David Tait: Inside Gold’s Relentless Bull Market

0:00I think the main driver for most of the central bank buying over the course of the last few years has been more economic I don't think the geopolitical incidents around the world, albeit many of them, are the individual drivers. In some respects, you could say trapped tariffs. And without demeaning it, the war are almost red herrings. I think the main reason the central banks have been buying is a deeply felt fear of a debt spiral, the runaway debt situation. that is not really far away from our door at the moment. The US has three alternatives, austerity, default, or inflated away, grow and inflated away.

0:45I think they're doing the third. If they pull that off, that could be the top I'd be looking for. But right now, it's a big ask. It's interesting how my childhood events changed my attitude to life and my trading career. I walked into Goldman Sachs so brutally ruthless that it gave me a massive edge. Looking back, I didn't know at the time because I didn't really care about anything. I didn't care whether I lived or died, frankly. So you took more risk than you would have done? Yeah. Luckily, considered risk. But at the same time, I was able to jump where people would worry about landing and I was already in the air.

1:21And so that really helped me. But I didn't know that at the time.

1:28Welcome to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders, and politicians in the world, giving you, our listeners, the edge. The Master Investor Podcast is sponsored by BNY Investments, LSEG, and Interactive Brokers. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice, or a personal recommendation. More on that in the show notes. My guest today is David Tate, the CEO of the World Gold Council.

2:07He built his career at various investment banks and hedge funds as a trader from Goldman Sachs to Bluecrest to UBS to Credit Suisse, where he rose to be global head of fixed income macro products. He then made the transition to commodities to gold specifically at the World Gold Council in 2018. And he has led it ever since. He's also unbelievably climbed Mount Everest five times, raising over$10 million for the NSPCC, a children's charity here in the UK in the process, something that we'll get to later on. David, a very warm welcome to the Master Investor Podcast. It's great to see you. Great.

2:45Thank you for having me. I'm very flattered. And you have brought with you a prop of extraordinary proportions. It's actually the first day that we're using my new prop, the logo and Perspex. You've completely swamped it with, and I was just lifting this up. I literally can't even lift it up. I know. It is from this position. I mean, how much is this weigh? 13 kilograms, I think, roughly. 13 and a half, that one. 13 kilograms, incredibly shiny, unbelievably valuable. And worth$1.8, roughly, million dollars as of today. Incredible. I know. Incredible. And I mean, I'm not faking trying to put this down.

3:23I don't want to drop it. Get it back shining beautifully in between us. I'll straighten that up again. Can't waste a$1.8 million prop. Thank you so much for bringing it. It's a pleasure. I mean, it really is a treat. And we've been taking lots of photographs with it, all of us in the lead up. and this is one of, I mean, so$1.8 million worth of how much that the World Gold Council oversees because you guys have the two biggest gold ETFs in the world. Yes, they were invented back in 2003. GLD was the original one, which is an investor style ETF. And that has the majority of the gold in it. And then five or six years ago, we started a more public version of an ETF called GLDM.

4:10And that has, I think, 16 or 17 billion dollars in it. But in total, we're looking around about 160 billion dollars. Wow. And all of that is, I mean, obviously, is the products. So they are physically backed. Anyone can buy them on their platforms and take a share in one of these bars. But the bars exist. The bars 100 % exist and are verified there every single day. And this one has come from, obviously, one of the vaults in London. One of the vaults in London. Yes, we have a lot of gold. Most of the gold is in London, but we also hold some of the gold in New York as well. The vast majority is in London though.

4:43I mean, I'm just blown away by the fact that we've got$1.8 million right between us. And then in the vaults, you've got, sorry, give me the number again,$160? Roughly$160 billion as of yesterday. It's an amazing sight when you do see it. It goes on forever. It's a sea of gold. But I just want to assure everybody, It is absolutely 100 % gold backed. There is, you know. Incredible. I mean, I'd love to see the vaults at some point if we can. I know this was already a massive win to bring one bar and do it here in the studio. This is worth$1.8 million. If we did this a year ago, it'd be worth 1.2-ish, 1.1?

