WEBVTT - Why the Price of Gold Reflects a Long-Term Shift 0:00:08.520 --> 0:00:10.920 Welcome to Merendalks Money, the podcasting which people who know 0:00:10.960 --> 0:00:12.520 the markets explain the markets. 0:00:12.560 --> 0:00:13.680 I'm maren' unset web. 0:00:13.880 --> 0:00:16.400 This week I'm speaking with John Reid, the World Gold 0:00:16.400 --> 0:00:19.600 Council's senior market strategist for Europe and Asia. John has 0:00:19.640 --> 0:00:23.040 over thirty five years experience in the gold industry. He's 0:00:23.079 --> 0:00:25.960 worked for mining companies, he's worked for investment banks, he's 0:00:26.000 --> 0:00:28.360 been a gold strategist, and he's worked as an asset 0:00:28.360 --> 0:00:31.400 manager as a portfolio manager. So fair to say, if 0:00:31.400 --> 0:00:34.800 anyone knows gold, it's probably John. And the precious metal, 0:00:34.840 --> 0:00:37.159 as you know, is really moving. It is up well 0:00:37.200 --> 0:00:39.400 over twenty percent since the beginning of the year. It 0:00:39.520 --> 0:00:43.000 is smashed through the five thousand dollars an ounce level 0:00:43.040 --> 0:00:45.280 for the first time this week. There is a lot 0:00:45.479 --> 0:00:47.519 going on, so we are hoping John will put the 0:00:47.600 --> 0:00:49.839 rally into some context and maybe give us some insight 0:00:49.960 --> 0:00:52.199 into where gold will go next, which of course is 0:00:52.200 --> 0:00:53.720 actually the only thing we really want to know. 0:00:54.720 --> 0:00:56.560 John. Welcome to Merrin Dogs Money. 0:00:57.120 --> 0:00:58.160 Thank you very much, Merily. 0:00:58.280 --> 0:01:02.040 So let's start at the beginning. Just answer for me 0:01:02.080 --> 0:01:05.240 the basic question, what an earth is going on? What 0:01:05.680 --> 0:01:09.199 started this massive bill? Rarely and why is it going 0:01:09.319 --> 0:01:10.800 so far so fast. 0:01:11.840 --> 0:01:15.080 Well, it's interesting because that goal's been running pretty strongly 0:01:15.120 --> 0:01:18.680 now for over three years, but the reasons why it's 0:01:18.720 --> 0:01:21.240 been going up have been changing. I mean, I think 0:01:21.280 --> 0:01:25.160 it started off by central banks dramatically increasing the amount 0:01:25.160 --> 0:01:28.399 of gold that they were purchasing following the Russian invasion 0:01:28.440 --> 0:01:30.640 of Ukraine, and the reason for that, I think was 0:01:30.640 --> 0:01:32.880 the sanctions that were placed upon the Central Bank of Russia. 0:01:33.319 --> 0:01:35.959 It really made many central banks around the world think, hmm, 0:01:36.120 --> 0:01:39.960 am I really happy having such a large proportion of 0:01:40.040 --> 0:01:44.119 our foreign exchange reserves invested in the Western financial system, 0:01:44.120 --> 0:01:46.280 which can be sanctioned at the stroke of a pen. 0:01:47.000 --> 0:01:49.120 That was the first trigger I think for this move. 0:01:49.640 --> 0:01:54.120 We then saw tremendous investment buying in gold coming from 0:01:54.200 --> 0:01:56.840 emerging markets and even from time to time strong jewelry 0:01:56.880 --> 0:02:01.000 demand as well. So emerging market economic strength was the 0:02:01.120 --> 0:02:04.400 second wave I think behind the move higher and gold, 0:02:04.880 --> 0:02:09.760 and then from well last year was about Western investors 0:02:10.240 --> 0:02:12.960 getting onto the bandwagon a bit late, to be honest, 0:02:13.320 --> 0:02:17.240 but joining the bandwagon and buying gold largely in reaction 0:02:17.480 --> 0:02:20.119 to what's been coming out of the United States, whether 0:02:20.160 --> 0:02:23.320 it's economic policy, whether it's interest rate cuts or whether 0:02:23.320 --> 0:02:27.239 it's pronouncements from President Trump and his administration. 0:02:28.280 --> 0:02:30.800 Okay, so three constantly moving reasons. 0:02:30.800 --> 0:02:32.760 And the central banks are still buying, right, so that 0:02:33.120 --> 0:02:35.079 demand is still there, still coming. 