Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at Bloomberg, and.
Speaker 2: I'm Bildana Hairik, across Acid reporter with Bloomberg.
Speaker 1: And this week on the show, we're going to talk
Speaker 1: about one of the oldest and, let's be honest, most
Speaker 1: often misunderstood investments, gold. What exactly is it? Is it
Speaker 1: an inflation hedge, is it an interest rate hedge? Is
Speaker 1: it a risk asset or is it a risk off asset.
Speaker 1: We're going to get into it with an expert on
Speaker 1: that shiny yellow metal. But first I have to ask
Speaker 1: you had yet another luxurious, glorious vacation. Where'd you go?
Speaker 2: We went to Italy? But this was my first vacation
Speaker 2: of this entire year. Oh yeah, so you can't say
Speaker 2: yet another that makes it sound like I'm like jet
Speaker 2: setting all the time.
Speaker 1: Yeah, but you have you ever had a staycation? You
Speaker 1: were always like, yeah, doing COVID yeah, but otherwise you're
Speaker 1: like you're you're a globe trotter.
Speaker 2: But if you're sitting around at home, you know, like
Speaker 2: then you get anxious and then you're like, what do
Speaker 2: I do with myself.
Speaker 1: Yeah, that's that's how I end up in Italy. Well,
Speaker 1: I really enjoy a nice as the one does.
Speaker 2: There was one day where wildfires broke out like all
Speaker 2: over where we were in Italy.
Speaker 3: Yeah.
Speaker 2: I've never seen that really, like very close up.
Speaker 1: That's scary.
Speaker 2: I know it was an experience. Anyway, we're keeping our
Speaker 2: guests waiting. Maybe he has thoughts about vacationing in Italy.
Speaker 2: Find it's Joe Cavatoni. He's a market strategist and head
Speaker 2: of America's at the World Gold Council. Joe, welcome to
Speaker 2: the show.
Speaker 3: Thanks for having me.
Speaker 2: Maybe you've been to Italy recently and me and you
Speaker 2: can be in the same group, the jet setting group.
Speaker 4: Recently now not since COVID. I haven't been back since COVID,
Speaker 4: but I've been there many times.
Speaker 1: See something about your last name made me think that.
Speaker 3: Joe.
Speaker 4: Yeah, my suggestion is to go to the first two
Speaker 4: weeks of December. Yeah December, no crowds, no holiday rush,
Speaker 4: no students.
Speaker 1: Yeah, huh, good advice. He's got gold and vacation strategy.
Speaker 2: We want to hear more about gold, so I'm hoping
Speaker 2: you can start out telling us about your role and
Speaker 2: actually telling us a bit more about World Gold Council.
Speaker 4: Got it, okay, So my role is to help people
Speaker 4: understand what this asset is, how to consider analyzing it,
Speaker 4: getting the data that you need to understand it, and
Speaker 4: actually finding a place in your investment portfolio or in
Speaker 4: your consumption life, and feeling comfortable and confident that you've
Speaker 4: made the right decision. So we have data, insights and research,
Speaker 4: and as an organization we are made up of the
Speaker 4: world's largest mining members in gold. But this not profit organization,
Speaker 4: The World Goal Council spends its time working on market
Speaker 4: structure issues. Again adding to that market structure that insight,
Speaker 4: research and information that we provide people, but also looking
Speaker 4: at policies and market structure where we can actually help
Speaker 4: evolve the market in a way to make it easier
Speaker 4: to access, easier to understand, and most importantly trusted, because
Speaker 4: that's the thing that people need to understand the most
Speaker 4: about gold is what I've bought. I understand it, and
Speaker 4: I can trust that it's what I bought, and that's
Speaker 4: what we do well.
Speaker 3: Joe.
Speaker 1: You know, as I mentioned in the introduction, I feel
Speaker 1: like the narrative, the explanation of what's driving gold prices
Speaker 1: is kind of a moving target, So help us think
Speaker 1: about what drives the price of gold up or down.
Speaker 1: I mean sometimes you hear it as a risk off asset,
Speaker 1: and you obviously see it rally on days when the markets,
Speaker 1: the rest of the markets are in turmoil. For years,
Speaker 1: I heard it was an inflation heade interest rate. What
Speaker 1: are the main drivers of the price of gold.
Speaker 4: It's where we usually start every one of the discussions
Speaker 4: we have, particularly with institutional investors, is in this very
Speaker 4: point we talk about gold in the context of strategic
Speaker 4: and tactical drivers as an asset. It's very unique because
Speaker 4: when you think about the strategic drivers of gold and
Speaker 4: how gold is consumed worldwide, it's consumed in the consumption way,
Speaker 4: which is through jewelry, small bars, and coins, maybe in
Speaker 4: technology like your iPhone, where it's a component that's in there,
Speaker 4: and those types of consumption behaviors are driven strategically through
Speaker 4: economic expansion. Simply put, you get wealthier, you feel comfortable
Speaker 4: about buying jewelry, or you buy more technology, and you
Speaker 4: actually see economic expansion putting money in pockets and people
Speaker 4: actually using that to invest in things, including gold.
Speaker 3: The consumer side of things.
Speaker 1: Do you list that first, because that's the primary main
Speaker 1: driver in your opinion.
Speaker 4: It is, But I'm going to come back around and
Speaker 4: talk about the big markets like China and India, where
Speaker 4: there's a bit of a mix because it is consumer,
Speaker 4: but there's also an element of savings there. And then secondly,
Speaker 4: you look at the investment side. So when market risk
Speaker 4: and uncertainty develops, higher levels of volatility, confusion around what's
Speaker 4: going to play out for the next period of time,
Speaker 4: whether it's one month, one year, whatever the case may be,
Speaker 4: long term, which is how we often make sure people understand.
Speaker 4: That's how you need to view gold. The market risk
Speaker 4: and uncertainty is benefited when gold is added to your
Speaker 4: portfolio because in that context, investors see the type of
Speaker 4: diversification benefit you get from gold in your portfolio helpful.
