2023 Gold Outlook Webinar | Monetary Metals

Welcome to the 2023 Gold Outlook webinar. We’re excited to have you today. We have founder and CEO of Monetary Metals, Keith Wiener here to provide us with a brief overview of the conclusions of the 2023 Outlook Report. The report was over market policy, Fed actions, goals, macroeconomic outlook, everything that you could possibly need to know for 2023. Following Keith’s brief opening remarks, we’ll leave the remaining time open for a Q&A session where you can send in your questions to be answered by Keith live. That will be in the chat room there, so just submit your questions and I’ll try to get to as many of them as we can. We understand there are a lot of attendees today, so if we don’t get to your question during the Q&A session, please don’t hesitate to follow up with us by email. We’re always happy to continue to get the discussion and help figure out ways that we can guide you through the market tomorrow. I’ll now hand over the microphone to CEO Keith Wiener for a quick overview of the contents and conclusions of the report. Keith, take it away.

Keith Weiner

Thanks, Ben, and welcome to everybody joining us. What I thought I would do is not so much go over what the report says, which everybody can read for themselves, but talk about the meta, what’s behind it, and what’s the concept. And this is a theme that runs through a great deal of my economics work, and that is that people are not stateless. So it’s easy and convenient, tempting fast out to assume that, hey, if the government central plan do the same thing today as they did last year or 10 years ago or 50 years ago, then we’re going to get the same output. That people in the economy are just a simple function. Like, if you think of the sign function, sign of an angle, it doesn’t really matter what time of day it is or what year it is or how many people there are in the economy or anything else or what the debt levels are. If you call sign of 90 degrees, you get a value of one. If you call sign of zero, then you get zero. But the economy and people are stateful. If you just busted them up with rate hikes and they go bankrupt, and then go bankrupt and then the day after that, you stimulate them or try to stimulate them with the same lower interest rates that you did last year, you may not get the same outcome.

So that in general, the economy is not linear. It’s not necessarily contiguous, it’s not stateless. It’s not scalable, it’s not just one single variable. And in general, there’s positive feedback loops and resonance in the economy. And my favorite example of resonance is the Tacoma Narrows Bridge, which the video of the collapse of that is an extraordinary thing to watch. It’s on YouTube. Extraordinary, not least because it’s not like people were walking around with iPhone cameras back in those days. I think it was the 1940s when it collapsed, but somebody happened to be there filming it when it actually fell. So it just takes this idea of we’re supposed to raise interest rates to something, something, something, cause prices to either stop rising or even go down. And it’s the quantity theory of money. It’s this idea that prices are a function of quantity the way the sign of an angle is a function of the angle. And this view, one of the most bizarre things to me is that this view is held by both the apologists for the Fed, the court economists who promote the Fed and everything the Fed wants you to think, and the most angry critics.

Everybody agrees on this. The quantity of money goes up, therefore prices go up. Quantity goes down, therefore prices go down. And so rising interest rates is supposed to cure the rising quantity of dollars. And if you read the report, I talked about this thing, what happens when interest rates rise? Well, first you start to curtail demand and that’s true. So take for instance, cinder blocks which are used in home construction. Well, rising interest rates certainly reduces the demand for homes. And so every distributor that has cinder blocks and inventory has to sell them. And in the face of reduced demand, they have to cut the price. Every cinder block manufacturer that already has plant that’s already been capitalized is cranking them out at a certain rate. And so initially you get prices drop. And so a lot of people would say, yeah, victory, that’s it, we got it. But not so fast, because what happens is at the higher interest rate, the return on capital necessarily must rise to be above the cost of capital. Otherwise, obviously number one, nobody will borrow capital in order to go into business that produces less than the cost of capital. And then number two, even existing capital that’s out there is rendered submarginal and is ultimately forced to be liquidated.

And so what’s going to happen is those cinder block manufacturers and those cinder block distributors, some of them are going to be forced to go out of business. And that process will continue until the return on capital in the cinder block business is greater than the cost of capital. The higher the Fed wants to raise the interest rate, the higher the return on capital has to be. That is a force for rising interest rates, but not initially. There’s a lag. First, they cause a soft market and prices drop, and then later there’s a lag and prices rise. And people will say, oh, that’s because there was so much money created over such a long period of time. It’s going to take higher for longer, which is what the Fed is saying right now. And so these things are extremely dangerous. They’re playing with fire without really understanding it. And if there’s a take away from the report, it’s that the fast out view, and there’s so many of them. Well, consumer prices are rising, then the price of gold should be rising. And as the price of gold isn’t rising when it should be rising, then that proves it must be manipulated.

These views are very tempting and they’re very convenient, but they ignore or belie the complexities, the non linearities, the positive feedback loops, the things that are occurring in the real economy. And the report this year, we spent a lot of words and a lot of pages trying to shed some light on some of those things. But that’s what I’d like to call attention to as people think about this report and formulate their questions. So with that, I’ll stop and take questions. Fire away.

Benjamin Nadelstein

We talk a lot about leads and lags. What are some of the things that you think right now are lagging indicators that maybe look okay on the surface at the moment, but in the next two, three, four, five months are going to implode? What are those things that investors should be looking for, especially if you’re a gold or silver investor?

