Precious Metals Amid The Pandemic

CEO Keith Weiner appeared on The Money Answers Show with host Jordan Goodman this week. They covered a variety of topics, including:

- Monday’s gold dive
- The logistics of leasing gold
- A dilemma facing pension fund money managers
- What we can expect if the complete agenda of Democrats goes into effect

Enjoy the show!

Transcript of the Interview

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Jordan Goodman

This is Jordan Goodman, your host. My guest this hour is Keith Weiner. He is the founder and CEO at Monetary Metals, which is a specialist in precious metals. Welcome to the Money Answers Show, Keith.

Keith Weiner

Thanks for having me, Jordan.

Jordan Goodman

Just give us a little bit of your background and history and forming of Monetary Metals.

Keith Weiner

So I was your classic computer nerd in high school, dropped out of computer software, founded a software company called Diamondware, built that up over a 14 year period and sold that to Nortel Networks, August 19th of 2008. We were the last transaction that Nortel ever closed. So as the events began to unfold that fall, I started to study economics and markets, at first with just an eye to figuring out how to protect myself.

Later, coming to realize that there’s a very great problem in our monetary system. Ended up getting a PhD, not accredited, but the work was real, in Monetary Economics and really started to focus on gold, and gold being part of the solution. And I said I want my next venture to be part of the solution and not just going on a software company.

Jordan Goodman

OK, and then tell us specifically about Monetary Metals and what made that unique amongst all the gold sellers out there.

Keith Weiner

So we’re not, we’re not focused on selling gold and buying gold and touting the idea that the gold price is always going to go up and that your gain from investing in gold is going to come from a rise in price. We take a view about gold in price. But the unique proposition of Monetary Metals is that we pay interest on gold. So we’re not about selling gold. We’re about if you have gold, maybe it makes more sense to deposit it in the way you earn interest on it rather than deposit it in a way where you have to pay to store it.

Jordan Goodman

So let’s go into that more detail. So explain, say somebody has some gold orwants to buy some gold, go through the process of how they would deposit it with Monetary Metals and actually earn interest on it.

Keith Weiner

So, you open an account with us way you pretty much do with anybody else. We have the standard anti money laundering, know your customer compliance stuff that we’ve got to do, you open your account, you can wire dollars and we’ll sell you gold. And we think we have a pretty good price. Or you can FedEx us the gold or ship it in from another depository where it might be held. Once it hits your account at Monetary Metals, we don’t charge storage fees on it. Then at that point, once you have gold on account, we bring you opportunities to lease the gold.

And if you’re accredited, we also have opportunities to lend that are bonds. But either way, the proposition is the same. We’re telling you, OK, here’s a company. Here’s what this company does. Here’s what they look like, balance sheet and so forth. Here’s where the gold is going to be. Here’s how they operate. And are you interested in leasing your gold to them or lending your gold to them as the case may be? What’s the interest rate you want in order to agree to do such a thing?

Because the interest rate is the compensation to the investor, of course, for taking that risk. There’s no such thing as a return without a risk. Anybody who promises that is probably committing fraud. And investors decide, OK, I like this deal, I don’t like that one. This is how many ounces I want to put into it.

Jordan Goodman

And what is the range of interest rates that people can get?

Keith Weiner

So we have a market with a degree of transparency. The interest rates have ranged…this is net to the investor of between two percent and four and a half percent. That is per annum and that is gold on gold. So if you at leased one hundred ounces of gold and the interest rate is three percent, then at the end of the year you get three ounces of gold interest.

Jordan Goodman

OK, so you can get it in gold or you can also get in cash, is that correct?

Keith Weiner

What you’re fundamentally getting is gold. And then if you want to liquidate that and then send you the cash, we can do that. But you’re getting three, times whatever the gold price is, at that moment in time.

Jordan Goodman

So you’re getting a compounding effect. So your account is being credited with more gold as you get this interest.

Keith Weiner

That’s right…And then you can reinvest that in the next opportunity, the next opportunity. And that’s how…that’s how civilization is supposed to work.

Jordan Goodman

Is this unique? Is there anybody else doing offering interest on gold like this?

Keith Weiner

I’m not aware of that.

Jordan Goodman

So why would the people you’re leasing it from….what is their interest in paying? Why are they willing to pay interest on the gold?

