March 22, 2024 – The financial markets are undergoing profound changes - cryptocurrency valuations are on the rise and we're witnessing the steady and impressive performance of the gold markets. But what's driving these trends? In today's podcast, Jim Puplava, President of Financial Sense Wealth Management, and precious metals expert Bob Coleman at goldsilvervaults.com discuss the peculiar dynamics between gold, silver, cryptocurrencies, the role of central banks, and expectations for the future. Puplava and Coleman look at burgeoning physical demand that may shape the bullion markets, the transformation under Basel III regulations, and the rising recognition of gold as an international currency for trade.
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Transcript:
Jim Puplava:
Well, there's been a lot of talk about cryptocurrencies as bitcoin has hit one new record after another, seems like there's no end in sight, especially now with crypto ETFs. But another metal is moving as well, and that is gold. It's the longest that we've seen gold over 2000, and it's hitting new records. What's driving all this? Well, let's find out.
Joining me on the program is Bob Coleman. He's CEO of Idaho Armored vaults. His website is goldsilvervault.com. Bob, I want to begin with physical demand, and maybe we can break this up into, let's say, two buyers, because what I've seen over the last couple of years, heavy selling of gold and silver by individual investors out of ETFs like GLD and SLV, but some of the largest buying by central banks that we've seen, at least in my career. So let's begin with demand.
What's driving it and why the disparity between investors and central banks? What's going on there?
Bob Coleman:
Yeah, in terms of overall demand, especially with gold, you're right. The central banks have been sort of the buyer that's really taken or supported the market, even when the retail crowd, as well as the institutional ETF crowd has sort of backed away. So that's given a lot of wind to the sales of gold the last couple of years. Not so on silver. Silver.
Obviously, the central banks really don't look at silver as an asset or a metal that they hold onto. It's more on the gold side. But interesting enough with what you're seeing in today's marketplace. The retail investor has also backed away from the market. Really.
It started about midway through last year. You started to see a slowdown coming. And going into the end of the year, you started to see investors selling back metals and really losing sort of their focus and faith in terms of the reasons to buy it and to own it, because really you were seeing the stock market go to new all time highs and like you mentioned, bitcoin going through the roof and other asset classes staying at very lofty levels. You've seen this sort of gravitation away from the metals, especially the last three or four months, and into other asset classes. And that's set up this interesting environment that we're in today.
Jim Puplava:
Yeah, it's rather interesting because even on some of the cable financial shows, they've got young millennials that have become crypto millionaires. And it's kind of like with the younger crowd, crypto makes more sense to them than, let's say, gold and silver, which has been money for over 5000 years. Now, in terms of public sentiment, is that something? From what I've seen, there's been outflows out of the ETFs, both gold and silver, over the last two years. Do you see any change in that sentiment?
With gold really starting to hit new records? Silver is starting to perk up a little bit, but it's selling at half of what it was 40 years ago.
Bob Coleman:
Yeah, the ETFs are a very interesting asset class because the ETFs are sort of managed by the authorized participants, which are typically the big broker dealers or bullion banks, and they're the ones who create redeem shares. And a lot of times they use the ETFs as an inventory mechanism or a trading platform for themselves to trade against and collect that arbitrage in terms of profits. But what we've seen here, like with Silver, for example, you're right, you've seen this steady outflow of metal out of these ETFs. Oddly, silver as it was rising here in March, happened to see, actually went to a new low in terms of shares outstanding, or ounces held in the fund during this big run up. And in fact, it's something that I've kind of reported on.
You've seen an acceleration of short selling that's been going on with the SLV ETF, especially the last three weeks. Just been over 45 million shares short over that period of time. And during a time frame where the market is actually rising and you're not seeing any inflow or new ounces coming into the fund. The big question there is not only are institutions maybe not participating, but the question really is, is the public completely not participating? Which I find kind of strange.
And one of the things I write about a lot is the short selling that goes on with these ETFs. And the question is, are the authorized participants absorbing some of this inflow of money coming into the silver market through the ETFs? Are they just meeting that demand by selling shares short instead of creating, depositing silver, for example, and then adding or creating new shares to then sell to the public?