Keith Weiner

First of all, leads and lags is one of those things, the other being supply and demand that are just the economics equivalent of a punt. It’s like, well, yeah, sure. Okay, leads and lags. But what leads, what lags and why is the question. So lead, I guess, is the Fed starts making noise that they’re going to raise interest rates. In theory, the stock market should crash in anticipation of that. Certainly not what happened last year. But I think the textbook example of lag is employment. A lot of people say employment is either a contemporaneous or lagging indicator. I’m not sure if you really read out there a lot of great explanations for it. But here’s mine, and mine comes as an entrepreneur and business manager and not just as an economist. And that is if you take a look at the as a story of the last… So we had the crisis in 2008. We had this incredible… I mean, literally, it was incredible, the response of stimulus, plus also bailouts and fiscal programs in the fourth quarter of 2008 and certainly into 2009. And then through about 2011, the story was inflation, reflation, etc.

And after 2011, maybe arguably 2012, that became the new normal and commodity prices receded, etc. And since 2012, so I guess we’ll call it the last 11 years, there’s been a number of what in retrospect would have to be called head fakes where everybody thought that’s it. The Fed is going to let off a little bit. Interest rates are going to rise. And all the endless calls of recession, I love those click bait ads that say, this indicator has always successfully predicted recession and 10 of the last 10 postwar recessions or whatever. It’s now flashing red alert. How many of those did we see from 2011, 2012 through, let’s just call it pre COVID, because everything changed post-COVID. And so a lot of companies, especially the ones that were still smarting and still had a strong institutional memory of 2008 and what happened. In 2008, whichever company laid off first, laid off best. The ones that thought that they could hold the line ended up having to do either bigger layoffs or multiple layoffs or whatever. So to try to get ahead of it, they would do layoffs. And the problem is time and time again between 2012 and pre-COVID, any company that did layoffs quickly was forced to regret it and try to take the layoffs back and go back to the people that they had just laid off and then beg them to return to their jobs and in many cases offer very large pay raises we were going to do so.

So now you finally get to, I think that what the Fed began a year ago in 2022 is quite different than anything that really happened between 2012 and 2020. But a lot of businesses didn’t necessarily or still don’t necessarily see it. They think, okay, well, it rates rise and is there going to be recession, whatever. But smarting from all the times when they made the mistake of laying off, they try to hold the line as long as they can. Eventually, that vastly higher cost of capital will force their hand. I think we’re starting to see that now, but I think we’re still in the very early days of it. And that’s a perfect example of something that lags and why it lags. It’s because business managers are faithful. They remember all the mistakes of trying to lay off in the previous decade and didn’t want to repeat that mistake. This time it’s not lot of a mistake, but they’re slow to realize it.

Benjamin Nadelstein

Right. It does feel like in some ways this time is different in at least a couple of aspects. So maybe that that lay off and that lead and lag are actually something for businesses to take heat of this time. We’ve got several questions around gold and crypto. So I know you’ve written a lot of critiques around crypto, Bitcoin specifically, as the new shiny investment object that is supposed to take out gold. But I’m curious, what are your thoughts about the possibility of combining crypto, blockchain, this new technology, and the monetary aspects of gold? Obviously, for.

Keith Weiner

Those that don’t know, I’m a technology guy by background, major in computer science, dropped out of computer science school because I wanted to do what so many of my heroes had done, which was build a software company, which I did. Back in my day, I probably wrote a million, over a million lines of code, I would say. So I’m definitely a techy and I think I tend to get it. And sure, it absolutely makes sense to think about. If you think about issuing a gold redeemable currency today, would it necessarily be paper notes that people folded and put in a wallet? Or would it be some electronic thing that was on your iPhone or your Android and leveraged the Internet? Surely the latter. And would that be a blockchain based thing? That certainly seems logical. Absolutely. But the key feature being that it is still a gold redeemable currency. And now we’re just using blockchain as a better way of administering the currency versus printing notes and printing serial numbers on a piece of paper and so on.

Benjamin Nadelstein

Got you. Okay, next question. So we use LIBOR a lot in our lease rate calculations and other data that we post on the site. Libor is now actually being transitioned into SOFR. Do you have any ideas or thoughts on that transition and how that might affect either the data on our lease rates or just in general markets?

Keith Weiner

Yes. I thought about, do I go back and revisit that code and update it? I guess at some point we will. Given the growth of the business and all the other initiative that going on and the pressure to release, for instance, a client portal just hasn’t been the highest priority. I think so far as it’s called, there’s a slightly different rate than LIBOR, so obviously you’d see slightly different numbers for fundamental, slightly different numbers for calculated lease rate and so on. And we’ve emphasized this many times over the years, the main important thing is the trend. The basis rising, the basis falling, the lease rate rising, the lease rate falling. And it might move things just a little bit, but I think the trend line would still be as clear. So it hasn’t been the most urgent project to go dive in and do that.

Benjamin Nadelstein

Got you. So, Keith, during the pandemic, the Fed printed nearly double the amount of money that it printed in response to the great financial crisis. And the Fed did all of this in a third of the time. So why has this not led to either a greater inflation pressures or B, higher gold prices.

Keith Weiner

So everything about an irresistible currency system is about exponential growth. It has to grow and everything has to grow exponentially. You can’t pay, you can’t extinguish the debt because you’re paying the debt using a debt instrument. So you just shift the debt around. The debt has to grow by at least the amount of accrued interest. And actually a lot more than that if you want the marginal debtor to be able to service this debt. So if you look at the treasury debt, it’s on a trend of about every eight years, it doubles. And all the other credit related things are also on their doubleings of whatever time frame. So yeah, today, or 2020, today would be even worse. The amount that you have to do to try to stabilize the system is exponentially greater than it was those few short years ago. And when the Fed finally is forced to reverse its hikes in the current purge and go back to binge mode, if you think what they created in 2020 was a lot, wait till you see what they’re going to do. But quite a lot of my writing is dedicated to debunking this quantity theory of money, debunking the idea that if you double M 0, M 1, M 2, whatever your favorite measure is, the price has doubled or that the gold price doubles.

