Outlook for Gold in 2023

Gold Outlook Report 2023

This week we published our Gold Outlook 2023 Report, our annual analysis of the gold and silver markets from CEO Keith Weiner.

Watch CEO Keith Weiner discuss his outlook on markets and macro which covers Central Bank gold purchases, silver demonetization, and the impact of rate hikes on gold and silver prices in 2023.

Save the Date!

We will be hosting a Webinar forum where you can ask Keith your questions about the Gold Outlook Report.

Day: Monday, March 6

Time: 12:00 pm

Register to Attend

Additional Resources 

Gold Outlook 2023 Report

How Not To Think About Gold

Will Interest Rate Hikes Fix Inflation? Cartoon

Zombie Month

Gold Outlook 2022 Report

Inflation and Gold

Gold vs Bitcoin

Interest Rates and Ford


Benjamin Nadelstein:
Welcome back to the Gold Exchange Podcast. My name is Benjamin Nadelstein. I’m joined today by founder and CEO of Monetary Metals, Keith Weiner. Keith, how are you doing today?

Keith Weiner:
Hey. Good morning, Ben.

Benjamin Nadelstein:

All right. So, Keith, we just dropped our Gold Outlook report for 2023. I want to jump right in with some questions for you, starting with how we did on our Gold Outlook Report in 2022. Let’s discuss your price calls and your guests on the macroeconomic environment. How do you think we did so.

Keith Weiner:
A year ago, 2022 I think I said something like, this is the toughest call ever because we have a falling interest rates trend. But now the Fed says they’re going to try to reverse the laws of physics and fight the tide. So if they back away from or this is what I think I said about a year ago. If they back away from this madness, then we’re going to go down one path, likely higher prices of the metals. And if they persist in trying to go down this path, then that is necessarily bullish for the metals. And what happened at the end of the year is that the gold price was virtually unchanged, which is very interesting. Of course, the Fed did go down the path of hiking rates quite a lot, and we ended up with a price of gold that went up and down and then sort of back up and there was neutral at the end of the year.

Benjamin Nadelstein:
And you talk about that a little bit in the report, how there was this kind of big shift, a tectonic level shift in the macroeconomic environment, and yet gold is kind of held in there, if you want to think about it in that way and what that actually means for people looking in 2023. So why don’t we actually talk about your interest rates call? Did that surprise you at all that rates went up and continue to go up to as if we’re speaking right now?

Keith Weiner:
Well, it’s very difficult, if not impossible, to try to predict what a politician is going to do because they feel that they’re, at least in the short term, unconstrained by any factors. In reality, you’re getting in somebody’s head and sometimes it can be all sorts of considerations, let’s do this because it’s going to hurt the other party. And that kind of political calculus that as an economist who’s trying to study this as science, I don’t know how you factor those things in. And I’m sure there’s a lot of lobbying by powerful interest groups on both sides, both for higher interest rates and for lower interest rates. So you can’t really predict that. You can say that the drivers for falling interest rates are still in full force, in effect, and so it’s interesting that on the short end of the curve the Fed absolutely controls it. They control the fed funds rate and all overnight rates are obviously going to be highly controlled by that. But the farther out on the yield curve you get the less controlled the Fed has. There’s an expression that comes up every once in a while and that is pushing on a string.

The fed is trying to make the entire yield curve go up and then they push. And actually if you take a look at a picture of the yield curve it kind of looks like that that on the very short end the yield curve is very high but once you get past a year it’s falling like the string is almost looping up but it won’t keep pushing as it goes. And what they ended up with was quite an epic. I don’t know if it’s an all time record, I haven’t rummaged through enough data to determine that but I suspect it probably is just an epic inversion. We’re to the point where you even have an inversion between the ten year bond and the fed funds rate. Not just between the ten year and the two year, the ten year and the three month but the ten year and the fed funds rate and that is just causing huge amounts of pain as one can imagine. If a spread like that inverts the only thing that’s surprising it’s sort of surprising but sort of isn’t that the Fed persists in the face of that. And again but it gets down to the whole point of politicizing what should be an economic decision, the whole point of socializing credit in the hands of a state bank communist Manifesto plank number five which is what the Fed is.

The whole point of that is to act outside of all economic constraint which means act outside of all reason. And so this is force supplanting reason. They’re doing something unreasonable by definition and how much more they can persist to add it. Well look at the political forces align and that will tell you what the Fed likely but not certainly but what they may try to do next.