Jim Puplava:
The question is, do they have enough silver? I mean, if you take a look at the short positions and what is registered and available for delivery, it's like mountains apart. And that's the risk I think you could face someday, could you not? If, let's say, some of these people that are in long decide, hey, I want to take delivery, where's the silver going to come from? Because, Bob, we've been watching inventories drop.
Whether it's gold, I think it's like you probably have a number just in the last year or two, how much gold has left the warehouse and how much silver.
Bob Coleman:
Yeah, the registered category, it's perked up here probably over the last four months. But there was a point where you hit, I think it went from about 120,000,000oz or 150,000,000oz in silver. At the registered category, which is the category that basically backs all the futures contracts, it dropped from 150,000,000 down to 26 million oz into last year. And you're right, there is a leveraged effect when it comes to the precious metals markets and how the paper trading sort of dictates the price action or influences the price action. What's interesting though, is since the influx of basil three, which occurred in 2022 and was implemented, what you're starting to see is the banks step away from sort of the paper side of the business, and you're seeing the physical market become a little bit more dominant in price action.
And you see that flow with, for example, a lot of gold and silver going eastward to India and China, for example, the first two months of this year. The demand from India for those first two months was greater than the entire demand, I believe, for the United States for an entire year last year. I mean, it's just an enormous amount of demand that's coming from the eastern region, whether that's for industrial purposes or for bars for investment. That's another totally different topic. But what you're seeing though, is with that physical demand, that's creating an issue.
When anyone's trying to short silver on paper or gold on paper, they can only push the price so low before that physical demand just starts to perk up again.
Jim Puplava:
Hi, I'm Jim Puplava. I started financial since 1985 to give clients a boutique personal investment experience that's hard to get at a large company. For three decades, my company has been helping families build, manage and protect their wealth through tailored financial planning and investment management. If you are looking to make financial sense of a complex world, give our office a call at triple 8486-3939 to speak with one of our advisors today and let us help you plan your future. One of the things that we're seeing, we're seeing gold become a currency in Asia.
China is going to be using it to settle wand sales. If you have excess wand, you can exchange those wand for gold on the Shanghai exchange, which, by the way, trades for a higher price than what we see in the US. But also, there's been stories, I think they confronted Powell in one of his press interviews about foreigners who kept their gold here because the US was considered a safe depository. But when they saw that we confiscated Russia's gold over the Ukraine war, a lot of countries have been pulling their gold out. Everybody's got a tight lip on this.
Nobody will talk about it. Do you have any insight as to whether that's true or not?
Bob Coleman:
Yeah, you've seen, I guess, importing of gold and metals out of New York, sort of a deleveraging effect. You're seeing central banks around the world sort of take metal into their own hands again to remove counterparty risk. And I think it's also, like you said, there's a concern with regulatory and maybe direction from the treasury that influence that. Hey, listen, your asset is maybe your asset until it says, we say it's not your asset anymore. So there's this notion of, okay, we have to bring this back and repatriate the metals and put it back under our control.
That's been going on really for the last ten years. It's not something that's just kind of sprout up. And part of that is also the deleveraging they don't want to have. For example, it was very common for central banks to lease metal into the market to the bullion banks. The bullion banks basically use that metal to.
They could deliver to the ETFs. They could deliver it to funds that were maybe trying to use the gold for investment purposes and then borrow against that gold and leverage that. But what you're seeing when they're starting to take back this metal and repatriate it, that's a deleveraging that's happening, because that metal is just going back into a vault and out of a. Like, for example, the bank of England, for example, which is well known for holding metals for the ETFs. Well, if that metal can be put in an unallocated account, it could then be borrowed against, or it can be leased or loaned and still held at the bank of England.
Well, if countries start taking that metal back out of there, they're just saying, listen, we're removing our counterparty risk from our portfolio.