0:02:34.919 --> 0:02:38.960 They're still buying, and they're bought just a little bit 0:02:39.040 --> 0:02:41.080 less last year than they have done for the previous 0:02:41.080 --> 0:02:44.560 three years. So there's still an important component of the 0:02:44.600 --> 0:02:47.079 move higher and gold. But they're not the only story 0:02:47.080 --> 0:02:49.520 in town. And that's something I like to say upfront, 0:02:49.520 --> 0:02:51.680 because the number of people that say to me, oh, well, 0:02:51.680 --> 0:02:54.200 central banks are buying gold, we should buy gold too, 0:02:54.320 --> 0:02:56.680 It's like, yes, but it's not as simple as that. 0:02:56.720 --> 0:02:57.680 There are other factors too. 0:02:57.760 --> 0:02:59.680 Yeah, and it's a bit of a backstop to the price, 0:03:00.840 --> 0:03:01.240 very much. 0:03:01.200 --> 0:03:03.000 So, and probably one of the reasons why the goal 0:03:03.080 --> 0:03:06.040 price doesn't go down very much when it does correct, 0:03:06.520 --> 0:03:08.880 because you know, when it like this year, for example, 0:03:08.919 --> 0:03:11.760 the goal price has gone up very rapidly. I don't know, 0:03:11.880 --> 0:03:14.919 but I doubt central banks have been driving the price higher. 0:03:15.480 --> 0:03:17.760 But I'm sure that they're sitting below the market waiting 0:03:17.800 --> 0:03:20.360 to step in on any correction, and that prevents the 0:03:20.400 --> 0:03:24.119 price from falling like it usually would have done. When 0:03:24.160 --> 0:03:25.120 people take profits. 0:03:25.360 --> 0:03:28.720 And if it is true as many people say that 0:03:29.200 --> 0:03:32.320 the Chinese Chinese Central Bank continues to build its gold 0:03:32.360 --> 0:03:35.520 reserves in the anticipation of conceivably launching a gold back 0:03:35.560 --> 0:03:37.760 currency at some point, there will be a way to go. 0:03:38.960 --> 0:03:42.240 Look, that's one of the theories about why China has 0:03:42.280 --> 0:03:46.280 stepped up its goal purchases. It's a gold back currency. 0:03:47.240 --> 0:03:52.000 I see the arguments about backing a currency is sometimes misunderstood. 0:03:52.240 --> 0:03:54.520 The only reason you back a currency as an out 0:03:54.560 --> 0:03:57.960 of weakness, not out of strength. If you think about 0:03:58.080 --> 0:04:00.680 all the countries in the world that have backed that currency, 0:04:00.680 --> 0:04:03.400 and Zimbabwe is a great example, they back it with 0:04:03.480 --> 0:04:05.480 a dollar every now and again, then the peg fails. 0:04:05.480 --> 0:04:07.640 They've tried to back it with gold and then that 0:04:07.680 --> 0:04:10.800 peg fails. It's always done because you're in a weak position. 0:04:11.480 --> 0:04:14.160 And China's many things, but I don't think it's in 0:04:14.240 --> 0:04:18.000 a particularly weak position. Where I think the logic of 0:04:18.000 --> 0:04:21.640 a gold back currency could come in is something that 0:04:21.720 --> 0:04:25.800 might be used for trade within countries that don't want 0:04:25.839 --> 0:04:30.040 to depend upon the dollar. And look, China's a massive 0:04:30.120 --> 0:04:33.520 current account surplus country, so that would mean China would 0:04:33.560 --> 0:04:37.599 get more gold through settling this these this crossbook border trades. 0:04:37.680 --> 0:04:42.360 So again it's not clear that China's buying gold for 0:04:42.400 --> 0:04:44.480 this purpose. It is one of the potential reasons it 0:04:44.520 --> 0:04:44.760 could be. 0:04:44.839 --> 0:04:47.520 I suppose, okay, so let's leave central banks. Then we 0:04:47.560 --> 0:04:49.839 accept that they're buying for a variety of reasons, but 0:04:49.920 --> 0:04:54.000 particularly geopolitical instability, independence from the dollar, all these things, 0:04:54.040 --> 0:04:55.960 and that they will continue to buy it to a 0:04:55.960 --> 0:04:58.040 certain level emerging markets. 0:04:58.080 --> 0:04:59.479 I mean that demand continues. 0:04:59.520 --> 0:05:02.080 As long as there is good GDP growth in emerging markets, 0:05:02.120 --> 0:05:05.400 you will see demand for gold as a savings product effectively. 