaker 1 (05:41):
driver of performance historically?
Is it the price of gold, theprice of oil, the price of
interest rates, price of capital?
I mean, you know, it seems likethere's a lot of different
things that are impacting thespace, which makes it maybe more
challenging to really get ahandle on.
Speaker 2 (05:56):
Well, the scarcest resources in the space is good
management, and so goodmanagement is really makes all
the difference in terms of price.
Now, what you're alluding to is, of course, the many, many
disappointments that havehappened in this space, and
there isn't a simple answer.
But let me give you a fewdifferent answers here.
(06:17):
The major gold mining companiesthey have done what investors
want them to do, which meansthey got their act together
after overspending in theprevious bull market, which
means they're underinvested,which means their balance sheet
is in good shape.
But it also means that theyhave less leverage to the price
(06:39):
of gold and they're playingcatch up.
And so those guys are investedor targeting some of these huge
projects which have many risksto them, most notably that they
cannot execute on price and onbudget.
And so what we like to focus onis more kind of the smaller
bite projects where, of course,you have operational challenges
that come up with any real issue.
(07:01):
But you mentioned energy.
Well, gold mining for theproducers, is energy intensive.
So, yes, of course the price ofoil matters For the smaller ones
, for the developers, if they'renot in production, the price of
oil is obviously far lessrelevant, but there it's more
(07:21):
kind of, and in recent years,one of the key things was indeed
the Federal Reserve, becausewhen the Federal Reserve, by
design, has tight financingconditions, it means it may be
difficult to access financing,even though these mining
companies of course try to getfinancing on the equity side
much more than on the debt side.
But it impacts the price, and soit depends on the stage of the
(07:43):
growth they're in.
It depends on many factors Atalent it's not hip to go into
mining, and not in Australia orCanada either.
So finding people that actuallywork these things, finding
management teams and the bootson the ground on the more junior
level are challenges, and soone of the good news in the
(08:05):
current environment is that thebig inflationary fears are
somewhat mitigated, and alsothings like lithium, for example
, isn't it as hit as it had been, and so the availability of
workers is a little bit easier.
So many of the headwinds and,as I tried to allude to, they
can be rather differentiated areless so than they had been, and
(08:27):
of course, on top of that, theicing on the cake is that the
price of gold is quite favorableright now.
Speaker 1 (08:32):
Typically when you have high volatility in equities
, does gold more often than notdiverge?
I mean, from the work that I'veseen, gold has some of the
properties of that sort offlight to safety dynamic.
When you have a major drawdownin equities, gold tends to
either be done a lot less oractually rally to counter.
(08:53):
I'm curious to hear yourthoughts on that, because the
tone of the market seems to bevery different here.
Speaker 2 (08:58):
Sure.
Well, investors invest in goldand gold miners for all kinds of
reasons.
You're referring specificallyto the diversification investor
and many people have heard thatthe price of gold has a near
zero correlation to equities inthe long run.
But it is not zero all the time.
It tends to morph in and out.
(09:18):
It's sometimes positivelycorrelated, sometimes negatively
correlated, sometimes notcorrelated.
What you're referring to is thesort of more severe downturn
environment and I like to frameit in the context of interest
rates that, let's say, you havethe shocking surprise that the
(09:39):
economy is weaker than expectedand that means the Federal
Reserve might be lowering ratesfaster than expected, and that
means the Federal Reserve mightbe lowering rates faster than
expected.
In that sort of environment, ifit's a shallow recession, then
the market is a discountingmechanism and equities might not
be heard much.
But if the market anticipates amore severe recession, then
traditional equities may well besignificantly impacted and the
(10:03):
urge of investors to diversifyis all the greater.
And the gold miners come intoplay here because they benefit
from the lower interest rateenvironment which helps the
price of gold.
And so it's when you have, andthe extreme scenario was, of
course, 2008.
But in that sort of environment, gold miners tend to shine.
(10:23):
Now it doesn't have to be thatextreme and we have it on our
website at MerckInvestmentscom.
We have a link to a webinar onthe closed and on the mining
space and we show in whatenvironment the gold miners tend
to do well, tend to do well andwe're just shifting from what
(10:43):
we call kind of a high interestrate, high inflation environment
to a high interest rate, lowinflation environment and, I
apologize, a lower interest rateand still somewhat high
inflation environment, and it'sthe anticipation of what might
(11:06):
happen in the future thatprovides a boost to the space.
And in fact, this is the spacethat we're in that historically,
if we look at the last 20 years, has been the most favorable
one for the gold miners and wesee that, of course, in these
gold miners developing well.
I have, for compliance reason,I have to say there's no
assurance that that will persist, but it's really only the
(11:29):
environment where we had thisvery low interest rates and the
high inflation, the financialrepression environment, that the
gold miners perform poorly.
Currently we are somewhat inthe sweet spot and part of the
reason is that these markets areforward-looking and even though
this recession that everybodyforecasted forever never
(11:50):
happened.
It is what might happen next.
And because the market is adiscarding mechanism and the
market is expecting that thisenvironment is such that it
appears to be favorable to theminers for the time being.
Speaker 1 (12:03):
Let's talk about some of the other diversification
benefits of it.
And obviously gold's been amuch better risk off in quotes
hedge, certainly during falsesignals of scares in the cycle
the last several years.
Do you get a sense that there'sbeen more and more allocations
in general to gold, to goldminers, or is it one of those
(12:23):
trends that people are observingit, they're talking about it
but they're not really playingit?
Speaker 2 (12:28):
All of the above and there are some shifts in the
focus within the space.
So the first of all, aside fromthe diversification investor,
there's the investor worriedabout the purchase and parallel
dollar.
There is also the speculator.
The speculator has largely beenabsent, and what I mean with
that?
They've been attracted more tomeme stocks, digital currencies
(12:50):
and whatnot, but we have seenincreased interest in what we do
.
That may well be more specificto what we do directly, and I
alluded to that.
The major miners have had someissues with the large projects,
and I alluded to that.
The major miners have had someissues with the large projects,
and so there's been quite a bitof disappointment in the large
(13:11):
miners.
And since we focus more on thejunior space, we have been
getting a lot more attention.
We've had a lot moreconversations in recent months
and people are trying to figureout how to invest in that space.
As anybody on this callhopefully knows, it's a very
speculative space and there aredifferent ways of investing in
(13:34):
it.
We focus, as I alluded to, ininvesting in management teams
and then we help finance thesecompanies to we call it.
We help institutionalize thesecompanies, participate in deals
and help them grow larger sothat then other investors in
future funding rounds can joinin, things that are very
(13:55):
difficult to do outside forindividual investors in
particular, and so it's notclear to me whether the kind of
the overall space has got muchmore attention, or just what we
do simply because we are in aspace where we happen to think
that there are a lot ofopportunities.
It does look like investorstend to agree or maybe, more
(14:18):
importantly, they aredisillusioned with the major
ones and they're looking forbefore abandoning the space
entirely, they're looking forother ways of potentially
playing that space.
Speaker 1 (14:27):
Peter, I am ready to come up.
Feel free to come up anytime onthis.
On the junior miners, is it asimilar dynamic to what we see
big picture wise, with justsmall caps in general versus
large caps, meaning there's ahuge divergence that's happened
over the last several yearsbetween the larger players in
the gold space, gold miningspace, versus the smaller
players?
Speaker 2 (14:48):
Well, it's a more complex dynamic in the sense
when you invest in a juniorminer, you're literally buying
an option for them striking gold, and so the talk, if you want
to call it, the leverage youhave is dramatically higher than
simply the little nuances inperformance in other sectors in
(15:09):
the market.
And so, after the FederalReserve put that in the fall of
2023, after Powell kind of toneddown the hire for long
environment, those companiesstarted to come to life.
The higher for long environment,those companies started to come
to life.
But, all that said, the marketas a whole is paying less for an
ounce in the ground than itused to, and indeed we shifted
(15:33):
in recent years from explorersto developers, because you can
buy developers cheaper than youcan buy the explorers and help
them become developmentcompanies.
And so another way of sayingthat is that the values continue
to be befrissed.
Now, if you look at the returns, some of them have been rather
substantial, but given where theprice of gold is, one could
(15:56):
make the argument that theycould be significantly higher.
And I'm a known insider buyerin that space, and the reason I
am is because I do think thatthe market is slowly waking up
to the opportunities there and,as you pointed out earlier,
equities in general areexpensive and there are more
investors looking to diversify.
(16:18):
So to me I can stomach thevolatility in the space and I
certainly like the value that'savailable there.
Speaker 1 (16:24):
I think a lot of things are expensive.
Peter, I want to bring you intothe conversation.
I've been seeing your posts onJapan and the reverse carry
trade.
I'm glad I'm not the only crazyone that's been hammering that
for the last year or so as beinga tail risk.
I know you've been a longtimegold bull.
I was talking to Axel hereabout you know, is there
excitement in the space?
Gold bull, I was talking toaxel here about you know, is
(16:46):
there excitement in the space?
And it seems like in generalthere just isn't, which is
probably why the trend continues.
Um, any thoughts on, uh, goldsort of as a, as a signal?
Uh, throughout all this I'vebeen saying that repeatedly that
gold is sending a warning andequities have just not heated it
as they've gotten more and moreexpensive.
But, um, is there a message inthe way gold's been behaving the
last year or so?
Speaker 4 (17:05):
I think so.
I mean, axel and I have, youknow, been watching and buying
gold for a long time.
You know, I, when I firststarted recommending gold and
buying it for my clients, I waslike it was under $300 an ounce.
So it's basically 10x over thattime.
And you know people haven'theeded that warning at all.
(17:27):
You know, the stock markets,you know, until very recently
were at record highs I mean notpriced in gold, of course, they
were far from record highs interms of real money, but
investors didn't really payattention to what gold was
saying.
Investors didn't really payattention to what Gold was
saying.
But I think you know it's aboutto say it a lot louder in the
next several years because Ithink the debt problem is really
(17:51):
going to kick into a highergear here.
Because you know, the Fedprematurely aborted the feigned
inflation fight.
It never raised interest ratesinto restrictive territory.
The credit continued to growthe entire time the Fed was
hiking.
So rates never got high enoughto cut off the credit growth
(18:12):
which is part of what'sinflation is the expansion of
money and credit.
And even though they sloweddown the expansion of money,
they never slowed down theexpansion of credit.
And of course, money is.
Supply is growing once again,and so even the way the Fed
measures inflation.
It's risen now for the pastfour or five months in a row.
Most recent month, cpi isannualizing 6.2%.
