So James, gold just hit another all-time high, $3,000 an ounce. And just thinking back to when you wrote about gold at $2,000 an ounce, when it had just hit that around November of 2023, and you said that was just the beginning. So is there still a lot of the same market forces that are driving the gold rally? Yeah, man, I mean, it’s funny, we have to stop and have these sort of check-ins whenever there’s a number, whenever there’s like an integer followed by a couple of zeros.
Is anything different from last week? Right, there’s no difference between 2,970 versus 3,000, there’s no difference. But psychologically, as human beings, we do think in those like big round numbers, and so we have to kind of make a big deal about it. The headlines never, gold hits $2,972.14, it’s $3,000, that’s the big deal.
But it’s the same thing with the national debt, it’s like $36 trillion, $37 trillion, like these are the headlines. But the reality is that we said when gold hit $2,000, this is November 2023. In November 2023, gold hit $2,000 an ounce.
And if you think about what happened just prior to that, the US government closed the fiscal year FY23, which ended on September 30th, 2023. And for the first time in US history, which is something else that we’d predicted a few years before, they spent 100% of their tax revenue just to pay interest on the debt, plus mandatory entitlements like Social Security and Medicare. Which if you step back and think about that, it means that 100% of that, because the government is interest on the debt, it’s entitlement spending, and it’s discretionary spending.
Those are the three categories of government spending. So that third category, discretionary spending, which includes the military, national parks, the guys that grope your balls at the airport for what they call TSA, the FBI, all that kind of stuff, federal courts. I mean, everything, most of the things that we think of as government.
Right, discretionary sounds like you could take it or you leave it, but that’s everything we think of as government is discretionary spending. Except for Social Security, Medicare, and interest on the debt, pretty much everything that we think is government is discretionary spending. And in FY23, 100% of discretionary spending had to be funded with more debt, because they spent all of the tax, every single tax dollar just to pay interest on Social Security, Medicare, just to pay interest on the debt, plus Social Security and Medicare.
What a surprise, gold reached an all-time high, right? And so our view on that was very simple. It was, this is the beginning of the story, not the end. Gold just hit $2,000, and it’s going to go a lot higher.
Well, now it’s at $3,000. So what’s the conclusion? Is this the end of the story? No, absolutely not. This is not the end of the story.
We think this has still got a lot of legs in it. Are you saying that the main thesis for what’s driving gold higher is the irresponsible spending from the US government, or are there other pieces to this as well? Oh, there are definitely other pieces to it. We’ve talked about this a lot over, I mean, we’ve written about it a lot.
And since we started doing these conversations, which by the way, I just really enjoy. I like doing this because it’s just like I’m talking to my buddy, which I am. That’s how it started.
That’s how you picked it up in the first place. So the basic idea that I think we’ve talked about is that there are a number of things driving this. One of them is confidence, or let’s say waning confidence in the US government.
The US government used to be the thing that if you go back to the 90s, and America was dominant to slew the Soviet Union, it was the only superpower left standing. It was before the war on terror. I mean, the government was running, I mean, they actually ran a budget surplus.
I mean, things are going very, very well. That was the US government that everybody on the planet had confidence in. And if you take a longer term view, and you look back over the past 25 years, and you look at what’s happened with, let’s say wars that have been very unpopular, spending packages have been very unpopular, COVID lockdowns, where they went into debt to pay people to stay home, and ran up the debt to these extraordinary numbers.
It’s not just the debt that would be, it would be too overly simplistic to say that the problem with all of this is US government debt, or it’s simply a problem with overspending. That’s actually not, it is a problem, but it’s not the problem. Part of the problem is that it’s obvious that politicians in the United States just don’t take it seriously.
It would be one thing if they said, if they actually came and said, you know what, oh, wow, we’ve got this massive debt, and here’s what we’re going to do about it. We’re going to cut spending, we’re going to do this, we’re going to do that, we’re going to swallow our bitter medicine. I think the world would kind of give the US government, give the Treasury Department a pass.