5:22Absolutely. Because of this huge surge in the gold price last year, 65 % calendar year. Why did it rally that much last year? There are many drivers. Many people have focused on many, many things. The main buyer throughout the world, really, at least the previous two years, has been central bank buying, has been a large contributor to it, roughly 1 ,000, over 1 ,000 tons a year for the previous two years. We think 2025 will be slightly less than 1 ,000 tons. But really, across the world, you've seen investment bars and coins and ETF buying all go through the roof. So there's no one buyer. The drivers for this are many.

6:01But the actual buying has come from those three places. Let's then touch a little bit on the drivers, I guess, because everyone's question is going to be, will it continue this year? The central bank drivers, I think, very interesting one. A lot of people point to the Ukraine invasion, the Russian invasion of Ukraine and the sanctions that followed on Russia with it over the last month in December, whether the EU would seize Russian assets or not in Brussels. and I guess most recently with Venezuela as well, the question that for foreign central banks, if you put your money in US dollars, it might get taken away from you.

6:40Is that a critical driver? It's a driver, but I'm not certain it's a critical one because there's no way of verifying that thought process. I know it's a common lexicon to think of it in those terms. But remember that gold has been going up since actually the very day I joined the World Gold Council, which is It was$1 ,150. It was brilliant timing back in 2018-19. And it's been going up for a variety of reasons ever since. The central banks view their own portfolios much like you do yourself. So they want to diversify. And it's worth remembering that most of the central bank buying has been coming from developing central banks, not the developed ones who haven't done much at all.

7:19So those banks hold a relatively low proportion of their reserves in gold. And yet they're the most at risk of not holding gold because their currencies are vulnerable. They have prone to inflation shocks, bond market runs, I should say. And over the course of the years, they have developed an appetite to try and rebalance their reserves. So most of the buying from central banks is from eastern, should we say, developing central banks. Is it, I mean, you would know this better than most, but I read a lot of articles that say, actually, China's buying even more than is showing up on publicly stated records.

7:55Is that possible? Do you think that there's a lot more buying by the likes of the Chinese than perhaps we realize? It's very difficult to get complete and utter facts from many central banks. We'd have a great relationship with nearly 190 of them, apparently. But not everyone discloses those numbers. Is it likely there is more buying than we'd be estimating? Yes, I do think that. Can I prove it? Absolutely not. Many of the central banks who do liaise with us prefer not to disclose their numbers. But it's logical when you think about it, because many of them have got all the same worries that you as an individual have, and everybody's worries are different.

8:35Cumulatively, there's a compelling case why they will continue to buy.

8:43This episode is sponsored by BNY Investments. BNY Investments is part of BNY, a global financial services company supporting investors and institutions around the world. This sponsorship does not constitute investment advice. I mean, you said you've got great relations with all these central banks. They might not tell you what they're thinking, but is your assessment that Russia, Ukraine was a turning point and the sanctions on US Treasury holdings that possibly Venezuela as well, are these an added wind in the sail of the rationale for why a central bank of a developing nation in particular might want to earn gold?

9:25Yes, an added wind in the sail is a good way of putting it. But personally, I think the main driver for most of the central bank buying over the course of the last few years has been more economic. I don't think the geopolitical incidents around the world, albeit many of them, are the individual drivers. In some respects, you could say track tariffs and without demeaning it, the war are almost red herrings. I think the main reason the central banks have been buying is a deeply felt fear of a debt spiral, the runaway debt situation that is not really far away from our door at the moment. I know many people decry that as a main driver, but I do think the continued currency debasement, the threat of US debt running away, which I think going back to April, when tariffs were imposed, and there was that moment when the US yield curve shifted en masse, didn't just steepen, it shifted in one go, because of a lack of trust in the US government, which we'd not really experienced before.