Keith Weiner

So, in the case of a lease, these are companies that need gold either as inventory or work in progress. So take take for example, a jewelry manufacturing company, and let’s just keep the math really easy and let’s say that every day they buy a kilogram bar of gold and then they, over a two week process, let’s say they have one step per day.

First thing is to squash it between a series of rollers to get it, you know, thinner and thinner, to turn it into a big sheet. And then they cut little shapes out of it. And then they bend those shapes and then they solder those shapes with gold solder. And then they polish it and they roll down little prongs for jewels. And let’s say that takes three weeks. And then at the end of that process, every day, they’re selling a kilo worth of finished rings and necklaces. So that as a business, assuming something that took two weeks, every day, they buy a kilo and every day they sell a kilo.

There’s two, there’s no I’m sorry, there’s 14 kilos of gold always contained inside the manufacturing processes and all the various partially completed work in progress. So they have to finance that somehow, gold being really expensive, and if it was copper or sand, you know, you just buy it on the market and you wouldn’t worry about it too much. But gold, you know, being nineteen hundred dollars an ounce or whatever – I know it fell today – is very expensive. It has to be financed. And so that can either be with equity capital, which is a very expensive way to go. They can do it with a bank loan. The problem with a bank loan…suppose you borrow a million dollars and you buy a million dollars worth of gold inventory and then the price of gold drops, as it did today. I think the price dropped today was about three or four percent.

Jordan Goodman

So collateral has gone down in value.

Keith Weiner

Your asset has gone down. So you have to have a balance sheet with an asset and a liability. The asset’s gone down but the liability hasn’t. If that happens enough, you’re bankrupt. If you borrow dollars, you then have to put out a hedging program, which means you have to borrow more dollars to fund the hedging program. And then you have all the costs, payroll and compliance and audit and all those things.

Or if you lease the gold, you don’t worry about the price anymore because you’re offloading the price risk to the investors who own the gold. It’s a really nice Win-Win deal. The investor wants to own the gold anyway, as part of a portfolio allocation. The lessee does not want the price exposure because that’s an existential threat to his business. And so he gets the financing and the built-in hedge as part of the deal.

Jordan Goodman

Are there other players, in addition to jewelry manufacturers that want to lease gold like this?

Keith Weiner

Yeah, so there’s refiners, there’s bullion dealers, there’s jewelry dealers, there’s recyclers, there’s a bunch of vertical…

Jordan Goodman

There’s lots of demand, lots of demand for these leases, you’re saying

Keith Weiner

There is. Yeah.

Jordan Goodman

So from the investor’s point of view, one normally thinks of gold, as like an inert asset that never, it can go up and down in value, but you’re kind of changing that paradigm, is that right?

Keith Weiner

Yes. It’s going back to the role that gold had for a couple of thousand years, which is to use it not as a dry asset that you put on a shelf and it gathers dust and hopefully the price goes up. That’s really the anomaly of the last 50 years, roughly. But, you know, throughout history, gold was used to finance something productive. And earn a return for for the for the investors.

Jordan Goodman

So there was leasing going on for a long time. You’re saying the similar idea of leasing gold has been around for a long time.

Keith Weiner

Not just not just leasing, but, you know, the idea of lending gold, which, you know, as I mentioned, we’re also doing gold bonds to finance, for instance, a mining company that needs to put in a plant to to mill the ore and concentrate it. And let’s say that’s 10 million dollars to build the mill. Well, again, they can borrow in dollars and then they have the problem with the gold price drops or they can borrow in gold.

And then have that built-In hedge. So it’s the idea of using gold as a financing mechanism, paying interest on the gold and allowing people to compound their savings, not in the dollar, which is falling and designed to fall by the way, but in gold, which holds its value and doesn’t fall.

Jordan Goodman

Does this work for other precious metals? Do you have a similar program for silver and platinum and palladium?

Keith Weiner

We have silver. We have done a platinum deal, but the problem with the other metals, not being money, is that they they don’t have a very stable value because there’s very little accumulated inventories.

The thing about gold and silver is people have been accumulating inventories for thousands of years. And in the case of gold, virtually all the gold ever mined in human history is still in somebody’s hands. In the case of silver, some of it’s definitely lost. It’s not worth recycling in many cases because the lower price. But you have this enormous , it’s called stocks-to-flows, and how much inventory has been accumulated over the last, say, 5000 years, divided by how much is produced on an annual basis.