(18:36):
Most recent quarter is 5%.
It's on an uptrend.
The Fed's going in the wrongdirection.
The Fed's cutting rates, but Ithink what's going to happen is
the hidden recession that Ithink we've been in for the past
year or more is going to belaid bare, probably in the first
year of the Trump presidency.
That's going to create a lot ofpressure on the Fed to cut
(19:00):
rates more.
A lot of pressure on the Fed tocut rates more, maybe even
return to QE to keep long-terminterest rates from rising to
stimulate the economy.
But that's going to happen at atime where inflation is high
and headed higher, so it'smassive stagflation.
The Fed has no plan for that.
They admitted that.
All they can do is hope itdoesn't happen.
(19:22):
They've never stress tested abank for that, because they know
the banks would fail.
So I think that we're headedfor a real currency and
sovereign debt crisis that we'vebeen heading for for over a
decade.
But the fact that we've beenable to postpone the inevitable
just made all the underlyingproblems worse.
And you know I think you knowyou guys are talking about gold
(19:45):
stocks.
You know it's amazing to me.
You know I put more of my ownpersonal money into gold mining
stocks than I did to goldbecause I was so bullish on gold
I thought I would make more ingold stocks and I outsmarted
myself.
Speaker 1 (19:59):
And in that allocation have you tilted
larger, smaller?
I mean, what part of that goldmind space?
Speaker 4 (20:05):
Mostly, mostly the bigger companies, you know, and
I've done well with, like FrancoNevada and Silver Wheaton and
Agnigo Eagle.
But I've also had a lot ofmoney in Newmont and Barrick and
you know they've just been,it's been like dead money for 20
years and I've had, you know,although a lot of my Newmont and
Barrick I acquired not becauseI bought them but because I own
(20:28):
the companies that they acquiredover the years.
But I have bought some.
But you know, I have a lot ofmoney in gold stocks and silver
stocks and I would have justdone better off if I just owned
all physical gold, you know,given that you know where I
started buying it.
But I think the reason thatgold stocks are as cheap as they
(20:48):
are right now is because WallStreet has been bearish for the
entire rally, especially thelast couple of years, where the
public has been net liquidatinggold.
Overall, last year it was netoutflows of GLD, net outflows
from GDX and GDXJ.
Um, you know, I think part ofthat has to do with the euphoria
(21:09):
in tech and AI.
Part of it also has to do withthe distraction created by
Bitcoin, uh, and the idea thatit's better than gold.
It's the new gold, it's digitalgold.
I think that's kind of takenaway some of the marginal retail
buying.
But it's also kept a lot of thefocus off of gold in the media
(21:30):
and the financial media that ispreoccupied with Bitcoin and
barely mentions gold, even as ithits new record highs every day
.
So that's great for the centralbanks because they get to buy it
without a lot of competition.
Central banks don't buy silver.
That's why it's still cheap andthey don't buy the mining
stocks.
But I'm continuing to put moneyinto these stocks.
(21:53):
I mean I haven't bought any inthe recent weeks for myself, but
I did buy quite a bit monthsago in the last correction.
I mean I tend to add to my ownpositions when there's a
meaningful correction becauseI've got so much money in these
stocks, having been accumulatingthem for 20 years.
But you know I have a muchbigger position now than I did
(22:14):
then.
I mean I'm positioned very wellfor these stocks to go up 10X
or you know, I think that'sgoing to happen and for people
who are gambling on Bitcoin, Ithink it's a much better risk
reward to get in these mining.
Speaker 2 (22:34):
Maybe, peter, you should be investing with us.
You are one of the few onesthat actually beat the price of
gold.
Let me expand a little bit onwhat you say, peter, because
you've made some veryinteresting points.
This recession that quoteunquote never came.
One of the reasons is that theFederal Reserve is ever more
micromanaging the economy.
If you bail out the bankingsystem when they mismanage
(22:57):
interest rate risk and whatnot,sure we're not going to have a
recession and whatnot?
Sure we're not going to have arecession.
But I think it was just ourstatistic that 10% of the top
10% taxpayers spend over 50% ofretail spending in the US these
days.
So there is a yes, I would 100%agree.
There is a latent recession.
(23:18):
We just don't see it On theprice of gold, just where it
might go.
Historically speaking, gold isalways the sort of thing you
want to be glad you had.
With hindsight never quite knowwhat you have in the future.
As Peter is pointing out, a keyreason why gold and also gold
miners have had more tension isbecause of the concerns about
(23:39):
the fiscal sustainability.
And as much as some on thiscall will love and others may
hate what the currentadministration is doing, I'd
like to remind everybody thatfiscal sustainability is really
not top of the agenda.
There is no entitlement reform.
There's talk about making thetax cuts permanent, but not in
(24:01):
any way that would fix thelong-term issues and with the
tight majorities in Congressit's, in my view at least, very
unlikely to happen.
You have to give gifts toeverybody to get this stuff
passed, and while we might getmore growth with deregulation,
while we might get a kind of theenthusiasm to invest unleashed
(24:24):
with the current administrationby some people, none of that
fixes the big long-term issues.
And the thing that has changed.
When Peter and I talked in theearly 2000s, we were on the
fringe.
Now it's becoming mainstream totalk about the fiscal
sustainability and in myassessment that is a huge
(24:46):
positive for the price of gold.
I have to talk in thisconvoluted way because my speech
is regulated, but I put mymoney where my mouth is, having
been on the record in buying thegold miners.
Speaker 4 (24:58):
Yeah, you know the other thing that people don't
seem to understand.
You know, if we're going toreally make America great again
and go back to a country thatmanufactures and doesn't run
trade deficits, where we canproduce for ourselves, that
transition involves a protractedrecession with big drops in
(25:24):
asset prices, much higherinterest rates.
Trump doesn't seem toappreciate that.
He thinks it's going to be animmediate golden age and that
foreigners have been takingadvantage of us.
It's actually the reverse.
We take advantage of the worldbecause we consume what they
produce, we borrow what theysave.
So the world has beensubsidizing the American
(25:48):
standard of living, now to thelong-term detriment of America,
because these trade deficitshave a cost.
You know we're selling off ourcows to buy milk.
You know foreigners accumulateassets as we go deeper in the
debt.
So there is a long-term priceto be paid for this profligacy,
but in the short run, we live ahigher standard of living as a
(26:11):
result, and there's no way toget from where we are to where
we need to be without a lot ofpeople losing a lot of money and
without a big short termdecline in our living standards,
as we have to stop spendingmoney.
People have to stop buyingstuff so they can save money, so
we can take the savings andbuild factories and recreate
(26:31):
supply trains and train workersso that we could be
self-sufficient again.
But we're not going to havethat because Trump did not
prepare the electorate forausterity.
Going to have that because Trumpdid not prepare the electorate
for austerity and I believe thatyou know, as soon as the
recession is back, trump isgoing to be back to the same old
stimulus let's send outstimulus checks, just like he
(26:54):
did during COVID.
All that was a mistake duringCOVID.
The whole policy, the fiscaland monetary response was
completely wrong.
But that's all they can dobecause they can't allow a real
recession to run its course.
Because it means you know banksfail.
It means you know.
Speaker 1 (27:12):
I don't, I don't sorry, we're a softened
generation.
I mean you use the termprotracted contraction or
recession.
It's like when was the lasttime we actually had a recession
that lasted for more than twomonths?
Yeah, it doesn't seem likethere's no.
Speaker 4 (27:24):
They won't allow it.
They won't allow it.
But the recessions are actuallythe cure for what ails the
economy.
You know the government screwsthe economy up with artificially
low interest rates thatmisallocate assets, lead to
bubbles and all kinds ofmistakes that are made, and it's
during the recessions wherethey're corrected.
But you know, the politiciansintervene, but so we're heading
(27:46):
for a big crisis.
Nobody still gets that.
You know, as we're talking, youknow gold is down about 50 bucks
today, which you know isnothing compared to what Bitcoin
is down Actually $43, 48, nowalmost 50.
But when you look at what'shappening with gold, right, so
gold's down about one and a halfpercent.
But now the gold stocks.
You know, although GDX is down3%, gdx stays down, you know, a
(28:15):
little over 3%.
You know it reacts to the dailymove in the price of gold
without realizing that gold isstill above 2,900.
I mean, that is a very highprice for these gold mining
companies that are not evenreally priced for 2000 gold, let
alone 2900.
But the market still reacted.
Traders, oh, gold is down, sosell the gold mining stocks
without any regard for how cheapthey already are.
This, this is all a bunch ofnoise and especially since gold
(28:38):
is likely to be closer to000 atthe end of the year than 3,000.
And sure, mining costs aregoing to go up, but not nearly
that much, you know.
So most of these stocks aretrading the big stocks are
probably trading as single digitmultiples of what they're
actually going to earn in 2025,you know, which is a massive
discount to the S&P, which isridiculous, because they
(28:59):
probably should trade at apremium, especially given where
gold is likely to go to the S&P,which is ridiculous because
they probably should trade at apremium, especially given where
gold is likely to go.
Gold is up 10x, but it's reallynot up very much at all If you
compare it to where it was in2011,.
It's only up 50% since the 2011peak and we've created a lot of
money since then and a lot moremoney is going to be created.
(29:21):
I mean, gold's already gone up,you know, 100x from where it
was when the Federal Reserve wasstarted, because it was $20 an
ounce, and now it's.
Speaker 1 (29:29):
And, by the way, I remember very well in 2011, the
gold bugs and the sentiment andthe beating of the chess bag.
You don't have any of thattoday.
I want to get Eric.
Speaker 4 (29:38):
I know, I remember very well that period and people
gave me a lot of shit because Iwas saying gold's going to go
to 5,000.
And of course it's going to goto 5,000, but a lot later than I
thought.
But now I don't say 5,000.
It's going to 20,000 or 30,000.
I mean, you know it's a movingtarget because the supply of
money in the world dollars andeuros and yen and pounds have
(30:02):
exploded since then.
So to try to figure out wheregold should be, it's much higher
now than I thought it shouldhave been back then and I want
to get eric because he's beenwaiting patient.
Speaker 3 (30:13):
Go ahead, erica hi mike, uh, thank you for having
me on, yeah and uh, peter, hey,I just want to say I'm your big
fan and, um, you're one of thebiggest reasons why I go into
gold.
Speaker 1 (30:24):
By the way, Axel should be a bit.
You should be a fan of Axel'stoo.
In fairness, I mean, Axel's theman.
Okay, I'm just going to stopyes.
Speaker 3 (30:30):
Go ahead, but I was listening to the Peter show back
in 2018 and 2019.