The Fed isn’t technically printing, it’s borrowing. You are the lender. Everybody who holds what they think is a money balance is actually the creditor, and they use that credit to further extend credit on to the treasury and the banking system and corporate borrowers and everybody else that is in their ever expanding remit. And so if you look at the quantity of money, you’re missing the quantity of debt number one. And if you look at supply of money, you’re missing the demand for money and quantity itself can’t tell you which side is leading. And we’re in a world right now where there’s, ironically, quite a scarcity of dollars, especially offshore. And demand for money has pushed, or demand for dollars, I should say, has pushed the price of the dollar up quite a lot, and it has quite a lot further to go.

Benjamin Nadelstein

Yeah, I think that’s a very interesting point. The fact that just looking at one metric, maybe let’s say supply of dollars, really doesn’t tell you that much. You might even have to look at something like the demand for dollars or the growth in dollars or the growth in credit, that this static snapshot really just doesn’t do the information justice.

Keith Weiner

Yeah, and keeping in mind, suppose you have a little business, let’s say it’s a print shop, and you owe no money whatsoever, how much dollar balance do you need to keep? Well, a month worth of payroll and rent, maybe that should be more than fine. Suppose your debt of your eyeballs, how much cash balance do you need to hold? It happens a lot more than that, especially if you remember 2008, especially if you’re watching things now. This is one of those things, supply and demand. It’s tossed out there as a punt, as a cop out. But what’s happening to demand and why? What’s driving it? Another one is subjective time preference, why everything’s subjective. Okay, great. But what’s driving those subjective time preferences right now? It’s not only the rise of the quantity of debt, but the rise and the difficulty of the burden of paying it. And that’s the backdrop of our economic era.

Benjamin Nadelstein

So I’ve got a follow up to that question, which is, what would it take for gold and silver to rise substantially in dollar terms? Do you see an escalation of the war or a de escalation of the war in Ukraine playing a role, or are there other factors that are more important?

Keith Weiner

I mean, if the war in Ukraine escalates to an actual direct confrontation between the US and Russia and let’s say nuclear weapons were involved in that, God forbid, then there’s no telling what would happen and you could see a $5,000 price of gold in a scenario like that. Assuming that doesn’t happen and trying to analyze war in Ukraine isn’t really my swimline, assuming that doesn’t really happen. I think it’s important for people to realize that gold is just the mirror image of the dollar. And when we say gold going up, we’re saying the dollar going down. So what holds the dollar up is not some incredible animal spirits, as Keynes would say. It’s not some massive conspiracy to hold back from you the one thing they don’t want you to know. And when everybody knows it, then the illusion that the dollar is real will go poof. And with it, the dollar and the gold price will go to ever unimaginable number. That isn’t it at all. Most people think of the value of the dollar as one over consumer prices. And it’s the purchasing power of the dollars as its value. Well, every producer of every consumer good is in debt up to their eyeballs.

And that motivates them to work harder and harder and harder to produce more and more and more to stave off the bank coming and foreclosing and taking their business and ruining them. So it’s the struggles of the debtors that hold it up. And as you wipe out the debtors, of course, you’re not wiped out the dollars. You’re just wiped out those that are working hard to pack those dollars with real goods. As you wipe them out, you could see a much higher gold price. I certainly hope that doesn’t happen because that’s a general impoverishment. That’s a scenario that starts to look more and more like a Venezuela. Sure, if you have gold and you bought it at $1,000 and it goes to $20,000, you might feel you’re richer. And my argument isn’t so much that, well, sure, but consumer prices will go up 20 X as well. My argument is that in a place like that, if you can afford that Ferrari, let’s say, you show up in that Ferrari and they’ll kill you for it, there will be a great deal of anger and violence erupting as a result of that anger. The riots that we saw in the wake of George Floyd ain’t nothing compared to what’s going to happen in that general impoverishment.

I think we’re headed there, but as I always say, my friend Aragorn has a line that I like to use, Today’s not that day.

Benjamin Nadelstein

Right. Okay, next question for you. Given that irredeemable fiat currencies like the dollar, euro, yen, ruble cannot be made retroactively redeemable, what strategies can be used to transition to a true gold standard? Let’s start there.

Keith Weiner

So if you start with the end in mind, what’s the true gold standard? Well, it’s that people willingly deposit their gold in exchange for a piece of paper, which almost seems incredible. I mean, the entire side guise of the gold space is trust nobody hold your gold in one hand and your gun in your other hand, and everything should be cashed on the barrel head, which, of course, is a devolution of society down to a dark age’s village where nobody trusts anybody. And you have some subsistence farmers surrounding a crossroads village. We have a blacksmith and if you’re lucky, a cobbler and a cooper. Otherwise, you have to send 10 miles down the road for those things. And what is it that number one, induces people to deposit their gold, well, it’s trust, but also induce them in his interest? Why should anybody deposit their gold and take any risk if they’re not getting paid for it? If they’re getting paid for it, then now it’s a whole different equation. Now it’s okay, what’s the risk? What’s the return? And people can actually make a rational calculation based on that. So there has to be an inducement in the form of interest.