And if you look at the World Gold Council, the official number is that something like 60 years stocks-to-flows in gold. Compare that to any ordinary commodity or for that matter, platinum, palladium, rhodium and those things generally have a stocks-to-flows in months. So which means the slightest bit of supply tightness and the price can go through the roof. Change in the emissions regulations for cars can cause the price to either collapse or go through the roof. And so without being stable like that, yeah, people can lease them, there is a bit of a market for leasing those things, but they….obviously the price risks are much greater in those metals.

Jordan Goodman

Yeah, if people want to do this, is there a certain minimum amount of gold they need to buy through Monetary Metals?

Keith Weiner

Either buy or just transfer to us. It’s 10 ounces of gold or the equivalent of silver.

Jordan Goodman

So they could either buy it from you…If they’ve got existing gold, what would they do? They would ship the physical gold to you?

Keith Weiner

Yes. We can give them a FedEx gold shipping label which includes insurance.

Jordan Goodman

And so they ship it to you. Then you have it on account. And you have to have possession of it in order to pay interest. Is that right? Can’t be kept in somebody’s home.

Keith Weiner

Yeah. If you want to keep it in your home, that’s great. But then nobody’s going to pay interest on that, obviously.

Jordan Goodman

So gold has had a pretty big rise recently, and then today it plunged sharply. Maybe just briefly explain why gold prices went up so much and why you think it’s plunging today.

Keith Weiner

So I think the short answer is either people really believe that risks have been reduced today with the news from the Pfizer vaccine, that it’s 90 percent effective. I’m not a epidemiologist, but I’m going to guess that it’s probably slightly more complicated than 90 percent of the time when you get the vaccine, then you can be injected with covid and you don’t get sick. I’m sure it’s slightly more complicated than that, but 90 percent sounds like a good number.

And so the I’m sure the mainstream theory is that investors are super excited. So anyway, so stocks up three percent or something like that today. Gold and silver prices down even more than stock prices are up. I tend to think that when headlines are running fast, all market prices are set at the margin. So if something, if the price changes, it doesn’t mean that 99.9% of the people who hold gold changed their views. It just means that those few people at the margin, especially if they can trade leverage, make bets based on, “Oh, Biden’s going to be president, Biden is not going to be president. Trump is winning. Trump said he’s going to bring a lawsuit, Biden, announced his victory.” You know, all these things and the people that are pressing the button on relatively big trades, especially if they tend to be heard and they tend to think as a group, which is certainly true a lot of the time, then you get a big move like this.

You know, looking beyond that, I think my explanation for why the stock market has been going up relentlessly since Obama took office, it’s not really the Trump boom, it’s really the Obama-Trump boom. And now with the news that apparently Biden is going to be our next president and the stock market was up even on Sunday evening trading before the Pfizer news, the stock market was already up one point eight percent, something like that last night. I think it’s just simply a bet on the continued falling of the interest rate. So as the interest rate falls, the asset price is an inverse to the interest rate. And so it’s a bet on the continuing falling of interest rates, which means continued easy policies from the Fed and more borrowing to buy more assets.

Jordan Goodman

But that’s not new. I mean, the Fed has been easy for quite a while here. Interest rates are already…the Federal Reserve rates are pretty much at zero. In Europe, they’re negative. How much lower interest rates go, do you think we’re going to have negative interest rates in the US?

Keith Weiner

Eventually yes, but it’s the short term that’s near zero. But the longer term interest rates, you know, the last time I looked at the earnings yield on a stock was still in the almost three percent vicinity. And dividend yields somewhat above that. And that can keep coming down too. And so people cheer the endless bull market. But I kind of see it as ringing all of the returns out of capital. It takes more and more and more capital to get, you know, less and less return. And that’s been the trend for 40 years. I don’t think that’s going to end anytime soon.

Jordan Goodman

Would you say this is a bubble? Would you say that this has been artificially inflated by cheap money?

Keith Weiner

Yes and no. I think if I were to try to define the bubble rigorously, I’d say it’s when the market price of an asset is greater than the net present value. It’s calculating in some sort of discounted cash flow type analysis. And when you keep lowering the interest rate, you keep getting higher asset prices with the asset prices are in line with the discounted a future cash flows because the discount rate really is the market interest rate. So if you cut the interest rate in half that approximately doubles the net present value of all the…

Jordan Goodman

Is that a dangerous thing. If the Fed Reserve keeping rates at zero is kind of inflating assets artificially, I guess you might say.