0:05:05.839 --> 0:05:11.200 That's true, but also sometimes when other savings and investment 0:05:11.360 --> 0:05:14.880 choices are less attractive. And I think the story in 0:05:15.000 --> 0:05:17.159 China has been the weakness in the property market, which 0:05:17.160 --> 0:05:19.480 I'm sure you've spoken about many times over the last 0:05:19.520 --> 0:05:24.520 few years. Traditionally, Chinese savers and investors buy real estate, 0:05:24.520 --> 0:05:28.320 they buy apartments. That's their saving and investments vehicle of choice. 0:05:28.640 --> 0:05:30.560 But probably price has been going down now for what 0:05:30.640 --> 0:05:33.840 two three years, so that's taken away, you know, the 0:05:33.920 --> 0:05:37.800 backstop of where a Chinese saver would put their money. 0:05:38.279 --> 0:05:41.360 Now there are other alternatives, of course, but gold is 0:05:41.600 --> 0:05:44.480 benefiting I think enormously from this, and that's been very 0:05:44.560 --> 0:05:46.040 much a story of the last few years. 0:05:46.120 --> 0:05:47.120 And that's interesting. 0:05:47.279 --> 0:05:49.320 You know, we often talk about demographics on this program, 0:05:49.360 --> 0:05:51.440 and one of the reasons why the Chinese property markets 0:05:51.480 --> 0:05:54.320 can continually in a state of gradual decline is because 0:05:54.320 --> 0:05:57.919 of the rapidly falling household formation numbers and that we 0:05:57.960 --> 0:06:00.320 saw recently these very low number of births in China. 0:06:00.400 --> 0:06:03.440 So there's a strong suggestion that household formation will continue 0:06:03.520 --> 0:06:05.719 to fall in China, and therefore the property market will 0:06:05.760 --> 0:06:08.920 continue to languish, and therefore it seems likely that savings 0:06:08.960 --> 0:06:10.839 will continue to shift into other. 0:06:10.680 --> 0:06:12.360 Products, not the golds of products, but do you know 0:06:12.400 --> 0:06:12.840 what I mean? 0:06:13.320 --> 0:06:16.040 It will continue to be a savings product of choice 0:06:16.440 --> 0:06:18.640 in China and possibly other parts of the emerging world, 0:06:18.640 --> 0:06:21.159 where of course populations are also statical falling. 0:06:21.960 --> 0:06:24.200 Yeah. And look, that's a really interesting point as well, 0:06:24.279 --> 0:06:27.000 because I've spoken about investment for gold in China, but 0:06:27.400 --> 0:06:30.800 historically jewelry demand has been a bigger component. And if 0:06:30.800 --> 0:06:33.440 I think about demographics, demographics worry me in the long 0:06:33.560 --> 0:06:34.880 term for jewelry demand in China. 0:06:35.040 --> 0:06:36.280 Yes, for the regions that. 0:06:36.200 --> 0:06:40.000 You've pointed out in India, but much later. India is 0:06:40.040 --> 0:06:42.679 in the middle of a demographic dividend at the moment 0:06:42.680 --> 0:06:44.960 that lasts until about twenty forty. If you look at 0:06:45.200 --> 0:06:48.719 the structure the pyramid of the population in India, it's 0:06:48.839 --> 0:06:52.200 very young, much much younger than China. It's now that 0:06:52.200 --> 0:06:53.960 I think the largest country in the world in terms 0:06:54.000 --> 0:06:58.000 of population. It's the second largest gold consumer. They love gold, 0:06:58.240 --> 0:06:59.840 and if I look at all the marriages coming down 0:06:59.880 --> 0:07:02.640 the line, I'm very confident about media and long term 0:07:02.720 --> 0:07:07.279 jewelry demand out of India, irrespective of the price in China. 0:07:07.360 --> 0:07:10.080 As I say, it's really important that investment demand continues 0:07:10.120 --> 0:07:12.480 to grow and continues to gain market share there because 0:07:12.480 --> 0:07:13.760 of the demographic challenges. 0:07:14.200 --> 0:07:16.800 Okay, right, Let's move on then to the third and 0:07:16.840 --> 0:07:19.280 the thing that's really been pushing the price recently, which 0:07:19.320 --> 0:07:22.000 is West of the investors suddenly getting in on the game. 0:07:22.080 --> 0:07:23.000 What did they notice. 