10:35And what that would mean to the debt spiral, run away. I think that's the main reason they're buying it, because it hedges them in a world where, hypothetically, we fall into that trap. And there's no way out of that trap. Many people regard it as a financial Armageddon. And that's what I think the main driver is, the undercurrent, the in the belly driver. Everything else has just added wind to the sail, as you say. Really interesting and brings me to the sort of next type of buyer, which is investors at large, not just central banks specifically, and was going to come to that reason and the sort of fear of inflation, fear of monetary debasement, and or fear of financial Armageddon in an extreme circumstance, because last year wasn't a normal year of gold price appreciating in the face of monetary debasement, particularly Q4, where it really shot up.

11:32So do you think now investors, based on the gold price surge last year, are pricing in that financial disaster as opposed to just ongoing monetary debasement? How do you try and gauge where we're at with that run? Because I guess it hints to where we go from here. It does. It does. And it's difficult because you speak to some people and everyone will pick a reason why the gold price is going up. There's a plethora of them. And some people look at it cumulatively and say, well, look at all these things. This is the bigger, the whole world's falling apart, et cetera. And then you get particulars.

12:09And for instance, the investment trading community in London, the world I came from, will look at it in a far more macro sense. Interest rates are here, dollars here, therefore gold goes up. And when it does the opposite, the Lady Bird Book of Economics says it should be going down. And incidentally, over the rally, over the last few years, there have been moments when the trading community have been completely blindsided by the remorselessness of the rally, because the fundamentals as they understand them have not dictated that gold should go up. So they've all stood aside. And yet the central banks just carried on buying because their motives are somewhat different.

12:46The investment bond coin community, somewhat different. The people who have bunkers in middle America, for instance, their goals are different. But I do think that the drivers, the main drivers, which I perceive as a core six drivers are the main things that are driving gold forward. And I think there's only one or two, one real scenario that could ever really at the moment paint gold in a negative light. But the main drivers that are taking it up are very clearly defined in my mind. Which are the six? Well, there's the macro ones I described. There's that one. There is the core fear of debt. There is the Japan situation, which I think is coming online.

13:33We can talk about that. There is the India situation and deregulation in China. They're the main drivers of that, I think. And then you've got the geopolitical scenario that is making people run for cover. But those six, all of them are pointing in the same direction. But most of them are macro-driven, are fear of debt. And even when I refer to China, India, and Japan, they are debt-driven fears, in my honest opinion. Let's go through each of those three and then hit the one negative case for gold that you alluded to. So Japan, I heard you talking about this, I think actually on a podcast or event you did in India, ironically, and we'll come to the India argument in a second.

14:14But outline for me the point you made there about why potentially Japanese investors might be about to buy a lot more gold than they have previously. And we've seen this over the last 18 months in particular. It occurred to me that there is a vast amount of money being held by old people in Japan. generational change. I mean, quite literally, and depending on who you talk to, and I might get this number wrong, but 50 % of all of it's in cash held at home, quite literally under the mattress. That generation have obviously been very defensive, and a young generation are appearing on the scene, and that money is going to get passed down to them.

14:49In my opinion, those people are far more adept. They have electronics, they're broader minded, less conservative than their parents. Also, fund money managers are changing generation as well. And so they're going to be more inclined to look broader and invest their money more widely. Most important thing is that most of my trading career from 1980 through to 2010, Japan was in deflation. And nobody could do anything about it. But only now, most recently, are they experiencing inflation for the first time. Whole generation doesn't even know how to spell the word technically. They've got geopolitical problems in the region.

15:28They've got a sense of nationalism in the country, a sense of tension for the first time, what has been a depreciating currency, a very, very high debt to GDP burden already, which had never really shifted. And that realization, that opportunity to divest some of your assets into gold at this point seems to me an obvious thing to be doing. Now, we advocate for 8 % to 10 % allocation, not a strategic one, not tactical, full long term. But we found that most Asian countries tend to hold much more than that. They're inclined to do 10 to 20%. And we're fully supportive of that. So I think those people are going to lunge into the gold market.