And I really loaded up backwhen it was around 1200 bucks.
So thank you, Peter.
Thank you for that.
Anyway, I got a question forPeter.
Peter, do you know that in thelast two and a half months the
(30:55):
US imported around's been a lotof speculation as to who owns
that gold and why it's beingimported?
Speaker 4 (31:11):
Are they trying to front run potential tariffs?
Is it US gold that was leasedout, that we're trying to get
back into Fort Knox so that whenwe go there it's there?
I don't know, but it is verycurious.
Speaker 2 (31:22):
Yeah, let me.
Let me maybe put some clarityon what's happening there.
As some of you guys know, we dohave about 15 tons of gold
stored in London.
It's part of one of the thingsthat we do, and so we monitor
this market very, very carefully.
It's the threat of tariffs thatgot folks to say well, if we
(31:43):
want to have gold in the US, wemight as well have it available
before tariffs are imposed.
And, by the way, nobody thinksthat gold is going to be
targeted explicitly.
The idea is that there will besome blanket tariffs and gold
will be caught up in that,possibly sorted out later on.
But the folks at the COMEX,where historically inventories
(32:04):
are very, very low, have decidedwe want to have more gold.
It turns out London boss theinstitutionalized boss, that are
in London are are not suitablefor Konex, so gold has actually
been sucked from London viaSwitzerland, where they're
converted to kilobars, to the US.
Now there is plenty oftransportation capacity, there's
(32:24):
plenty of refining capacity,capacity, but a lot of the gold
that the clearing brokers inLondon that provide liquidity in
the market in London areenabling is stuck at the Bank of
England.
The Bank of England has acompletely antiquated inventory
system.
Typically, when you have yourgold with a bank or an
(32:49):
institution, you have a palettewhere you have your gold and at
the Bank of England they startto do computer entries when gold
is shifting around.
So any one palette could havethe gold of a gazillion of
different customers.
And while the gold is there andthey can procure it, it takes
forever, and so when I lasttalked to them about a few weeks
(33:11):
ago, the backlog was until themiddle of April to get any
additional gold orders into thepipeline, and that means there's
a shortage, a potentialshortage of gold available.
Now the beautiful thing is thatthere's this beauty thing called
the price.
So if there were to be quoteunquote not enough gold in
London, you would see either theprice of gold move higher if
(33:33):
there wasn't enough at all, butmore so if the bottleneck
continues to be the end ofEngland and it were to become
critical, you would see thespreads in the gold
exchange-traded products widenbecause selling and buying would
be different.
And so it's the spreads and thegold exchange rate of products
you want to watch.
In the meantime, of course, theallocated gold remains
(33:56):
allocated gold in London.
And the other thing if therewere tariffs imposed.
The one thing you would expect,of course, is that the premiums
for coins that you buy in the USmight go up, but also the
premiums for US coins might goup because the demand might
shift.
So there's all kinds of stuffhappening, plenty of space for
conspiracy theories.
But the one thing I would liketo relate this to is when we
(34:19):
have the negative crisis in oil,there is physical movement of
gold involved, and all thesedecals matter.
And one thing maybe, before Ikind of wrap up here on this one
, is that the price of gold.
When you hear the price of gold, what that is is the price of
gold offered by the clearingbrokers in London, and the price
(34:40):
of gold in other locationsmight be different, but the
price of gold that we typicallyhear quoted, that is a very
specific price of gold in London.
Speaker 1 (34:48):
I love it.
Let me get you back up here,peter.
So I just saw you uh droppedoff eric.
Does that help explain things?
Yeah, that's pretty good, thankyou.
Thank you, and I can be a fanof that.
Thank you very much.
There you go exactly.
Uh, yes, I do want to uh talkabout kind of more recent market
action and and get uh actuallyyour take as well as peter, if
you come up here.
Um, I've been alluding to thisidea that it seems like the
(35:10):
tone's a little bit different.
The last several days wasalmost more like it's a growth
scare and what it's making mesay that is unlike what we've
seen the last three and a halfyears, which has been my
personal hell.
Markets go down, yields go down.
You're starting to see thatkind of more classic flight to
safety disinflation, maybedeflation pulse that's beating.
Flight to safety disinflation,maybe deflation pulse that's
(35:31):
beating.
Anything that you can point toAxel that suggests that that's,
or maybe at a cycle turn herewhere maybe the thinking shifts
from that high inflation, higherrates, to now this more classic
inverse relationship, kind ofkicking in.
Speaker 2 (35:47):
So, talking about the broad equity markets, I think
we have seen classic signs of atopping out phase.
I've compared this environmentto the late 90s and early and
then 2000, specifically, withthe key difference, of course,
is that the debt situation isvery, very different, and so
it's one of the reasons why, inthe current environment, the
(36:08):
price of gold is reacting muchmore, and as we're talking today
, I just I sent a message to oneof my team Now this is selling
pressure here, and the responsewas they're selling pressure
everywhere.
And, of course, when you have acredit bubble or a euphoria on
investing in the MAC7 orwhatever you might want to call
(36:31):
it, at some point something willtire out.
But it's not like people arejust flipping a switch.
Remember, in 2000, the NASDAQtopped out in March and I think
the S&P only in September.
It takes a while for thisenthusiasm to kind of fizzle out
, and then we already have thisenvironment where only the top
(36:53):
10% of earners are spending agreat deal, and we have this
shadow recession, or whicheverway Peter called it right.
And so now, if you had equitymarkets at lunch, it could well
be that the appetite of thehigh-end consumer to spend is
also fizzling out, and then, yes, then the Federal Reserve is
(37:15):
likely to react, which is a goodthing for the price of gold.
Keep in mind that almost alwayswhen the Federal Reserve cuts
rates, they didn't plan to dothat as aggressively as they did
.
Things rarely ever worked theway that they were planning it.
And just one more thing on theFed they have their five-year
review now.
Not once have they admitted howthey completely screwed up the
(37:37):
inflation they just planned.
Oh, everybody had the sameproblem, and so I don't expect
much of substance to come out,other than that one of the
things that happened in recentyears everybody's hero, ben
Bernanke and I'm being a bitsarcastic here, just in case,
kind of was praising thisincreased micromanagement that
the Federal Reserve is doing.
So the folks at the Fedactually think what's happening
(37:58):
is a good thing, and they canquote unquote manage this
economy ever better, and to methat's more of a command economy
type of thing than anythingelse.
Speaker 1 (38:08):
Peter, I'm curious if you have any thoughts on this.
It's like I said, I think it'san interesting change in the
environment here, and it lookslike you're on mute, by the way.
Speaker 4 (38:15):
I mean, good news is bad news or bad news is good
news.
Look, I think the marketsrallied most recently on the
Trump win and the idea that thisis going to be pro-growth, good
for business lower taxes so Ithink that was the last leg of
it.
But I think that the marketsare overpriced and have to come
down, given the reality of muchhigher interest rates than what
(38:38):
anybody expected.
I was one of the few people whowas forecasting that long-term
rates would rise as soon as theFed started cutting short-term
rates, and most people didn'texpect that to happen and they
were surprised.
So, given what's happened torates, I mean stocks need to
come down, and I think peopleare starting to realize that the
(38:59):
Fed really no longer has thecontrol over the long term rates
unless it goes back toquantitative easing, which it's
still saying it's not going todo.
It's still doing quantitativetightening, and so rates are
going to go up.
Even if the Fed were to cutrates more on the short end,
it's just going to put moreupward pressure on the long end.
You know that's the predicamentthat the Bank of Japan is in.
(39:20):
When they printed their 4% CPIa couple of days ago and yields
started to rise, the Bank ofJapan came out and said okay,
we're going to start buyingbonds if yields keep rising like
this.
And then the market turnedaround briefly.
But if the Bank of Japan printsmore yen to buy more bonds,
(39:42):
it's just going to push upJapanese inflation even higher,
which is the reason thatJapanese yields are rising.
You've got an overnight rate inJapan of a half a percent and
you've got four percentinflation heading in the upward
direction, and at some point Ithink maybe this year Japan is
going to have to officiallyacknowledge that its goal of
(40:04):
achieving two percent inflationnow has to be fought in the
other direction.
I mean, they're stillpretending that they're trying
to get their inflation rate upto 2%.
Now they need to get it down to2%, and they haven't even
acknowledged that that's thecase, and in fact, none of these
central banks are going to beable to get.
Speaker 1 (40:21):
Is it fair to say I made that.
I put out that post which wenta little viral.
I said you know, literally theentire country of Japan is
insolvent if you mark the marketand nobody gives a shit.
And like, am I crazy andthinking that gives, given the
way that yields are acting,given how much leverage there is
from Japan?
Speaker 4 (40:37):
Well, I think Japan is more solvent.
In the US, I mean, japan couldliquidate their treasuries.
That would pay off a good chunkof the debt.
But you know, the Japanesepeople have a lot of savings.
They can pay higher taxes, youknow.
So I think Japan is more ableto afford this debt than
(40:58):
probably we are.
But you know, the bigger problemI was just trying to point out
and try to make is all thesecentral banks, you know, are now
going to have to lie in theirown bed, so to speak, because
they all created this myth of a2% inflation target and nobody
had a 2% inflation target untilinflation was below 2%.
(41:20):
And then and of course it wasnever really below 2%, but the
way they measure it, it was.
And so you know, Ben Bernanke,you talk about him he came up
with the idea of a 2% inflationtarget in 2012, when inflation
measured by core CPI, pce, was1.8.
And he said well, that's notenough, we need two.
(41:40):
As if they could micromanage itto that degree and dial up 1.8
to two.
But there never was a mandatefor 2%.
The unofficial target wasalways zero, because the Fed's
mandate was price stability, notprices that go up by 2% a year.
But they only came up with thatasinine number as a target to
(42:03):
justify 0% interest rates, tojustify QE.
But now they're stuck.
Now they're stuck sayinginflation has to be 2%.
They're never going to get itback down there.
And the origin originally wasNew Zealand, but New Zealand
never had a 2% target.
They had a 2% ceiling when theyinitially Now they have a
(42:24):
target between 2% and 3%,because they were forced to
raise the ceiling when theycouldn't meet it.
But it was supposed to be aceiling.
Speaker 2 (42:31):
One of the challenges that all the central banks have
is that they don't have astrategy.
They are completely doingthings off the cuff, and we saw
that obviously last Decemberwhen it became apparent to
everybody that they're justshell-shocked.
Oh my God, the election changesthings.
They have taken away theirgauges.
They used to be able to lookout on the yield curve as to
(42:52):
what the market is thinkingthese days.