0:07:23.200 --> 0:07:26.040 Did Western investors suddenly start listening to this podcast, or 0:07:26.040 --> 0:07:28.280 did they notice the price going up and suddenly get 0:07:28.320 --> 0:07:31.920 fomo or is it the genuine reaction to geopolitical change? 0:07:32.360 --> 0:07:33.840 I think all of the above, and I think your 0:07:33.960 --> 0:07:38.760 podcast has been highly influential. But seriously, I think about 0:07:38.840 --> 0:07:43.640 the drivers behind Western investment demand. It's been very much 0:07:43.720 --> 0:07:49.160 concerns about the US dollar, about what's happening with monetary 0:07:49.160 --> 0:07:51.960 policy in the States as interest rates get cut, and 0:07:52.000 --> 0:07:54.000 then what's going to happen with FED independence in the 0:07:54.040 --> 0:07:57.160 medium term. If we get to a situation where the 0:07:57.280 --> 0:08:01.640 US economy runs hot, so we get strong economic growth, 0:08:02.040 --> 0:08:06.160 but inflation interest rates too low, that can get nasty 0:08:06.240 --> 0:08:08.680 really quickly. And I think that that's one of the 0:08:08.680 --> 0:08:12.240 things that's attracted Western investors towards gold. And I think 0:08:12.280 --> 0:08:15.080 the second thing is FOMO. As you say, this is 0:08:15.120 --> 0:08:17.880 to a large extent, a momentum trade. At the moment, 0:08:18.720 --> 0:08:22.760 I mean, we advocate that investors have a sensible allocation 0:08:22.840 --> 0:08:25.360 to gold in their portfolio. It's a strategic asset for 0:08:25.400 --> 0:08:28.280 the long term. We don't do that because we expect 0:08:28.320 --> 0:08:30.360 gold prices to go up sixty five percent in one 0:08:30.480 --> 0:08:33.960 year or twenty percent in one month. There's no doubt 0:08:34.040 --> 0:08:37.280 that investors have jumped on the bandwagon to a degree, 0:08:37.480 --> 0:08:39.760 although not to the degree that they have in silver, 0:08:39.840 --> 0:08:43.280 which is, to be frank quite crazy what's going on there. 0:08:43.679 --> 0:08:46.920 But yes, there's an element of short term speculation in 0:08:46.960 --> 0:08:49.920 the gold market. As well, and that's that's been Western 0:08:49.920 --> 0:08:52.679 investors that could deploy an awful lot of capital at 0:08:52.679 --> 0:08:55.200 a very short space of time. We've seen that to 0:08:55.240 --> 0:08:57.040 a degree over the last nine months. 0:08:57.040 --> 0:08:59.800 I'd say, well, we'll come back to sil related because 0:08:59.800 --> 0:09:03.360 that's that's ridiculous and kind of exciting and also fascinating 0:09:03.400 --> 0:09:05.360 and definitely a momentum tride for now. 0:09:05.400 --> 0:09:08.080 But let's talk about where gold might go. 0:09:08.240 --> 0:09:10.040 So you're at we're at the point in this cycle 0:09:10.040 --> 0:09:12.000 where everyone who didn't think gold was going to do 0:09:12.040 --> 0:09:13.880 this is suddenly trying to catch up. And you've got 0:09:13.920 --> 0:09:17.360 the strategists and investment banks or raising their targets for 0:09:17.400 --> 0:09:19.200 this year always going to go to five thousand, Oh, 0:09:19.200 --> 0:09:19.880 whop's missed that? 0:09:20.000 --> 0:09:22.480 Six thousand, Oh, I don't know, maybe seven thousand, And. 0:09:22.440 --> 0:09:24.280 Then you've got the people saying, well, well, we'll hit 0:09:24.320 --> 0:09:26.439 ten thousand before you know it, etc. And of course, 0:09:26.800 --> 0:09:28.240 even if that were to happened, it's not going to 0:09:28.240 --> 0:09:30.440 be a smooth past. We know there's always always fairly 0:09:30.480 --> 0:09:33.720 significant draw downs in im momentum markets like this, but 0:09:34.000 --> 0:09:36.400 what how do you figure out. 0:09:36.240 --> 0:09:39.120 What the right price is or where it should be? 0:09:39.200 --> 0:09:41.640 And there's so many different methods of attempting to value 0:09:41.640 --> 0:09:45.000 gold something without a cash flow and therefore impossible to value. 