Benjamin Nadelstein:
Well I have a point or kind of a question that I think feeds off of that. So we talked a lot about inflation in the last year. A lot of people said hey they printed so much money last year and look at all the inflation that this has led to. And we’ve kind of analyzed all these non monetary forces which have been pushing prices up and increasing the CPI, there’s been a lockdown whiplash green energy restrictions, trade wars, the actual war in Ukraine lots of other non monetary forces that have been pushing up prices. Do you think that what most people are calling inflation is going to calm down in 2023 or will the destructive power of these kind of Fed rate hikes which you’ve also written about undo any of those price decreases from restrictions easing or this kind of whiplash relapsing? Do you think that there’s a kind of balancing out of those destructive forces?

Keith Weiner:
Man that’s a tough calculation to make. I think the first thing that people should really have firmly in their mind when talking about inflation, like we’re using one word to encompass two total different things. Imagine if there was a word that meant bad studenting. And into that bucket we threw both kids that were just cutting class and doing drugs and not studying. And at the same time, we also lumped in the kids that just weren’t that smart and that were really trying and really struggling and the materials to advance them, and we do them into one bucket. And we’re now trying to generalize about what’s happening to both of those groups as they graduate from fifth grade to 6th grade. And of course, those groups aren’t going to behave the same. So we have the non-monetary forces, what I call useless ingredients that regulators keep forcing companies to put more and more stuff in that people don’t value or even know about, which drives the cost up. And that’s been an ongoing trend for many decades and I don’t think that’s the marginal change that’s occurring, let’s say post COVID. Then you have green energy restrictions.

Boy, if those really slammed the poor folks in Europe really hard because it isn’t just the price of your electricity bill. I know somebody on Twitter who runs a small pub in the UK and he was talking about his utility bill, including natural gas, that used to run, I don’t know, 600, £700 sterling a month previously, and then it’s like 12,000 a month after they caused the price of natural gas to skyrocket with all these insane restrictions. So it’s it’s the price of everything that depends on energy, which is pretty much the price of everything. Name a product, name of good or surface that doesn’t depend on energy and it’s pretty tough. So you have that going on. Although that’s relaxing a little bit because among other things, shipmakers have been building and putting into the water more and more. It takes a specialized ship that can carry natural gas. There’s a lot of constraints in shipping natural gas from where it’s plentiful ie. In the US. Where it’s making new lows in price to market to where it’s desperately needed. You need terminals that can compress it from a gas to a liquid and then you need ships that can carry that.

And this is all very hazardous stuff. You’re taking explosive gas, and compressing it into an explosive liquid at very high pressure. When you compress something people haven’t studied physics, the act of compressing it makes it very hot. So you’re taking something that’s under very high pressure and very explosive and then you’re making it very, very hot. So I believe it’s a multibillion-dollar price tag to build a natural gas terminal. You can only imagine, not in my backyard lobbying that would affect your ability to get a permit and build one of those things. But they’re starting to be, if not new terminals, at least increasing capacity and new ships in the water. So they’re starting to alleviate some of that. Of course, the other surprise a year ago that was not on my radar screen, or people say that wasn’t on my 2022 bingo card was the war in Ukraine. And that took a lot of commodity production and obviously Russian oil and Russian natural gas out of Western markets. Again, a completely non-monetary force, but that had a huge impact on the price of energy in Europe. Then finally, you have the wild card of trade war.

And isn’t just tariffs, although governments at random just say we think thumbs their book, there should be a 175% tariff on whiskey imported from Scotland. And then, you know, the justification as well, those Chinese Communists are, you know, flooding us with cheap steel or whatever, which is somehow benefiting us, but somehow hurting us. And then there ends up being a tariff on whiskey imported from Scotland, because once the grab bag is open, all the lobbyists show up and they want to shove all their various favorite things in there. I guess if you’re an American maker of whiskey, you might like scotch to be more expensive so that it’s easier to sell American whiskey, which is cheaper. So all that stuff is just driving up prices all over the place. There is a continued trend, and I think this is a global megatrend of nationalism, trade war, reshoring or onshoring where companies have moved things offshore, either because the infrastructure simply didn’t exist on shore. There are not millions of workers that are happy to turn little tiny screws and iPhones in America. That’s not the kind of work Americans want. That workforce isn’t here, but it’s in China.

So that went to China. Now you say, okay, you have to reshore everything. Apple, what is that going to do? The cost of manufacturing an iPhone, nothing. Gold bonds. I think the trend continues to be, to be sure and onshore, and people think they’re going to get jobs out of it. What they’re going to find is that at the price tag that the company might have to charge to produce that product using American labor in America, that the market isn’t necessarily there for it anymore. And then of course, people will call that inflation. Again, lumping the drug addicted kid, which a kid is struggling, lump them all together, call that inflation.