16:09I really do. We're making a big push in the region to try and educate people on the merits of holding it within a portfolio. And I think the gold ETF market, gold backed ETF market that this or comes from is the perfect vehicle for them to do it. You can hold it on your phone. It's real gold. It's more difficult to take delivery, I accept, but you're holding real gold. And I think that's the real opportunity. And the wallet is vast in Japan. That's untapped. What about, you mentioned there deregulation, if we come over to China from Japan, what do you mean by that? Over the last seven to nine years at the World Gold Council, a little plug for ourselves here, we worked remarkably hard with the Chinese government to deregulate their insurance industry.

16:59Again, the wallet is in the tune of$5 trillion. And we set up a fund when I first joined the World Gold Council as an example of how if you had gold as part of a portfolio, it would demonstrate its worth from a diversification aspect, from a rate of returns, volatility, all those things that we can prove. We set this fund up, I'm glad to say. And I would say more by luck than judgment, I hit the right timing. I got the Chinese economy declined, the stock market declined, the property market declined, and gold went up in a straight line. So of course, my fund outperformed every other fund. And I have to say, I admit more luck than judgment, but it proved a point.

17:40We had 40 % gold in that fund, and it outperformed every other fund. As a consequence of that evidence, the Chinese insurance market has deregulated at the beginning of this year and have allowed 10 insurance companies to hold at first just 1 % to demonstrate that it works. They will expand that. I'm due it because it will work. They will prove the math. And we hope, like I said just now, that they expand that to 10 % to 15%. That market is a$5 trillion market. So there's two$5 trillion markets currently untapped. That's good timing as well for them to start their 1 % position, I guess, as well.

18:18And India. India. India, as obviously, as probably everybody knows, is very focused on gold jewelry. It's the gold jewelry capital of the world, to be honest. 25 ,000 tons held by people at home. It's an amazing amount of money. That being said, a younger generation are probably less, in my opinion, less inclined to buy jewelry than their parents were. Weddings will persist, but the younger generation are different. And so what we're trying to do is try and open their minds to alternative ways of holding gold alongside jewelry, I must say. And gold ETFs, once again, are the clever way of doing it.

18:53You can buy it with a QR code, you can hold it forever, you can trade it in, you can sell it, and it's as quick as a couple of clicks, but you're exposed to gold price. and as part of a portfolio, which many of the educated young people all have now, is an obvious avenue. One and a half billion of them, and every single one of them has got a phone. And as long as you can prove that the ETF is fully gold-backed, which it is, and it's not just our ETF, it's many other ETFs. I think 23 have opened this year alone. So I believe that to be another way in which people will buy brand new gold, Not turn away from jury, but an alternative way of doing it.

19:36What's the one negative case you said? Well, risk adjusted, it's very unlikely to happen. And this will be interesting for you, future guests. My feeling, and it's personal opinion, is that the US administration is probably going to try and inflate its way. out of its debt burden and try and do it that way. That's a very fair point of view. Very subtle way of doing it. And I think what they're trying to do is, as you've seen, is try and force down interest rates, generate growth, perhaps tolerate a higher level of inflation for the very reasons I mentioned. And if they're lucky enough to generate enough growth, just imagine a situation where we got a 6 % or 7 % growth rate in the United States.

20:29Just imagine for today. Nominal rate. Yeah. And you got that. You'd have a situation where the current account would materially start to close. And you'd have the ability to project a declining gross debt, sovereign debt burden. You'd be able to say in 2030, perhaps, hypothetically, that instead of$30 trillion or$27 trillion, in 2030, it will be 26. And that will be a notable turnaround. That will be an amazing change in mentality that the market, many of whom think that the constant devaluation of dollars and printing of the currency, which we do, to constantly finance debt has an end game. And if that debt continually goes up, which I think has been the main driver, in my opinion, of why the gold has been going up, as I've said, if you're able to project the opposite or a natural decline in that, that would, I think, start to get a lot of people less concerned than they are now, not necessarily sell gold, but it might take the wind out of the upward sails.