The only way to pay interest on something, I think I discussed it in the Outlook report. For many years, I said Bitcoin cannot be borrowed by productive enterprise, therefore there can never be interest on Bitcoin, and therefore Bitcoin is just a sterile dry asset. And then so called yield farming came out a few years back and then everyone said, see, you’re wrong. And I tried to rub my nose in it. I’m like, well, we’ll see. But this isn’t making any sense because there’s no productive enterprise that can borrow Bitcoin. And it turns out that that’s true. And so called yield farming was a circular, I’ll just say, scheme of some sort, will let the regulators and the prosecutors and the plaintiffs’ attorneys sort it all out over the next few years in court. But there wasn’t any actual real yield. I suspect that crypto space is going to return to its native habitat, which there’s no yield. But gold always was used to finance production. Everybody from the farmer to the Miller, to the baker, to the innkeeper, all the way up and down the supply chain, everybody borrowed gold. That’s what it was to borrow money, was to borrow gold to finance that.

And so when gold comes back into use as the vehicle for finance, that is synonymous with the process of returning to the gold standard. And that process has started. Obviously, that’s what we’re doing. I’m not really here to tout monetary metals in our products, but that’s the whole why. In a nutshell, you’ve got to return the use of gold to finance things, and that will bring gold out of all the nooks and crannies of the economy and into actual circulation.

Benjamin Nadelstein

Keith, actually, I have a question relating to this exact point. What are the constraints to lending gold to non-gold industry businesses? And what can Monetary Metals do in the future to work on that to get back to this gold standard?

Keith Weiner

So the constraint is to borrow gold, you need to have a gold income. And if you have a dollar income, then if you borrow gold, this is the same criticism I’ve leveled against alleged attempts to borrow Bitcoin. It’s effectively a short position on gold. And nobody in their right mind would want to take a short position on gold, maybe with the exception of a nimble and aggressive hedge fund trader who’s watching a chart and taking a short position with a tight stop for a very limited amount of time. But you want to do a five year loan and that effectively becomes a five year short position on gold, you can get killed doing that. So you got to have a gold income or you have to find a way of hedging it. So going back to they invited me to become a member, even though I’m not a legislator in Arizona or a legislator anywhere. They made me a member. I was the Arizona House ad hoc committee on gold bonds. And I did a lot of talking in front of that group, which ultimately ratified my proposal. At the state of Arizona should issue a gold bond, which hasn’t happened, but without getting into that.

One of the things that came up was that Arizona doesn’t have a lot of gold mining today. Historically, it did, but it doesn’t today. However, it has a lot of copper mining. And so I did talk a little bit on the record. I assume the video is still out there on the AC Ledge website somewhere, about could you finance a copper producer in gold? And the short answer is yes. And so that would be the next incremental step after financing the gold industry is financing another commodity producer. And the reason is pretty simple. If you look at the price of copper and it quoted in gold. So we have a friend of the company who has a site called PRYCDT IN G old. Com. And you look at the price of copper and gold, you can see it there and you see the price of copper and dollars. It turns out the price of copper and gold is less volatile. Therefore, it would make more sense to borrow gold to finance copper production versus dollars. So the world isn’t ready for that. But we’re moving that direction.

Benjamin Nadelstein

Okay, Keith, one more question in the same vein. So question comes from Canada, where the current leader of the opposition has promised, we will have sound money when I am Prime Minister. Keith, if you were the Prime Minister of Canada, how would you go about achieving sound money for Canada?

Keith Weiner

So the first distinction I have to make, and I wrote an essay that was published by the Sound Money Project. I’m a little bit surprised that published it because I was going against what they’re saying. Most people think of sound money as non inflationary. Prices are neither going up nor down. So I pose the question, I said, suppose you’re the chairman of the central bank and the president says, I want you to have money that’s not going up in value, not going down in value, which means consumer price is not going down and not going up. Your challenge is that, of course, every industry is constantly finding ways to do more with less. Every industry is always becoming more efficient. So in an article I wrote for Forbes, I looked at some great data published by the was Counsel and Dairy Association and found between 1967 and 2012 when I wrote the article, the real resources to produce a gallon of milk decreased by about 90 %. So that’s land, labor, each cow produced more, each cow took less land, each cow took a lot less labor. So it was about 90 %. So suppose the average across all industries was about 2 % efficiency gains per year.

And so therefore, you had to somehow devalue the currency at a matching and corresponding rate of 2 % per year. So the net result was prices in terms of your currency were going neither up nor down. Supposing that was possible, which it isn’t, would that be sound money? And I used the famous Norman Rockwell painting. So Norman Rockwell used to paint every week for the Saturday evening Post, and they used to, and that was printed in color. And there’s one painting called The Double Ride, which shows a woman is buying, I think it’s a chicken or Turkey or something at a butcher’s shop. And it’s one of those the scales hanging from the chains from the ceiling. And then there’s a little basket there. And then the chicken is in some loosely folded butcher paper. Now, the butcher can’t see because her finger is hidden behind the meat, but she’s got her finger pushing up underneath the scale to lighten it, to cheat. Now, she can’t see, but the butcher, because his finger is blocked by some of the paper, he’s pushing down on the scale to cheat and make it heavier. So I pose the question, suppose that her cheating up force and his cheating down force happened to be the same number of grams or ounces, would that be a sound measure of the weight of the chicken?