Jim Puplava:
So when you're taking a look at this shifting, I want to go back to Basil, where you've got a lot of the bullion banks and the big banks are kind of unwinding these hedges or derivative contracts. What's the implication? Because I know for gosh, at least three or four decades, the banks have controlled the price of paper, gold and silver control the price of gold and silver. It's not demand supply or the physical bullion.
Bob Coleman:
Yeah. The way basil three kind of was shaped was the idea that it was a way to try to delever the banks and reduce risk. And so when it comes to the gold and silver market, the banks had what they call an unallocated account or an unallocated program. They have what they call allocated, which is in London. That would be, for example, you own a specific bar held in your name.
But when you're also a bank client, if you wanted to participate in the gold, could, they could offer a program called an unallocated account program, which basically you would invest in. But that program is not backed by metal, it's backed by the balance sheet of the bank. And that's where the leverage factor starts to come in, and that's where the influence and management of price start to impact the gold and silver markets. So basically, these programs, just like with ETFs and so forth, these programs act as financial sponges that basically absorb money that goes into metals or that would have gone into actual physical metal, but it goes into a paper program backed by a balance sheet of an institution, rather than the institution going out and buying a specific bar for that individual. So what basil three basically did, it penalized banks that offer these unallocated programs.
If they wanted to continue offering that, they had to pony up, I think, an 85% reserve ratio to provide basically delever, their balance sheet from that risk. That if the price of metals went through the roof, for example, and they didn't have the balance sheet to pay out to that liability or to that customer, it would put the bank in some type of financial situation. Well, Basil three basically said that in order to avoid that penalty, if the client goes and buys an ounce of gold, and you go out and buy that ounce of gold and represent that gold to the client, you don't have that issue anymore. It basically delevered the system. And that started to happen in 2022.
At the same time, you started to see the derivatives that are reported on the Office of Controller of Currency Reports. In beginning of 2023, you started to see a deleveraging in the derivatives that were on the bank's balance sheets or backed by the bank's balance sheets. And those bank derivatives are tied directly into a lot of the structured products that they've created for institutional clients. So when you start to see that unfold as well, that then bleeds into the ETF market. And that actually has been one of the reasons why?
You've seen this steady outflow, basically starting in late 2022, early 2023, where you had this divergence in price and the actual ounces held in the funds, where the price started to go up and the ounces in the funds kept going down. That actually started about that same time. And I wrote an article about this that basically my theory is that because of the billion, it's about $50 billion right now in notional value has come out of these derivative products over the last, really the first nine months of 2023. There's correlation there with also the decline in ETF flows.
Jim Puplava:
So are they using that as part of their deleveraging process?
Bob Coleman:
Yeah. What's happening is you have to look at in 2020, you had this massive increase, or really 2019, you started to see this increase in derivatives used in precious metals. This is reported by the office of Controller of Currency. They have a special report for this. And it kind of blew up, especially in 2020, and started to rise in 2021.
And if you look at it, that's also when the ETFs had a very high share count or a high inventory of assets being held in those ETFs. At the same time, you also had a huge spike of metal coming into the Comex at the same time. Well, what happens is banks and their broker dealers will create investment products. Think of it as during the movie, the big short, when Michael Berry went to one of the big broker dealers and said, listen, I want you to write a contract up that allows me to bet on the housing market. And they all laughed at him.
Well, that's very similar. That's a structured product that he was buying from that broker dealer. Well, institutions will come to these broker dealers and say, listen, I want to buy or I want to have exposure to the precious metals. Would you write me a contract or an investment that would allow me to have that exposure? So some of these programs, they may be called buffered notes, for example.
So the institution says, listen, I don't want to have the volatility that silver provides, but I want to have some upside to it. So Wall street will create a program that says, for the first 20% of the move to the downside, we'll absorb that 20% potential loss, but on the upside, we'll only give you 80% of the upside. So there's what they call a buffer there, but they can create all these multitude of different products. Well, that's a structured product. What Wall street will then do is they will then go into the market and deliver metal to, for example, the silver ETF they'll get the Silver ETF shares.
