The Best Way To Own Gold: Physical Delivery or ETFs? (w/ Raoul Pal & Dan Tapiero)
RAOUL PAL: I also want to talk to you about GPI on the gold side. I'm hearing it from everybody in the gold space. That's sales are going through the roof. Everyone's scrambling to get physical, can't get hold of it. What's going on? What do you hear? I know you're not in the business day to day, but what are you hearing? DAN TAPIERO: Well, I've been apprised of the situation. Settlement, in the United States, you cannot get next day delivery of metal, period, and it's more so. Now, maybe there are little pockets. Maybe if someone is selling out of a certain vault and someone wants to buy it, you can. Look, the Mint, the US Mint ran out of Silver Eagles a few weeks ago. Someone told me that you still can buy it to goose up with your storefront entities in in Germany. I can't confirm that or deny that but for settlement next day, you can't get. It changes almost day by day. There were a few days ago, you could only buy for storage out three months, but I will tell you this month and this is not just for my company, but for other players in the space, the volumes are up five to 10 times from the previous months. It's been a complete blowout. I think it'll stay high. I think that the virus definitely accentuated a lot of this and when the refiners come back on stream, I think that that spread between physical and futures will come back in but you know what, we may have a- - people are beginning to understand that paper gold is not physical gold and that spread there may stay for a little while, maybe not as wide. Also, look, all these things are working at once. What we've discussed about gold before in the last 20 minutes or so, the big macro behind gold, that's coming together with the realization that physical is a lot better than GLD, is a lot better than futures in all the reasons why which we could get into on another day, and you know them, we've talked about them. They were falling on deaf ears for many years. Now, there's an understanding that I want to have my gold with my name in a vault, I want to know what's there or in my vault at home. I think that the case for storage, especially larger amounts, you don't want to have millions of dollars of gold in your house. We offer storage in seven different places around the world. That's very rare. A lot of these coin dealers, most of them don't, most don't have storage. For larger, more institutional players, you want to do a big chunk, we're really seeing that business explode. RAOUL PAL: Silver. Silver, for me, it's always I've never that interested. I'm always interested in gold first, then there's occasionally a point where the silver is the call option, call up option or the rocket ship once everything starts moving. DAN TAPIERO: Look, to be really honest, I never make money in silver. Maybe that was because when I was actively trading or managing a portfolio, just the volatility was too great. My track record trading and being long gold or silver, it's nine to one. I guess, to me, it makes sense. When silver was 17 a few weeks ago, I thought it was going to 25 and it went to 12 instead. I still think it's probably going back to the old highs, and more eventually. It's super cheat, but I don't know when it's going to do it. It has a mind of its own. Yes, it's rocket fuel. One thing I might say that's different now is that remember, part of this bull phase has been driven by Central Bank buying of gold. In the last two years, you've had more central bank buying of gold. The two largest years basically ever in 40 years plus, since the de-peg. To me, gold is becoming remonetized. Silver, I think will follow gold, but I think there's something special going on with gold now. I talked about this recently in an interview I did for the Hard Asset Alliance, that gold I think is re-monetizing. I think for years gold was not really considered cash, was not really in the '90s, certainly gold was ignored. In the 2000s, it was low and then in '07, '08, the '08 crisis, it became a hedge against the banking system problems and then also responded to all that QE. It wasn't being purchased by the central banks and by larger institutional clients in the way that it has been in the last two years. I think there is this sense as we-- I don't want to say move off a dollar standard because I don't think that the US reserve status is being questioned. Look, I think that central banks around the world don't want to hold as many dollars. It's not attractive to hold them in treasuries. I think they have been moving into gold. You see it in the data. Also, when you own dollars and you own treasuries, if your country does something that the US doesn't like, maybe they decide you can't get access to those dollars. RAOUL PAL: Russia de-dollarizes actually. DAN TAPIERO: That's right. I think there are other central banks who see that and say other countries say, well, we like the US but that's a risk we don't really need to take especially when the two years are yielding 25 basis points. There's been like a move to remonetize gold, and that's why gold is up at new alltime highs versus the basket, the GMI basket, but not at all-time highs against the dollar. You're thinking, well, why does that happen? It's because those countries, the Brazilians, the Argentines, all of these countries, they have more of an experience, more of a history with gold, and also with currency crises in the US. Gold does have that aspect. I think it's just come to the fore in the last two years. Then also, something new also is that in the next five years, mine supply will be going down. CapEx in the mining sector has dropped over the last five years, discoveries have gone down. As you know, my conversations on Real Vision with John Hathaway and Tom Kaplan, were all about the structural deficit that we're going to see in gold over the next two, three, four years depending upon how high the price goes. Sam Zell took a major position in gold in January, just simply based on the supply/demand. He talked about this on CNBC, I think, but just strictly based on supply and demand factors, not the virus, and maybe some-- he talked about the uncanny timing. I think you have that also going for gold. RAOUL PAL: I think to start wrapping up, I want to get back to a point you made right in the beginning of our conversation about the potential for gold to replace bonds in pension portfolios, or in portfolios overall, which it hasn't done. It took a long time for hustling from some people on Wall Street on the gold desks to try and get institutions to even look at it again, from them saying they didn't want to own any of it. Slowly, it's been incrementally moving up then the central bank as you've just talked about, what is your idea with how they can do it and how big a deal is it if it becomes part of actual portfolio allocation again? DAN TAPIERO: I think if around the world and I did this presentation in 2010 for the Drop Knee group, do you remember the Drop Knee? We did a tremendous amount of work for this presentation, but we basically found and I think the numbers are exactly the same, or pretty close to the same, that if, let's say institutions worldwide, moved to a 1% to 2% allocation, there wouldn't be enough-- obviously, there wouldn't be enough gold in the world to satisfy those needs. You have to think it's not all the institutions. You're starting to see it slowly. I think that that's going to be one of the main drivers to taking the price up over the next five, six years. I think it can double or triple. That'll be one of the drivers and again, you'll get more supply, you'll get a supply response. They'll take positions in the miners, they're very cheap, and I think they'll own a lot of physical gold. I think that the time for owning GLD and futures, I just think that that's not really an intelligent way if you think about it, or you being owning gold with the banks, you own gold as a hedge to banking system problems. Why would you ever have your physical gold sitting in the basement at any of the larger banks? You pick them. I think if we were going to get even a 1% or 2% allocation to gold from all the institutions, it would eat up all the available gold, certainly all the investment of gold out there. You're not going to get that, you're going to get plenty of people who are going to be stuck in the old mode of thinking gold doesn't yield anything like Warren Buffett or any of the naysayers from over the past few years. I do think you will get some of the more forward thinking people to start considering it, and I'm seeing this just in the last six to nine months. Certain people, let's just say, who are involved with the advisory role I have with this endowment, people who you might not necessarily ever think would consider gold are starting to see it. They talk about it as gold as cash, because cash yields zero. In the short end of the yield curve, yield's basically nothing. They're like it's cash with a free option to the upside, and so, when I started to hear that from people who have rejected it for years, it just gives me the sense that we might be heading into a new period.