Keith Weiner

It’s extremely dangerous because what’s going away is the equity investor safety margin. I heard a really good a talk by a professor, I think a professor of finance in Scotland, Russell Napier. And he said the equity is the thin line of hope between the liability and the asset. And of course, every time the interest rate drops, it represents an increased incentive to borrow, that is, to go deeper into debt. So if companies have a certain degree of discipline, when borrowing costs six percent, when you cut the borrowing cost to five percent, some of them say, you know, at five percent I’m in, some of them may still hold out, but then you lower it to four percent and three percent. And as it keeps getting cheaper and cheaper, more and more companies are lured in. And so, yeah, it’s extremely dangerous. And I think, you know, especially when the stock market is in, there’s a bubblish aspect to it, it’s when the stock market investors that are willing to give up any margin of safety and in fact, even not pay attention to the same dollar of earnings should be worth less if there’s ten dollars of debt affiliated with that dollar of earnings versus if there’s one dollar debt associated with that.

Jordan Goodman

Their alternative, having, earning zero at the bank or, you know, Treasury bills or something. They can’t stand it. So they’re willing to take the equity risk to avoid earning zero, basically, or even going negative in Europe.

Keith Weiner

Well, that’s right. And so if you’re if you’re a professional money manager. And let’s say you manage, you’re hired to manage the pension fund for the teachers in the city of Chicago or something like that, they have a nut that they expect you to hit every month.

And so even before the global financial crisis, the last one that nut was eight percent per annum. And then even after the global financial crisis for a couple of years, they continued to hold the line at eight percent. And the reason is, if they admit that they’re getting less than that, then that means there’s a capital shortfall and they have to go to the employer and say pony up more money, which is politically unpopular, as you can imagine.

Jordan Goodman

Or raise taxes for municipal…

Keith Weiner

Right, or taxes, which is obviously unpopular. So they continue to pretend it’s going to be eight percent. You’re the money manager, and this is the politics of the situation. If you raise your hand and say, I don’t think eight percent is realistic, they’re going to say fired. Let’s bring in the next money manager who thinks they can get eight percent. And so you’re put in a terrible position where whatever your personal convictions may be, whatever your economic analysis and your calculations might be, you’re not really allowed to express that as a thesis that I just think the risks are unwarranted here.

Whereas if you’re investing your own money, I don’t think anybody who invests his own money feels a compulsion to buy stocks. If he thinks that, you know, stocks represent…

Jordan Goodman

You have to make that bogey if you’re a pension manager, is what you’re saying. It forces people to take risks that they would not normally take in order to reach that seven or eight percent.

Keith Weiner

And there’s what’s called the agency dilemma in economics. What happens to the money manager if the whole market crashes? Probably nothing bad, because as long as he didn’t underperform his peers, everything’s fine. Whereas if he were to say, I’m out, I don’t buy this. I think it’s a bubble or whatever, then he would be fired. So this is a very asymmetrical personal risk to the money manager that says keep investing. If you’re an individual investor with your own money, you don’t have those perversities. And you can say, I don’t like stock market and you can get out.

Why couldn’t this game go on for a very, very long time, Keith? It has gone for a very long time. What would be a precipitating factor in unwinding all of this?

Well, when I was a kid playing with sticks and stones literally in the woods behind our houses, behind our neighborhood, you know, some of the mothers in the neighborhood used to say, you know, boys, it’s all fun and games until somebody puts out an eye. Well, I think it’s all fun and games until somebody misses a payment. But you have companies that are, you know, squeezed on one side with higher compliance costs and regulatory cost, higher and higher minimum wages, all that stuff.

And on the revenue side, it’s the soft economy, to say the least, especially in anything retail, restaurants, bars, hotels, travel, etc. And at the same time, you’re incurring more and more debt just to make ends meet. You know, most companies took on debt to stay alive during the lockdown period. So you have rising debt. You have at least pressure on revenues, you have pressure on costs. You get to a point where you can’t make a payment and then there’s a default.

And then suddenly all the creditors discover that now they’re impaired and they’re not, it’s not money good anymore. And if that happens, of course, the equities were zero because the creditors are repaid first.

Jordan Goodman

Right. But that’s happened in retail, J.C. Penney and Sears. And we go through the whole long list that’s happened to a lot of companies in that industry already.