They'll base a product or an indexing a product based off of SLV's ETF. And then, because that'll be indexed, they can then use those shares as a model for whatever program they're going to offer. And then when that investment expires or matures, they deliver those shares back to and unwind that position, deliver the shares back to the ETF, take the metal back out of it, because basically, the investment itself just matures like a bond maturing. It just gets retired. And I think that's what we've been seeing, because really since 2023, late 2022, is when a lot of these structured products, which were underwritten in 2019, 2020, that's when these things had started to mature.
That's one of the reasons. And it could also be, as the stock market has gone to new all time highs, you've just had also less interest in the metals from institutions that basically were putting that money back into the stock market or into the tech stocks, or, like you said, crypto, whatever it may be.
Jim Puplava:
So when you take a look at this, over the last couple of years, we've seen individual investors divesting themselves out of gold and silver, mainly the ETFs, as we've been speaking. And if anything, as things have taken off, they've gone more towards crypto. It seems like where the money's flowing. Hence the ETFs that Wall street came up with, which is also going to be driving the price of crypto up. So, in your opinion, who's on the right side of this? Individual investors who have been divesting, or central banks who have been heavily buying?
Bob Coleman:
Well, to me, the metals markets are a long term investment, and it's one of those things running a depository. I also run a hedge fund that invests in the physical metal. It's the long term picture when you're dealing with physical metals. The problem with the crypto market, as you probably have seen in your career, there's a lot of these hot investment themes that tend to gravitate a lot of interest and money flow, but it may not last for very long. And I think that's part of what we're seeing with the bitcoin ETFs, is that Wall street has really created this magic, I guess you could say to a lot of people in terms of, hey, listen, now you can get bitcoin through an ETF, and you don't have to take the risk or the logistics of getting a cold wallet and so forth and storing the metal or storing the bitcoin in your wallet, you could just buy the ETF and get exposure that way.
But typically, when Wall street gets involved with something, they're not doing it from a charity standpoint. They're doing it to make money. And what I think is happening with these ETFs, I think it's what they call classic distribution. I think the way these ETFs had been created, I think there was a lot of front running going on last year while the SEC was saying the whole time, we're not going to pass these ETFs, we're not going to prove them. And then all of a sudden, there's enough pressure.
You get every big guy on the street, that's Blackrock and all the others, talking about how they want this ETF to happen, and magically it happens. Well, obviously, somebody was buying this bitcoin ahead of time and then selling it to the ETFs when they became live, and then knowing that the flow of money would come in and you'd have this. Basically, it's sort of a chain of, I guess you could say front running. But the concern I have now is if you look at the bitcoin mining companies, they've actually been going down as bitcoin has been going up, which is really strange. And then you have what they call the having that's coming up next month, where now these bitcoin miners, which are not making money at current prices, it's going to cost even more money to manage that block, create that block.
And I don't know how they're going to make money doing it after the having. That's the whole theory of bitcoin, is that the having would allow or almost force the bitcoin to go and double in price because there's half as much bitcoin that the miner gets for creating the block. To me, I've been in this investment game for 30 years, and it doesn't smell as kosher, I guess, as it sounds.
Jim Puplava:
So overall, let's move on. Next, we talk about supply and demand. We know on one side of it you've got large, massive buying by central banks and especially BRICS countries, Russia and China, that are moving to gold settlement in global trading. So let's talk about the drivers and then also the impact of treasuries, because one thing about gold and silver, they don't produce any income. So if you own a gold coin, you're not getting dividends, you're not getting interest. And we've always been told, well, if interest rates rise, the higher interest rates go, then there's less demand for gold and silver. But then I think back to 1980, when we had 15 and a half percent on Treasuries, and gold went all the way up to 800. So I'd like to get your take here on this.
Bob Coleman:
Well, basically, with metals, I think in these financial markets, we've really seen the last 20 years, it's all about momentum and flow into an asset class. It may not really matter as much on interest rates and maybe some of these fundamentals, especially if the government is going to keep printing more money or keep spending more money, I should say. And you have this fiscal dominance situation where they're not going to slow down the spending, so therefore it's just going to be more treasuries coming down the pike that'll give wind to the metals regardless of where interest rates are. And I think that's important to note. Interesting enough, you just had something come out from ISDA, which is the industry group that oversees derivatives.