They have managed to yieldcurve so much that they don't
have it anymore, and they usedto have insight into what's
happening in the banking sectorwith the treasury desk that they
had at New York Fed.
Now they pay interest onreserves and have a convoluted
(43:18):
set of regulations that distorteverything, and so they're
reading the tea leaves, theyhave a debating club, and then
they lack a long-term strategy.
And then anybody should besurprised that the result is
quote unquote suboptimal.
And, by the way, one of theside effects of micromanaging
the economy is that you haveinefficient capital allocation,
and so all of that means youhave a higher cost of borrowing.
You probably get higherinflation when all this comes.
The reason why anybody paysattention to the Federal Reserve
at all is, of course, becausethey have the bazooka, but it
(43:42):
would be very helpful if theyjust got out of the way and
replaced the debating club withsomething else like a
rules-based system.
In the absence of that, we haveto live with it, though, and so
we know what they will do.
They will cut rates when thereis a recession, and otherwise
they'll be noodling around.
(44:02):
They'll keep rates a little bithigher than many people
anticipated, and the rest has todeal with it, and the dealing
with it is I mean.
Peter says Trump is going towrite stimulus checks in a
recession.
I don't know whether it's goingto be a stimulus check or not,
but it's certainly something ofa stimulative nature, right, and
we know the playbook of thepolicymakers, and in all of that
(44:23):
, gold just does nothing.
Gold just is.
The price of gold changes, ofcourse, and, when it's all said
and done, the interests ofgovernment and the interests of
investors are not aligned, andone of the ways that I
personally deal with it is Ihave a gold allocation to hedge
(44:46):
the craziness of our dearbeloved policymakers.
Speaker 1 (44:51):
I note a little sarcasm in that, Eric.
I saw you unmuted yourself.
I don't know if you want to addsome additional questions or
comments.
Yep.
Speaker 3 (44:57):
Thank you, michael.
So I just want to move back tothe tariffs situation with the
gold impulse, and initially Iactually agree with Axel.
I'm talking about a month agowhen this situation first came
about.
But since then a lot of datacame out and I have a lot of
(45:19):
questions regarding thatnarrative of tariffs being the
primary reason of why the goldflows into the US shot up like a
rocket.
I said just earlier that totalimpulse of physical gold into
the US in the last two months isapproximately 2,000 metric tons
(45:44):
.
That's from the StoneX and alsoBullionBalt, which, as you know
, they are a member of the, fromthe StoneX and also Boolean
Belt, which they are, as youknow, they are a member of the
LBMA.
So I think that number isreliable.
Now, if you guys recall, in 2020to 2021, the total number of
(46:08):
weight of amongst of physicalgold that was imported into the
US was around 600 metric tons.
So this is pretty extreme fortwo and a half months for the US
to import 2000 metric tons intothe country.
Now, the COMEX only importedapproximately 674 metric tons
(46:34):
during that time.
So two-thirds of that are fromOTC imports, like
over-the-counter somewhere.
Okay, so back to the tariffsnarrative.
Why back to the tariffsnarrative, why I mean it doesn't
make any sense, because whywould somebody anybody import
(46:57):
all this physical gold in such ahurry in two months just for a
potential tariff?
That may or may not happen.
And I may add that the massiveimpulse of physical gold started
at the end of December 2024.
(47:18):
So that's a full month, a monthand a half actually, before
Donald Trump announced thetariffs.
Speaker 2 (47:26):
The market doesn't wait for tweets by Mr Trump, but
Donald Trump was even presentthat tariffs might have been
coming.
Speaker 3 (47:33):
He wasn't even in the market at that point.
Speaker 2 (47:40):
Well, that's correct, but of course there was
anticipation that he's going togo in.
But the broader point here isthat these markets are efficient
and the market mechanism works,and it is actually very cost
effective to move gold fromLondon to the US, as crazy as it
sounds.
It's because the kilo barstrade at a slight premium over
(48:01):
the London bars, which means itdoesn't actually quote unquote
cost much to move the gold fromLondon via Switzerland, have it
refinedinery to KiloBars andbrought them to the US, and so
when the market participantsbelieve there might be an
arbitrage opportunity, by allmeans it's going to be sucked in
that direction.
The one thing that I'd like topoint out is that it is only
(48:23):
London that has the mechanismsin place to actually facilitate
institutional trading at scale,and no other place, including
COMEX, is actually really goodat doing that.
And I'm not saying that gold isnot going to the US.
What I'm saying is that anydistortions in the price you
(48:44):
will see in the pricingmechanism works right.
Comex gold might be priceddifferently from London Gold,
and if then there's going to bemore demand for London Gold and
it's not available, guess what?
That price is going to go up.
So all I'm saying is that thismarket is actually functioning
and, yes, we can speculate as towhy it's happening and maybe
disagree on the details.
(49:05):
What I'm saying is this marketis actually working as it should
.
Speaker 3 (49:08):
I don't doubt that it's functioning.
But let me ask you anotherquestion.
Axel Reuters reported onJanuary 29th that the total
amount approximately okay, thetotal amounts of physical gold
from the LVMA to the ComEx isapproximately 400 metric tons
(49:30):
made to the ComEx isapproximately 400 metric tons.
Now, that would make sensebecause the ComEx inventory
numbers of total impulse sincethe end of December is now at
674 tons, like I said before.
So that progression makes sense.
If the impulse didn't shrinkduring that time period, right.
But remember what I saidearlier During this time period
(49:53):
the total number of goldimported into the US was 2,000
metric tons.
So we are talking abouttwo-thirds of this not from the
LBMA, from OTC markets thatBefore you over-interpret the
data too much.
Speaker 2 (50:11):
You use the word now.
I'd be very careful with that,because a lot of the data that
we get is delayed, and so youmight be comparing apples and
oranges on some of these thingsand so jumping to conclusions as
to where that is and whatnot itcould be.
There could be things intransit, there could be many
other things.
We're dealing with physicalgods here and strict reporting
(50:34):
guidelines by the differententities, and so there will be
discrepancies, and it doesn'tnecessarily mean that something
is out of the ordinary or out oforder.
I mean, of course, it's out ofthe ordinary to have that much
gold being shifted to the US, tohave that much gold being
shifted to the US.
I just be careful in readingconspiracy theories into things,
when people are collecting datafrom different sources that may
(50:56):
not be compatible and thentrying to impose a narrative to
it.
What we do know is that thismovement is happening right.
I mean that nobody is disputingbut we also know, of course,
that the US has a history ofconfiscating gold and other
things.
Right, currently, it's in theinterest of market participants
(51:16):
that want to have gold in the USto actually put it there in
case a terrorist were to beimposed, and the cost of doing
so is low.
Now, can that create distortionsin other markets?
Sure, and notably and wehaven't talked about that as
(51:37):
much enough the Bank of England.
Already a decade ago I was toldby the roles managers there
that the only reason why theyreally do business with the Bank
of England is because the Bankof England they're so large.
But it is a pain in the butt todeal with that, and when it is
a squeeze like we have right now, those operational aspects come
to the forefront and mightcreate dislocations in the
(51:59):
market.
The quote-unquote good news isthat these dislocations will be
visible, and I alluded to on themost basic level is the spreads
and the gold ETFs, of course.
The other place of course youcan look at is the gold lease
rates.
They are off their peak, by theway, and so I don't want to be
here too alarmist, because thatone here suggests that some of
(52:21):
that pressure is abating andthis market might be finding a
new equilibrium.
Speaker 1 (52:26):
So your pressure is being abated.
I do have to wrap this space upbecause I've got a podcast I'm
hosting literally in two minutes.
Special thanks to Peter Schifffor joining and, of course, axel
Merck.
Eric appreciate youparticipating Everybody.
Please make sure you followPeter, make sure you follow Axel
.
Also make sure you follow Eric.
I mean, why not?
You know and follow me.
We'll do a few of these spaces.
I'll try and do these a littlebit more often, but thank you,
(52:47):
ryan, for joining and actuallyany parting words on your end.
Speaker 2 (52:50):
Well, if you are interested in a gold standard,
have your personal goldstandards.
Don't trust the government totake care of you.
Speaker 1 (52:59):
I think Peter would agree with that.
Speaker 4 (53:01):
Thank you, buddy.
I think it's been over a year, I think, since I've
hosted a space.
I used to do spaces like allthe time back in the day and
then I opted to do more videos.
Hopefully, this will be aninteractive, solid space.
So everybody that's here, Iwant to make this engaging,
which means I'm going to inviteseveral of you up.
(00:28):
I want to make this asconversational as possible, so
feel free to ask questions to me, to Axel Merck.
Axel, I can assume you hear me,ok, I hear you.
Well, yes, ok, cool, hi,everybody, perfect, all right.
So, folks, I appreciate thosethat follow.
Cool, hi, everybody, perfect,all right.
So, folks, I appreciate thosethat follow.
Obviously, and you know, we'regoing to touch on a whole bunch
of different topics, from goldto markets, to flight, to safety
(00:52):
, to everything you can imagine.
Do me a favor, as we're livehere Like repost, try to get
this room as full as possible.
Any kind of help any of you canprovide, we'd much appreciate
it for the rough hour here.
This conversation is sponsoredby Axel Merck's firm, merck
Investments.
He is one of my clients, friend, partner and overall good human
being to have in my life.
(01:13):
So, with all that said, my nameis Michael Guyatt, publisher of
the Lead Lagaport.
Again, I'm going to be invitingseveral of you up here.
Axel, I want to get right intoit.
You had mentioned that there'ssome kind of major conference
that either you're attending orthat you're going to be
attending fairly soon, talkingabout gold and gold's been
absolutely unbelievable, reallysince October of 2023.
(01:33):
I'm curious, industry wise, areyou seeing more and more
excitement, more and more hype?
Are these conferences gettingmore and more full, or is there
still a lot of skepticism?
Speaker 2 (01:43):
Yeah, the conference I'm referring to is the BMO
conference.
Bmo is one of the majorbrokerage firms that is active
in the space, facilitating manyof the deals, and both our
portfolio managers and ourclosed end fund are at the
conference.
It's a conference that helpscatch up with many executives,
(02:08):
especially of the smaller miningcompanies as well Just about
every company that we invest inand then many more are present
there.
We, of course, see themanagement team throughout the
year as well.
In recent years the attendancehas been somewhat lukewarm from
the generalists.
Obviously, portfolio managersshow up, but then it's always
(02:30):
interesting who else shows up?
And Peter and Jamie, who runour closed-end fund.