21:33That's if I've read this right. Now, I remember, and it was reported that Mr. Besson stepped in in April to calm the markets when that yield curve, as I said, shifted en masse higher. Because I think if I read it right, that was the, oh God, moment. We can't let that happen. Because what do you do? You sit around a room at some point and forgive each other. The wealth of discretion is apocalyptic. So I think that the most important thing is that we, well, I think that there is a chance, a remote chance that Mr. Trump pulls that off, a remote one. And I'm just putting it out there because if people were looking for a top, that wouldn't surprise me if it was the top.

22:23but risk adjusted, it's a low probability that he gets this right. Yeah, it certainly appears, even though not explicitly stated, like there's some of that strategy behind what they're doing. And you wouldn't bet against Scott Besson. He's done a pretty good job, I think, so far. So we'll see what happens.

22:44The Master Investor Podcast is sponsored by Interactive Brokers. Building wealth starts with the right broker. and Interactive Brokers helps you reach your goals with powerful tools, global market access, low costs, and unmatched financial strength. That's why the best informed investors choose IBKR. Learn more at ibkr.com forward slash master investor. What that just leads me to is a broad point about whether gold performs in bad times versus can it also perform in good times. And it's a fairly sort of layman's point, but I think a lot of people think of, gosh, the world's going to end, let's buy gold.

23:26I think from what I'm hearing, you're saying that that good news, bad news argument does apply to gold specifically as it relates to the outlook for US debt. Is it wrong to say that it applies more broadly than that? I.e., we might have a recession, but when we come out of the recession, if growth is looking good, if things are all right, will gold take a pause? Or do you think that that is too simple a kind of perspective on gold? Well, I think there is always a very, very positive reason for holding gold in a portfolio. And I think the main reason people have not held it in a portfolio in the past is a combination of ignorance, apathy, and complexity in the past from a capital perspective.

24:14It's worth noting that in 35 years of trading, I never once traded gold. Of all the asset classes, and I traded literally everything you could mention, I never traded gold. Because it was complex, it was capital heavy, it ate up into my capital and my returns were reduced as a consequence of it. And so a whole generation of traders and investors just sort of went round it. So part of what I've been trying to do over the last six years is reduce those capital burdens by improvements, digitalization, things like that to try and improve that market. But I think most people's perception is gold is the disaster trade.

24:53But over the course of the last six years, it started to change. And we've been educating people that to have it in a portfolio strategically is one of the things that will benefit you. But of course, you're not going to do it if it's going to impinge upon your returns. So as we progress into this new generation of an ability to trade gold in a digital light capital way, which is what we've been working so hard on. There should be no burden for you to have it as part of your portfolio going forward. So the long answer to your question is crises, the stuff we read about increasingly every single day, only has a short shelf life in our minds.

25:33We get over things remarkably quick. 10 years ago, 20 years ago, the mention of a nuclear exchange would have driven markets into frenzy. Doesn't create a blip anymore. So we get used to that stuff. What we won't ever ignore is positive returns from an investment in an asset class. That's a fundamental, that's the way we work. I've just been working to make it more available and more accessible. So I think over time, these events will become less of a driver of gold and people will think of the asset class as you do dollars or bonds or equities in future. Everything we've touched on so far largely has been talking about why people might have demand for gold.

26:18I want to touch on supply. How certain are we that the supply is limited and there's not going to be the equivalent of a fracking development to transform the supply of oil and gas, for example, going forward? Could there be a massive deposit that we haven't found? Well, I'm no geologist. Could, yes, I suppose. I suppose there is. But what I do know is that my members, who are the 33 large-scale miners of the world, spend a remarkable amount of resources trying to find this stuff. I'm not the expert on this, I'm not speaking for them, but I understand that most of the large deposits that are available are now getting too deep and uneconomic to actually mine.