Speaker 4: So it correlates positively when equities, for example, S and
Speaker 4: P five hundred goes up, and it correlates negative when
Speaker 4: the SMP goes down. Simply put, So you've got those
Speaker 4: two strategic drivers. Adding to that, you've got a global asset,
Speaker 4: so it's not just something bought here in the US,
Speaker 4: but it's bought and sold in the US, Canada, Latin America,
Speaker 4: South America, all over the world, China and India two
Speaker 4: huge markets from a consumption perspective. And in addition to that,
Speaker 4: this asset is actually produced and supplied on a global
Speaker 4: scale as well. So you've got a global element, you've
Speaker 4: got a regional element, you've got a consumer behavior, you've
Speaker 4: got an investment behavior. And it's really kind of exciting
Speaker 4: because you really don't know that until you start really
Speaker 4: digging into the detail.
Speaker 3: Now in the.
Speaker 4: US market in particular, it can be a little frustrating
Speaker 4: because what you tend to find with people is they
Speaker 4: want to shout from a pit on a trading floor
Speaker 4: about the next thirty minutes of what's going to happen
Speaker 4: with gold and the futures, et cetera, et cetera. And
Speaker 4: that's the tactical things that you need to understand. That's
Speaker 4: the noise you need to tolerate when you look strategically
Speaker 4: at it. So there you've got opportunity cost and momentum
Speaker 4: the two driving factors there. Opportunity cost is like what
Speaker 4: we've been seeing for the last call it nine months,
Speaker 4: rates are moving. How should I be looking at most
Speaker 4: opportunistic moments. Let's use a pool of liquidity that I
Speaker 4: can get to, like gold, very liquid asset. We'll talk
Speaker 4: about that, and then when it comes to momentum, is
Speaker 4: something happening quick? Is something happening now? Those two factors
Speaker 4: move gold on the short term.
Speaker 2: So Joe, can you talk a bit about what the
Speaker 2: price of gold has done this year? You mentioned monetary
Speaker 2: policy for instance, like how that impacts things or even
Speaker 2: you know we have the US credit downgrade news this week,
Speaker 2: how might something like that impact the price of gold.
Speaker 4: So this year what we've seen are two things. Number one,
Speaker 4: the monetary policy, we'll bring that in now continuing to
Speaker 4: be a headwind, the opportunity cost, the rotation of assets,
Speaker 4: and a portfolio risk asset behavior, how people are dealing
Speaker 4: with their risk assets. That's a moment where we see
Speaker 4: headwinds for gold. People don't look to gold in those
Speaker 4: moments when movement and rates and movement in those risk
Speaker 4: assets is taking place. We often see it a headwind
Speaker 4: for gold because it's used as a liquidity source. And
Speaker 4: then once people have made their allocation, they come back
Speaker 4: around to gold and they put in their portfolio of
Speaker 4: that ballast of kind of holding three, five, ten percent
Speaker 4: of their portfolio. So the price behavior this year has
Speaker 4: seen a lot of that, but within the course of
Speaker 4: the year, we've also seen systemic events or moments, events
Speaker 4: that have kicked into place a banking crisis. For lack
Speaker 4: of a better way of putting it, you're a Silicon
Speaker 4: valley bank, your first republic, your credit sueze. Moments where
Speaker 4: there's a crisis and people say, hey, look, I need
Speaker 4: to make sure that I can preserve my asset, all
Speaker 4: my real assets need to go up. My safe haven asset,
Speaker 4: which is often how it's referred to, is where people
Speaker 4: go with gold. And so we've seen these moments and
Speaker 4: now over the course of the last three to six months,
Speaker 4: we've had a few, but not a lot. I think
Speaker 4: that I was expecting to potentially see Wednesday's announced cut
Speaker 4: by Fitch in the rate for the US the long
Speaker 4: term debt rating to potentially be a flight to quality
Speaker 4: for gold, but it hasn't been just yet. So what
Speaker 4: it has been is it's been something that's had a
Speaker 4: negative impact on the price, and ultimately what that means
Speaker 4: is we're going to start to see the price rebound
Speaker 4: when people move away from it being a liquidity source.
Speaker 4: So you see a gold price that right now because
Speaker 4: of the possibility of things that are happening in the
Speaker 4: monetary policy space. When are the rate hikes going to
Speaker 4: stop peak and we're going to start to see the
Speaker 4: other side of this when the fense managed to cool
Speaker 4: off the economy. Once that starts to develop, that monetary
Speaker 4: policy will loosen up the ability for goal to start
Speaker 4: to see itself run. Right now, what we're seeing is
Speaker 4: range bound pricing on the gold market. So you see
Speaker 4: us holding firm at about a eighteen fifty nineteen hundred,
Speaker 4: almost nineteen fifty level, but not breaking out. We had
Speaker 4: a moment earlier in the year around that banking crisis
Speaker 4: where we did break out. We're not really breaking out
Speaker 4: just yet, and it's simply because most institutional investors have
Speaker 4: not come back to the table. The range bound pricing
Speaker 4: behavior we're getting is being held up by mainly a
Speaker 4: lot of buying by central banks, which is a trend
Speaker 4: we've been seeing for a long time.
Speaker 1: Yeah, Joe, you know, it's interesting when I look at
Speaker 1: a long term chart of the price of gold, that
Speaker 1: two thousand dollars an ounce level is really interesting, you know,
Speaker 1: it peaked a little bit above it for a hot
Speaker 1: minute in twenty twenty, again in twenty twenty two, and
Speaker 1: I think again this year. And you know, looking at
Speaker 1: that chart, the technical analysts would call it, I guess
Speaker 1: a triple top, you know, suggesting that two thousand level
Speaker 1: is kind of the ceiling for gold. And I wonder
Speaker 1: how you think about that. How important are the technicals
Speaker 1: like that for the price of gold. Does the fact
Speaker 1: that it keeps testing that two thousand dollars level signal
Speaker 1: anything that maybe it'll eventually break out above it?
Speaker 3: You know?
Speaker 1: How important are these technicals and especially that round number
Speaker 1: of two thousand and ounce.
Speaker 4: I think they're important and they're not to be ignored.