Keith Weiner

That’s right. And it’s going to come to REITs, it’s going to come to the equity of all the real estate companies and it just keeps going and going. And so what the Fed is doing, the Fed has said, well, we’re smart enough to learn from the crisis of 2008. We’ll never let that happen. We’ll buy up every bond that looks like maybe it’s going to default. And so they keep finding ways to extend the day of reckoning. And with each extension, of course, they enable more consumption of capital. They make it worse by postponing it.

Jordan Goodman

What would be a better way to do it, to let companies go under and not save them?

Keith Weiner

Well, I think somebody once said that capitalism without bankruptcies is like religion, without hell.

Jordan Goodman

OK, I guess.

Keith Weiner

There has to be a downside to imprudent risk taking, right?

Jordan Goodman

Very good. So we talked about corporate debt buildup, but even bigger is government debt buildup. Both in the United States and around the world, China, Japan, Europe. What is going to happen? Can they just keep adding debt like this forever? What is the ultimate day of reckoning to the amount of debt we’re adding?

Keith Weiner

So if you think of borrowing as, coming to the lender and saying, you have some resources I’d like to consume today and I promise to pay those resources back, plus a bit more in the future. But what’s the limit of that? And let’s assume that you’re not actually ever producing more in order to pay back more. You just keep coming to take more.

There’s a finite end to that game, and that is when eventually you consume everything that is available to consume. You consume all the capital or Mises, both Mises and Ayn Rand use the analogy of eating the seed corn. You’re a farmer and you know, you harvest your crop, you set aside, I don’t know what percentage of the harvest of corn and wheat or whatever it as seeds to plant for next year. You don’t dare eat that seed corn, because if you do, then you’re not going to plant anything next year and next winter you’re going to die of starvation.

So what we’re doing, is we’ve found a thousand ways to eat the seed corn. And while the seed corn lasts, we can say, look, GDP is up and there’s plenty of jobs and all these things, all of which is true. But, you know, the underlying, if you want to call it the balance sheet, is deteriorating because we’re eating up the capital base that our civilization depends on. And there is a finite limit.

Nobody knows what that finite limit is. Adam Smith once said there’s a great deal of ruin in a nation. So it can go on longer than you think, but not forever. It’s not unlimited.

Jordan Goodman

Has this happened in world history before? The fall of Rome, or have there been other times? There were, some are similar and then there was a collapse?

Keith Weiner

Well, yeah. I mean, take a look at Venezuela. You know, Venezuela today has a dictator named Maduro, he’s not as popular as the guy who took power from when Chavez died. And they say, well, you know, Maduro doesn’t bring the economic miracle that Chavez did. Those policies are the same. The only difference is, is that when Chavez took over, he had took over the capital that had been produced in a better era. So he had something still left to consume. And when you finally run out, then you get to the point where people ate all the dogs and cats, all the pets were eaten, all the zoo animals were eaten.

And, you know, it just gets worse and worse as everything just collapses and turns to ruin. The buildings look very shabby, just like Cuba. The buildings, not only is everything stuck in the late 1950s in terms of style and technology, but everything’s in decay. Everything’s crumbling, rotting, rusting, and everything that we produce has a finite, you know, useful life in it. Right. You buy a car, it’s new.

But the more you drive, that eventually gets to the point where is it really worth repairing anymore? And plus, it rusts if you drive it in a place with winter and salt on the roads and so forth, eventually it’s not an asset anymore. It’s a pile of scrap steel. And that’s what socialism always does. And that’s that’s where we’re headed.

Jordan Goodman

So we’ve just had Biden elected as president. President Trump has been saying he’s socialist. Do you think some of the policies he’s talking about are kind of socialistic, even though he would not officially be called a socialist?

Keith Weiner

Yeah, nobody likes that word socialism. So it becomes kind of a football. Everybody calls their opponent socialist and so forth. But I think he is a socialist. I think not really all that different from, you know, Trump’s most recent two policies that stick out in my mind, one he wanted to give twelve hundred dollars free checks to everybody…and he actually criticized the Democrats for being heartless and not giving the people what they need. Before that is that if you’re a landlord, you’re not allowed to evict a tenant who is not paying. Which means if you’re a landlord, you’re forced to give free housing to whoever happens to be squatting in your building. No question. Those are socialist policies.

Jordan Goodman

So what happens if the complete agenda of Democrats goes into effect? They do the new green deal. They expand Obamacare with a public option. They do trillions of dollars of infrastructure, they do trillions of dollars for a coronavirus relief bill. And on and on it goes with literally spending trillions of dollars by borrowing it. What’s the downside to that?