Now, in terms of monetary, I’ve been saying for many, many years, if your only concern in looking at this corrupted, rotting, collapsing, failing monetary system and you look at all the various ways that that harms people and there’s quite a number of them. And you say, we don’t care about any of the ways in which this is causing people to be hurt. Except one. And that one way is that consumer price is surprising. If that was your only concern about our monetary system, then you should want falling interest rates, because every downtick in the interest rates is an increase in the subsidy to producers to borrow more, to put more capacity into greater production.

Every hamburger restaurant in the country is constantly building a business case for its next marginal store, the town where they don’t have a location yet. And then by definition, the marginal store is the one where the business case is failing. The very bottom line on that business case is red. And then you lower the interest rate. So then they update the spreadsheet with a new lower interest rate, which means the interest expense goes down. And it may even justify, instead of thinking of hiring 30 people for that restaurant, you hire 25. And then five were replaced by capital equipment, which is financed obviously, by borrowing. And then you rejigger the spreadsheet with the new lower interest rates, a little substitution of capital for labor, and suddenly the bottom line turns from red to green. And then you build that marginal store. What does that do to the price of hamburgers? If you’re increasing hamburger production capacity and the same thing is happening all across the economy. It’s not just the restaurant serving the hamburgers. It’s the manufacturing company that produces the grill equipment and the friars and the walk in freezers in that restaurant. It’s the company manufacturing the glass or the windows in the storefront.

The company manufacturing those awful tiles they have on the floor that are like fake wood. Everything across the board is getting that subsidy. So now the Fed has said, because they’re in the belief and the quantity figure of money, that it’s a quantity of dollars that cause prices to rise. Not aware of the idea of useless ingredients, green energy restrictions, trade war and tariffs, and onshoring. They do talk about Ukraine, but in a way that’s very not credible. And I think anybody who hears the Fed talking about Ukraine as a factor in rising prices immediately laughed at them as a bunch of liars and fools and not wrongfully because they’re politicians and they cast about to try to find whatever they can seize on to offer an excuse. And it’s very disingenuous and everybody can sense that, I think. So the Fed, not really aware of these non monetary factors, not aware that their entire theory is wrong, says, let hike interest rates with the intention of reducing the quantity of dollars in the system, which they call the money supply confusing the stocks of the flow the supply of the flows and supply would be new stuff being created coming in versus the total extent, quantity that’s out there.

So yeah, let’s hike interest rates. And they’ve done quite a lot of it. What people are not thinking about is if you’re a producer, you have to earn a positive spread. If your return on capital is less than your cost of capital, it is inevitable, it is necessary, it is a forcing function that if you can’t get the cost of capital down, which obviously is a business, you have no control over that you have to get out of that deal. You have to shut down that production ultimately and sell everything off and delever because at that higher cost of capital, if you’re getting a 2% return on capital and the cost of capital is now 6%, you’re losing 4% on every borrowed dollar you’ve got to get out of that. That is going to kill you. So a lot of productive capacity is going to be destroyed at the margin. Now, what the other thing, so the Fed sort of understands, because Milton Friedman said it, is that in monetary policy, when you make a change that there can be leads and lags. I never really agreed with the idea of leads, but anyways, I guess he’s saying that sometimes the market will attempt to front run what the Fed is doing.

Not really sure hamburger restaurants are in the business of doing that. But anyway, they hike interest rates there’s a lag. And why is there a lag? Well, one thing is that they’ve seen this game before. If you look at the rock rolling downhill from 1981 to the present as the interest rates come down, there have been all sorts of zigs and zags along the way. And anybody who prematurely liquidated all their capital assets, shut everything down to try to return their borrowed money, you know, found in the next Fed meeting or the next year, that was a foolish mistake and they just handed the market to their competitors. So the smart thing to do is to ride it out. The same thing with layoffs. How many times have companies laid off in a time of slight monetary tightening and then only a few months later they look really foolish and then they’re trying to offer big bonuses to get the people back that they just laid off, you know, three to six months ago. So companies try to smooth these things out. They try to ride it out. But ultimately, if the interest rates truly going to be and the Fed is saying still more, let’s call it 5% overnight risk-free, what does that put the two or three or five-year corporate bond at?

Seven, eight, 9%? If that is going to be the cost of capital, then there’s an awful lot of productive capacity that is submarginal. Now, in October, we had Zombie Month for this ferry podcast right here in River City. And Zombie is a company who produces less profit than its interest expense. Something like 20% of all the corporate debt extant prior to all the statistics that we have about zombies are lagging statistics prior to any of these rate hikes back when rates were effectively zero, something like 20% of all the corporate debt was zombie. Now you go from zero to, let’s call it 5% on the Fed funds rate, which means the corporate bond rate. Add two or three or more percentage points to that, how many more companies that hadn’t been zombies at zero rates are suddenly now zombies in this environment and it’s a less forgiving environment? So zombies require both cheap credit and also forgiving lenders. Lenders that say, well, yeah, we know that you’re not really a going concern. We realize that there’s no way you can ever hope. You’re in a hole and you’re digging deeper and we’re happy to lend you more shovels and take the risk that if you get too deep we’re going to lose our shovels.