They are busy there so theyhaven't had time to brief me on
all their conversations and theyobviously they brief us on
non-mergers that are beingannounced and whatnot.
But overall, as I think anybodyknows, the gold mining space
continues to be underloved.
But things are happening thereand the good news about the
(02:54):
space being underloved is thatwe think that, despite the
run-up we've seen in many of thesecurities, it still has good
values.
By the way, to make thisinteresting, one of the things
that I think many people may notbe aware of, in our analysis,
the gold mining space is the onewith the greatest dispersion of
(03:17):
returns in any S&P sector.
What that means is that thedifferent mining companies have
vastly different return profiles, and the reason I mention it is
because it's one of the spaceswhere I think an excellent
argument can be made for activemanagement and we can talk about
kind of the downsides of theindex hogging in that space.
(03:37):
But it's an actively, it's aspace for the active manager,
and these conferences are partof it?
Speaker 1 (03:43):
Are the CEOs of these companies, or are the
executives getting more and morebulled up and excited?
I mean, let's face it, it'sbeen kind of a long period of
nothingness for gold in a lot ofthese companies in general.
So is there, is the moodshifting?
Speaker 2 (03:56):
Well, I mean, of course, a higher gold price is a
positive, but the reason I kindof toned out what you say is
these guys are in the businessof shoveling gold out of the
ground.
Right, they are not you and Iand many, many folks listening.
They get all excited aboutthese things, but you think
about it when you have to run abusiness and you have to get
(04:17):
gold out of the ground, youworry about operational things
and, importantly, you worryabout containing your costs, and
you would not be able to raisemoney if you said, okay, we need
$3,000 an ounce to get gold outof the ground.
Now, that said, it is, ofcourse, a tailwind to have a
higher gold price and many ofthe small miners they need to go
(04:41):
back to the market once a yearor once every other year to
raise additional capital, and so, of course, it helps to have a
positive environment.
In that sense, the mood isturning more positive, but it is
far from euphoric.
They've just been burned toomany times, they've been around
for too many years, so they'reexecuting, so they're executing.
(05:02):
And ultimately, what happens atthe other end of the spectrum,
from the investor side?
It continues to be the guysthat get to raise capital are
the ones who have had successfulexits, and it's the same thing
(05:30):
in the gold mining side, and sothey.
Of course, higher gold pricesis a positive, but they tend not
to get carried away.
What's a bigger?
Speaker 1 (05:41):
driver of performance historically?
Is it the price of gold, theprice of oil, the price of
interest rates, price of capital?
I mean, you know, it seems likethere's a lot of different
things that are impacting thespace, which makes it maybe more
challenging to really get ahandle on.
Speaker 2 (05:56):
Well, the scarcest resources in the space is good
management, and so goodmanagement is really makes all
the difference in terms of price.
Now, what you're alluding to is, of course, the many, many
disappointments that havehappened in this space, and
there isn't a simple answer.
But let me give you a fewdifferent answers here.
(06:17):
The major gold mining companiesthey have done what investors
want them to do, which meansthey got their act together
after overspending in theprevious bull market, which
means they're underinvested,which means their balance sheet
is in good shape.
But it also means that theyhave less leverage to the price
(06:39):
of gold and they're playingcatch up.
And so those guys are investedor targeting some of these huge
projects which have many risksto them, most notably that they
cannot execute on price and onbudget.
And so what we like to focus onis more kind of the smaller
bite projects where, of course,you have operational challenges
that come up with any real issue.
(07:01):
But you mentioned energy.
Well, gold mining for theproducers, is energy intensive.
So, yes, of course the price ofoil matters For the smaller ones
, for the developers, if they'renot in production, the price of
oil is obviously far lessrelevant, but there it's more
(07:21):
kind of, and in recent years,one of the key things was indeed
the Federal Reserve, becausewhen the Federal Reserve, by
design, has tight financingconditions, it means it may be
difficult to access financing,even though these mining
companies of course try to getfinancing on the equity side
much more than on the debt side.
But it impacts the price, and soit depends on the stage of the
(07:43):
growth they're in.
It depends on many factors Atalent it's not hip to go into
mining, and not in Australia orCanada either.
So finding people that actuallywork these things, finding
management teams and the bootson the ground on the more junior
level are challenges, and soone of the good news in the
(08:05):
current environment is that thebig inflationary fears are
somewhat mitigated, and alsothings like lithium, for example
, isn't it as hit as it had been, and so the availability of
workers is a little bit easier.
So many of the headwinds and,as I tried to allude to, they
can be rather differentiated areless so than they had been, and
(08:27):
of course, on top of that, theicing on the cake is that the
price of gold is quite favorableright now.
Speaker 1 (08:32):
Typically when you have high volatility in equities
, does gold more often than notdiverge?
I mean, from the work that I'veseen, gold has some of the
properties of that sort offlight to safety dynamic.
When you have a major drawdownin equities, gold tends to
either be done a lot less oractually rally to counter.
(08:53):
I'm curious to hear yourthoughts on that, because the
tone of the market seems to bevery different here.
Speaker 2 (08:58):
Sure.
Well, investors invest in goldand gold miners for all kinds of
reasons.
You're referring specificallyto the diversification investor
and many people have heard thatthe price of gold has a near
zero correlation to equities inthe long run.
But it is not zero all the time.
It tends to morph in and out.
(09:18):
It's sometimes positivelycorrelated, sometimes negatively
correlated, sometimes notcorrelated.
What you're referring to is thesort of more severe downturn
environment and I like to frameit in the context of interest
rates that, let's say, you havethe shocking surprise that the
(09:39):
economy is weaker than expectedand that means the Federal
Reserve might be lowering ratesfaster than expected, and that
means the Federal Reserve mightbe lowering rates faster than
expected.
In that sort of environment, ifit's a shallow recession, then
the market is a discountingmechanism and equities might not
be heard much.
But if the market anticipates amore severe recession, then
traditional equities may well besignificantly impacted and the
(10:03):
urge of investors to diversifyis all the greater.
And the gold miners come intoplay here because they benefit
from the lower interest rateenvironment which helps the
price of gold.
And so it's when you have, andthe extreme scenario was, of
course, 2008.
But in that sort of environment, gold miners tend to shine.
(10:23):
Now it doesn't have to be thatextreme and we have it on our
website at MerckInvestmentscom.
We have a link to a webinar onthe closed and on the mining
space and we show in whatenvironment the gold miners tend
to do well, tend to do well andwe're just shifting from what
(10:43):
we call kind of a high interestrate, high inflation environment
to a high interest rate, lowinflation environment and, I
apologize, a lower interest rateand still somewhat high
inflation environment, and it'sthe anticipation of what might
(11:06):
happen in the future thatprovides a boost to the space.
And in fact, this is the spacethat we're in that historically,
if we look at the last 20 years, has been the most favorable
one for the gold miners and wesee that, of course, in these
gold miners developing well.
I have, for compliance reason,I have to say there's no
assurance that that will persist, but it's really only the
(11:29):
environment where we had thisvery low interest rates and the
high inflation, the financialrepression environment, that the
gold miners perform poorly.
Currently we are somewhat inthe sweet spot and part of the
reason is that these markets areforward-looking and even though
this recession that everybodyforecasted forever never
(11:50):
happened.
It is what might happen next.
And because the market is adiscarding mechanism and the
market is expecting that thisenvironment is such that it
appears to be favorable to theminers for the time being.
Speaker 1 (12:03):
Let's talk about some of the other diversification
benefits of it.
And obviously gold's been amuch better risk off in quotes
hedge, certainly during falsesignals of scares in the cycle
the last several years.
Do you get a sense that there'sbeen more and more allocations
in general to gold, to goldminers, or is it one of those
(12:23):
trends that people are observingit, they're talking about it
but they're not really playingit?
Speaker 2 (12:28):
All of the above and there are some shifts in the
focus within the space.
So the first of all, aside fromthe diversification investor,
there's the investor worriedabout the purchase and parallel
dollar.
There is also the speculator.
The speculator has largely beenabsent, and what I mean with
that?
They've been attracted more tomeme stocks, digital currencies
(12:50):
and whatnot, but we have seenincreased interest in what we do
.
That may well be more specificto what we do directly, and I
alluded to that.
The major miners have had someissues with the large projects,
and I alluded to that.
The major miners have had someissues with the large projects,
and so there's been quite a bitof disappointment in the large
(13:11):
miners.
And since we focus more on thejunior space, we have been
getting a lot more attention.
We've had a lot moreconversations in recent months
and people are trying to figureout how to invest in that space.
As anybody on this callhopefully knows, it's a very
speculative space and there aredifferent ways of investing in
(13:34):
it.
We focus, as I alluded to, ininvesting in management teams
and then we help finance thesecompanies to we call it.
We help institutionalize thesecompanies, participate in deals
and help them grow larger sothat then other investors in
future funding rounds can joinin, things that are very
(13:55):
difficult to do outside forindividual investors in
particular, and so it's notclear to me whether the kind of
the overall space has got muchmore attention, or just what we
do simply because we are in aspace where we happen to think
that there are a lot ofopportunities.
It does look like investorstend to agree or maybe, more
(14:18):
importantly, they aredisillusioned with the major
ones and they're looking forbefore abandoning the space
entirely, they're looking forother ways of potentially
playing that space.
Speaker 1 (14:27):
Peter, I am ready to come up.
Feel free to come up anytime onthis.
On the junior miners, is it asimilar dynamic to what we see
big picture wise, with justsmall caps in general versus
large caps, meaning there's ahuge divergence that's happened
over the last several yearsbetween the larger players in
the gold space, gold miningspace, versus the smaller
players?
Speaker 2 (14:48):
Well, it's a more complex dynamic in the sense
when you invest in a juniorminer, you're literally buying
an option for them striking gold, and so the talk, if you want
to call it, the leverage youhave is dramatically higher than
simply the little nuances inperformance in other sectors in
(15:09):
the market.
And so, after the FederalReserve put that in the fall of
2023, after Powell kind of toneddown the hire for long
environment, those companiesstarted to come to life.
The higher for long environment,those companies started to come
to life.
But, all that said, the marketas a whole is paying less for an
ounce in the ground than itused to, and indeed we shifted
(15:33):
in recent years from explorersto developers, because you can
buy developers cheaper than youcan buy the explorers and help
them become developmentcompanies.
And so another way of sayingthat is that the values continue
to be befrissed.
Now, if you look at the returns, some of them have been rather
substantial, but given where theprice of gold is, one could
(15:56):
make the argument that theycould be significantly higher.