Keith Weiner

Well, the mainstream would say the downside is inflation. To me, it’s kind of a little bit weird. I kind of liken it to imagine if doctors really only had one symptom they understood, which was a fever.

So no matter whether you have a broken arm or whether you get shot in the head with a bullet, whether you have cancer, whether you have COVID, all they do is they take your temperature. And so let’s say you have cancer, and cancer, as I understand it, I’m not a doctor, but cancer doesn’t cause a fever. So they take your temperature and I say, this man’s fine. Get him out of here. Meanwhile, you feel like you’re going to die.

In fact, you are close to dying, but they don’t recognize the problem. It’s the same thing. The monetary doctors generally look at rising consumer prices. That is THE symptom that they are concerned about. And so if you don’t have rising consumer prices for whatever reason, then they’re like the three monkeys, see no evil, hear no evil and so forth. But there’s something really bad going on, and that is we’re consuming the capital.

So what happens if the Green Deal and all the rest of that rubbish is enacted? And with that, by the way, comes something called modern monetary theory. Which is really just the next increment of Keynesianism, which both parties have long accepted anyway. I think the leading light who’s the proponent of modern monetary theory right now would probably be Stephanie Kelton, who’s an economic adviser to Alexandria Ocasio-Cortez. And she’s saying basically, you can print as much money as you need to do all the good stuff, provided you don’t have too much inflation. And she makes an analogy to a bathroom sink. And as long as you don’t overflow the sink, everything’s fine.

I’m like, wow, this is such simplistic…it’s almost like cartoon-level analogies here. But bottom line is right. Deficits skyrocket even more. Interest rate collapses even more. The Paul Krugmans of the world…Every time that when the Republicans used to complain about deficits, and hopefully they will begin to complain about deficits once again when Biden is in office, every time the Republicans are complaining about the deficit and the debt, he would smugly come out and issue his proclamation that no, you see, look, as a percentage of GDP, the interest expense on the debt has never been lower.

And I want to say, you know, Paul, you’re being disingenuous. They keep lowering the interest rate. The interest expense is the amount of debt times the interest rate. If you keep cheating and lowering the interest rate, well, sure, that’s great, then your interest expense isn’t particularly high. But, you know, what does that really prove? You’re manipulating more and more variables in the economy that real people depend on the price of money to to set all kinds of other decisions.

So I think what happens is the interest rate continues to fall. We continue to consume capital. And if there’s a bright spot out of all this, it’s that maybe the Republicans will oppose Biden. When when it’s the president of their own party doing it, they’re kind of put in a bad position or it’s difficult to oppose your own guy.

Jordan Goodman

Yeah, they didn’t oppose anything. Correct.

Keith Weiner

But if Biden were to do largely the same things or maybe the same things to a greater degree, then maybe the Republicans will oppose it. Looks like the Republicans should have the Senate and actually the Democrats have a smaller margin in the House than before.

Keith Weiner

And so maybe the bright spot in all this is that what we’re going to have is extreme gridlock and that whatever Biden and his leftist friends might have wanted to do, maybe the outcome for four years is effectively, they don’t really get to do any of that.

Jordan Goodman

Yeah, so what would be the impact on gold and silver, if exactly the scenario you talked about, interest rates fall, deficits and debt, both corporate debt and public debt rise dramatically. How would the gold market react to that?

Keith Weiner

Well, so here’s what kind of had to explain my philosophical view of gold. And that is I think things get complicated when you try to put the wrong thing in the center of the universe. And so before Copernicus, everybody thought that the center of the universe was the earth. And the sun and the other planets were revolving around the Earth. And it created this complicated thing where everyone’s trying to figure out the so-called retrograde motion. If you look at the other planets, they appear to go forward in their orbits for a while and then they do a loop-de-loop and they go backwards for a bit before they go forward again.

And so the equations to describe that become very complicated. And then the theory to describe that becomes absurd. I mean, there is an explanation for something like that. And so when you realize the sun is actually at the center, things become a heck of a lot simpler. So my analogy, the reason I bring that up is that everybody puts the dollar at the center of the economic universe and they say, well, gold is going up and down.

And I say, well, let’s put gold at the center for a minute and say, instead of saying we’re standing on the deck of a ship which is both sinking slowly and tossing around in stormy seas. And we’re looking at this lighthouse and saying, why is the lighthouse going up? It becomes difficult to kind of explain the behavior of the lighthouse from that vantage point, from that frame of reference. But when you say, wait a minute, actually, it’s the ship that is the variable.

