Is a New Golden Era Upon Us? ft. Frank Giustra & Ronald-Peter Stoeferle

0:00Hi, everyone. Today's Real Vision Daily Briefing is sponsored by Crane Shares. Learn about their KCCAETF at CraneShares.com forward slash KCCA forward slash Real Vision. Now to the top analysis of today's real vision. It's the best performing asset in the world, but no one likes to talk about that, which is I always find very humorous that it has been long term, one of the best performing, if not the best performing asset in the marketplace and nobody talks about it.

0:37Hi, everyone, and welcome to this Real Vision deep dive on the gold market. Is this the end or the beginning of a golden era for the gold price? I'm joined by a couple of great gentlemen who answer that question. First of all, Ron Yistofile, welcome to the show. Hi, Andreas. And also a warm welcome to you, Frank Giustra. A pleasure to see you. My pleasure. Guys, we've seen a pretty weak price action in gold lately, meaning that we've received a lot of questions on this platform on whether this is the end of a so-called golden era for the gold price. I'd like to start with an initial discussion on the drivers of the price action that we've seen lately.

1:25Ronnie, I'll start with you. Why do you think we've seen a sell-off in the gold price since the spring? Well, I would say we haven't only seen a weak price action when it comes to gold, but basically everywhere. I mean, it's pretty rough out there. And I don't know, you probably also get up very early and read and talk and think about markets for many, many hours these days. It's really crunch time, it seems. So I think when it comes to gold, first of all, we have to say that gold held up tremendously well against this huge rise in real interest rates. So if you would have told me like one year ago that real rates are at plus 2.5 % and the gold price would be trading at 1950, I would have told you, no way, it's not going to happen.

2:21Gold would have to trade at 1600, something like that. Well, it held up pretty, pretty well. And now, you know, last week was really weak. And I think that, you know, it was probably kind of some sort of pent-up pressure from the recent break higher in the 10-year yield and in bond markets in general that was basically released due to the fact that we saw options expiry last week. And, you know, we saw some follow-up selling. And, you know, this happened in a general very, very turbulent market. Let's not forget that we've seen enormous strength in the U.S. dollar. The Dixie was trading at around 100 in mid-July.

3:10Now we're trading at 107. And, you know, what's going on with Western financial investors? I think it's crystal clear that they couldn't care less about gold at the moment. So we have seen over the last four months, we've seen outflows of 144 tons from European and North American investors. And I think this was kind of compensated and overcompensated by Chinese retail demand, but also by central bank demands, primarily from Asia. but now it seems that this has kind of disappeared over the last couple of days. I'm actually, you know, I'm not too concerned when it comes to gold. I'm more concerned about other pockets of the market.

4:07And I think, you know, we shouldn't forget that, you know, just in a couple of months, we went from hard landing to soft landing, and now it's basically Goldilocks and higher for longer. And I just don't buy into that. I think we're in for a really, really, let's say, challenging market over the next couple of days. And just to sum it up, my take is that selling gold because U.S. Treasury yields have risen so sharply is probably 100 % correct in the short term, but it's probably wrong in the intermediate and long and long term. So can gold go lower? Definitely. Yeah. Mid 1700, something like that can definitely happen.

4:57But I think, you know, it's still a pretty constructive setup. Frank, what do you make of the most recent price action in gold and commodity space? Anything that has caught your attention? Well, you know, I agree with almost everything that Ronnie said. I think that we live in unprecedented times and what's happening out there in the general marketplace, gold included and everything else, we've never seen this before. Times are different and I don't believe this is the end of gold. I believe this is the beginning of gold. And I think with what Ronnie mentioned that, you know, there's the ETFs have been sellers.

5:40The paper gold market has been very weak. I think since about 2020, ETFs have lost 21 % of their holdings. People are bailing on gold. But this is the West. And that's not what's happening in the East. In the East, there's a tremendous demand and has been for a while, and it's accelerating of physical gold. So you can't confuse what we're seeing in the West, which is the price action of paper gold with what's really happening where people are buying gold in the physical form. And I think that the sentiment generally with respect to gold is that we're in this now with this new term, higher for longer.