And I'm a known insider buyerin that space, and the reason I
am is because I do think thatthe market is slowly waking up
to the opportunities there and,as you pointed out earlier,
equities in general areexpensive and there are more
investors looking to diversify.
(16:18):
So to me I can stomach thevolatility in the space and I
certainly like the value that'savailable there.
Speaker 1 (16:24):
I think a lot of things are expensive.
Peter, I want to bring you intothe conversation.
I've been seeing your posts onJapan and the reverse carry
trade.
I'm glad I'm not the only crazyone that's been hammering that
for the last year or so as beinga tail risk.
I know you've been a longtimegold bull.
I was talking to Axel hereabout you know, is there
excitement in the space?
Gold bull, I was talking toaxel here about you know, is
(16:46):
there excitement in the space?
And it seems like in generalthere just isn't, which is
probably why the trend continues.
Um, any thoughts on, uh, goldsort of as a, as a signal?
Uh, throughout all this I'vebeen saying that repeatedly that
gold is sending a warning andequities have just not heated it
as they've gotten more and moreexpensive.
But, um, is there a message inthe way gold's been behaving the
last year or so?
Speaker 4 (17:05):
I think so.
I mean, axel and I have, youknow, been watching and buying
gold for a long time.
You know, I, when I firststarted recommending gold and
buying it for my clients, I waslike it was under $300 an ounce.
So it's basically 10x over thattime.
And you know people haven'theeded that warning at all.
(17:27):
You know, the stock markets,you know, until very recently
were at record highs I mean notpriced in gold, of course, they
were far from record highs interms of real money, but
investors didn't really payattention to what gold was
saying.
Investors didn't really payattention to what Gold was
saying.
But I think you know it's aboutto say it a lot louder in the
next several years because Ithink the debt problem is really
(17:51):
going to kick into a highergear here.
Because you know, the Fedprematurely aborted the feigned
inflation fight.
It never raised interest ratesinto restrictive territory.
The credit continued to growthe entire time the Fed was
hiking.
So rates never got high enoughto cut off the credit growth
(18:12):
which is part of what'sinflation is the expansion of
money and credit.
And even though they sloweddown the expansion of money,
they never slowed down theexpansion of credit.
And of course, money is.
Supply is growing once again,and so even the way the Fed
measures inflation.
It's risen now for the pastfour or five months in a row.
Most recent month, cpi isannualizing 6.2%.
(18:36):
Most recent quarter is 5%.
It's on an uptrend.
The Fed's going in the wrongdirection.
The Fed's cutting rates, but Ithink what's going to happen is
the hidden recession that Ithink we've been in for the past
year or more is going to belaid bare, probably in the first
year of the Trump presidency.
That's going to create a lot ofpressure on the Fed to cut
(19:00):
rates more.
A lot of pressure on the Fed tocut rates more, maybe even
return to QE to keep long-terminterest rates from rising to
stimulate the economy.
But that's going to happen at atime where inflation is high
and headed higher, so it'smassive stagflation.
The Fed has no plan for that.
They admitted that.
All they can do is hope itdoesn't happen.
(19:22):
They've never stress tested abank for that, because they know
the banks would fail.
So I think that we're headedfor a real currency and
sovereign debt crisis that we'vebeen heading for for over a
decade.
But the fact that we've beenable to postpone the inevitable
just made all the underlyingproblems worse.
And you know I think you knowyou guys are talking about gold
(19:45):
stocks.
You know it's amazing to me.
You know I put more of my ownpersonal money into gold mining
stocks than I did to goldbecause I was so bullish on gold
I thought I would make more ingold stocks and I outsmarted
myself.
Speaker 1 (19:59):
And in that allocation have you tilted
larger, smaller?
I mean, what part of that goldmind space?
Speaker 4 (20:05):
Mostly, mostly the bigger companies, you know, and
I've done well with, like FrancoNevada and Silver Wheaton and
Agnigo Eagle.
But I've also had a lot ofmoney in Newmont and Barrick and
you know they've just been,it's been like dead money for 20
years and I've had, you know,although a lot of my Newmont and
Barrick I acquired not becauseI bought them but because I own
(20:28):
the companies that they acquiredover the years.
But I have bought some.
But you know, I have a lot ofmoney in gold stocks and silver
stocks and I would have justdone better off if I just owned
all physical gold, you know,given that you know where I
started buying it.
But I think the reason thatgold stocks are as cheap as they
(20:48):
are right now is because WallStreet has been bearish for the
entire rally, especially thelast couple of years, where the
public has been net liquidatinggold.
Overall, last year it was netoutflows of GLD, net outflows
from GDX and GDXJ.
Um, you know, I think part ofthat has to do with the euphoria
(21:09):
in tech and AI.
Part of it also has to do withthe distraction created by
Bitcoin, uh, and the idea thatit's better than gold.
It's the new gold, it's digitalgold.
I think that's kind of takenaway some of the marginal retail
buying.
But it's also kept a lot of thefocus off of gold in the media
(21:30):
and the financial media that ispreoccupied with Bitcoin and
barely mentions gold, even as ithits new record highs every day
.
So that's great for the centralbanks because they get to buy it
without a lot of competition.
Central banks don't buy silver.
That's why it's still cheap andthey don't buy the mining
stocks.
But I'm continuing to put moneyinto these stocks.
(21:53):
I mean I haven't bought any inthe recent weeks for myself, but
I did buy quite a bit monthsago in the last correction.
I mean I tend to add to my ownpositions when there's a
meaningful correction becauseI've got so much money in these
stocks, having been accumulatingthem for 20 years.
But you know I have a muchbigger position now than I did
(22:14):
then.
I mean I'm positioned very wellfor these stocks to go up 10X
or you know, I think that'sgoing to happen and for people
who are gambling on Bitcoin, Ithink it's a much better risk
reward to get in these mining.
Speaker 2 (22:34):
Maybe, peter, you should be investing with us.
You are one of the few onesthat actually beat the price of
gold.
Let me expand a little bit onwhat you say, peter, because
you've made some veryinteresting points.
This recession that quoteunquote never came.
One of the reasons is that theFederal Reserve is ever more
micromanaging the economy.
If you bail out the bankingsystem when they mismanage
(22:57):
interest rate risk and whatnot,sure we're not going to have a
recession and whatnot?
Sure we're not going to have arecession.
But I think it was just ourstatistic that 10% of the top
10% taxpayers spend over 50% ofretail spending in the US these
days.
So there is a yes, I would 100%agree.
There is a latent recession.
(23:18):
We just don't see it On theprice of gold, just where it
might go.
Historically speaking, gold isalways the sort of thing you
want to be glad you had.
With hindsight never quite knowwhat you have in the future.
As Peter is pointing out, a keyreason why gold and also gold
miners have had more tension isbecause of the concerns about
(23:39):
the fiscal sustainability.
And as much as some on thiscall will love and others may
hate what the currentadministration is doing, I'd
like to remind everybody thatfiscal sustainability is really
not top of the agenda.
There is no entitlement reform.
There's talk about making thetax cuts permanent, but not in
(24:01):
any way that would fix thelong-term issues and with the
tight majorities in Congressit's, in my view at least, very
unlikely to happen.
You have to give gifts toeverybody to get this stuff
passed, and while we might getmore growth with deregulation,
while we might get a kind of theenthusiasm to invest unleashed
(24:24):
with the current administrationby some people, none of that
fixes the big long-term issues.
And the thing that has changed.
When Peter and I talked in theearly 2000s, we were on the
fringe.
Now it's becoming mainstream totalk about the fiscal
sustainability and in myassessment that is a huge
(24:46):
positive for the price of gold.
I have to talk in thisconvoluted way because my speech
is regulated, but I put mymoney where my mouth is, having
been on the record in buying thegold miners.
Speaker 4 (24:58):
Yeah, you know the other thing that people don't
seem to understand.
You know, if we're going toreally make America great again
and go back to a country thatmanufactures and doesn't run
trade deficits, where we canproduce for ourselves, that
transition involves a protractedrecession with big drops in
(25:24):
asset prices, much higherinterest rates.
Trump doesn't seem toappreciate that.
He thinks it's going to be animmediate golden age and that
foreigners have been takingadvantage of us.
It's actually the reverse.
We take advantage of the worldbecause we consume what they
produce, we borrow what theysave.
So the world has beensubsidizing the American
(25:48):
standard of living, now to thelong-term detriment of America,
because these trade deficitshave a cost.
You know we're selling off ourcows to buy milk.
You know foreigners accumulateassets as we go deeper in the
debt.
So there is a long-term priceto be paid for this profligacy,
but in the short run, we live ahigher standard of living as a
(26:11):
result, and there's no way toget from where we are to where
we need to be without a lot ofpeople losing a lot of money and
without a big short termdecline in our living standards,
as we have to stop spendingmoney.
People have to stop buyingstuff so they can save money, so
we can take the savings andbuild factories and recreate
(26:31):
supply trains and train workersso that we could be
self-sufficient again.
But we're not going to havethat because Trump did not
prepare the electorate forausterity.
Going to have that because Trumpdid not prepare the electorate
for austerity and I believe thatyou know, as soon as the
recession is back, trump isgoing to be back to the same old
stimulus let's send outstimulus checks, just like he
(26:54):
did during COVID.
All that was a mistake duringCOVID.
The whole policy, the fiscaland monetary response was
completely wrong.
But that's all they can dobecause they can't allow a real
recession to run its course.
Because it means you know banksfail.
It means you know.
Speaker 1 (27:12):
I don't, I don't sorry, we're a softened
generation.
I mean you use the termprotracted contraction or
recession.
It's like when was the lasttime we actually had a recession
that lasted for more than twomonths?
Yeah, it doesn't seem likethere's no.
Speaker 4 (27:24):
They won't allow it.
They won't allow it.
But the recessions are actuallythe cure for what ails the
economy.
You know the government screwsthe economy up with artificially
low interest rates thatmisallocate assets, lead to
bubbles and all kinds ofmistakes that are made, and it's
during the recessions wherethey're corrected.
But you know, the politiciansintervene, but so we're heading
(27:46):
for a big crisis.
Nobody still gets that.
You know, as we're talking, youknow gold is down about 50 bucks
today, which you know isnothing compared to what Bitcoin
is down Actually $43, 48, nowalmost 50.
But when you look at what'shappening with gold, right, so
gold's down about one and a halfpercent.
But now the gold stocks.
You know, although GDX is down3%, gdx stays down, you know, a
(28:15):
little over 3%.
You know it reacts to the dailymove in the price of gold
without realizing that gold isstill above 2,900.