And suppose a central bank governor were to do as I proposed, would that be some money? Obviously not. So the only thing you could do is you can… And if you’re the Prime Minister, you could task not the governor of the central bank, but the Treasury Secretary or the Chancellor of the Exchequer and the rest of the sphere, you could say to that person, Your job is to figure out how to shut this thing down and give us a real transition to gold. It’s not fixing the gold price. It’s not saying, Okay, well, now the dollar is going to be backed by two thousand dollars for one ounce of gold or whatever magic number you might come up with. It’s how do you actually get gold to circulate? How do you make that transition, which would involve issuing gold bots? I look forward to, if they want to do that or explore that, I’d love to throw my hat in the ring and say, look, I can help give you some advice on how to achieve that. But it ain’t easy. And it’s going to test your political will to actually try to do that.

Benjamin Nadelstein

Okay, next question for you, Keith. Do you have any updates concerning gold futures backwardation in any markets worldwide?

Keith Weiner

I’m just going to go pull up right now and see what the year contract and gold looks like. Just make sure I’m not misspeaking myself here. Yeah, the gold basis for April contract is positive 2 %. Let’s take a look at the silver basis for May is 1.5 %. So no back order at the moment.

Benjamin Nadelstein

Premiums on physical gold and silver versus paper contracts. And I want to ask a follow up question as well, which is there’s this hype around shortages in gold and silver supply. So it seems to me that the so called shortages are more about the difference between retail and bullion markets, meaning retails or investor spaces where sales revolve around one ounce points versus global markets which revolve around kilogram gold bars or larger. Is that right? And what do you think about these premiums on these type of points?

Keith Weiner

Yeah, the price of physical metal and the price of paper, i. E. Futures contracts track so closely that if you were to plot just broad price graph of both of those lines on the same graph, it would read as one line. You would not be able to see any discernible difference between the two. It takes a very sensitive instrument, which is the gold basis to see that difference. I’m just going to go pull up one of the graphs, which I suppose we can put in the playback as well, which is a gold carry on. I want to put this in dollar terms. So for the April contract, the difference between spot and futures is about $5, which is just really a function of the interest rate because anybody can arbitrage that gap. You can borrow dollars by spot, sell it forward, and that will tend to pull that spread down to about the interest rate, give or take. So metal and paper essentially have the same price or very close $5 is approaching a quarter of 1 percent, one of our basis points difference. That’s if you want to buy 400 ounce bars in London. The further from London you get and the further from 400 ounce bars you get, you find that there is a logo or a product and or a product premium.

And so I liken this to when people say, hey, Starbucks downtown increase the price of a double triple milk, a latte. Therefore, the price of coffee is going up. If you went to Jakarta and looked at a £50,000 lot of coffee, you might be surprised that the price wasn’t moving in the same direction as the price of that downtown latte. And there’s a lot of different factors that affect the latte that don’t affect the commercial lot of coffee. And the same thing is true with 1L coins, especially Eagles. Supply is extremely inelastic. If demand spikes as it had, and now these prices have come down, premiums have come down. But if demand spikes as it did post COVID, and again in 2022, you can see giant premiums. I mean, the premium premium and silver was over 50 %, I’m sure, that how much above, and it depends on the dealer, I don’t know. I didn’t follow that day by day, but the premiums became truly massive. And people were willing to pay that much to have an ounce of silver in the form of stamps into an American Eagle. If you’re willing to take Naples, it was cheaper.

If you’re willing to take Austrian Folling Monikers, it was cheaper. If you’re willing to take one ounce bars, it was cheaper still. And of course, if you bought it in 100 ounce bars, a lot cheaper, even 1,000 ounce bars, premiums didn’t really rise very much.

Benjamin Nadelstein

Okay, thanks, Keith. So another question relating to gold and silver. Do you feel that silver coinage is just as important to own as gold?

Keith Weiner

When you talk about something good, then it’s always the question of the who and for what. If people are thinking about laying in a certain amount of metal money as insurance against what collapse we might have, then absolutely you’re going to want to have some silver because gold is far too unwieldy for the transactions you’re likely want to do day to day. So yeah, I mentioned everybody has a couple of hundred ounces of silver on hand. Sure, absolutely. I don’t see any downside to doing that. Beyond that, if you’re just now talking about accumulating silver position, I think there are people that logically turn to a silver speculation that the gold silver ratio will move down, i. E. The price of silver measured in gold terms will move up. And that silver is a better play than gold, especially with the ratio being quite elevated by historical terms as it is right now. Absolutely. And so sure, if you’re thinking of a community more metal and you see silver as a relative bargain, that makes sense. But there’s always that question of silver being demonetized. One of the arguments that I find ironic from a lot of folks in the silver community is that silver stocks are being consumed.

If that were true, then that would mean silver is being demonetized and silver is destined to become just another expensive industrial ingredient and not money. In which case, why would you want silver in the form of coin? You just want to get silver in the cheapest form possible, which means the largest possible bars and then wait for the stocks to be consumed down and the industrial users to bid up the price of it. But of course, the opposite is likely to be the case. If that’s happening, it’s being demonetized because it’s losing its monetary demand. Not because it’s becoming scarcer, quantity theory of money, rising price, but rather it’s losing its monetary demand, and it’s only being consumed because its cheapness is an incentive to producers of all sorts of things, hey, use more silver, it’s cheap. All these hordes that were accumulated over millennia are now being dumped on the market. If you can find a use for silver in your product, it’s cheap enough, hey, have at it, which isn’t necessarily a bullish case at all.

Benjamin Nadelstein

Right. Keith, speaking of that crisis and reason for owning precious metals, do you foresee banking reaching any crisis points this year? Will new rules for bail ins come into play in any American institutions?

Keith Weiner

In the US, no. The key I think, aside from the, as we discussed earlier, the dollar shortage is much more acute in the rest of the world. Also, by all measures, US banking system is less unsound than the banking systems elsewhere. I do not see monetary crisis in the US in 2023.