6:27And I think that term, higher for longer, is going to go the way of transitory inflation. These are terms that mean nothing. In reality, the rates where they are now cannot stay there long. They've stayed there a lot longer than they should have. And I think you're going to see some sort of a financial accident. I see a recession coming, and I see either a recession or a financial accident or both, which is going to turn all of this sentiment around. and you're going to see people pile back into gold when this charade that the Fed is conducting is over. Hey, sorry to interrupt again. It's Raoul here from Real Vision.

7:10I'd love for you to subscribe to the channel, get the notifications. We have so many incredible conversations with so many amazing people. It will really help you in your financial journey and your journey to understand just what the hell's going on in this world. Anyway, click subscribe, get the notifications and enjoy. I think I have three major topics that I would like to discuss with you guys today. One of them relates to gold flows in the East versus the West. I think that's a very interesting topic. And then I'd also like to discuss gold versus Bitcoin in this era of financial repression and ultimately why gold fits into a broader portfolio.

7:53But why don't we start with gold flows across the globe now that you also mentioned the discrepancy between the flows that we've seen in the East and the West lately, Frank. I'd like to start with you, Ronnie. I mean, it was pretty clear that central banks reacted across the globe to the seizing of the Russian FX reserve after the invasion. It was like we got a reaction from central banks globally in gold space to this turmoil between Russia and the US. So if you look at central banks and their role in this gold market, how important are the central banks and the central bank flows to the gold market?

8:30I think it's pretty interesting, first of all, that the gold community likes to criticize central bankers all the time because they're behind the curve and everything. They're printing too much money. But then on the other hand, we're quite happy that central banks hold big amounts of gold and that they're actually buying huge amounts of gold, especially when it comes to Asian markets. Now, I think that last year, basically, and this is something that we called pretty accurately, I think, you know, with the start of the war, you know, something broke. And it's pretty obvious that, you know, if like 400 billion in Russian reserves are basically wiped out with a stroke of a pen, you know, that's definitely a signal to many, many other countries that are somewhat critical to the United States and don't share their opinions all the time.

9:33That's quite a lot of countries, actually. So I think that many countries kind of woke up and said, well, perhaps we've got too much dollar exposure. We should perhaps diversify out of debt because we saw that it can happen pretty quickly. So last year we saw the highest amounts of central bank purchases basically since, you know, I think since the numbers are recorded. So at least since the 1950s and first half of the year was also very strong, highest purchases from central banks in the last 20 years. So it is definitely a big trend. And it is not only China and Russia that are quite vocal and quite transparent when it comes to their central bank purchases.

10:30And I think we shouldn't underestimate the symbolic character of that. Chinese announcing every month that they've purchased some gold. But it is also Arabic markets. Quite recently also in Europe, Poland, and also Hungary were buying gold. Singapore is building up their gold reserve. So it is definitely a big trend. And I think, you know, I've posted a chart this week that was pretty, yeah, went kind of viral. And I said, well, actually, if you have a look at the numbers, we are seeing more of a de-euroization than a de-dollarization. And I think that, you know, everybody hates Brent Johnson for his view on the strength of the dollar and, you know, dollar milkshake theory and so on.

11:28But nobody's really talking about the role of the euro in international trade. And I think that the euro is much more threatened than the US dollar at the moment, probably. So I think if you, and that's a very, very long-term story, if you want to see some new world monetary order, let's put it that way, some sort of multipolarity, you need a currency that is neutral. You need a currency that doesn't have any counterparty risk. You need a currency that has very sophisticated infrastructure when it comes to trading, when it comes to all the banks settling trades. And you have to have a currency that is very liquid.

12:22And gold is traded roughly 150 billion per day. So I think that in this really big political development that we're seeing, we will continue to see quite a lot of demand coming in from central banks, primarily from emerging markets. And therefore, I think that's probably going to be one of the pillars of this bull market in gold. Hey, everyone. We're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

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14:04And you referred to that great chart shown on Twitter and elsewhere on the euro and not being used as often in swift settlements as earlier. That was quite the development over the past couple of quarters. A very good observation, Ronnie. And I share your sentiment on the euro versus the dollar right now. So Frank, I'd like to ask you on the divergence between the flows seen in the East and the West in relation to gold markets. You mentioned Chinese and Indian flows, as far as I remember, as being important right now. So how important are China and India and other Asian countries for the gold markets right now?