I mean, that is a very highprice for these gold mining
companies that are not evenreally priced for 2000 gold, let
alone 2900.
But the market still reacted.
Traders, oh, gold is down, sosell the gold mining stocks
without any regard for how cheapthey already are.
This, this is all a bunch ofnoise and especially since gold
(28:38):
is likely to be closer to000 atthe end of the year than 3,000.
And sure, mining costs aregoing to go up, but not nearly
that much, you know.
So most of these stocks aretrading the big stocks are
probably trading as single digitmultiples of what they're
actually going to earn in 2025,you know, which is a massive
discount to the S&P, which isridiculous, because they
(28:59):
probably should trade at apremium, especially given where
gold is likely to go to the S&P,which is ridiculous because
they probably should trade at apremium, especially given where
gold is likely to go.
Gold is up 10x, but it's reallynot up very much at all If you
compare it to where it was in2011,.
It's only up 50% since the 2011peak and we've created a lot of
money since then and a lot moremoney is going to be created.
(29:21):
I mean, gold's already gone up,you know, 100x from where it
was when the Federal Reserve wasstarted, because it was $20 an
ounce, and now it's.
Speaker 1 (29:29):
And, by the way, I remember very well in 2011, the
gold bugs and the sentiment andthe beating of the chess bag.
You don't have any of thattoday.
I want to get Eric.
Speaker 4 (29:38):
I know, I remember very well that period and people
gave me a lot of shit because Iwas saying gold's going to go
to 5,000.
And of course it's going to goto 5,000, but a lot later than I
thought.
But now I don't say 5,000.
It's going to 20,000 or 30,000.
I mean, you know it's a movingtarget because the supply of
money in the world dollars andeuros and yen and pounds have
(30:02):
exploded since then.
So to try to figure out wheregold should be, it's much higher
now than I thought it shouldhave been back then and I want
to get eric because he's beenwaiting patient.
Speaker 3 (30:13):
Go ahead, erica hi mike, uh, thank you for having
me on, yeah and uh, peter, hey,I just want to say I'm your big
fan and, um, you're one of thebiggest reasons why I go into
gold.
Speaker 1 (30:24):
By the way, Axel should be a bit.
You should be a fan of Axel'stoo.
In fairness, I mean, Axel's theman.
Okay, I'm just going to stopyes.
Speaker 3 (30:30):
Go ahead, but I was listening to the Peter show back
in 2018 and 2019.
And I really loaded up backwhen it was around 1200 bucks.
So thank you, Peter.
Thank you for that.
Anyway, I got a question forPeter.
Peter, do you know that in thelast two and a half months the
(30:55):
US imported around's been a lotof speculation as to who owns
that gold and why it's beingimported?
Speaker 4 (31:11):
Are they trying to front run potential tariffs?
Is it US gold that was leasedout, that we're trying to get
back into Fort Knox so that whenwe go there it's there?
I don't know, but it is verycurious.
Speaker 2 (31:22):
Yeah, let me.
Let me maybe put some clarityon what's happening there.
As some of you guys know, we dohave about 15 tons of gold
stored in London.
It's part of one of the thingsthat we do, and so we monitor
this market very, very carefully.
It's the threat of tariffs thatgot folks to say well, if we
(31:43):
want to have gold in the US, wemight as well have it available
before tariffs are imposed.
And, by the way, nobody thinksthat gold is going to be
targeted explicitly.
The idea is that there will besome blanket tariffs and gold
will be caught up in that,possibly sorted out later on.
But the folks at the COMEX,where historically inventories
(32:04):
are very, very low, have decidedwe want to have more gold.
It turns out London boss theinstitutionalized boss, that are
in London are are not suitablefor Konex, so gold has actually
been sucked from London viaSwitzerland, where they're
converted to kilobars, to the US.
Now there is plenty oftransportation capacity, there's
(32:24):
plenty of refining capacity,capacity, but a lot of the gold
that the clearing brokers inLondon that provide liquidity in
the market in London areenabling is stuck at the Bank of
England.
The Bank of England has acompletely antiquated inventory
system.
Typically, when you have yourgold with a bank or an
(32:49):
institution, you have a palettewhere you have your gold and at
the Bank of England they startto do computer entries when gold
is shifting around.
So any one palette could havethe gold of a gazillion of
different customers.
And while the gold is there andthey can procure it, it takes
forever, and so when I lasttalked to them about a few weeks
(33:11):
ago, the backlog was until themiddle of April to get any
additional gold orders into thepipeline, and that means there's
a shortage, a potentialshortage of gold available.
Now the beautiful thing is thatthere's this beauty thing called
the price.
So if there were to be quoteunquote not enough gold in
London, you would see either theprice of gold move higher if
(33:33):
there wasn't enough at all, butmore so if the bottleneck
continues to be the end ofEngland and it were to become
critical, you would see thespreads in the gold
exchange-traded products widenbecause selling and buying would
be different.
And so it's the spreads and thegold exchange rate of products
you want to watch.
In the meantime, of course, theallocated gold remains
(33:56):
allocated gold in London.
And the other thing if therewere tariffs imposed.
The one thing you would expect,of course, is that the premiums
for coins that you buy in the USmight go up, but also the
premiums for US coins might goup because the demand might
shift.
So there's all kinds of stuffhappening, plenty of space for
conspiracy theories.
But the one thing I would liketo relate this to is when we
(34:19):
have the negative crisis in oil,there is physical movement of
gold involved, and all thesedecals matter.
And one thing maybe, before Ikind of wrap up here on this one
, is that the price of gold.
When you hear the price of gold, what that is is the price of
gold offered by the clearingbrokers in London, and the price
(34:40):
of gold in other locationsmight be different, but the
price of gold that we typicallyhear quoted, that is a very
specific price of gold in London.
Speaker 1 (34:48):
I love it.
Let me get you back up here,peter.
So I just saw you uh droppedoff eric.
Does that help explain things?
Yeah, that's pretty good, thankyou.
Thank you, and I can be a fanof that.
Thank you very much.
There you go exactly.
Uh, yes, I do want to uh talkabout kind of more recent market
action and and get uh actuallyyour take as well as peter, if
you come up here.
Um, I've been alluding to thisidea that it seems like the
(35:10):
tone's a little bit different.
The last several days wasalmost more like it's a growth
scare and what it's making mesay that is unlike what we've
seen the last three and a halfyears, which has been my
personal hell.
Markets go down, yields go down.
You're starting to see thatkind of more classic flight to
safety disinflation, maybedeflation pulse that's beating.
Flight to safety disinflation,maybe deflation pulse that's
(35:31):
beating.
Anything that you can point toAxel that suggests that that's,
or maybe at a cycle turn herewhere maybe the thinking shifts
from that high inflation, higherrates, to now this more classic
inverse relationship, kind ofkicking in.
Speaker 2 (35:47):
So, talking about the broad equity markets, I think
we have seen classic signs of atopping out phase.
I've compared this environmentto the late 90s and early and
then 2000, specifically, withthe key difference, of course,
is that the debt situation isvery, very different, and so
it's one of the reasons why, inthe current environment, the
(36:08):
price of gold is reacting muchmore, and as we're talking today
, I just I sent a message to oneof my team Now this is selling
pressure here, and the responsewas they're selling pressure
everywhere.
And, of course, when you have acredit bubble or a euphoria on
investing in the MAC7 orwhatever you might want to call
(36:31):
it, at some point something willtire out.
But it's not like people arejust flipping a switch.
Remember, in 2000, the NASDAQtopped out in March and I think
the S&P only in September.
It takes a while for thisenthusiasm to kind of fizzle out
, and then we already have thisenvironment where only the top
(36:53):
10% of earners are spending agreat deal, and we have this
shadow recession, or whicheverway Peter called it right.
And so now, if you had equitymarkets at lunch, it could well
be that the appetite of thehigh-end consumer to spend is
also fizzling out, and then, yes, then the Federal Reserve is
(37:15):
likely to react, which is a goodthing for the price of gold.
Keep in mind that almost alwayswhen the Federal Reserve cuts
rates, they didn't plan to dothat as aggressively as they did
.
Things rarely ever worked theway that they were planning it.
And just one more thing on theFed they have their five-year
review now.
Not once have they admitted howthey completely screwed up the
(37:37):
inflation they just planned.
Oh, everybody had the sameproblem, and so I don't expect
much of substance to come out,other than that one of the
things that happened in recentyears everybody's hero, ben
Bernanke and I'm being a bitsarcastic here, just in case,
kind of was praising thisincreased micromanagement that
the Federal Reserve is doing.
So the folks at the Fedactually think what's happening
(37:58):
is a good thing, and they canquote unquote manage this
economy ever better, and to methat's more of a command economy
type of thing than anythingelse.
Speaker 1 (38:08):
Peter, I'm curious if you have any thoughts on this.
It's like I said, I think it'san interesting change in the
environment here, and it lookslike you're on mute, by the way.
Speaker 4 (38:15):
I mean, good news is bad news or bad news is good
news.
Look, I think the marketsrallied most recently on the
Trump win and the idea that thisis going to be pro-growth, good
for business lower taxes so Ithink that was the last leg of
it.
But I think that the marketsare overpriced and have to come
down, given the reality of muchhigher interest rates than what
(38:38):
anybody expected.
I was one of the few people whowas forecasting that long-term
rates would rise as soon as theFed started cutting short-term
rates, and most people didn'texpect that to happen and they
were surprised.
So, given what's happened torates, I mean stocks need to
come down, and I think peopleare starting to realize that the
(38:59):
Fed really no longer has thecontrol over the long term rates
unless it goes back toquantitative easing, which it's
still saying it's not going todo.
It's still doing quantitativetightening, and so rates are
going to go up.
Even if the Fed were to cutrates more on the short end,
it's just going to put moreupward pressure on the long end.
You know that's the predicamentthat the Bank of Japan is in.
(39:20):
When they printed their 4% CPIa couple of days ago and yields
started to rise, the Bank ofJapan came out and said okay,
we're going to start buyingbonds if yields keep rising like
this.
And then the market turnedaround briefly.
But if the Bank of Japan printsmore yen to buy more bonds,
(39:42):
it's just going to push upJapanese inflation even higher,
which is the reason thatJapanese yields are rising.
You've got an overnight rate inJapan of a half a percent and
you've got four percentinflation heading in the upward
direction, and at some point Ithink maybe this year Japan is
going to have to officiallyacknowledge that its goal of
(40:04):
achieving two percent inflationnow has to be fought in the
other direction.
I mean, they're stillpretending that they're trying
to get their inflation rate upto 2%.