Speaker 4: And I think that where it comes into the context
Speaker 4: with which we're speaking to our investors and central banks
Speaker 4: and sovereign wealth funds and talk to them about it
Speaker 4: is really to help them understand their entry point into
Speaker 4: the gold market now that two thousand point and those
Speaker 4: technicals they start to impact some of this other area
Speaker 4: of demand for gold I mentioned consumers, so jewelry in
Speaker 4: China and India. These are price sensitive businesses and price
Speaker 4: sensitive consumers. So when you start seeing those types of
Speaker 4: price levels developed. That's when you see those types of
Speaker 4: consumers back away from buying. Now, if they're backing away
Speaker 4: at a two twenty and seventy five, I think is
Speaker 4: where we hit. They start backing away, and our investors
Speaker 4: aren't ready to step back in. The long term investors
Speaker 4: aren't ready to step back in. That's why you're seeing
Speaker 4: us peek out and kind of hold off. So what
Speaker 4: we need to see next is some sort of understanding
Speaker 4: by the investment community that the policies that the FED
Speaker 4: are dealing with are leading to a clearer outcome, a
Speaker 4: clearer roadmap, and then you're going to see our expectations.
Speaker 4: You'll see these investors come back to the table and
Speaker 4: gold will again have that slow, steady rise in its
Speaker 4: price point. Now you see these spikes when it comes
Speaker 4: into play around moments events. Again, earlier in the year
Speaker 4: we hit that over two thousand level, and it was
Speaker 4: again around that banking crisis. You start seeing those peaks.
Speaker 4: So it's important, but it's not the only factor to
Speaker 4: take into consideration.
Speaker 2: I'm interested in the idea of gold as a haven asset.
Speaker 2: So let's say we do have some of these instances
Speaker 2: that you were talking about that we've had this year.
Speaker 2: Why go for gold as the haven asset versus something
Speaker 2: like treasuries.
Speaker 4: I think what you start to see are two factors
Speaker 4: that are pretty significant in terms of performance. It's a
Speaker 4: limited source asset.
Speaker 3: So over long term performance.
Speaker 4: You'll see that gold will act appreciate, okay, And ultimately
Speaker 4: what you find with the asset is, second, it's very liquid.
Speaker 4: The asset trades about one hundred and fifty billion dollars
Speaker 4: a day. So what I'd say is those factors really
Speaker 4: weigh in and actually make people feel comfortable and confident.
Speaker 4: And they are not linked to anything like a credit
Speaker 4: rating or a dollar currency or whatever the case may
Speaker 4: be that could have another level of impact on the
Speaker 4: overall price performance and trading activity of an asset. So
Speaker 4: you're really looking at a unique asset that stands by
Speaker 4: itself and ultimately, with these unique drivers for consumption, will
Speaker 4: continue to push the price higher over time. And that's
Speaker 4: why I think people feel comfortable and confident putting it
Speaker 4: as a component, not the only component. Again, a component
Speaker 4: and a portfolio.
Speaker 1: You know, Joe, I'm curious about the supply side when
Speaker 1: it comes to gold. You know, the world gold Council,
Speaker 1: as you mentioned, represents a lot of the gold miners
Speaker 1: of the world. And you know, the supply chain story
Speaker 1: was such a big story with almost everything there for
Speaker 1: a few years, shortage of workers, shortage of industrial equipment,
Speaker 1: higher interest rates, everything sort of combining to cause some
Speaker 1: major supply chain issues, you know, a whole variety of products.
Speaker 1: Did that hit the mining the gold mining sector at all,
Speaker 1: And how does that supply side sort of affect the
Speaker 1: price or is it more you know, the miners are
Speaker 1: reacting to the price rather than you know, affecting the price,
Speaker 1: if you know what I mean.
Speaker 4: Yeah, it's a great question. And I'd say that no industry,
Speaker 4: at least from what I could see, was immune to
Speaker 4: what we experienced in the early days of COVID.
Speaker 3: As a matter of.
Speaker 4: Fact, the piece that impacted the gold market the most
Speaker 4: was transportation movement of assets around the globe. We are
Speaker 4: a physical asset, and when planes were grounded or space
Speaker 4: on planes was limited, or people were uncomfortable touching things
Speaker 4: for lack of a better way of dealing with it.
Speaker 4: We literally saw, for example, in the US comec's futures
Speaker 4: prices going out of think with what the underlying gold
Speaker 4: price was doing simply because they were trading at a premium,
Speaker 4: simply because it could not be matched with the gold
Speaker 4: that needed to be flown into New York, put into
Speaker 4: the vaults and actually collapse at premium. So we saw
Speaker 4: it there probably the most where you have an inability
Speaker 4: for assets to move around the globe. Now, mind sits refiners.
Speaker 4: They weren't in any way only impacted. They were all impacted.
Speaker 4: Mind sits refiners. They were all impacted in terms of
Speaker 4: the same way other corporations were impacted. Send employees home,
Speaker 4: you know, figure out how to reopen, deal with the
Speaker 4: PPP issues. All of those things came into play and
Speaker 4: they slowly came back online. What I think was also
Speaker 4: very challenging for us was when you've got gold sitting
Speaker 4: in a vault, how do you get in? How can
Speaker 4: you do your inspections? And every one of these organizations
Speaker 4: was scrambling to make it all work efficiently. Now, more
Speaker 4: than the constraints on the market, the safe haven nature
Speaker 4: of gold basically saw the benefits, and that's where the
Speaker 4: price moved. When people were concerned about risk, concerned about
Speaker 4: what's going to happen with their portfolio, they moved into gold,
Speaker 4: and that drove the price more than the limited amount
Speaker 4: of supply. When the mining companies were able to get open,
Speaker 4: the refiners were able to get open, they came back online.
Speaker 4: Transportation came on slowly and they came back online. So
Speaker 4: it had an impact like everywhere else. But we also
Speaker 4: saw that price appreciation was a consequence of people having
Speaker 4: that fear and that need for a safe haven asset.
Speaker 2: What about on the demand side, who are the biggest
Speaker 2: buyers of gold? I think you mentioned consumers already. I'm
Speaker 2: also interested in the central bank aspect, like how who
Speaker 2: which central banks and how much demand is coming from
Speaker 2: the central bank side as well.