They came out and a couple of weeks ago put a letter out to the Federal Reserve, as well as to some of the banking regulators, asking that the provision that happened with the SLR, the leverage ratio provision, that allows banks to buy treasuries during COVID where they could buy an unlimited amount of treasuries and not have it go against the leverage ratios, they're now asking to implement that because that lasted for a year. It was a temporary order. Well, they're asking the government to now make that a permanent fixture in the banking system and allow the banks to buy treasuries without having that impact their leverage ratios. That's telling us that either there's a lot more supply coming down the road, or they may see issues with a lack of buyers going forward, and the banks are the ones that are going to absorb this issuance. To me, that is what could be driving the metals in today's world.
But you may not see the news come out for maybe six months or may finally come out, and gold may be at a higher price. But gold tends to sort of see these signals and act ahead or act accordingly at the time when the news is kind of percolating. But when the retail finally sees it, that's usually when the move has already happened. Oddly enough, right now the retail market is very quiet, actually. You see a two way market where you see people selling, you see the retail environment not trusting the rally.
So you have people selling into this market, which is putting pressure on the dealers and on wholesalers. And now you're seeing a situation where wholesalers and retail dealers are really filled up with inventory and their balance sheet is very full. When they're holding this much inventory, they typically hedge and they go into the futures market and sell futures contracts. And we're in this kind of particular situation where as this market rises, it could actually damage the industry or the participants in the industry, because metal is not being bought. There's no two way action.
They're absorbing this metal being sold back, but they're not seeing a lot of buying by the public. So they're sitting on a lot of inventory, hedged, of course. And then the carrying costs are rising because interest rates are going up, and at the same time, their margin calls on their hedges are going against them because the prices are going up. And so they're having to pony up more money. And that actually could be impacting and aiding sort of the price rise in the market, which is kind of strange to say, but we saw the same thing happen in the mid 2000s when barrack gold and some of the big mining companies, their hedges blew up on them because they were hedging their mining production.
While you're seeing the same thing happen in the retail and wholesaler dealer industry, where they're hedging their inventory, I want.
Jim Puplava:
To come back to that, too, because that really hurt the miners in the decade. I can remember several of the large mining companies spending billions to buy back their hedges, because for the longest time, gold went nowhere for almost two decades. So as we go forward now, if these dealers could be facing some financial difficulties because they're ending up buying bullion from retailers rather than selling. But explain to me, Bob, why are we still seeing, like, in silver? Granted, the premiums over silver on a silver eagle, I can remember one time they were over 80%. Currently they're still over 30. Why is there such a big premium even today if the retail investor really isn't buying?
Bob Coleman:
The last three years have seen the dealer industry take advantage of the public. They charged exceptional premiums. They overcharged. There wasn't very much transparency. There was a lot of fear mongering.
There was a lot of terminology of using the word shortages, for example, when product was simply just tight, you could still get the product. It just took a little bit longer to get it. But a lot of new people came into the market that had never bought metals before. And so that allowed this sort of atmosphere of profiteering. Well, now you have a situation where the public is like, listen, I jumped in with both feet and I realized I vastly overpaid for the metals, the price has gotten absolutely nowhere.
When I watched YouTube, I saw this guy tell me silver is going to $200 an ounce in six months. Well, that never materialized. And so people kind of started to feel a little bit taken. They certainly took a step back. All of a sudden, the stock market starts going higher.
Last year you had interest rates come down a little bit. There wasn't that urgency to own metals anymore. Now the industry, which has to almost backtrack here a little bit, is seeing sort of the temperament by the buyer to say, listen, I'm not going to play that game anymore of overpaying for metal. I'll let the metal come to me or let the price come to me. So everyone has sort of got into this sort of frame of mind that because the metals have gone nowhere, every rally is just going to come right back down.