Now they need to get it down to2%, and they haven't even
acknowledged that that's thecase, and in fact, none of these
central banks are going to beable to get.
Speaker 1 (40:21):
Is it fair to say I made that.
I put out that post which wenta little viral.
I said you know, literally theentire country of Japan is
insolvent if you mark the marketand nobody gives a shit.
And like, am I crazy andthinking that gives, given the
way that yields are acting,given how much leverage there is
from Japan?
Speaker 4 (40:37):
Well, I think Japan is more solvent.
In the US, I mean, japan couldliquidate their treasuries.
That would pay off a good chunkof the debt.
But you know, the Japanesepeople have a lot of savings.
They can pay higher taxes, youknow.
So I think Japan is more ableto afford this debt than
(40:58):
probably we are.
But you know, the bigger problemI was just trying to point out
and try to make is all thesecentral banks, you know, are now
going to have to lie in theirown bed, so to speak, because
they all created this myth of a2% inflation target and nobody
had a 2% inflation target untilinflation was below 2%.
(41:20):
And then and of course it wasnever really below 2%, but the
way they measure it, it was.
And so you know, Ben Bernanke,you talk about him he came up
with the idea of a 2% inflationtarget in 2012, when inflation
measured by core CPI, pce, was1.8.
And he said well, that's notenough, we need two.
(41:40):
As if they could micromanage itto that degree and dial up 1.8
to two.
But there never was a mandatefor 2%.
The unofficial target wasalways zero, because the Fed's
mandate was price stability, notprices that go up by 2% a year.
But they only came up with thatasinine number as a target to
(42:03):
justify 0% interest rates, tojustify QE.
But now they're stuck.
Now they're stuck sayinginflation has to be 2%.
They're never going to get itback down there.
And the origin originally wasNew Zealand, but New Zealand
never had a 2% target.
They had a 2% ceiling when theyinitially Now they have a
(42:24):
target between 2% and 3%,because they were forced to
raise the ceiling when theycouldn't meet it.
But it was supposed to be aceiling.
Speaker 2 (42:31):
One of the challenges that all the central banks have
is that they don't have astrategy.
They are completely doingthings off the cuff, and we saw
that obviously last Decemberwhen it became apparent to
everybody that they're justshell-shocked.
Oh my God, the election changesthings.
They have taken away theirgauges.
They used to be able to lookout on the yield curve as to
(42:52):
what the market is thinkingthese days.
They have managed to yieldcurve so much that they don't
have it anymore, and they usedto have insight into what's
happening in the banking sectorwith the treasury desk that they
had at New York Fed.
Now they pay interest onreserves and have a convoluted
(43:18):
set of regulations that distorteverything, and so they're
reading the tea leaves, theyhave a debating club, and then
they lack a long-term strategy.
And then anybody should besurprised that the result is
quote unquote suboptimal.
And, by the way, one of theside effects of micromanaging
the economy is that you haveinefficient capital allocation,
and so all of that means youhave a higher cost of borrowing.
You probably get higherinflation when all this comes.
The reason why anybody paysattention to the Federal Reserve
at all is, of course, becausethey have the bazooka, but it
(43:42):
would be very helpful if theyjust got out of the way and
replaced the debating club withsomething else like a
rules-based system.
In the absence of that, we haveto live with it, though, and so
we know what they will do.
They will cut rates when thereis a recession, and otherwise
they'll be noodling around.
(44:02):
They'll keep rates a little bithigher than many people
anticipated, and the rest has todeal with it, and the dealing
with it is I mean.
Peter says Trump is going towrite stimulus checks in a
recession.
I don't know whether it's goingto be a stimulus check or not,
but it's certainly something ofa stimulative nature, right, and
we know the playbook of thepolicymakers, and in all of that
(44:23):
, gold just does nothing.
Gold just is.
The price of gold changes, ofcourse, and, when it's all said
and done, the interests ofgovernment and the interests of
investors are not aligned, andone of the ways that I
personally deal with it is Ihave a gold allocation to hedge
(44:46):
the craziness of our dearbeloved policymakers.
Speaker 1 (44:51):
I note a little sarcasm in that, Eric.
I saw you unmuted yourself.
I don't know if you want to addsome additional questions or
comments.
Yep.
Speaker 3 (44:57):
Thank you, michael.
So I just want to move back tothe tariffs situation with the
gold impulse, and initially Iactually agree with Axel.
I'm talking about a month agowhen this situation first came
about.
But since then a lot of datacame out and I have a lot of
(45:19):
questions regarding thatnarrative of tariffs being the
primary reason of why the goldflows into the US shot up like a
rocket.
I said just earlier that totalimpulse of physical gold into
the US in the last two months isapproximately 2,000 metric tons
(45:44):
.
That's from the StoneX and alsoBullionBalt, which, as you know
, they are a member of the, fromthe StoneX and also Boolean
Belt, which they are, as youknow, they are a member of the
LBMA.
So I think that number isreliable.
Now, if you guys recall, in 2020to 2021, the total number of
(46:08):
weight of amongst of physicalgold that was imported into the
US was around 600 metric tons.
So this is pretty extreme fortwo and a half months for the US
to import 2000 metric tons intothe country.
Now, the COMEX only importedapproximately 674 metric tons
(46:34):
during that time.
So two-thirds of that are fromOTC imports, like
over-the-counter somewhere.
Okay, so back to the tariffsnarrative.
Why back to the tariffsnarrative, why I mean it doesn't
make any sense, because whywould somebody anybody import
(46:57):
all this physical gold in such ahurry in two months just for a
potential tariff?
That may or may not happen.
And I may add that the massiveimpulse of physical gold started
at the end of December 2024.
(47:18):
So that's a full month, a monthand a half actually, before
Donald Trump announced thetariffs.
Speaker 2 (47:26):
The market doesn't wait for tweets by Mr Trump, but
Donald Trump was even presentthat tariffs might have been
coming.
Speaker 3 (47:33):
He wasn't even in the market at that point.
Speaker 2 (47:40):
Well, that's correct, but of course there was
anticipation that he's going togo in.
But the broader point here isthat these markets are efficient
and the market mechanism works,and it is actually very cost
effective to move gold fromLondon to the US, as crazy as it
sounds.
It's because the kilo barstrade at a slight premium over
(48:01):
the London bars, which means itdoesn't actually quote unquote
cost much to move the gold fromLondon via Switzerland, have it
refinedinery to KiloBars andbrought them to the US, and so
when the market participantsbelieve there might be an
arbitrage opportunity, by allmeans it's going to be sucked in
that direction.
The one thing that I'd like topoint out is that it is only
(48:23):
London that has the mechanismsin place to actually facilitate
institutional trading at scale,and no other place, including
COMEX, is actually really goodat doing that.
And I'm not saying that gold isnot going to the US.
What I'm saying is that anydistortions in the price you
(48:44):
will see in the pricingmechanism works right.
Comex gold might be priceddifferently from London Gold,
and if then there's going to bemore demand for London Gold and
it's not available, guess what?
That price is going to go up.
So all I'm saying is that thismarket is actually functioning
and, yes, we can speculate as towhy it's happening and maybe
disagree on the details.
(49:05):
What I'm saying is this marketis actually working as it should
.
Speaker 3 (49:08):
I don't doubt that it's functioning.
But let me ask you anotherquestion.
Axel Reuters reported onJanuary 29th that the total
amount approximately okay, thetotal amounts of physical gold
from the LVMA to the ComEx isapproximately 400 metric tons
(49:30):
made to the ComEx isapproximately 400 metric tons.
Now, that would make sensebecause the ComEx inventory
numbers of total impulse sincethe end of December is now at
674 tons, like I said before.
So that progression makes sense.
If the impulse didn't shrinkduring that time period, right.
But remember what I saidearlier During this time period
(49:53):
the total number of goldimported into the US was 2,000
metric tons.
So we are talking abouttwo-thirds of this not from the
LBMA, from OTC markets thatBefore you over-interpret the
data too much.
Speaker 2 (50:11):
You use the word now.
I'd be very careful with that,because a lot of the data that
we get is delayed, and so youmight be comparing apples and
oranges on some of these thingsand so jumping to conclusions as
to where that is and whatnot itcould be.
There could be things intransit, there could be many
other things.
We're dealing with physicalgods here and strict reporting
(50:34):
guidelines by the differententities, and so there will be
discrepancies, and it doesn'tnecessarily mean that something
is out of the ordinary or out oforder.
I mean, of course, it's out ofthe ordinary to have that much
gold being shifted to the US, tohave that much gold being
shifted to the US.
I just be careful in readingconspiracy theories into things,
when people are collecting datafrom different sources that may
(50:56):
not be compatible and thentrying to impose a narrative to
it.
What we do know is that thismovement is happening right.
I mean that nobody is disputingbut we also know, of course,
that the US has a history ofconfiscating gold and other
things.
Right, currently, it's in theinterest of market participants
(51:16):
that want to have gold in the USto actually put it there in
case a terrorist were to beimposed, and the cost of doing
so is low.
Now, can that create distortionsin other markets?
Sure, and notably and wehaven't talked about that as
(51:37):
much enough the Bank of England.
Already a decade ago I was toldby the roles managers there
that the only reason why theyreally do business with the Bank
of England is because the Bankof England they're so large.
But it is a pain in the butt todeal with that, and when it is
a squeeze like we have right now, those operational aspects come
to the forefront and mightcreate dislocations in the
(51:59):
market.
The quote-unquote good news isthat these dislocations will be
visible, and I alluded to on themost basic level is the spreads
and the gold ETFs, of course.
The other place of course youcan look at is the gold lease
rates.
They are off their peak, by theway, and so I don't want to be
here too alarmist, because thatone here suggests that some of
(52:21):
that pressure is abating andthis market might be finding a
new equilibrium.
Speaker 1 (52:26):
So your pressure is being abated.
I do have to wrap this space upbecause I've got a podcast I'm
hosting literally in two minutes.
Special thanks to Peter Schifffor joining and, of course, axel
Merck.
Eric appreciate youparticipating Everybody.
Please make sure you followPeter, make sure you follow Axel
.
Also make sure you follow Eric.
I mean, why not?
You know and follow me.
We'll do a few of these spaces.
I'll try and do these a littlebit more often, but thank you,
(52:47):
ryan, for joining and actuallyany parting words on your end.
Speaker 2 (52:50):
Well, if you are interested in a gold standard,
have your personal goldstandards.
Don't trust the government totake care of you.
Speaker 1 (52:59):
I think Peter would agree with that.
Speaker 4 (53:01):
Thank you, buddy.
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