Speaker 4: So far and away, the two largest markets for consumption
Speaker 4: of gold tend to be China and India, and that
Speaker 4: tends to be consumers that are retail oriented, mainly jewelry,
Speaker 4: but also small bars and coins, so a real consumer
Speaker 4: type market. It's grown out of a history and tradition
Speaker 4: of the affinity for gold, where people may not have
Speaker 4: had bank accounts, they may not have had access to
Speaker 4: the securities markets, and ultimately this was a mechanism for
Speaker 4: having something precious in terms of what they were looking
Speaker 4: to own but also saving their money. So those are
Speaker 4: the two markets that i'd say stand out prominently and continually,
Speaker 4: and they've developed and evolved over the last twenty years
Speaker 4: in a very fantastic way to even bring financial markets
Speaker 4: and financial assets to those markets as well. So you're
Speaker 4: seeing that more in China, but it's starting to appen
Speaker 4: in India. On the central banking side, what we've been
Speaker 4: seeing for let's call it thirteen years, is emerging market
Speaker 4: central banks diversifying their reserve currency portfolios and adding gold.
Speaker 4: What they're doing is they're moving into the asset for
Speaker 4: the concerns around inflation, concerns around need for liquidity, looking
Speaker 4: at how they diversify their foreign currency exposures to the
Speaker 4: dollar and the Euro. We just recently published our annual
Speaker 4: survey where we have over fifty five central banks that
Speaker 4: respond to us, and most have indicated that they're looking
Speaker 4: over the next five years to lower their reliance on
Speaker 4: the dollar and the euro, not just the dollar, the
Speaker 4: euro as well, and actually looking at gold and looking
Speaker 4: to increase the overall allocations that they're making there. Again,
Speaker 4: these are emerging market central banks mainly, and they're spread
Speaker 4: out across the globe. It's been a really interesting trend.
Speaker 1: One thing that's really interesting about gold as an investment
Speaker 1: is there are a variety ways to purchase it. You know,
Speaker 1: you can buy the GLD ETF. Many of our listeners,
Speaker 1: I'm sure are professionals who perhaps dabble in the futures market,
Speaker 1: that's the other way. But then there's this whole other
Speaker 1: world of gold coins that's gotten a lot of scrutiny lately.
Speaker 1: I'm I'm sure you know what I'm talking about quote
Speaker 1: unquote gold IRA companies. Washington Post out a story recently
Speaker 1: saying over the past decade, more than thirty customers in
Speaker 1: twenty states have sued a dozen gold IRA companies. Federal
Speaker 1: regulators have sued four companies, two in the past year alone,
Speaker 1: claiming investors were systematically charged as much as triple the
Speaker 1: coin's value. You know, if you're not a sophisticated investor
Speaker 1: working at a hedge fund, trading futures, or even dabbling
Speaker 1: in the ETF space, what do you need to know
Speaker 1: about buying gold in some of these schemes? You know,
Speaker 1: what's sort of the the alarm bells that go off,
Speaker 1: And furthermore, you know, I get the sense that it's
Speaker 1: hard to regulate these type of operations.
Speaker 3: And that's only a regulated asset.
Speaker 1: It's really they're not selling a regulated outset. So how
Speaker 1: are you thinking about these type of operations and what
Speaker 1: the listeners need to know about them.
Speaker 2: My dad's always telling me to buy gold bars.
Speaker 1: Buy just the big bars. Yeah, yeah, he goes big.
Speaker 4: That's a great point. I should take him on holiday
Speaker 4: to Italy for saying that. Let me unpack this a
Speaker 4: little bit, because I think there's a couple of things
Speaker 4: that are embedded in this question that people really need
Speaker 4: to have an appreciation for. So I want everybody to
Speaker 4: have a visual We often talk about the swimming pools, right,
Speaker 4: like the swimming pools and all the gold in the
Speaker 4: world gets stacked up around that whole thing. But think
Speaker 4: about what you've seen in photographs or maybe even in
Speaker 4: the real world when you visit them like the FED
Speaker 4: or you go on a tour the vault and there
Speaker 4: are large bars, the very large four hundred ounce large
Speaker 4: bar format was what we refer to. That large bar
Speaker 4: format is probably one of the largest markets.
Speaker 3: For gold worldwide.
Speaker 4: Okay, so everyone wants to just go to coins and
Speaker 4: little bars, and they're talking about those little tiny ones
Speaker 4: that are about the size of a of a simcard
Speaker 4: or maybe a little bit bigger than that. I want
Speaker 4: everybody to remember that the largest component that they need
Speaker 4: to be understanding is that when we buy gold for
Speaker 4: GLD for example, that's the kind of gold that we're
Speaker 4: transacting in. That is a wholesale large bar market. There
Speaker 4: are lots of institutional traders that are doing the work
Speaker 4: in that market. There's big banks like JP Morgan, HSBCICBC
Speaker 4: that are facilitating that through their role in.
Speaker 3: The London market.
Speaker 4: And those markets are open for large institutions to buy.
Speaker 4: So when we hear about pensions buying like in Texas
Speaker 4: or in Alaska and other places, these organizations are buying
Speaker 4: those types of large bars.
Speaker 3: That's a huge element of the gold market.
Speaker 1: So when we say nineteen hundred and fifty dollars an ounce,
Speaker 1: it's referring to one of those gold bars sitting in
Speaker 1: a warehouse at the LME or somewhere like that.
Speaker 4: That's right, it's the four hundred ounce reference to the
Speaker 4: ounce that's primarily that level. Everything else starts to derive
Speaker 4: its price off the back of that. A kilo bar
Speaker 4: is about the size of an iPhone, and actually, when
Speaker 4: you think about a kilo bar, that's what's backing a
Speaker 4: lot of the contracts at the CMEME. That's what people
Speaker 4: may be buying and putting in a safe or in
Speaker 4: a safe deposit box. And those are very common too,
Speaker 4: and they are a huge market as well. But smaller
Speaker 4: bars tends to lead to the more higher level of
Speaker 4: risk for fraud because they're easier access, they're easier to manipulate.