14:43Yeah, well, China and India have traditionally been half of gold demand, and that continues. But I totally agree with what Ronnie was saying. I think that the central banks have underpinned the gold price for this past while, while in the West, we've seen all the selling out of ETFs and the hedge funds. The momentum players are simply not there at the moment. And Russia, the Russia war and the sanctions that came with it only served to accelerate a trend that was already in place since 1995. 46 ,000 tons of physical gold have moved from the west to the east since the beginning of this last year.

15:29But think of close to 700 tons of physical gold have moved from the west to the east. In other words, the New York and London vaults are being emptied and the physical stuff is moving to places like China. I personally believe that China has much bigger gold holdings than what they have reported. I think that 2 ,100 tons that they have reported is way understated. I believe that for a very simple reason, and I believe there is a purpose to this. I believe that, first of all, China is the world's largest gold producer, is the world's largest gold importer. It does not allow the export of mined gold in China.

16:11And you start looking at all that gold has flowed east, a lot of it to China, and you wonder where it's being stashed and for what purpose. I'm one of the few that believe that the world is going to undertake a reset in the global monetary system, and that gold will play a role. And that is the reason that every emerging market in the world right now has been buying gold at an accelerating pace. You mentioned Singapore. Singapore doubled its gold reserves in a very short period of time. Brazil did the same last year. Every month, it is a different player, but they are all the non-Western players.

16:53All of the BRICS plus countries in the Global South have been loading up on gold. You have to ask yourself, what is the purpose? As Ronnie mentioned, gold is money. And it's a very liquid form of money. It's a very neutral form of money. And in a world where I think, you know, we're going to see a very either multipolar world or a bifurcated world in terms of trade, in terms of geopolitics, the world is preparing itself for what is coming next. And I honestly believe that gold will play some role in that. What it looks like? I don't know. It could be a BRICS currency or BRICS plus currency. That might take some time, but there is definitely an interest in going in that direction.

17:38Or it could be the yuan may emerge as a gold-backed currency. You have all of the central bank digital currencies that are being test piloted in about 130 countries. Plus, alongside of that, you're seeing all of these, almost every day now you see a bilateral agreement between countries to trade and only their local currencies. So if you just think forward, you know, what could happen, you know, as we as the world is looking for monetary reset, you know, perhaps these digital currencies in these bilateral trade agreements will have gold backing, some form of gold backing. Keep in mind, you don't have to have 100 % gold-backed currencies.

18:22You think Great Britain 100 years ago, it only put 20 % backing to the British pound when currencies were backed by gold. So it is not necessary. You can create some form of structure where it is based on GDP, trade, or money supply. I believe that will happen because when you have 80 % of the world's population wanting a change, change. And now because of the Russian war and because of the tensions between China and the US, China is out there advocating for a change. It's courting dance partners and it's getting them in droves. So I believe in due course, we're going to see a monetary reset and I believe gold will play a role.

19:11So I think we're slowly but surely getting started on the discussion on why having gold in a portfolio, Ronnie. If we look at the probability of a monetary reset, for example, it is obviously one of the questions you have to address when you set up a portfolio as an investor or as a pension fund. So if you look at the probability of such a monetary reset or the risk of a reshuffling of the financial system globally, in that context, what are the pros and cons of introducing gold as a hedge against that in the portfolio? It's a great question. And just as a little side note, Andreas, we're probably known a little bit for our In Gold with Trust report, but primarily we're asset managers.

20:02And I did presentations about talking about gold in roughly 35 countries. And the best questions were always asked in high inflation countries. For example, I had a keynote with very sophisticated investors in Istanbul. And Turkish people know everything about gold. They were asking the best questions ever. Why? Because they're used to inflation being one of the primary concerns and one of the first things to think about when you structure a portfolio. And if my take is correct that this great moderation has ended, this basically 40 years of very, very low inflation volatility and inflation will continue to be a topic.