And then I'll wait till to buy in the dip. Well, now you have a situation where that dip isn't coming anymore. The sentiment had been so negative, especially in the mining stocks, that it's laid a foundation for in the paper markets. People that started to, you started to see the CTAs, the commodity trading advisors, going short three weeks ago, heavily into the market, where they saw the retail environment slowing down their purchasing. And now that group has gotten caught flat footed and they were forced to go to the long side.
But it's this idea that swallow worry that the market tends to walk up as people don't believe in it, and it ultimately forces people to buy at higher prices. What you're seeing in the retail market right now is every rally is just being sold on by the public, and that inventory just continues to rise at the dealer level. And so you have sovereign mints, for example, that can't move product because there's secondary product now sitting on these balance sheets that are priced cheaper than what new product would be priced at.
Jim Puplava:
Well, then, if I'm a dealer and I'm buying back a lot of inventory from the retail side, and I'm sitting on that inventory, my carrying costs are going up, hedging costs are costing me more. Why not lower the price on the premiums? I mean, why charge somebody a 30% premium? Because, as you just mentioned, for those people that bought silver when they were paying 60, 70, 80% premium over spot, and then silver never took off, they get discouraged. So anytime there's a little bit of rally, they start selling. You still have the same situation. Even though it's come down, it's still 30% over spot. So I've got to make 30% just to break even.
Bob Coleman:
Yes, and it's unfortunate, and it's worse than that, because now what's happened is a lot of these retail dealers, if you look at their bids, for example, a silver 100 ounce bar, for example, was commonly sold for 5.50 or $6 over spot a year or two ago. Now dealers are paying a dollar 20 to a dollar 50 under spot if you want to sell that same bar back to them. And you have this multitude of spread risk that's developing in this industry, and the public is seeing this. And imagine if you were one of the individuals that bought metal a couple of years ago, thinking the prices are going to go up. They're not.
You're getting frustrated, and you go to sell it, and now you're getting a dollar 50 below spot. You're not coming back to this market. And that's where the industry starts to get a black eye. And that's telling me when you see that deep of a bid or discount to the spot price on the bid side, it's telling me the industry is up to their eyeballs in inventory. Their balance sheet is very flush at the moment.
And the worst thing that could happen, and I hate to say this, but the worst thing that could happen is you get another price spike and you get another surge of selling. Because people that have been sitting in this, remember, a lot of people have bought metals, not just in the last two or three years. They bought metals back in 2008, 910, 1112, during the big financial crisis back then. So they've been sitting on this metal for quite a long time. And they're 15 years older than they were back then.
So their lifestyle has changed. They may need the income where they can't rely on just the appreciation of the metals anymore. They need more stability or consistency in their portfolio. So that's having an impact in the metals markets as well. And I was talking about that a couple of years ago as one of the forces that is ultimately going to start putting pressure on these premiums.
I think most of these dealers that have come into the business, especially the last four years or so, they came in a time when it was a one way street. People were just buying, they weren't selling. So a lot of these big Internet companies aren't really designed for two way action flow. And I think that's becoming a wake up call in the industry. And certainly you see it with private refiners, where private refiners are definitely seeing a slowdown in product flow as well as profitability. And some of these private refiners have definitely reduced production in a material way.
Jim Puplava:
I want to come back just briefly to the Comex. When you allow short positions to be 2030 times the available inventory, you can manipulate price. The paper, as we've been discussing the paper, markets really have been controlling the price of the physical market. But isn't there a default risk? Now, I know the Comex has a way out.
They've got a little thing. If you look at your contract, they can settle in cash. So if they don't have the silver to deliver and you want it, you'll just have to accept. They'll cut you a check. Well, to me, you would lose a lot of credibility if you got to that point where you're cutting checks because you've allowed short positions that are 20 and 30 times greater than the available inventory.