Speaker 4: And then you get smaller bars in that and then
Speaker 4: you get into the world of coins. Now, often what
Speaker 4: we hear about in the US market are fraudulent activities
Speaker 4: taking place, and most of it is around sales practices.
Speaker 4: And this is the disappointing thing and why we are
Speaker 4: focusing on it in terms of an initiative that we
Speaker 4: have and I'll talk to that in a moment, but
Speaker 4: the sales practice that talks to confusion in the investment
Speaker 4: market around the numismatic value of a coin, something that's
Speaker 4: highly collectible, and then a premium to that ounce price
Speaker 4: you're talking about because of the scarcity of a coin
Speaker 4: issuance and then just coin price. So once people start
Speaker 4: getting confused by that, and they get pressured from high
Speaker 4: sales pressured environments, people working the phones heavily and pushing hard.
Speaker 4: They move quickly to sell you something at the wrong price.
Speaker 4: And often that's what we're dealing with. Most of the time.
Speaker 4: The value of the underlying coin isn't a problem. It's
Speaker 4: usually that moment of sale. You're catching me at a
Speaker 4: weak moment, or you're telling me it's too good to
Speaker 4: be true, and I fall for it, okay. And that's
Speaker 4: why we have our process around responsible gold investment principles
Speaker 4: and our practices that we have on our website to
Speaker 4: tell people, Look, if you're going to do what you're
Speaker 4: going to do, which is by retail, please go and
Speaker 4: check out these principles that we have. Ask the right questions.
Speaker 4: If it says it's too good to be true, it's
Speaker 4: probably too good to be true. And that's why we
Speaker 4: are pushing that initiative in India, China, Germany, the US
Speaker 4: and working with reputable firms to say, how can we
Speaker 4: take these principles that we have, How can you work
Speaker 4: with us to self certify against these types of principles
Speaker 4: so we can get that message out to people because
Speaker 4: we are dealing in a world of gold, and it's
Speaker 4: not regulated in the US markets, and these sales firms
Speaker 4: aren't subject to licensing to sell these coins. But what
Speaker 4: we are subject to is trying to get to people
Speaker 4: to understand. Look, best practices can be achieved. You don't
Speaker 4: have to buy in a haste, and you don't have
Speaker 4: to buy in an urgent moment. And the CFTC will
Speaker 4: come down on people and they will use their ability
Speaker 4: to find people and reprimand people, and they'll do that,
Speaker 4: but they have to hear of the cases, they have
Speaker 4: to go out and investigate, and it's a moment that's
Speaker 4: too late in the process. So we encourage people to
Speaker 4: slow it down, understand what you're trying to achieve, ask
Speaker 4: the right questions, and that's what we would say to people.
Speaker 3: Now.
Speaker 4: Part of why the ETF has been such a success,
Speaker 4: but remember it's only about two to three percent of
Speaker 4: the global gold market in terms of all the ETF
Speaker 4: worldwide assets, is that it democratized and it put an
Speaker 4: unregulated asset into a regulated environment. So you can feel
Speaker 4: good if you're going to buy an ETF, but you
Speaker 4: can buy physical Just slow it down and understand what
Speaker 4: you're doing own an ETF and you're getting price performance
Speaker 4: and it's regulated and you shift feel good about what
Speaker 4: you own there, or use futures and it's regulated again,
Speaker 4: another rapper that's regulated by CFTC.
Speaker 1: Yeah, So I was looking at the GLD the management
Speaker 1: cost of it. I think it is forty basis points
Speaker 1: something like that, sort of high for an ETF. But
Speaker 1: I guess for you know, gold, there's a whole lot
Speaker 1: more going on. You have to store it ensured and
Speaker 1: all that. So you know, is that ETF probably you know,
Speaker 1: for your average investor, do you think that's the most efficient,
Speaker 1: sort of cost effective way to get exposure to gold?
Speaker 4: The way we approach it with our clients and when
Speaker 4: asked and by the way, the World Wal Council is
Speaker 4: the sponsor for GLD, but we're happy to talk to
Speaker 4: them about all the different mechanisms to own gold and
Speaker 4: actually all different ETFs as well. What people need to
Speaker 4: understand is how large is my position going to be,
Speaker 4: what's my period for wanting to hold it? How often
Speaker 4: do I think I might need to rebalance it? And
Speaker 4: then look at each one of these instruments. So GLD
Speaker 4: is a forty bases point product. But it is the
Speaker 4: most liquid ETF worldwide that's physically backed by gold, and
Speaker 4: it is the largest asset worldwide physically backed by gold
Speaker 4: by far. But there are other alternatives that are less
Speaker 4: expensive from a management fee perspective. But you need to
Speaker 4: understand is the asset liquid, is it going to perform
Speaker 4: and track the gold price like I wanted to? And
Speaker 4: what's that management fee? So what is my total cost
Speaker 4: of ownership calculation I'd use with every other ETF if
Speaker 4: I'm looking at it, like the cost of commissions, the
Speaker 4: cost of impact of trading, the management fee, and the drag.
Speaker 4: And then this case is tracking costs as opposed to
Speaker 4: ERIC because of the fees that go along with understanding,
Speaker 4: you know, vaulting and custody and things along those lines.
Speaker 4: But you know, look, gld is a perfectly acceptable instrument.
Speaker 4: Still about a fifty to fifty split between institutional and
Speaker 4: retail platforms that are owning it. But you've got GLDM,
Speaker 4: You've got IAU, SGOL, bar AAAU, you know a bunch
Speaker 4: of different assets that are out there. That's the US alone,
Speaker 4: about eighty five instruments worldwide.
Speaker 1: Wow, eighty five instruments world right.
Speaker 2: I also was looking at gold. I noticed it had
Speaker 2: outflows the last two three months or so. So I'm
Speaker 2: curious when you do see investors actually putting money towards
Speaker 2: something like GLD, like, what do the circumstances have to
Speaker 2: look like? And how did it hold up when we
Speaker 2: saw inflation? When you know, because we do talk about
Speaker 2: gold as an inflation hedge, did it hold up as
Speaker 2: an inflation hedge the last couple of years?