We’re happy to do that. Well, this environment is a lot less, shall we say, conducive to that type of thinking on the part of lenders. How many of these businesses are going to be forced to close and their productive capacity going off the market? So the Fed is sitting here thinking that’s going to reduce prices by reducing the demand side of the equation. But it’s not understanding that actually safe law says your supply is your demand. And that what the Fed is doing is destroying supply. And it’s destroying supply in a concentrated way. You put a hamburger restaurant out of business, there’s a lower supply of hamburgers. And yes, the people who work in that restaurant have a demand for hamburgers. But most of the 10,000 people that go to that restaurant in a month aren’t the workers in the restaurant. So you’ve affected supply and therefore the price has to go up. But if you think of it as an arbitrage between the rate of return on capital and the rate of the market rate of interest, all the supply and demand stuff really is only kind of a simplistic way of trying to look at it.

Just look at it and say the rate of return on capital has to be greater than the cost of that capital. And with some lag, it will eventually get there. So if the Fed were to somehow persist in this indefinitely, then that would happen. Of course, that’s the real question is will the forces of reality come back and get their revenge against the Fed and force them to reverse? And that’s the question for 2023.

Benjamin Nadelstein:
So let’s see if someone who is one of those inflation-bad students if they can kind of summarize what you said because there’s a lot of really interesting points. First is that there are nonmonetary forces that push up prices. This has nothing to do with money printing or kind of inflation or credit. They’re completely separate. The first is there are non-monetary factors pushing up prices, which we see in inflation or CPI statistics. The second is that the Fed, when they lower interest rates, most people think, oh wow, this is going to lead to inflation and all these other things. But you’ve noted an important point, which is that a lower interest rate is a subsidy to producers because producers rely heavily on the interest rate in factoring in whether to produce more stuff. And if they do produce more stuff with a lower interest rate, then that means lower prices, more stuff, lower prices. And the higher rates that the Fed believes will reduce inflation actually harm producers because producers rely on that very same interest rate. The higher it is, the higher the hurdle they have to get to. And zombie companies which were already on this very tight margin of bankruptcy are way out of line with this higher interest rate.

They were barely surviving on 0% interest rates. And so this kind of lag in monetary policy might show up in higher prices because of higher interest rates, which is the exact opposite of what everyone from the mainstream economists to pundits to even the Fed believes, which is that higher rates mean lower inflation. Is that kind of right? Did I pass the class Keith?

Keith Weiner:
That’s the perversity of it is that the Fed, the Fed’s apologist, the Fed’s court economists, the Fed’s deregist and technocrats and all the way to the Fed’s most strident critics, everybody agrees quantity for your money hike rates to curb inflation. And didn’t we do put out a cartoon sometime last year and it shows Jay Powell with a gasoline truck and the economy is on fire labeled inflation and he’s spraying gasoline on it. And there’s a reporter asking him, do you think that will be enough to deal with the fire? And they haven’t of the causality backwards spraying gasoline isn’t going to put the fire out, it’s going to make it worse. And that’s the exquisite perversity of where we are at this moment in time.

Benjamin Nadelstein:
I’m going to be asking you kind of in a minute or two, some lightning round questions which get to this and to some other things. But first I want to ask about those very central banks. So clearly they have no clue when it comes to macroeconomic policy. And there’s this kind of fallacy that I see a lot on the internet and kind of in gold circles, which is that central banks are geniuses. Also they’re idiots, but they’re ingenious is when they buy gold because everyone knows gold is money, except that the central banks don’t know gold is money. So it’s weird. Like the economy anyways, central banks have been buying gold like it is nobody’s business key. It’s like me and you, they’ve been buying gold like crazy. Specifically in this past couple of months, it’s been the bank of China. Bank of China has been buying lots and lots and lots of gold. So I want to ask you, we’re kind of making fun of the central banks in one area and then touting them as experts in another, does this matter at all to the price of gold? In 2023, the fact that China, the bank of China, is buying gold, is this not a big deal?