If they actually came with solutions, they never come with solutions. They never come with solutions. They just have this ostrich method where they just stick their heads in the sand and go, la, la, la, la, la, and just act like there’s no problem.
And that’s actually the fact that they ignore the debt is a bigger problem than the debt itself. Because it just, it’s a clear signal to everybody that it’s only going to get worse and not better. And this is one of the key reasons why gold continues going higher and higher and higher.
So foreign governments losing faith in the US government, just saying, do I want to lend them money for 30 years, the most indebted government in the history of the world? In the history of the world, right. It’s also a function of dysfunction. It’s a function of dysfunction, right? If anybody wants to look at Congress, nobody’s going to go, well, that’s a well-oiled machine there.
Those guys really, man, they know what they’re doing. Nobody on the planet is going to say that. They can’t get out of their own way.
And it’s not a party versus another party. The Republicans beheaded themselves. It was actually right before the October 7th attack.
And they said, oh, well, we don’t want to have a speaker anymore. Let’s oust our own speaker. And then they look like a bunch of idiots for doing that.
You’ve got all these various caucuses inside of each party fighting with one another. Nobody in the world looks at the United States Congress and says, those guys know what they’re doing. And that’s part of the lack of confidence as well.
There’s also other elements of it where you can look at, I mean, there was a lot of the Joe Biden shaking hands with thin air, the withdrawal, the humiliating withdrawal from Afghanistan, just one thing after another, after another, going into debt to pay people to stay home and cower in fear in their basements and not go to work. I mean, all those sorts of things that eventually people go, man, what are these people doing? These people aren’t creditworthy. I mean, if you’re a banker, you’re an investor, and some guy comes and says, hey, I want you to loan me money.
And here’s my business plan. I’m going to not work. I’m going to keep racking up the debt.
I’m going to spend on stupid things. Give me the money. Nobody’s going to give you money.
But this is sort of what’s sort of tried and true with the federal government year in and year out. So that definitely has a lot to do with it. And I know that one of the driving forces of the demand for gold has been central banks buying it.
So are central banks responding to the same thing that you’re talking about? Yeah, because central banks are, it’s, again, part of it is issues with the U.S. government. I would say one point that I didn’t mention, I would say, actually, this is probably one of the biggest ones, because foreign governments and central banks, the rest of the world has been buying dollars for 25 years. I mean, they’ve been buying it for decades, since Bretton Woods in 1944.
But realistically, over the past 25 years, even though you had a war on terror, you had war in Afghanistan, you had war in Iraq, you had COVID, you had all these things, and everybody still kept buying U.S. government bonds, even with the budget deficits, even with the rising national debt. But what’s changed, and we talked about this in a previous podcast, it started with 9-11, it started with the Patriot Act, right, where all of a sudden, the Treasury Department was given all this power and authority to go and sanction other countries and freeze them out of U.S. dollars. And it started with terrorist groups.
It started with really evil guys. Then they graduated to the Foreign Account Tax Compliance Act. But they said, okay, now we’re going to go after banks.
Now we’re going to sanction banks. Now we’re going to threaten banks. And they went in, and they actually shut down a number of banks.
And from banks, they went to private businesses, they went to a number of different companies. And now after, in 2022, they started with entire foreign governments. And of we’re only going to sanction Russia.
But then they passed a law, and they said, no, actually, you know what, we’re going to just sanction anybody that we don’t like. If you’re a government, and we don’t like what you’re doing, we’re going to sanction you. And I’ve said this many times in our podcast.
Again, if you held your money at a bank, and your banker was constantly threatening you, constantly phoning you up, saying, Joe, I’m going to freeze your account, I swear to God, I’m going to freeze your account, you would probably move your money elsewhere, right? Or you would at least stop depositing money in that bank. And that’s probably the biggest thing combined with the debt and the deficits and the lack of response to the deficits and not taking it seriously. And you can’t even pass a budget, you always have to pass these continuing resolutions and the ridiculous infighting in Congress.
People look at the guy who shakes hands with thin air and all these things. And now people step back and go, man, this is crazy. Now it’s tariffs and all these other things.
People go, I’m out. I got to find another, I got to find an alternative. And gold is a much safer bet for them.