Speaker 4: Number one attracts the gold price and it's tracked the
Speaker 4: gold price for almost this next fall twenty twenty four
Speaker 4: to be twenty years. So yes, it performs and tracks
Speaker 4: the gold price, no questions asked. So operationally efficient. What's
Speaker 4: interesting about the dynamic with GLD first asset to market
Speaker 4: in the US, second asset to market in the world.
Speaker 4: The first was in Australia. So when that happens in
Speaker 4: the world of ETFs, what happened in the past with
Speaker 4: ETFs is that you cornered the market on being that
Speaker 4: capital markets instrument over ninety five percent, if not ninety
Speaker 4: nine percent of the related instruments in the derivative market,
Speaker 4: option trading and so forth is really written only on GLD.
Speaker 4: So what you end up with our institutions that are
Speaker 4: buying and selling in the asset itself and the institutions
Speaker 4: that are trading in those options markets, so they're feeding
Speaker 4: on that total overall liquidity and overall size of the fund.
Speaker 4: But that leads to a layer of AUM that will
Speaker 4: basically be speculating and trading. So you'll see that gold
Speaker 4: will have a higher level of volatility in its flows
Speaker 4: than any other instrument in the market. So to your question,
Speaker 4: how did it hold up in inflation, what we saw
Speaker 4: with the asset was actually flows that we're actually trading
Speaker 4: in that range probably about ten percent of the overall AUM,
Speaker 4: and then a hold on the part of most of
Speaker 4: the investors. And that's what we continue to hear today
Speaker 4: is most of the conversations are about when do I
Speaker 4: go back in, not should I keep holding my asset?
Speaker 4: So the asset flows out from the US have stopped
Speaker 4: slowed and people are on hold, waiting to see when
Speaker 4: there's the next move in Again. At that top end
Speaker 4: where you have that AUM that's linked to trading options
Speaker 4: and the like that's been volatile, that's when people are
Speaker 4: trying to time the market pick the spot to sell,
Speaker 4: to buy, to cover the shorts, et cetera.
Speaker 1: You know, Joe the Don and I over the years
Speaker 1: have talked to a lot of cryptocurrency officionados will all
Speaker 1: the digital goal, digital gold, and that is always the
Speaker 1: the sales pitch I which the listeners could see Joe's
Speaker 1: face reacting to that, but that you know, that's among
Speaker 1: the many sales pitches that come and go for bitcoin
Speaker 1: and other cryptos is digital gold, you know, a safe
Speaker 1: way to store your money, blah blah blah, Yeah, inflation edge.
Speaker 1: I'm guessing you and your colleagues haven't lost a lot
Speaker 1: of sleep over that, or have you? How do you
Speaker 1: you know? Does does crypto really compete with gold for
Speaker 1: all the same investment cases that people are attracted to
Speaker 1: gold for.
Speaker 4: I'm going to start by saying, the evolution of technology
Speaker 4: is amazing. The ability to have better, faster, more comprehensive
Speaker 4: access to database management, transparency around pricing really cool stuff. Now,
Speaker 4: as it relates to bitcoin and gold, we've done a
Speaker 4: lot of work to try and make sure everybody understands
Speaker 4: that these are two different assets. They behave differently, they
Speaker 4: actually correlate differently, and bitcoin correlates more like a tech stock,
Speaker 4: not the kind of tech stocks that are running as
Speaker 4: of late, either, but tech stocks in general, because, like
Speaker 4: I said, a lot of people see the same thing
Speaker 4: I see, which is the technology is really amazing. Now,
Speaker 4: how will it evolve over time in the form of
Speaker 4: a currency. I don't know, but I know that the
Speaker 4: big challenge that they're facing in the category today is
Speaker 4: that they tend to want to be a hammer looking
Speaker 4: for a nail. You say inflation, I can hedge inflation.
Speaker 4: They don't hedge inflation. When you look at the performance,
Speaker 4: you say I need safe haven asseid, they say, I'm
Speaker 4: safe haven acid. Then guess what they aren't. You say,
Speaker 4: I want to, you know, use it for payments to
Speaker 4: buy a diet coke down at the seven to eleven.
Speaker 3: They go, yeah, you can do that too.
Speaker 4: They want to be everything and everything for everyone without
Speaker 4: really kind of nailing down exactly what they are, which
Speaker 4: makes it really challenging for people to analyze the asset
Speaker 4: the same way you can analyze gold and say, look,
Speaker 4: central banks are buying for the following reasons. Jewelry sales
Speaker 4: are down in China because people are locked down under
Speaker 4: COVID so that's going to kind of keep us price
Speaker 4: range bound. Right now, you can use these assets and
Speaker 4: the data that we have and the information to kind
Speaker 4: of understand, analyze and make a sensible investment in gold
Speaker 4: and look at it and get exactly what you expect
Speaker 4: out of a portfolio performance from it. But in the
Speaker 4: case of bitcoin, and it is pure speculation and look
Speaker 4: have at it. And where we've gotten to with our
Speaker 4: dialogue with clients today, guess what we say to them, Sure,
Speaker 4: you want to buy that risk asset. You might want
Speaker 4: to consider a gold allocation to offset the risk that
Speaker 4: comes with it. So buy them both, because that's over
Speaker 4: there with your equities and your bonds and your private
Speaker 4: equity and your risk and over here is a safe
Speaker 4: haven asset. And it's wrong to say it's a digital
Speaker 4: version of gold, because gold's used in technology. It's used
Speaker 4: in medical applications, which is a small component of the
Speaker 4: big markets that we talk about, but it's a growing component.
Speaker 4: But it's also used like you know, it's in your iPhone,
Speaker 4: And it's hard to kind of pinpoint exactly what bitcoin
Speaker 4: is doing. But look, I'm not saying it's not a
Speaker 4: good asset. It's not a right asset. I'm just simply
Speaker 4: saying it's a wrong comparison to say gold is in
Speaker 4: the digital form in that case. And just two other
Speaker 4: quick points on this, because I know I'm banging on
Speaker 4: a little bit on.
Speaker 1: I thought I thought you'd have some thoughts on this je.