Keith Weiner:
Well, my first thought is to respond to the sentiment that likes to accuse central banks of being morons and then looks to them as genius when they’re buying gold. And I think that’s word for that confirmation bias. If you’re watching this and you find yourself doing that, use that as an opportunity to check your premises. Do I really think they’re a genius or am I happy they’re buying? Because I see that seems likely to make the price of gold go up. And if it’s the latter, don’t ascribe to the central banks a genius that you otherwise don’t believe that they have. And they’re not geniuses, they’re politicians. I don’t think they’re stupid. I don’t think they’re incompetent. I’ve met a number of central bankers. They certainly strike me as intelligent folks. You got to be pretty smart to get a PhD in economics, even though a lot of it is what’s the differential equation that describes the rate of change of angels dancing on the head of a pin while the pin is falling in free fall, in a vacuum towards a black hole? It’s a complicated equation, right, to calculate the number of angels that will be dancing on the head of a ayn rand, the rate at which that number is changing.

But they’re politicians and they’re driven by political forces and of course, they’re driven by bad theory. So, yeah, you have gold buying and something I talk about a lot is what I call the famous buyer fallacy. The idea that we can point to somebody who’s buying because they’re famous and say, well, that’s going to drive the price up because of buying. There’s two things that are worth observing about that. One, there’s 10,000 not famous sellers. Are they automatically deemed to be wrong and the buyers seem to be right because they’re not famous and the buyer is? Well, maybe, but not always.

Benjamin Nadelstein:
Why not have a quantity theory of sellers, right? Like, hey, look, there’s more sellers than only one buyer, therefore the seller and….

Keith Weiner:
Each seller is selling a few ounces and the one buyer is buying half a ton or whatever. And then the second problem with that is it does not take into account, it doesn’t look as a bid in the offer. Was it motivated sellers that were dumping it and they found a bid? Or was that famous buyer a motivated buyer and went and lifted everybody’s offer? So which side was it? Somebody who said, I’ve got to sell my gold, I’ve got to get out of this terrible, horrible also asked that that’s just killing me. It’s just an albatross around my neck. The gold is so happy, I just have to dump it at any price. Is it a price insensitive seller or is it a price insensitive buyer? I have to dump these dollars before they go to zero. I’ve got to buy the gold. And the fact that famous buyer A bought it doesn’t tell you that it’s not even looking at that. It’s just saying that in that class, which is composed of kids that are on drugs and not, and not studying, plus kids that are slower and not really they’re really trying hard and they really struggle with the material.

It’s just saying that some kid in that class at random got a C minus grade on a particular test. Okay, well what’s the fix for that? Well, we don’t know because we don’t know which kid and we don’t know which questions he got wrong. There’s so much we don’t know we’re not even bothering to look at. We’re just looking at a statistic and said, oh, this bank bought. Okay, well that bank bought. That’s nice. The other thing that always has to be said, there’s a vast amount of gold that’s out there. Virtually all the gold ever mined in at least 5000 years of human history is still in somebody’s hands. And when one tiny, tiny, tiny, little speck in the tiny, tiny corner of that market moves across to a different corner of the market, that is not a predictive price. In the same way that if a grain of dust in the air blows around the globe through the west to east winds that normally blow in northern latitudes, and that dust that used to be over the air in La. Is now over the air in London, what does that tell you about the weather?

What’s the temperature in London is going to be in June? It tells you nothing. Maybe the temperature in London is going to be hot, maybe it’s going to be cold. And that grain of dust provides no information content to help you predict that.

Benjamin Nadelstein:
I want to let our audience know two things. One is we’re going to be putting out this great white paper called How Not to Think about Gold and it goes through all of these great fallacies. We give examples, we explain, hey, this is why this really doesn’t affect the price of gold at all. So if you like this, we’re going to have a whole white paper for you. So make sure to sign up subscribe and we’ll send that out to you for free. The second thing is, if you want to take my role, we’ll be doing a webinar with Keith so you can ask all those questions you want. Hey, does the price of gold change because of this or that or any other question you can think of? And that webinar is going to be on March 6, so make sure to subscribe to the channel and we’ll remind you and let you know, hey, it’s time to ask Keith those questions. So Keith, I got another one for you. A little bit of a spin ball here. So central banks often buy gold and we just discussed why maybe that has no effect.

On the price whatsoever. What about silver? I never hear central banks buying silver. Why are silver and gold different animals? And what do you think about in 2023, the kind of ratio of gold and silver? Is that important? What are the two different metals going to look like in 2023?

Keith Weiner:
So, historically, the metal served a different function for different groups of people. And I think this is highly underappreciated. But if you look back at it, the reason why people tend to assume that the metals are the same, obviously, silver is less expensive, and people sort of understand that. So people sort of look at it and say, well, silver is, for smaller transactions, were poorer people, which is true, but it’s oversimplifying it. Of course, both metals are heavy, although gold is about twice as heavy as silver for the same amount of volume. Gold doesn’t tarnish, and silver does. Gold has a collar. Silver is the white metal. Obviously, for the most part, they’re pretty similar. They’re both reflective. They’re both good conductors of heat, electricity. They’re both malleable. You know, there’s a lot more similarities and differences. So it’s it’s easy to assume, well, they’re both, you know, essentially the same. But what markets do when given enough time, is they tend to select one winner to take all. You don’t have two monies. If you look at we’re talking over the Internet. You’re in one place, I’m in another. And we’re sending packets across a wire.