Benjamin Nadelstein

Okay, next question similar. The dollar is the global reserve currency, and you mentioned many reasons as to why it enjoys that that status, in what time frame do you expect the dollar to lose this status, if ever, and why?

Keith Weiner

I don’t think there’s any other paper currency, irredeemable currency, that comes remotely close to the dollar. Now, obviously, the dollar is on both sides of every major balance sheet in the world. It is one side of a great many of the transactions in the world. We had a guest, Jeff Snyder, in one of our recent podcast episodes, in which he said, I don’t remember if it was 96 % or 98 %, but all of the derivatives in the world approaching one quadrillion dollars worth of derivatives, 96 % or 98 % of those derivative contracts have the dollar on at least one side. There’s nothing that’s even remotely close. Number two is ridiculously far behind. Reid Hoffman wrote a book called Blitz Scaling, and he’s talking about the number one company in a given space versus the number two company and what the difference is. And he talks about a line from Glenn Gary, Glenn Ross when the sales manager, I think it was Alex Bolland of all people, is saying to the sales team, number one, best salesman in this department is going to get a Cadillac. Number two is going to get a set of stake knives.

And number three, you’re fired. Any questions? And so you see this enormous difference between number 1 and number 2. And Reid Hoffman is talking about at the time that he wrote this, Facebook was the number one social media platform worth $300 billion with a B. Number two was My space, which was sold for 300 million with an M. One one thousandth of a value. And then he says, does anybody know what number 3 was? It was Friendster, which went out of business. So there’s no other currency that can handle the flows. There’s no other currency that anybody has any desire to own like that. And if anything, the world bit by bit is moving towards dollarization anyways. It’s really only a question of when the whole regime fails and the dollar goes down with it. And then one way or the other, we’re moving back to gold. And the only question is whether we do so in a graceful way or whether we do so in a catastrophic way.

Benjamin Nadelstein

All right, Keith, next question for you. We’ve heard a lot of rumors recently about this latest Ghana scheme about oil for gold. What steps should a country take? Let’s say Nigeria, Ghana, any country in Africa who has been trying this oil for gold scheme, how could they actually switch to a true gold standard? How exactly could that play out?

Keith Weiner

So the standard playbook is to strong arm your producers, and then you wonder why production drops and why you’re always so desperately poor. It’s because you’re desperately taking desperate measures. So what they did is they said to the gold mining companies, Okay, you have to sell. You can’t take all the gold out of the country anymore. You have to sell a certain amount of it to the Ghana government. And you have to accept the Ghana… I don’t know if it’s Keddie or Sete, how you pronounce it, CIDI, their currency. You have to take Ceddie in exchange for your gold. And the way these schemes always work is that there’s an official exchange rate. The Peso is always declared to be one to one with the dollar. And then there’s the actual real free market black market rate, which is 10 to 1 or 50 to 1 or whatever. So anybody who’s forced to deal with the official exchange rate is just basically getting looted. So it’s a looting scheme for the gold mining companies to force them to take Ceti. And then, of course, they turn around and trade the gold for dollars and they get screwed again.

And so now the government has this gold and the government is trading the gold, perhaps to certain suppliers of oil who are locked out of the Swift International Payment System, but they can ship them some physical gold. That’s not really a gold standard. That’s really just looting. If you are a emerging economy and you really want to go to the gold standard, then, and assuming you have debt, which they usually do, you should issue gold and you have gold miners. Cut a deal with the gold miners to get the taxes paid directly in gold rather than in currency. And by cut a deal, I mean give them some slack on environmental regulations and other… There’s so many ways that you’re cutting into their profit margins. Cut them a little bit of slack. Give them an incentive to want to pay their taxes directly in gold, which I’m sure they’d be happy to do. They produce the gold anyway. And then issue gold bonds. But when you issue the bond, don’t try to sell the bond for dollars so that you can finance your cle and your welfare state. The point is to try to get out of that.

Keith Weiner

Don’t sell the bond for gold. You’re not trying to raise gold. You have a gold income from your miners. Sell the bond for outstanding paper bonds. Say, look, we want you to go into the market, buy up our paper debt and bring it back to us and exchange the paper bonds for the new gold bonds. And what will develop over time is a paper bond to gold bond exchange rate that will be rising in favor of gold. In other words, you can get out of debt at a discount and bring the gold back into circulation that way. Is anybody willing to do that? We’ll find out.

Benjamin Nadelstein

Okay, thanks, Keith. So speaking of these desperate measures, what does China reopening and its central bank rapidly expanding credit imply for your outlook?

Keith Weiner

So everyone was waiting for the massive increase in commodity prices that was going to come as a result of this reopening, which so far has not occurred. It’d be interesting to see that, I think, one of the things that’s happened is that Russia is finding it much harder to sell to the West, so they have to divert their stuff that they sell to China. And then China is buying less on the world market. Overall, I think it’s better for everybody if every economy is reopened and every economy is producing maximally because that’s the basis of trade. Adam Smith wrote about this and comparative advantage, China produces certain things the West doesn’t produce. They have the labor force to assemble electronics, let’s say phones by the billions of units. That labor force doesn’t exist anywhere else. Would commodity prices go up, well, if consumption is going up and we’re consuming more commodities, maybe. On the other hand, more commodities could be produced as well. So that’s a more complicated thing. Overall, that would be a good thing if they truly were reopening. That would be a good thing. Keith, I.