Speaker 4: But the digital technology that we're using in the gold market,
Speaker 4: like we're on a journey as we speak. The LBMA
Speaker 4: and the World Gold Council are on a journey piloting
Speaker 4: technologies to better track and trace the underlying goal that's
Speaker 4: in the market. Our it's known as our Gold Bar
Speaker 4: Integuity Program, and it's really cool what we're doing. We're
Speaker 4: we're I mean, it's going to take a long time
Speaker 4: to have this happen, but we're working with organizations that
Speaker 4: can track and trace every bar. We're working with organizations
Speaker 4: who can actually look at the value or or i
Speaker 4: should say the quality, the purity, and the traceability of
Speaker 4: all the gold all the way back to the mind sights.
Speaker 4: I mean, that's amazing, and that's coming off the similar
Speaker 4: types of technologies. This digital edge of technology is helping
Speaker 4: us in all the gold market. So to just simply
Speaker 4: say it's another it's a digital version of gold. It isn't.
Speaker 4: It's a it's a cryptocurrency that has valuations based off
Speaker 4: of different factors. What we're dealing with is a real
Speaker 4: world asset that at some point in time will be
Speaker 4: successfully tokenized, which it hasn't been today. And last, but
Speaker 4: not least, I'd simply say, hey, everything in that space
Speaker 4: is traceable and trade and and and the anonymity that
Speaker 4: they claim you can get is the questionable.
Speaker 1: Yeah. Joe Cavatoni, strategist at the World Gold Council. Joe,
Speaker 1: I gotta admit when vill Donna said she'd book you,
Speaker 1: I was picturing a guy with like mister t gold
Speaker 1: chains all over, like a ring on every finger. He's
Speaker 1: just a normal guy. But I uh, very fascinating conversation, Joe.
Speaker 1: We really appreciate it. We can't let you go just yet.
Speaker 3: Though.
Speaker 1: We got a tradition here where it's time for the
Speaker 1: craziest things we've seen in markets this week. Well, Donna,
Speaker 1: why don't you get a start?
Speaker 2: Okay, I was going to go with this, but I
Speaker 2: figured you were gonna yell at me because it's not
Speaker 2: markets related.
Speaker 1: It's that I've never yelled at you all the.
Speaker 2: Time, especially when we're not recording. There's that guy in
Speaker 2: Japan who spent fourteen thousand dollars on a costume to
Speaker 2: make himself look like a dog. Did you see it?
Speaker 3: Yes?
Speaker 2: Yes, there's videos everywhere. And when I saw the video
Speaker 2: without reading the captions, I thought it was a real dog.
Speaker 1: He thought it was real, a real dog.
Speaker 2: Yes, I mean it looks like a real dog.
Speaker 1: And does he walk around on all fours? Yes?
Speaker 2: Yeah, and he like paused at the four fourteen thousand.
Speaker 2: But it's not markets related.
Speaker 1: So well, that's that's pretty good though. It's like, well,
Speaker 1: there's the bears in the zoo in China that yeah,
Speaker 1: too convinced.
Speaker 2: I'm convinced because it wrinkled in the back on his legs. Yeah,
Speaker 2: but I was going to go with Actually, something also
Speaker 2: related to the ETF space, which is that we've had
Speaker 2: a ton of filings from issuers for ether futures ETFs.
Speaker 1: Yeah, like seven or something.
Speaker 2: Six issuers, seven different applications so far, and it was
Speaker 2: just in May that actually a bunch of them had
Speaker 2: to withdraw those same applications. So something has changed, Something
Speaker 2: is giving people the idea that and actually Joe the
Speaker 2: reason I wanted to go with this is because you
Speaker 2: spend time at black Rock, right, so maybe you have
Speaker 2: thoughts about what's going on with the ETF landscape.
Speaker 4: Well, I you hit the nail on the head in
Speaker 4: terms of where I was going to go with my
Speaker 4: idea for the week. I did look at that collie
Speaker 4: and it was kind of disturbing because I was actually
Speaker 4: I was actually slightly chat lagged, and I was looking
Speaker 4: at it in you know, the wee hours of the morning,
Speaker 4: and I'm like, what the world is that? And I
Speaker 4: was like, you confuse over whether it was real or not.
Speaker 4: But I had I had a couple of reads into it.
Speaker 4: I realized it was a fourteen thousand dollars bizarre moment.
Speaker 4: I'm gonna go I'm going to go back in time
Speaker 4: to when I was at Merrill Inch and I was
Speaker 4: a junior analyst on hedge funds and there was a
Speaker 4: particular headsphind manager that I was like one of the
Speaker 4: guys in the corner of the room and we were
Speaker 4: talking this manager and he insisted on saying, I'm going
Speaker 4: to cap out my fund at a billion dollars, and
Speaker 4: a billion dollars is going to be all I want
Speaker 4: to manage and I don't want any more. And it's
Speaker 4: not because I can't run my strategy or my trades
Speaker 4: with more than a billion dollars. I worry about what
Speaker 4: people who are facilitating my trades around me, basically looking
Speaker 4: at people like Merrill ech and brokers and saying, hey,
Speaker 4: you guys are running around telling everybody what I'm doing.
Speaker 4: And the moment my trade becomes well known everybody just
Speaker 4: follows my lead, they collapsed the opportunity for me. And
Speaker 4: so my idea of like, what's really warping me over
Speaker 4: the last weeks, would say maybe even months, is that
Speaker 4: moment of people chasing the trade with no analysis.
Speaker 3: And I actually think.
Speaker 4: That when I look at an organization that, over the
Speaker 4: course of twenty four months has a one hundred and
Speaker 4: eighty degree turn in their attitude and their behavior and
Speaker 4: the resulting filing and the resulting market behavior at least
Speaker 4: to a twenty six percent return, it makes me think
Speaker 4: I'm actually happy I'm sitting at the World Gold Council
Speaker 4: so I can go to the tell these people you
Speaker 4: might need to look at gold in that portfolio if
Speaker 4: you're chasing a twenty six percent return on the back
Speaker 4: of a filing with no real change in what's going
Speaker 4: on in the world other than the potential for some
Speaker 4: lawsuits and cases to kind of come to light and
Speaker 4: maybe some rulings to come down the line. I don't
Speaker 4: think anybody has a smoking gun or a silver bullet
Speaker 4: or whatever. The expression I should be using is that
Speaker 4: I don't think they do. Will they get approval any
Speaker 4: of these organizations, I don't know. But does it really
Speaker 4: merit a twenty six percent return in an asset simply
Speaker 4: because of a filing you mean.