0:09:45.080 --> 0:09:47.640 You can look at it as a percentage of the 0:09:47.760 --> 0:09:50.480 value of the US dock market, for example. So we 0:09:50.600 --> 0:09:52.559 now see it running at what fifty percent of the 0:09:52.640 --> 0:09:54.920 value of the US dock market is the total market 0:09:54.960 --> 0:09:57.920 capitalization of the gold above ground, So you can look 0:09:57.920 --> 0:10:00.760 at it like that, and at the moment. 0:10:00.559 --> 0:10:02.080 It's been way higher in the past. 0:10:02.080 --> 0:10:04.480 But on the other hand, the US market is you 0:10:04.480 --> 0:10:07.080 could argue significantly if we're valued at the moment, so 0:10:07.160 --> 0:10:10.120 that changes the way that ratio works. And then I 0:10:10.160 --> 0:10:13.560 was very taken by George Cooper at Aquatile. He has 0:10:13.600 --> 0:10:17.840 got this gold dinner, a gold dinner at the Savoy 0:10:17.960 --> 0:10:22.000 grill ratio right and back in nineteen seventy one, he says, 0:10:22.080 --> 0:10:24.920 you could get hang on, I think three dinners at 0:10:24.920 --> 0:10:27.000 the Savoy for an ounce of gold. Now you can 0:10:27.040 --> 0:10:29.839 get fourteen dinners at the Savoy for an ounce of gold. 0:10:30.120 --> 0:10:31.960 Maybe gold is cheap, you know what I mean. 0:10:32.000 --> 0:10:35.400 There are so many different ways of trying to value gold, 0:10:35.440 --> 0:10:37.760 but basically it's impossible, right. 0:10:38.400 --> 0:10:43.720 It's it doesn't fit into conventional valuation frameworks. As you say, 0:10:43.760 --> 0:10:46.920 it doesn't produce a yield or a dividend, so you 0:10:46.960 --> 0:10:49.839 can't do a discounted cash flow on it. We've spent 0:10:50.440 --> 0:10:52.280 a lot of time in the last probably the last 0:10:52.280 --> 0:10:54.640 seven or eight years, but in particular, trying to come 0:10:54.720 --> 0:10:57.440 up with different ways to think about gold valuation, and 0:10:57.640 --> 0:11:01.679 particularly from a long term perspective. So if you're an 0:11:01.679 --> 0:11:04.840 asset allocator, you know, you could make assumptions and think, Okay, 0:11:04.880 --> 0:11:06.959 what is my bond portfolio going to give me, I 0:11:06.960 --> 0:11:09.559 don't know, three four percent? Well, what are equity is 0:11:09.559 --> 0:11:11.640 going to give me? Maybe six seven percent over the 0:11:11.679 --> 0:11:14.439 long term? And what about gold? And it's like not sure. 0:11:15.040 --> 0:11:17.120 So the work that we've done, and it's all available, 0:11:17.120 --> 0:11:20.560 by the way, on our website goldhub dot com under 0:11:20.600 --> 0:11:23.880 the tools section, we've put together something which we call 0:11:23.920 --> 0:11:27.199 glitter very good at acronyms in our shop. So gold's 0:11:27.360 --> 0:11:32.520 expected long term return and what that works on is 0:11:32.600 --> 0:11:35.520 it thinks about the structure of the gold market. So 0:11:35.679 --> 0:11:38.400 all the gold that's ever been mined, who owns it, 0:11:38.559 --> 0:11:41.000 who's buying it, who's bought it, and what are the 0:11:41.080 --> 0:11:43.880 drivers of that demand and what the conclusion that we 0:11:43.960 --> 0:11:46.240 come to is in the long term, you should be 0:11:46.320 --> 0:11:50.480 expecting gold to deliver US inflation plus about two to 0:11:50.559 --> 0:11:53.720 three percent per annum, so somethink in line with nominal GDP. 0:11:54.640 --> 0:11:58.400 Now that's very different from the sort of returns that 0:11:58.400 --> 0:12:01.120 we've seen over the last few years. So nineteen percent, 0:12:01.440 --> 0:12:04.680 twenty six percent, sixty five percent, and then twenty percent 0:12:04.880 --> 0:12:07.640 year to day. So one of the questions that we 0:12:07.760 --> 0:12:09.800 face a lot internally is like, well, if you think 0:12:09.840 --> 0:12:12.480 the long term returns are going to be in that 0:12:12.720 --> 0:12:15.520 order of magnitude of four to five percent, assuming US 0:12:15.520 --> 0:12:18.080 inflation is two maybe a bit more of US inflation's 0:12:18.080 --> 0:12:21.320 a bit higher, what do you do after gold has 0:12:21.360 --> 0:12:24.080 gone up so as much as this, And what I 0:12:24.120 --> 0:12:28.880 say to people under those circumstances is, look, gold has 0:12:28.880 --> 0:12:33.560 had a long track record of benefiting your portfolio through 0:12:34.000 --> 0:12:39.200 diversification and returns and helping prevent you against bad things happening. 