The lighthouse is actually fixed. It’s on dry land. It’s on the rocks. At least then you can say, OK, now we understand the ship, right. It’s slowly sinking. There’s a leak in the hole. And in addition to that, the waves are going up and down, you know, 20 meters. So now it becomes easier to understand.

Jordan Goodman

So if gold is the center and the dollar is the sinking ship, does that mean the price of gold goes up in dollars?

Keith Weiner

Well, we’re measuring gold in dollars and we can say, well, the price of gold is down today. Four point something percent is now eight hundred sixty seven dollars roughly. OK, sure. But I would rather say that let’s use gold as the unit of account and measure dollars and say, well, the dollar went up today. Why did the dollar go up today? Well, because as we said earlier, markets are now exuberant that there’s going to be a vaccine and now we have clarity on the president maybe.

And even with all that clarity, it’s “risk on, baby!” invest in risk assets and, you know, everything’s fine. Whereas people turn to gold as the antidote to that. If you don’t trust the system, you’ll own gold, even though you have to pay to store it. That seems attractive relative to buying stocks or buying Treasury bonds.

Jordan Goodman

So when the stock market goes up, there’s more confidence. Gold goes down because people have less fear. It’s a kind of fear gauge. And today there’s no fear. It’s all greed. So that’s why gold goes down.

Keith Weiner

Yeah, and gold can have other dynamics, too, but I think that’s the one that explains today.

Jordan Goodman

Very good. So what role does gold play in a a diversification portfolio? The stock market’s been soaring. Interest rates are very low. Why do you need gold to get a better risk adjusted return on your portfolio?

Keith Weiner

So a lot of banks and other wealth advisors over many decades have done analysis where they say, OK, let’s take a look at a standard portfolio, let’s say 60 percent equities, 40 percent bonds, and measure the performance of that over several decades. And then let’s try the same portfolio, but we’ll put in an allocation of, let’s say, four percent to gold. And what you find is you get slightly better returns. Not necessarily that much to write home about, but you get slightly better returns. And more importantly, you get less volatility and lower drawdowns. So the overall value of the portfolio dropping in bad times, you get smaller drops when there’s a little bit of gold in the portfolio. And so in that sense, it’s by definition a diversifier.

The other way to think of it, which may be easier because it’s more conceptual, is that if you’re betting on stocks, you’re betting on a particular set of economic outcomes. If you’re betting on bonds, you’re betting on a slightly different but slightly overlapping set of outcomes. So one problem is that all the conventional assets that you can add real estate, you could add antique Ferraris, you could add Scotch whisky, you could add Picasso paintings, you could add all these things.

They all have a big degree of overlap in the same kinds of economic outcomes they’re all effectively a bet on. And that is that there’s no financial troubles, no major credit default, everything continues to smoothly go its way.

And for that matter, that the Fed continues to keep keep a lid on it all. And gold doesn’t necessarily correlate. So we were saying earlier that if the stock market is exuberant, the price of gold will go down, the price of gold can also go up when the stock market is exuberant. And that happened in 2009 through 2011. It happened certainly earlier this year. The stock market was, there were days when the stock market was down and the price of gold was up.

And there’s certainly plenty of days when the stock market was up and the price of gold was up, including last night. So with OK, Biden’s going to be president. You know, prices of stocks were up and the price of gold and silver was up quite a bit overnight. And then finally, the Pfizer news and stocks go up more and the price of gold and silver drops. So what you have in gold is something that’s less correlated to other assets.

And in keeping with this idea that gold is at the center of the universe, gold is money. So by holding money, you’re saying there’s nothing I want to spend my money on. I choose to hold my money unspent. And why would you want to do that? Well, all the things you could spend your money on are less attractive than holding your money.

Jordan Goodman

Yeah. Do you think it would be a good idea to go to the gold standard?

Keith Weiner

I do.

Jordan Goodman

Say you are king of the world and you’re head of all the central banks in the world. And you hereby decree that we go to the gold standard. What would that economy look like?

Keith Weiner

So the first thing we need to do is define what do we mean by gold standard. And the last thing that I want is to see governments ramming a gold standard down everybody’s throat by force, passing a new law that those with gold, the same thing they’re currently doing with the dollar, which is forcing you to take it.