Bob Coleman:
Yeah, that is a big risk. But what kind of happened, which is interesting, is in 2020, when you had in March of 2020, when the gold market had that sort of blow up, it was sort of the oil, when oil went negative moment. But this was when the Comex, what they call exchange for physical premium, blew out, meaning you had the price in London, which is the spot physical price, and then you have the price in New York, which is the Comex futures contract price. And typically, in a lot of instances, usually New York's futures price is a little bit more than the London spot price, just by nature, because the London spot price is the cash market. And so the futures market takes into account interest rates and the future value of money and so forth.
Well, what happened in March of 2020 was that when all of a sudden, the physical market, which typically institutions will buy and hold physical metal, they'll go to the New York market to sell the futures contract to hedge that price exposure or potential downside risk, which is very common, you had something happen where all of a sudden the physical market just basically stopped because COVID took off, and then everything shut down. So banks were forced to close these hedges out and buy back these futures contracts at any price. And you had a situation where all of a sudden the price on the futures market blew up to the upside. It went up like $75 over the spot price of the physical metal, and you had banks that had lost $70 million in one day when that occurred. That's a potential risk that you could have as well, where you just simply have the market seize up on top of the, like you'd mentioned, if you have people that are actually naked short, and then a long stands for delivery and wants the metal.
Of course, the short contract decides if they want to deliver or not. It's not necessarily the long standing for delivery asking for it. They're dependent on the short to deliver that metal. But you're right. It would be, I think, a reputational risk if metal wasn't being transacted or delivered to longs that were standing for delivery.
Jim Puplava:
So as we're looking at this, in your opinion overall, if you were to kind of simplify and say what is driving the price of gold? In my estimation, Bob, I think between 2025 and 2028, we are going to be seeing sovereign debt crisis both here in the United States and Europe and elsewhere. And it seems to me whether you're looking at crypto, you're looking at the precious metals, there is a loss of trust in government. Whether you're looking at inflation, you're taking a look at runaway spending, runaway deficits. I mean, it's hard to believe we're adding in the US $1 trillion of debt every hundred days.
Bob Coleman:
Yeah, I think you nailed mean everyone thinks of it as an inflation hedge. But in reality gold is supreme when it comes to geopolitical and political uncertainty domestically. And I think that's where we're headed is this big question mark of how can we sustain not only the economy with all the spending and increasing of debt supply coming into the market, but just in terms of prices, how is the public going to continue to afford a house going up in price? When your insurance costs are going through the roof and your taxes are going through the roof as well, the whole thing becomes unsustainable. It's like watching a top when it's starting to slow down and starting to teeter.
That's sort of what the markets eventually are going to look like. And I think the metals being that they've been money and a store of value for 5000 years, I think that's when they'll shine. No pun intended.
Jim Puplava:
So as you take a look at this right now from your perspective and where you stand, what would you be doing as an investor? Would you be buying here? Would you wait, would you scale in? Because I just see this sovereign debt crisis unfolding in the next couple of years. And the thing I think we need to point out Bob, is this market is so like if you were to add up the market cap of all the world's mining stocks, both base metals, precious metals, uranium, whatever they are, they don't even come close to the market cap of apple.
Bob Coleman:
In fact, actually if you look at the gold market, just physical bullion market, all the gold ever mined would fit in three and a half olympic sized swimming pools. So you're right, it's a very small market. It doesn't take a lot to really have an impact. If the money starts coming in and you have to look at it, you're only looking at what, a half a percent position institutionally at best, that they're positioned in the gold market. Whereas back in 1980 they had about a 5% position of their portfolio in gold.
So there is this attitude that, okay, the treasuries look like the pristine asset of choice. It's the pristine collateral of choice. That's what's being sold to the public right now. The way these banks are. If the ISDA gets their way and banking regulators start to make it allowable for banks to buy treasuries again and not have to go against their leveraged capital requirements, what they're doing is they're taking the treasury and centralizing these banks into one asset, which creates ultimately systemic risk.
And that's something that people need to be aware of, is the counterparty and systemic risk that comes with the markets becoming more unstable. And that's where physical gold held directly. Whether it's in a segregated type of environment or held at your house, so to speak, you can remove that type of counterparty risk. Whereas the ETFs. The ETFs are a great trading vehicle, but they're not a store of value.