0:12:40.520 --> 0:12:43.480 It is impossible, like everything else, to forecast where it's 0:12:43.520 --> 0:12:45.920 going in the short term. I mean, we're at I 0:12:45.920 --> 0:12:49.200 think one hundred and three all time highs now in 0:12:49.280 --> 0:12:52.240 gold since the beginning of twenty twenty four. If you'd 0:12:52.280 --> 0:12:56.000 have bought gold at any time in twenty twenty four, 0:12:56.120 --> 0:12:59.680 twenty twenty five, you're up so in Otherwise, just because 0:12:59.720 --> 0:13:01.640 gold's at an all time high doesn't mean that it 0:13:01.640 --> 0:13:03.920 can't go up any higher. But what I do say 0:13:03.920 --> 0:13:06.439 to people is you shouldn't expect the sort of returns 0:13:06.800 --> 0:13:08.840 that you've seen over the last three or four years 0:13:08.960 --> 0:13:12.720 to continue. Don't buy gold expecting it to deliver fifty 0:13:12.720 --> 0:13:16.440 percent per annum. It's much more likely to deliver over 0:13:16.480 --> 0:13:19.360 the long term five or six percent. Now in terms 0:13:19.360 --> 0:13:24.880 of twenty twenty six, what's the likelihood going forward? What 0:13:25.000 --> 0:13:27.240 we said but the start of the year is that 0:13:27.480 --> 0:13:30.040 if you look at the drivers of gold last year, 0:13:30.040 --> 0:13:32.160 if you look at the reasons people were buying gold, 0:13:32.200 --> 0:13:35.520 and I've listed some of them before, looks pretty certain 0:13:35.559 --> 0:13:39.000 that they're going to continue. We're going to see more 0:13:39.000 --> 0:13:41.480 policy announcements out of the United States which are likely 0:13:41.520 --> 0:13:44.400 to rattle the markets from time to time. So why 0:13:44.440 --> 0:13:47.400 wouldn't people keep buying gold under those circumstances? 0:13:48.040 --> 0:13:50.880 Fair enough, I mean, a dollar is weakening, But let 0:13:50.920 --> 0:13:53.480 me take you back to what you said about US inflation. 0:13:53.600 --> 0:13:56.280 Surely one of the reasons why the why gold is 0:13:56.320 --> 0:13:59.280 going up so much is the assumption that US inflation 0:13:59.679 --> 0:14:02.280 will at least in the medium term, be very significantly 0:14:02.360 --> 0:14:03.760 higher than two percent a year. 0:14:04.720 --> 0:14:08.200 Potentially, in that case you can expect better returns. But 0:14:08.240 --> 0:14:10.240 if you think of US inflation plus two to three 0:14:10.280 --> 0:14:13.600 percent over the long term, maybe if inflation's five percent, 0:14:13.600 --> 0:14:16.559 which would be historically very high over the long term, 0:14:16.720 --> 0:14:18.960 you're still only getting seven or eight percent return in gold. 0:14:18.960 --> 0:14:23.000 Okay, you said earlier that everyone should have a sensible 0:14:23.160 --> 0:14:24.280 allocation to gold. 0:14:24.320 --> 0:14:26.880 What does that mean? Is that five percent, that two, 0:14:27.600 --> 0:14:29.840 ten percent, fifteen percent? 0:14:29.960 --> 0:14:32.760 What is it sure? And I guess the starting point 0:14:32.800 --> 0:14:35.440 is it depends what else is in your portfolio. If 0:14:35.480 --> 0:14:39.920 you have a very risky portfolio of all equities, or 0:14:39.960 --> 0:14:45.640 maybe all NASDAK equities, or maybe NASDAK equities plus some crypto, 0:14:46.120 --> 0:14:49.080 the risky of the portfolio you've got, the higher. The 0:14:49.160 --> 0:14:52.720 ideal allocation to gold is based on work we've done 0:14:52.760 --> 0:14:56.320 looking in the UK, the US, Europe, pretty much every 0:14:56.400 --> 0:14:58.920 major country in the world, looking at historic returns of 0:14:58.960 --> 0:15:02.120 gold and other the assets that are available for people 0:15:02.120 --> 0:15:05.560 to buy. You get to put an ideal or an 0:15:05.600 --> 0:15:10.080 optimal allocation somewhere between four and maybe just over ten percent. 