20:56While at the moment, it seems that deflationary pressures are pretty significant. However, I think that inflation will continue to be significantly higher than in the previous regime. So I think that when it comes to portfolio construction, that gold will kind of move from very much of a satellite investment more to the core of structuring your portfolio. you now I think what's what's very very important Andreas is gold is an extremely emotional topic everybody has an opinion on gold and it's not you know there's nothing in between you're either extremely against gold or your die-hard gold bug yeah and I hate that tip term gold bug but but I think you know when it comes to I don't know convertible bonds nobody you know people couldn't care less about it but but everybody has some sort of a or are things that he has to have an opinion on gold and and that's probably because you know it's it's it's also something you know that uh that that people share stories about you know when when i talk to my grandparents you know they've lost everything uh during the war during uh monetary reforms uh due to hyperinflation and for them gold is just natural you know our wedding rings are are golden it's it is something very special however as an asset manager i really want to take out this this emotional aspect so i think it's important to say that first of all gold is not uh you know the solution to all our problems it's it's not the the the answer to all our questions um in german we say the the eierlegende wollmilchsau which is the the egg-laying um woolly pig basically but i think that gold has really a unique portfolio characteristics so so it works as a portfolio diversifier it's got a um basically a very very low correlation uh with other asset classes it's it's a pretty good um hedge um for for tail risk events it's a good equity hedge actually we crunched the numbers on that.

23:16And for the last 10 major market corrections, while the S &P was down more than 30%, gold was up by 19%. Gold is extremely liquid, as I've mentioned before. It's got a very, very low bid-ask spread. So it is something that you can actually, you know, also sell in stress situations quite conveniently. And it's a very good currency hedge. And lastly, and I think we will probably talk about that later on, gold works pretty well as a recession hedge. So I think that gold, and we can talk about the percentage of gold in your portfolio, but I think it's like, it's a very, very solid and reliable defender or a goalkeeper like the, I don't know, Jean-Louis G.

24:10Buffon or what's the Danish game? gold Peter Schmeichel. So that's the role of gold, but it's not there to, you know, score the gold. So I think gold's role over the long term is protecting your purchasing power. That's really what gold is about. It's not there to make you rich. And we put out two special papers recently showing the purchasing power of gold at the Munich Oktoberfest since 1950. And also we did the same one for the younger crowd. The purchasing power of gold measured in iPhones. And of course, it's not 100 % stable, but over the long term, gold does a really, really good job of hedging you against inflation and really protecting and saving your purchasing power.

25:05Makes a lot of sense, Rania. It's a good point to highlight the purchasing power story here in gold terms. I'd like both of you, your take on sizing of gold in a portfolio. We'll start with you, Frank. I'm a very simple guy. If I have, say, a 10 % probability in my base case for a monetary reset, I'd like at least 10 % of gold or something similar in my portfolio to hedge against that. So how do you view this question of sizing gold positions in a portfolio setting? Yeah, first I want to comment on what Ronnie said. He's absolutely right. If you, you know, we always, you know, in the West, we look at the world through the lens of either the U.S.

25:48or Europe. And I think if you look at cases like Argentina and Egypt, and you see what happens to the gold price in their local currency terms. If you look at Turkey, gold has gone up five-fold in the last three years. Argentina has gone up tenfold in the last three years. Japan, which is now experiencing some of their own problems caused by monetary policy, it's up 50 % in this last year. We talk about what becomes part of culture, as in Germany. I lived in Argentina as a little boy. My father lost everything to hyperinflation in Argentina, everything. By the time he got his money out of the country, hyperinflation had set in, and when he got his money, it was worth absolutely zero.