Benjamin Nadelstein

Have a clarifying question from the chat here about the logic that gold could finance copper mining and other non gold commodities. Could uranium fit that same logic?

Keith Weiner

You mean could gold finance uranium? Yeah, it could.

Benjamin Nadelstein

Okay, there’s your answer. Okay, next question. This is about macro. So we’ve had high yield corporate bond issuances pick up recently while yields have been easing and debt restructuring firms are reporting increased demand and supply for restructuring. Why do you think capital is being allocated to these instruments in this environment?

Keith Weiner

It’s a big puzzle. And every once in a while, I pause and think about why hasn’t the spread between junk and treasury blown out with all these rising interest rates? And I don’t have the answer to that. And if anybody does, I’d love to hear it. All I can say is that there’s some slight of hand going on somewhere. Is the Fed buying junk bonds? I don’t know. I haven’t read that they are. I’m not sure that if they did and they wanted to do so in a clandestine way that we would necessarily be reading about it. But now you say restructuring, is that like bankruptcy restructuring or is that just refinancing? Usually restructuring implies that there’s actually distress and one could certainly see that. So I think in the Outlook report, I talk about the interest rate on short tee bills went up 4 %, the interest rate on the spread between junk and treasuries went up a point and a quarter. So junk went up about five and a quarter %. Surely that’s causing a lot of distress as companies, and here’s another lag, they don’t feel the pinch of the rising interest rates immediately.

They feel it when they have to roll over their debt and refinance. And then at that point, can you really refinance at five and a quarter points higher than where you were a year ago? In many cases, the answer is no. So then you get into restructuring, cram downs, and who knows what? And then are there bailouts? If you’re a bank and you accept a cram down and you accept debt for equity or you roll for longer maturities, is the Fed giving you an inducement? Is the Fed agreeing to buy some of this off your balance sheet? Are the regulators offering to bend the rules so you don’t have to recognize the losses? Who knows what’s going on behind the scenes of economic forces we’re allowed to function? That would be a great deal of stress and a crisis already as a result of hiking interest rates. That’s for sure.

Benjamin Nadelstein

All right, Keith, next question. You write a lot about the falling interest rate trend. We’ve had a four decades long falling interest rate trend question here. Ultimately, do you think this is caused by the government or by market conditions? And if your answer is by government, why couldn’t the Fed simply reverse it?

Keith Weiner

Well, it’s a push, we pull you. It’s a positive feedback resonance system that takes two to tango. So the government imposes upon us an irredeemable currency and forces us to use that irredeemable currency as if it were money, which people do. But of course, it can’t extinguish debt and also it can’t set an interest rate rationally. In the gold standard, the interest rate is the spread between the gold coin and the gold bond. In the dollar system, what’s the difference between the dollar bill and the 30 year bond? The only difference is really duration. So the interest rate becomes meaningless, the interest rate goes off the rails. It is definitely an iterative process involving market participants. The process and the forces involved in that process are much greater than the Fed. And so certainly the Fed is a complicit party in collusion with this whole thing and making it happen. But it doesn’t mean the Fed has the power to just say, we will have rising interest rates today. We’ll have falling interest rates today. We’ll have rising. They don’t have that power. They can’t reverse. Once they’ve set this thing in motion, they can’t necessarily alter it to their whim.

Benjamin Nadelstein

Okay, next question for you. From the outlook report, you said when discussing your silver price prediction, we would not expect the crazy silver price action of 2011 to recur as that was due to bullion bank duration mismatch in their silver book, more than merely silver sentiment. Can you expound on what you meant by bullion bank duration mismatch and how that causes silver price to spike in 2010 and 2011?

Keith Weiner

So I’ve contended since the beginning that the bullion banks… So people look at the futures market and they say it’s obviously a zero sum market. There’s a futures contract in which one party is long, the other party is short. If the price of the commodity and that contract is a contract to deliver, the price of the commodity goes up, then the person who’s on the long side gets cash to add it to their account. And if the commodity price goes down, then whoever’s long gets cash removed from their account. It’s a margin account. And every day they settle and they put cash in and take cash out. And then they say, well, whoever is short gets the opposite. If the price is going down, then the short gets cashed in their account. The price is going up, the price is going up. So price is going up. Whoever’s short is losing money. And so they just think that whoever is short is the same as whoever is long. It’s some fool who’s betting on a fallen price. And then if the price is not falling or rising, then they say, well, how can they keep that up?

Well, it must be manipulation. It’s clandestine. It’s this, that’s the other thing. I’ve contended that the part who short the future is not actually short metal as a directional bet. Nobody in their right mind would want to take a long term perpetual short position on any commodity. The risks are so lopsided and the general trend is the money is going down, it doesn’t take a genius to look at the price chart of gold and say, you don’t want to be short that for the long term. That they’re arbitraged, that they are short of future, but they’re long metal or their long, at least, a metal receivable. So sound banking doesn’t necessarily mean that the metal is sitting there in the vault, but it means that you have an instrument that matures into metal when it needs to, to pay the liabilities when the liabilities are due. And what happened in the case of the silver market is that the banks had longer term silver loans and silver leases that didn’t necessarily match the maturity of when the futures contracts were maturing. And then many, many times, the people on the long side of say, well, look, it’s just a matter of a few percentage points more people demanding delivery on their metal, and you can cause this giant squeeze.