The electrical characteristics of that wire, the network characteristics of the network, the size and formatting of those packets are all defined by certain protocols that we call TCP IP. TCP IP was the singular. There was one standard that won. And there had been a number of standards back early in my career when Banyan, Vines, Nobel, NetWare, IBM had something called Netbuoy that were all different. And I think there are others that were competing to be the networking standard that would drive the world. It was clear that the world was going to move to computer networking, but nobody knew which one was going to win. Eventually, TCP IP, and then all the other, just ours, are displaced and go away. Historically, we know that cattle were used as money. Wheat, salt, all kinds of things were used as money. But gold and silver survived and everything else didn’t. So people just kind of I don’t think they really think about, well, why two monetary metals? And the answer is that I’ll never forget. I said it under Professor Fekete, who said that silver is the most marketable in the small, meaning it’s bid ask. Spreads are the tightest for small amounts of value.

10% of wage earners weekly wage, if you’re in that level of let’s call it $50 kind of size, the bid ask spread on silver is tighter than the bid ask spread on gold, especially historically. Technology today brought it a lot closer. And so silver becomes the best way to carry value over time. I’m working now. I take 10% of my wage, put it in silver, hoard the silver, and then later disorder in my retirement, disorder to my groceries and pay my living expenses. Gold was always the best thing at carrying value over distance. You think about the needs of commerce, especially commerce over long distances. So cattle were great because cattle move under their own power. Not that fast the cattle walk. Anything else, especially if it was happening in bulky, has to be carried or pulled or whatever by horses or oxen. And so gold is so value dense that it was just really great. You could put if this was solid gold, this phone, if this is made of solid gold, would probably be a kilo. That’s enough to buy a pretty nice luxury car and you could put that in your pocket and walk down the street with it.

So gold can go anywhere in the world today by jet. Almost anywhere in the world is within less than 24 hours of settlement by armored car and airplane. And so gold is the best for kangaroo. Keith distance obviously gold has a much higher specific value, which is value per either cubic centimeter or value per gram. And so gold obviously used for bigger transactions. But to think of this another way, if wage earners want to save, especially on a weekly basis, and they want it physically in their hand, silver is the most effective way of doing that. With the least losses incurred, gold being so much more expensive, especially if you’re buying multiple ounces of the stuff, it really is a capital asset. And so gold will trade against other capital assets. Gold is going to be more subject to capital flows. As one asset is being sold off and another is being bought, silver will be more subject to the fortunes of the wage earners. Now, it’s not that big capital asset owners can’t buy silver. They can and they do. And we’ve had plenty of those conversations with some of those folks obviously offline.

Nobody wants to necessarily go on the record of saying that. Not central banks, I don’t think, generally touch silver, but a lot of other folks do. But silver tends to be more of a trade, whereas for a lot of these folks, especially not in the US. The US less so than the rest of the world, gold tends to be a forever, not necessarily the biggest part of the portfolio, but whatever their gold position is, tends to be a forever position. If someone is setting up an intergenerational trust to set aside wealth for their grandkids and great-grandkids and going to some private bank and Zurich to set this up, gold is going to be in that portfolio. Silver probably not. So that’s the difference in drivers for how those two metals can trade differently at times. That said, the price of silver is more correlated to the price of gold than it is correlated to the price of gold heavily is not correlated particularly well to other commodities.

Benjamin Nadelstein:
Yeah, I find that so interesting that there is actually a big difference in gold and silver. They have all of these kind of traits and characteristics in common. But it’s not just hey, silver is smaller gold or gold is big silver. They really do have meaningful differences in either the way that they’re bought, why they’re bought, how they’re treated, some as assets, some as something else. And so that will obviously be affected by different conditions. So gold and silver will move differently. So one kind of final question before we get to this lightning round. What should investors who are in one of the metals or maybe both of the metals think about in 2023? Does the gold to silver ratio matter and should I think of maybe going into one metal diversifying? What do you think about that question?

Keith Weiner:
Well, if you’re in silver, the gold silver ratio absolutely matters. And again, it’s that gold being the objective measure of value. If you’re in silver and the gold silver ratio is going up, that means it’s more and more ounces of silver equivalent to 1oz of gold, you’re losing value. So you’re probably not happy about that. If the gold silver ratio is going down, you’re gaining and that’s where obviously you want to be. I think one thing that people should be looking for in the silver community, one of the, I guess I’ll call it conspiracy, I guess I’ll just call it rumorous belief that goes out there. It always starts out the price of silver has to go up because and then there’s always arguments that people swap in for that blank. And one of the arguments is because there’s a deficit between silver supply now in this case supply being used properly unlike earlier money supply not being used properly, which is silver coming out of mines and recycling, they claim is less than the silver that is going out in the form of electrical switches and solar panels and whatever, that there’s a deficit.