Speaker 2: For a bitcoin or a spot bitcoiny TF, for an
Speaker 2: ether future CT. We've had so many of these filings. Yeah.
Speaker 1: Yeah, man, the prices move.
Speaker 4: This goes back to this point we were just talking to.
Speaker 4: The prices move pretty substantially just on a filing.
Speaker 1: Yeah, especially, I mean when you can just buy bitcoin,
Speaker 1: you know, like a gold ETF. Okay, I don't want
Speaker 1: to have to have a gold vault in my house.
Speaker 1: I kind of see the selling point more of the
Speaker 1: ETF wrapper for that. But well, it's interesting, Joe, So
Speaker 1: it's an interesting way to think of it. Let me
Speaker 1: give you my my craziest thing. I'm going to the
Speaker 1: London real estate market, the very hot real estate market
Speaker 1: these days. I own a lot of hostile Oh, I'm
Speaker 1: sure you do. I'm sure you do. The New York
Speaker 1: Times has a story the headline's great. A stairway to
Speaker 1: nowhere sells for blank in London. I'm not going to
Speaker 1: give you the dollar figure, obviously, because it's time for
Speaker 1: our game show. The price is precise. So let me
Speaker 1: tell you about this. It's a four story stairwell, metal
Speaker 1: stairwell with like this translucent glass or plastic wrapper around it.
Speaker 1: It was the stairwell, the exterior stairwell for story office
Speaker 1: building that was converted to residential. Now, in the conversion process,
Speaker 1: they cut off the access to the stairwell, so the
Speaker 1: developer of the project ended up owning the stairwell just
Speaker 1: by itself, just stair A stairway to nowhere?
Speaker 2: Can you like wheel it around stories?
Speaker 1: No, it can't be detached, and it's not it can't
Speaker 1: be entered from the actual building. But someone bought it,
Speaker 1: so why well, I'll tell you.
Speaker 3: Let me.
Speaker 1: It's a guy who co founded a firm called help Bank,
Speaker 1: which is a company that supports budding entrepreneurs. He bought it.
Speaker 1: Now The guy quoted in the Time story is his
Speaker 1: chief marketing officer, which I think gives you a hint
Speaker 1: at why they bought it. Here we are talking about it.
Speaker 1: It was any times, I will say the crazy part
Speaker 1: is not necessarily the price of the thing. I actually
Speaker 1: think the price that he bought it for is personally,
Speaker 1: I think is reach. You may think it's crazy. I
Speaker 1: just think it's crazy that they sold a stairway to nowhere.
Speaker 1: And this guy says, well, you know he backs startups
Speaker 1: and entrepreneurs. He said, I'm thinking I'm going to put
Speaker 1: a desk on each landing for a budding entrepreneur.
Speaker 2: But is it open? Is it like outdoors?
Speaker 1: No, it's it's enclosed. It's enclosed. I don't know if
Speaker 1: there's power or heat or anything like that. I my
Speaker 1: guess is not. But maybe they could wire that up
Speaker 1: our bathroom.
Speaker 3: And he said the fourth Floyd, do I have to
Speaker 3: go through three other?
Speaker 1: You got to pass three other future billionaire? Startup?
Speaker 5: Isn't in a nice location the London neighborhood of Twickenham.
Speaker 5: I don't know much about that part of London. It
Speaker 5: sounds sounds very nice, Southwest London. It's home to England's
Speaker 5: National Rugby Stadium.
Speaker 3: That's where twicking in the stadium is.
Speaker 1: Yeah, yeah, so, and they're saying he might apply, you
Speaker 1: know whatever the London equivalent of zoning is wherever they
Speaker 1: call it that over there, to allow them to put
Speaker 1: beds in there and make it residential.
Speaker 2: So how big is this thing?
Speaker 1: It's not that big. Now you would have like a
Speaker 1: single bed on the landing of a stairwell or in
Speaker 1: a desk you could turn into an airbnb. Yeah, I have.
Speaker 4: A price in mind, me too, and I think you
Speaker 4: could also kind of use it on the out and
Speaker 4: the exterior for advertising.
Speaker 1: No they're talking about that. Yep, that was another thing
Speaker 1: to imagine they're going to talk to But it's yeah,
Speaker 1: that kind of cloudy.
Speaker 2: How can you have a bed?
Speaker 1: I guess you'd get some curtains, But price is precise.
Speaker 1: What's your bid filled on at nineteen pounds nineteen thousand pounds?
Speaker 1: Remember prices right, rules are in effect.
Speaker 4: I'm going to say it was a lot more expensive
Speaker 4: than that. And the reason I think it's a lot
Speaker 4: more expensive than that is I think that they marketing
Speaker 4: person has probably gotten in and overpaid for it. And
Speaker 4: I'm going to say, a million sterling, a million shurty, Oh,
Speaker 4: a million sterling.
Speaker 2: It can't be that high because Mike thinks it's reasonable.
Speaker 1: I did think it was reasonably priced. Twenty five thousand pounds, wow,
Speaker 1: thirty two thousand dollars. It's only about twelve ounces of gold, right, No,
Speaker 1: fifteen ounces of gold.
Speaker 3: Not a lot. See, who would have thought I was
Speaker 3: way off the value?
Speaker 1: But I do think it was underpriced. I think they
Speaker 1: got a deal. I don't know if i'd go as
Speaker 1: a million sterling. Yeah, very good anyway. Joe Caviatoni of
Speaker 1: the World Gold Council. Really fascinating conversation, Joe, and it's
Speaker 1: great to hear sort of a level headed explanation of
Speaker 1: the gold market for those who sort of already in
Speaker 1: the weeds of it. And we really appreciate your time.
Speaker 3: Thank you for your time as well.
Speaker 2: What goes up. We'll be back next week. Until then,
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Speaker 2: What Goes Up is produced by Stacy Wong and our
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