Well, 2011, that’s what happened. So what I believe happened is the banks learned their lesson and were a little more careful about matching the maturities. And I don’t think that’s likely to recur. And I don’t think, yes, definitely there was bullish sentiment in 2010 that led to that. But the bullish sentiment only was able to light the fuse and create that incredible run from where was silver before the whole thing started? It was under 15 bucks in the spring of 2010, if I recall. I’m saying that without looking at a screen, so I’m sure somebody’s going to look it up and say, wrong, it was 16 bucks. But it was definitely in that teens level. And that fuse was lit. And then starting in August, I think, or maybe September of 2010 through April of 2011, the price runs up three times, 300 % level. That wasn’t sentiment entirely. That was the banks now scrambling to come up with a medal to deliver it to their positions because their assets, which do mature into silver, were longer maturity assets. And so you had a scramble. I don’t think good. I mean, it’s always possible the banks have done that again.

So a long time ago, the people that were managers at the banks at that time, maybe replace, but younger people don’t have the institutional memory. But that was a fluke. I wouldn’t necessarily expect that to happen again.

Benjamin Nadelstein

So, Keith, I see what you’re saying. The dollar is a credit. But why does that matter when it’s working? I can use my dollars. I can buy all this stuff after all. Civilization continues on, and it’s gone on even after we abandoned the gold standard. So doesn’t that prove we don’t need it after all? We’re much more prosperous now than we are then. And we have a gold standard then, we don’t have one now. Things seem to be working all right. How do you arrive at the conclusion that civilization will collapse if we don’t phase out the dollar?

Keith Weiner

So a couple of things. Yes, we definitely enjoy a higher standard of living than we did before 1913. That’s true. And then that raises the concepts of because of or despite this irredeemable currency. That’s the first set of questions. How much wealthier would we be if we had an honest money system versus the counterfeiting or check typing scheme that we have now? Well, it’s very hard to say, but we’d certainly be wealthier than we are because the system stimulates or overstimulates mal investment and then liquidation. We have this boom, bust cycle, which is enormously destructive of wealth. Every time an entrepreneur goes into business lured, perhaps by the false incentives of the boom or the binge side of the Fed’s bulimia monetosa, as I called it in the report, and then gets wiped out in the purge, well, that person’s life savings could be 20 or 30 years of savings are destroyed. That person is personally impoverished and the world is poorer for him having wiped that out versus being able to contribute that capital to something productive. But here’s an argument that I’ve made several times in various articles. If the problem was simply that consumer prices are rising, if it were true that the way to understand the dollar is one over consumer prices, so that consumer prices double and the dollars with half, and that was it.

That was the full extent of the problem. Then you could say, Well, look, we’ve had rising consumer prices for 100 something years. There’s no reason why we couldn’t have consumer prices for another 100 years, another 1,000 years. There’s no finite terminus. This process, we just have inflation forever, and yeah, it sucks, but get over it. One day, Bell Bottoms will come back and micro skirts for the women and everything will be good again. But that’s not it. The problem is we have an exponential rise in debt. And anybody who studies science or engineering, animal populations, disease factors, thermal nuclear explosions, transistors and positive feedback at hotter, the more current there is, but the hotter they get, the more current they flow. Exponential trends fail catastrophically when they can no longer continue any further. If they didn’t put a circuit to limit amplifiers, like guitar amplifiers, and going into feedback and overdrive. There’s no circuit to limit it, the thing would continue to pull more and more current in until the house burned down. That’s how exponential trends end. We now have, what is it, 31 trillion in debt. Does anybody seriously think that that debt could be paid off?

And what does it mean if it isn’t paid off and it’s actually formally defaulted? The other side of that debt, that’s your money. What you think of as money is their debt. And when that debt is formally defaulted, that will be a total wipe out of your money. Imagine waking up one morning and you don’t have a bank account and none of your neighbors have bank accounts either. Your employer doesn’t have a bank account. Your pension fund doesn’t have a bank account. Your insurance company doesn’t have a bank account. So you don’t have a job, you don’t have any money. The grocery store doesn’t have any money. They can’t buy. That’s an epic collapse. So we’re doing things that cannot be sustained. And by definition, anything that cannot be sustained will not be sustained. And then in the failure to sustain it, that’s the failure that we’re talking about here.

Benjamin Nadelstein

Keith, I want to say thank you for ending on such a doom and gloom note, but I want to make everyone happy because obviously…

Keith Weiner

You’re asking me that question, it’s the last question.

Benjamin Nadelstein

Yes. So I’m going to turn this all around and give everyone a reason to smile. Obviously, Monetary Metals is all about getting that smooth off ramp back to a gold standard. We’ve got a lot of questions from the audience about Monetary Metals, how leasing works, how bond works. Please do email us those questions. We’d love to continue chatting with you. Anyone who didn’t answer your questions will be having more webinars in the future. So we’d love to chat with you, have you answer all your great questions. And we want to thank you one more time if you can complete that survey that’d be so helpful to us. And we look forward to seeing you in the future. Thanks so much, Keith.

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Additional Resources for Earning Interest on Gold

If you’d like to learn more about how to earn interest on gold with Monetary Metals, check out the following resources:

The New Way to Hold Gold

In this paper we look at how conventional gold holdings stack up to Monetary Metals Investments, which offer a Yield on Gold, Paid in Gold®. We compare retail coins, vault storage, the popular ETF – GLD, and mining stocks against Monetary Metals’ True Gold Leases.

The Case for Gold Yield in Investment Portfolios

Adding gold to a diversified portfolio of assets reduces volatility and increases returns. But how much and what about the ongoing costs? What changes when gold pays a yield? This paper answers those questions using data going back to 1972.

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Transcript

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Keith Weiner

Benjamin Nadelstein

Additional Resources for Earning Interest on Gold

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