0:15:10.200 --> 0:15:12.160 Now four percent allocation would be if you had a 0:15:12.280 --> 0:15:15.480 very heavy bond or fixed income portfolio, and the sort 0:15:15.480 --> 0:15:17.400 of ten twelve percent would be of you're much more 0:15:17.480 --> 0:15:20.640 riskier than that sort of like sixty forty or seventy 0:15:20.760 --> 0:15:24.920 thirty in portfolio terms. So that's the sort of allocation 0:15:25.040 --> 0:15:27.920 that we've suggested is sensible or would have been sensible 0:15:27.960 --> 0:15:32.760 for people in the past. Now, obviously those sorts of 0:15:32.800 --> 0:15:35.840 calculations are done on the basis that what's happened in 0:15:35.880 --> 0:15:37.760 the past will continue in the future. And you know 0:15:37.800 --> 0:15:39.600 the risk disclaimer that you get at the bottom of 0:15:39.600 --> 0:15:42.240 every financial product. You know, just because it's happened in 0:15:42.280 --> 0:15:44.120 the past doesn't mean that happened in the future. So 0:15:44.320 --> 0:15:47.640 start to think about where we are now. Equities, as 0:15:47.640 --> 0:15:50.880 you mentioned, particularly US equities where most people have most 0:15:50.880 --> 0:15:54.760 of their equity exposure, are quite expensive. Think about the 0:15:54.760 --> 0:15:57.400 outlook for government bonds. We've just come out of a 0:15:57.480 --> 0:16:01.080 forty year bullmarket for bonds that arded in nineteen eighty 0:16:01.120 --> 0:16:04.440 and probably ended in twenty twenty one. We're probably not 0:16:04.480 --> 0:16:06.320 going to see the same sort of returns that we've 0:16:06.360 --> 0:16:09.120 seen in government bonds as we've seen in the past. 0:16:09.320 --> 0:16:12.800 And that's before you start thinking about government deficits and debts. 0:16:13.400 --> 0:16:18.400 So maybe that historic five to ten percent allocation for 0:16:18.480 --> 0:16:21.960 gold is looking a bit low, and indeed, I think 0:16:22.000 --> 0:16:25.400 that's probably where the potential for gold to continue to 0:16:25.520 --> 0:16:29.480 prosper is going to come from. There was an article 0:16:29.520 --> 0:16:33.840 produced last year by Morgan Stanley's chief investment officer that said, 0:16:34.040 --> 0:16:36.760 the sixty forty portfolio is dead. The idea of having 0:16:36.800 --> 0:16:39.240 sixty percent of your assets in equities and forty percent 0:16:39.280 --> 0:16:42.760 of your assets in bonds is dead. The new portfolio 0:16:42.920 --> 0:16:47.760 should be sixty twenty twenty, sixty percent inequities, twenty percent 0:16:47.800 --> 0:16:51.160 of government bonds, twenty percent in gold. And that really 0:16:51.240 --> 0:16:55.040 excited us because, first of all, we'd never suggested such 0:16:55.040 --> 0:16:59.080 a high potential allocation to gold, but it comes. But 0:16:59.160 --> 0:17:01.920 the reason that Morgan Stanley have been highlighting this is 0:17:02.160 --> 0:17:04.520 something we recognized a few years ago and published on, 0:17:04.560 --> 0:17:07.879 and that's the breakdown of the negative correlation between equity 0:17:07.880 --> 0:17:11.080 markets and bond markets. That's what the whole sixty to 0:17:11.080 --> 0:17:14.760 forty portfolio was based on. Buy your equities, hedge yourself 0:17:14.760 --> 0:17:18.200 with bonds. When equities do poorly, bonds will probably do well. 0:17:19.080 --> 0:17:22.560 But that's not happening as reliably as it used to. Therefore, 0:17:22.920 --> 0:17:25.920 think about other alternatives that tend to do well when 0:17:25.960 --> 0:17:28.600 equities do badly. And indeed that's what's been happening in 0:17:28.640 --> 0:17:31.320 the last few years, and you know, and that's why 0:17:31.359 --> 0:17:34.199 gold is such a good inclusion. So coming back to 0:17:34.240 --> 0:17:38.399 your argument before about about valuation and gold, and we 0:17:38.440 --> 0:17:40.800 don't look at the US stock market on its own, 0:17:40.840 --> 0:17:42.720 and we certainly don't look at the total stock of 0:17:42.760 --> 0:17:45.320 gold out there in comparison. We look at the stock 0:17:45.359 --> 0:17:49.040 of investment gold and lords how much what is the 0:17:49.040 --> 0:17:51.800 total value of the investment gold out there that people 0:17:51.880 --> 0:17:54.560 have bought, bars and coins and ETFs and everything else. 0:17:55.119 --> 0:17:57.359 And then we look at the market capitalization of the world, 0:17:58.080 --> 0:18:00.919 both equities and bonds. Now, last time we looked at 0:18:00.920 --> 0:18:02.480 that number, it was about one and a half percent. 