The unique thing about gold is, of course, nobody’s ever had to be forced to accept gold. The thing they want to accept and generally tend to accept if they’re not forced to take something else. So number one is repealed some laws that force people to use the dollar. Number two, what does the gold standard mean? It means everybody has the right to deposit their gold in a bank and either get currency for it or get some sort of interest bearing account.

But they also have the right to withdraw it. And that’s the key. That’s the gold standard the world had before 1913 that was lost heading into World War One and never really regained. Certainly in Europe, as after that, they had a so-called gold bullion standard where you could only redeem your bank deposits in increments of 400 ounces of gold and gigantic bars in London, which are impractical and in fact, purposefully impractical.

Jordan Goodman

People say that without, before the Fed Reserve came in 1913, that there was no regulator in the economy, it would soar and plunge. You’d have depressions. There was nobody to kind of help smooth things out. If you if you went back to the gold standard, you’d have no kind of regulator on the economy at all.

Keith Weiner

Well, there actually were. There’s all kinds of laws governing what banks could and couldn’t do, mostly self serving to force the banks to buy government bonds. First, state government bonds and then federal government bonds, and that goes back to the post civil war era for federal government bonds. So even then, the government was causing a cycle of what were called depressions or panics, booms. But we didn’t really have a free market economy in the United States. They were closer in Canada and even closer in Scotland. So there’s been a lot written about a period of Scottish free banking.

Jordan Goodman

And those were healthier economies, do you think?

Keith Weiner

Well, they didn’t have the cyclicality. They didn’t have the the build up of these booms and then the incredible pain that comes in the busts, because they didn’t have the money distortions that we….

Jordan Goodman

Wouldn’t the transition from our current kind of bubblicious economy to a gold standard be incredibly painful?

Keith Weiner

Well, if you try to decree it, I just don’t think it’d work. I mean, there’s no…a lot of people think, OK, it means the Fed is going to decree a gold price. I just don’t think that would work. There is no right gold price. And if there were, the central planners at the Fed wouldn’t know it anyway. So what I propose is a market based mechanism where U.S. Treasury would sell gold bonds. But in the auction, they’re not trying to raise dollars and they’re not trying to raise gold. What they really want is to redeem all the outstanding Treasury paper and replace it with gold denominated bonds. And so the question I ask people is, suppose you had a choice. It’s the same debtor, it’s the same maturity date. Let’s say 10 years. It’s the same everything. One is denominated in gold and the other is dominating in paper. So what that means is you’ve got a choice of Treasury bonds. And you’re putting up $186,000 today.

One of them says, I’m going to pay you $186,000 in ten years. And the other says, I’m going to pay you one hundred ounces of gold in ten years. Which would you choose? Well, you don’t know what the dollar is going to be worth in 10 years, but likely it’s going to be worth a heck of a lot less than it is now. So what this does is it creates a market mechanism for transitioning to the gold standard.

It re-monetizes gold, that is gold is now being used in finance, and bonds, and allows the…so the problem is the debtors, including, first and foremost, Uncle Sam, owe far more money than they could ever hope to repay. I mean, it’s ludicrous. Twenty seven trillion dollars if you assume that there’s one hundred million people working in the productive sector, not including retirees, children, government employees, military, etc., they can’t pay off the debt.

Working men and women of working age, about 100 million. That means a two hundred seventy thousand dollar burden on each and every one of them. And if a couple is working, it’s a five hundred forty thousand dollar burden. There’s no way that that could be paid off. So what we need is a mechanism where it can be paid in nominal terms, even if not in real terms. And that mechanism is to leverage the fall of the dollar against gold, which means a mechanism to go to gold bonds.

Jordan Goodman

Meanwhile, before we go to the gold standard, let’s just kind of summarize why people should deal with Monetary Metals and get interest on their gold instead of just having it sit there inert.

Keith Weiner

Well, so I can talk about the highfalutin theory that we’re trying to bring the world to a better monetary place and it’s an important part of our why, but I think each individual investor, it’s just an appeal to self-interest. Would you rather hold the dollar or rather hold gold? And if you want to hold gold, would you rather pay zero point seventy five percent per year to store it? Or would you rather be paid three percent interest to do something productive with it? So it’s really just an appeal to self-interest

Jordan Goodman

And accumulating it. Your gold is creating more gold. In effect, if you get paid in gold.

Keith Weiner

That’s right. You’re growing your gold, which is the most compelling aspect of it.