Because there are legalities and structural deficiencies in ETFs. For example, when you own an ETF in your brokerage account, you're not the legal owner of those shares. Neither is your brokerage firm. The legal owner of those shares is actually a company called Seed and company. Cede and company.
They're a limited partnership of DTCC depository Trust Clearing corporation. They're the owner of every share in every brokerage account. And the reason why is because that's how they clear all these shares that are trading on a daily basis. That's just one reason of counterparty risk, of what distinguishes an ETF share or gold representation to someone buying actual physical asset.
Another issue too to think about as we kind of see inflation and all the spending sort of get driven throughout the world. We're sort of in this inflate or die policy globally is gold and silver are a store of energy. It took energy to produce that metal and put it into that refined form. Whereas treasuries are a user of energy. They need more and more energy to keep that collateral pristine or keep that economy flowing.
So that debt can be serviced. The metals don't need that. That's what makes the metals very unique. That's why gold and silver doesn't pay an interest rate. You don't have that counterparty risk.
Jim Puplava:
So given what you see right now, and I think we both agree that we see a sovereign debt crisis down the road, you just simply can't, even if you're the United States, add $1 trillion of debt every hundred days. And that gets worse. As interest rates rise, as they spend more, the deficits get bigger. That's more interest costs. So it starts to compound itself, which is not a good situation.
What would you be doing here? Would you be buying physical here? Would you average in? I'm sure you're going to say if you want to own it, own it directly rather than an ETF, unless you're a trader.
Bob Coleman:
Yeah. I think for people that don't have any exposure, I think you start to add in to the market. You start to take steps. Because this is a volatile asset class, it can move around quite a bit. Sometimes it's easier just to get your kind of toe in the water and kind of step your way through this market.
Certainly feel free to contact me. Or if you're working with a dealer, ask a lot of questions. What's the difference between all these products out there? For 15 years, I've been selling metal. So price wise and premium wise, we've crushed a lot of the dealers out in the country, especially the last three years.
So you want to definitely shop around, try to understand the product that you're trying to get into, and then also the liquidity that surrounds that product if you're going to want to store it at home, or if you're going to want to store it in a depository. What makes us sort of unique is that our depository is the only depository that's not owned by a dealer, a financial institution, or a cash and transit company. So the depository lives and breathes on storage fees. It doesn't need me to be buying and selling metals. And that's a risk.
That's one of the reasons why I bring up what I'm seeing in the industry today with dealers that are very exposed on their balance sheet. And as the business is slowing down, a lot of these dealers have created depositories that now they created those depositories in the past to support their transaction business, and they lowered their fees on those storage fees to try and attract that business in to get the lucrative transaction fee. Well, now that that transaction fee has been dwindling down and the profit margins have been dwindling down. I think you're going to see some conditions in the marketplace that you want to know your counterparty or your depository's financial strength, and that's going to be critical as well. So just be careful when you're looking at the metals. It's not just what you buy, it's how you own it is also critical.
Jim Puplava:
All right, well, listen, Bob, as we close, if our listeners would like to find out more about your services, whether it's vault service or bullion sales, I have found you to be the lowest of any person or company we've ever dealt with. Why don't you give out your website, if you would?
Bob Coleman:
Sure. It's goldsilvervault.com. Just all one word and it's singular at the end. So goldsilvervault.com. Also, I'm on Twitter.
I guess it's now x under profits plus ID, P r o F I t s p l u s, id, as in Idaho. And I put out a lot of great information. I look at the markets a little bit differently. I try to put out a lot of market oriented information. For example, the last couple of weeks I've been noticing a massive amount of short activity that's been piling up in the SLV and GLD ETFs, and I've been reporting on that.
So I try to give followers good insight on maybe what to watch for in the marketplace that could actually impact the markets on a very short term basis.
Jim Puplava:
All right, well, listen, Bob, thanks so much for joining us on the program and all the best, sir, and hope to have you back again.