0:18:02.600 --> 0:18:04.800 Gold's up a lot since then. Other stuff's moved to 0:18:04.840 --> 0:18:07.359 it's probably about two and a half percent now. So 0:18:07.440 --> 0:18:10.200 you can see where the potential is for more investment 0:18:10.240 --> 0:18:12.439 to come into gold. Even if you get up to 0:18:12.480 --> 0:18:16.760 the lower end of the historical recommended allocation that's five percent. 0:18:17.520 --> 0:18:19.359 If you think about the higher end of it, of 0:18:19.400 --> 0:18:22.080 the historical allocation that's ten percent, And if you listen 0:18:22.160 --> 0:18:24.240 to Morgan Stanley, maybe it should be closer to twenty. 0:18:24.640 --> 0:18:28.200 So there's a lot more room for investors to diversify 0:18:28.640 --> 0:18:32.520 into gold, particularly if they don't trust the outlook for 0:18:32.560 --> 0:18:35.439 government bonds. And I don't know about you, but one 0:18:35.480 --> 0:18:38.919 of the things that's been frustrating me tremendously in a 0:18:38.960 --> 0:18:41.960 post pandemic world is the fact that governments are running 0:18:41.960 --> 0:18:47.399 such large budget deficits in comparatively good economic times, and 0:18:48.040 --> 0:18:51.600 the stock of debt seems to be rising inexorably. 0:18:52.040 --> 0:18:56.240 So effectively, gold is becoming the new safe haven asset 0:18:56.320 --> 0:18:58.320 for a lot of people. So it replaces in the 0:18:58.359 --> 0:19:01.320 old days, your safe haven with treasuries or other government bonds. 0:19:01.359 --> 0:19:03.120 You bought these, that was your safe haven and something 0:19:03.160 --> 0:19:05.120 went wrong, you knew you had those as your backup. 0:19:05.320 --> 0:19:08.280 But in this new environment, with these incredibly high levels 0:19:08.320 --> 0:19:10.280 of debt that we get increasingly concerned might not be 0:19:10.359 --> 0:19:13.879 server's long term gold becomes your new safe haven asset. 0:19:14.720 --> 0:19:17.600 And you can see that in the performance as well. Historically, 0:19:17.600 --> 0:19:20.760 when the US equity market had a really bad down day, 0:19:21.080 --> 0:19:23.280 the US dollar would tend to strengthen as people were 0:19:23.280 --> 0:19:26.600 putting money into the dollar. Now because the US equity market. 0:19:26.680 --> 0:19:29.760 When it does have these corrections, it's often because of 0:19:29.800 --> 0:19:32.119 something that's coming out of Washington. The dollar tends to 0:19:32.160 --> 0:19:34.359 weaken as well, so you're getting hit in both ways. 0:19:34.600 --> 0:19:37.880 So bonds aren't your safe have. The US dollar isn't 0:19:37.880 --> 0:19:40.919 the safe haven that it was, and gold's benefiting at 0:19:41.320 --> 0:19:42.800 their expense to a degree. 0:19:43.680 --> 0:19:46.800 Interesting, and it's also it's part of a of a 0:19:46.920 --> 0:19:51.680 shift in general away from investors thinking to themselves digital 0:19:51.720 --> 0:19:54.280 assets or the answer, software assets are the answer, and 0:19:54.320 --> 0:19:56.960 beginning to think, actually, physical assets are the answer. And 0:19:57.040 --> 0:19:59.760 this environment so it's not just about gold, as we've discussed, 0:20:00.080 --> 0:20:01.800 talk a little bit more about that. It's about silver, 0:20:02.000 --> 0:20:07.560 it's about other industrial metals. It's about stuff manufacturing, about factories, 0:20:07.560 --> 0:20:11.680 about physical commodities. So as part of that general mind 0:20:11.680 --> 0:20:12.920 shift as well, isn't it. 0:20:13.680 --> 0:20:17.399