And I always say, look, I suppose that’s true and I don’t study supply and demand numbers like that because I ultimately don’t think that’s a productive use of time. But if that were true, then what that means is solar is being demonetized. But all of the vast what makes a monetary commodity or a monetary metal monetary is it’s vast stocks to flows. And you’re saying that the stocks are being eaten up and being put in landfills in the form of used up solar panels and every washing machine has little switches in it, relays that have some silver on the contacts and so on. And then unlike gold, silver is too cheap to be worth recycling. So all that stuff is going out. If that were true, silver is being demonetised, the stocks are being consumed it stocks, the flows is collapsing and that inevitably silver is going to be down to copper or lithium or anything else that may or may not be expensive but as just an industrial ingredient and nothing more. If that were the case, then silver, you would expect silver to trade a lot more like copper or the battery metals or whatever than the monetary metal.

So far that’s not the case, but that would be something to watch for silver being demonetized.

Benjamin Nadelstein:
Wow. Yeah, I find that so interesting because on one hand they’re arguing for kind of this like monetary price rumor or something to happen in terms of silver as the money. It’s going to maybe explode in price or XYZ. But on the other hand, if you actually look at the arguments they’re making, they’re really making an argument for the deemed monetization of silver and kind of silver becoming an industrial metal, which who knows if that will happen or if that’s going to a bad thing. But the argument itself kind of is pointing towards demonetization of silver and yet the end result is they’re hoping that silver as money increases in dollar price.

Keith Weiner:
It’S just quantity theory thinking. It’s attempting to say, well, if the quantity goes down then the value of each unit is one over N, where N is the number of units. And so therefore the most valuable money is the one where there’s only one unit. And I always joke and say, how many original Keith Weiner paintings are there? Well, they must be really valuable, right? Because the quantity is so low. Hint I’m not a painter and I can’t paint. Nobody would want if I were to put paint on a canvas, nobody would want it because I don’t have any skill at that. But the quantity theory would suggest that the price should be very high because there’s only one unit, let’s say, and they’re trying to apply that to silver and not understanding that they’re promoting demonetization, as if that’s going to increase the demand for silver. Maybe not, right?

Benjamin Nadelstein:
By the way, if you go into the comments section and write what painting you want Keith to do, I’ll see if I can get them to do it for the next podcast. Okay, Keith, I want to do a lightning round with you. So I’m going to give you just kind of rapid fire questions. Some on the Outlook report, some on macroeconomic, some just kind of fun ones. Give me just your quick thoughts, yes or no, up or down, and then I’ll ask you your final question for the podcast. Okay, let’s go. Economic powerhouse Uganda has claimed that recent exploration has shown the country has unearthed 31 million tons of gold ore. By the way, I personally am biased. I’d love to get those 31 million tons working in a gold lease or a gold bonds so they can start earning interest. But that’s just my opinion. Is this fact the 31 million tons. It true. The death of gold? Or is it a nothing burger for gold? What do you think?

Keith Weiner:
Nothing burger? Somebody posted one of my threads. A link to this article allegedly validating. I’m of the belief that extraordinary claims need extraordinary evidence. And in reading this article, the way it was written, it was, like, written by somebody who clearly never been involved in mining before. It basically said, of that 31 million tons, 310,000 of it was pure bullion or something like that. Just the way it was written was like, anybody who understood mining just wouldn’t put those words string those words together in that order, attempting to insinuate what they were trying to insinuate. So I think, obviously, a desperately poor, struggling african government is desperately poor and desperately struggling for reasons. And those reasons have to do with, first of all, basic competency, but also honesty. And I wouldn’t necessarily take that announcement seriously.

Benjamin Nadelstein:
Okay, so I hear gold nothing burger for uganda. Okay, next question. Soft landing or a recession in 2023? What do you think?

Keith Weiner:
What the hell does soft landing mean? Does that mean we’ve only heard a few people, we’re throwing people out the window, and only a few of them are hitting the ground? So it’s soft. If enough people, you know, hit and die, then it’s hard. It’s the old jokes that a recession is when your neighbor loses his job, a depression is when you lose yours. It’s only a matter of how long does the fed persist at this? How many zombies finally declare bankruptcy? How much damage does that do upstream? I’m of the opinion that at the end of the day, which can take a while because of all the reasons why they’re legs, some severe stuff is coming down at us.