26:44And I think that we in the West forget that these sort of things can happen. And we have this attitude that it can never happen here because of American exceptionalism, which I think will go, that term is going to go the way of riches in Argentine, which was a term that was used up until the 1950s, if you all remember. As far as portfolio management, I'm not a portfolio manager like Ronnie, but I've been an investor for 45 years and I watch markets very carefully. And I remember living in Zurich for three years in the 1980s. And I remember at that time it was absolutely standard procedure to have 10 % of your portfolio in gold.

27:30That was just the way it was done. And that just was because gold is a hedge against stupidity. It's a hedge against everything. So you need to have gold as a diversifier in your portfolio. Furthermore, I think in the world that we're living in today, the 60-40 stock bond portfolio formula is dead. And we've seen that over the last fall, you're going to have both stocks and bonds imploding. So, and I think that that concept, that method, it's going to be very hard for portfolio managers, especially in pension funds and large mutual funds or foundation funds, whatever, endowment funds, because I sat on the board on a few of them and I know how they think And they just don't want to let gold that regardless of what is happening right in front of their eyes.

28:21So I honestly believe that, and gold has actually done very well long term. You don't buy gold to look at it day to day. That is absolutely stupid. You buy gold as a store of value. You want to get rich? Buy mining stocks. Take more risk. Yeah, you can possibly get rich. But that's not the purpose of physical gold. It's to sit in your portfolio as a hedge. And if you look at the long-term performance of gold from 1971 to present, or even from 2001 to present, it's the best performing asset in the world. But no one likes to talk about that, which I always find very humorous, that it has been long-term one of the best performing, if not the best performing asset in the marketplace, and nobody talks about it.

29:07We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

29:18Ronnie, your view on the sizing of a gold position seen from an asset management perspective? Well, I think there's no magic number. I just think that every time when bankers come out and say, well, our private banking department suggests a 1.5 % allocation to gold, I think it doesn't really move the needle. um it it's it's you know if you're buying it as a as a hedge 1.5 percent you know with the volatility of gold is is not enough i would say something between 8 to 15 percent uh for physical gold is something that uh that works pretty well we crunch the numbers on that and you know just from a sharp ratio point of view it it really really makes a difference uh and it smoothens your volatility even in, let's say, normal circumstances to add gold to your portfolio.

30:17It is something that in the, let's say, the Austrian world and the hard money community, portfolios are very, very much skewed. Gold, gold miners, silver, silver miners. And in times like like these um that's you know you you've got a tough time really um uh you know surviving that volatility that we're seeing um so i would say eight to fifteen percent as a rule of thumb but of course it depends on the rest of your portfolio it depends on your age when you're your young kid of course you want to have more more equity uh allocation and so on so um but that's that would be like my general recommendation.

31:10Frank, if we look at gold in a portfolio context, you can obviously express a positive view on gold long term via both a physical position, via a paper position, via a position in miners. So how do you view this question on how to express a position in gold in portfolio terms? What do you prefer to do? Well, listen, everybody has a different risk profile. And for me to give a recommendation of how you allocate gold and gold stocks and paper, I'll tell you what I do, but I have a different level of wealth than some people. But I'm very heavily invested in physical gold. Those numbers that Ronnie was throwing around make a lot of sense to me for physical gold.

32:02If I want to trade gold just on action, I will trade the gold ETFs, but I would never own them long term as a store of value. Then because I have been a mining financier my entire life, obviously, I am invested in mining stocks. But listen, the way I do it, I am the guy that creates gold mining companies. I have created quite a few of them over the years, some very large. And, you know, obviously, I have an expertise in that. So I'm going to be way more heavily weighted in gold than most people. But it's my physical gold. When I think about my physical gold, as opposed to owning gold mining stocks or, you know, having a few gold ETFs out there, that's what allows me to sleep at night.

32:45I think no matter what happens, you know, I think the markets could go sideways. all sorts of things could happen. But that physical gold is a long term store of value. And that's the part that I think people, regardless of your socioeconomic status, have, in my opinion, 10 % of your wealth in physical gold. Ronnie, before we went on air, we briefly touched upon miners and the potential marketing issues that they're faced with, gold miners, in the context of this story of gold performance. So how do you view the miners' story versus the actual commodity here? And what are your thoughts on it from an asset management perspective?