Benjamin Nadelstein:
Okay, I’m definitely not putting you down a soft lantic. Okay, next question. Powell is he replaced or given a promotion in 2023?

Keith Weiner:
I that’s a political question that I couldn’t even begin to to try to opine on, and and I don’t really see the various central bankers as being fundamentally different from one another anyway. It’s not like I’m cheering for the so called hawks because they’re smarter than the so called doves. They’re all central planners. They’re all vying for power. They all believe in communist manifesto plank number five. And they’re just saying, I could do it better, and they can’t. So whether it’s him or whether they yank Janet Yellen out of the treasury and put her back at the fed, how does it make a difference to me?

Benjamin Nadelstein:
All right, so we will not be nominating you for the position. Okay? Next question. Bitcoin. Has the digital gold finally lost its shine, or will crypto critics eat their worms?

Keith Weiner:
I have no opinion as to whether the price of bitcoin skyrockets again or not. I suspect maybe not, but I don’t know more about its near term price trajectory than any of the bitcoiners who have been proven not to have any slightest idea where it’s going. I do think something’s happened, and I think the sheen is off. Can there be a few more gyrations of price? There could, but at the end of the day, the whole thing is going to collapse because it is self consuming. The only money that anybody ever makes in those schemes is the money paid in by the next guy to buy into the scheme, and eventually you run out of next guys.

Benjamin Nadelstein:
I highly suggest everyone watch the debate, the Bitcoin debate that Keith was in. He absolutely rocked it. All right, next question. Which gold group will be louder in 2023? The Perma Bulls or the Perma Bears?

Keith Weiner:
I guess if you watch mainstream TV, they’ll probably have more bears on because that just tends to be a bias in those quarters. So if you’re watching this CNBC or Bloomberg or Fox Business Producers, I’m available. But I think in the alternative asset spheres, FinTwit, as it’s called, and other places like that, the bulls tend to be a lot louder.

Benjamin Nadelstein:
Okay, quick final lightning round question. Is this decades long downtrend in interest rates finally broken? The ever bubble of everything has kind of messed everything up, and that decades long downtrend. Okay, that’s the thing. In the past, Keith, we’re in a world of higher rates from here on in. Or does that decades long trend come back with a vengeance? What do you think?

Keith Weiner:
I think sustained drivers that have been pushing interest rates down for 41 years are still 42 years. Now we just turned the year, are still in full force in effect. And that driver is when the return on capital is less than the market rate of interest. So now the Fed has pushed up the market rate of interest. What demand is there for borrowing? In order to have a rising interest rates trend, you need a dynamic where every time the interest rate ticks up, there are more people who want to borrow more. That is how it was from after World War II to 1981. Every uptick created increased demand for borrowing. That’s just not the world we’re in today. I think in this world you still see car companies advertising 0% for 72 months. I’ve been writing about that particular thing for many years. I didn’t notice used car companies doing it. But a couple of weeks ago, I was looking for something I noticed carvana is offering 0%. I don’t know, if it was 72 months, it might have been slightly shorter, but a pretty long duration. Loan unused cars. And there’s an obvious reason for this, which is that the demand for cars would fall off a cliff if people had to pay the market interest rates unsubsidized to buy a car.

Every would be borrower everywhere is in the same boat. There is not a demand for borrowing at 8%. Very few companies are in a position not the ones that are producing mainstream things in mass quantities. So, no, I think the trend continues down. I think the Fed is going to be proven wrong and it’s a matter of time. And that’s a hard landing debate. So that’s another one of those things. How can you believe central banks are smart and dumb at the same time? How can you believe that we’re going to have a hard landing, which I think most people in the gold and hard asset community believe, and at the same time believe that we’re now an adorable rising interest rates trend that’s going to last for a decade or more. That hard landing is going to be the thing that you’re going to see the interest rates meteorically crash. It is going to go from wherever it is to zero and below zero and heartbeat in that hard landing as it did in 2008 and previous crises. How can you believe both of those at the same time? We’re going to have a hard landing and yet we’re in a durable, long lasting, rising rates environment.

Benjamin Nadelstein:
I ask for those people’s comments. We want to see what you think in the comments section. Okay, final question for you, Keith. What are your price calls for gold and silver in 2023?

Keith Weiner:
Very hard question to answer. And that’s why I wrote out a long answer in the Outlook report, which I encourage everybody to read.

Benjamin Nadelstein:
Okay, that wraps up the podcast. Everyone, please check out the Gold Outlook Report. It’ll be in the description. And reminder, we have a webinar with Keith. He’ll answer all your questions on the report on March 6. So we hope to see you then. And thanks again. Make sure to subscribe.

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