Gold is a safer bet because the last thing that’s driving them into the arms of gold has been inflation, has been the mismanagement of the US dollar. This is not necessarily solely on the shoulders of the federal government, it’s actually also on the shoulders of the Federal Reserve. Because the Federal Reserve has also, I mean, we all remember this, when inflation started rearing its head, the Federal Reserve came and they said, inflation, what are you doing? Are you crazy? Inflate, what are these people talking? They were gaslighting people.
They were gaslighting people to make them think that you’re the one who’s crazy for talking about inflation. Then they rolled out the T word, it’s transitory. They kept saying transitory, transitory.
Then they said, oh, it’s not transitory. Then they finally started admitting we’re completely ignorant, don’t know what they’re doing with the Federal Reserve Chairman admitting live on TV saying, we finally learned, what was it? We finally realized, or we finally learned- Understand what people didn’t know. We finally understand how little we understand about inflation.
That was the quote. The reporter goes, that’s terrifying. It is.
Then they went from everything’s fine, there’s no problem, there’s no inflation to, oh my God, we’ve got to do, and they still jack up the rates, whatever it takes. Then they failed to anticipate the consequences. They failed to see how changing rapid increases in the interest rate would cause distress in the banking sector.
Two days before Silicon Valley Bank went bust, the chairman of the Fed was there in front of Congress going, no, everything’s fine, there’s no problem. Two days later, a huge bank, the United States of America went bust, and then they responded to that by saying, oh, let’s just print more money. These people look completely and totally clueless.
That’s another thing that’s driving this. Yeah, they look at gold and they say, gold has 5,000 years of history and marketability and value, and this is something that we can absolutely put our faith in because most central banks already at least have gold. Most foreign governments already have at least some gold.
They’re not reinventing the wheel here. They’re not going, oh, this is the whole thing with crypto. Some people say, oh, yeah, there’s going to be a Bitcoin standard.
Maybe. Nobody knows for sure, but it sure seems like a long shot because some central banks are in favor of it. Some don’t want to touch it with a 10-foot pole.
Gold is something that is universally recognized around the world. Every government, every central bank pretty much has some exposure to gold. It’s something they already know, and there’s tradition, again, going back thousands of years with this.
What about a silver standard? I know a lot of people obviously put this precious metals. You put silver and gold in the same category. Silver hasn’t had the same kind of run up.
It’s up a little bit, $34, but it’s not near an all-time high. That was like $50 back in 2011, 2012, something like that. Are the same pressures not driving silver up? No, no, absolutely not.
Look, I’m not a gold bug. You’re not a gold bug. I’m not an anything bug.
I say this, the only thing I’m fanatical about are my children, and even that I try to be rational, even with my kids. We’re just data-driven people. I’m an extremely data-driven person.
This comes from current data, history, all these things. You can go back thousands of years. You can go back to Alexander the Great, and you can see a silver standard in ancient Greece and ancient Rome to a degree.
Even the Romans and then the Byzantines eventually got to a gold standard. You had the pieces of eight, the Rialto, Ocho. There have been periods of history, times in history where silver has had its time.
Pound sterling, that wasn’t that long ago, right? The pound sterling was really at a time where there was actually an international, what they call the classical gold standard. This is something that grew out of an international monetary conference that took place in Paris in 1867, where a bunch of countries got together, primarily European, got together and said, we should just have a gold standard. We should figure this out and have a gold standard.
All these, Russia got in on it, Germany eventually got in on it. It was actually when Germany got in on it in 1873 and said, we’re going to have a gold standard. We’re going to start ditching a silver standard and get to a gold standard.
Everybody got on board. The US was a little bit late to the party. If you ever saw the Wizard of Oz, it’s actually a big monetary allegory between the gold standard and the silver standard and all this sort of stuff.
That’s actually a really interesting one we should talk about sometime in the history of all that. The point is that there was actually in the late 1800s, a classical gold standard around the world. What disrupted that was World War I. This is actually the thing that throughout history, especially modern history, going back even to the 19th century, which usually isn’t considered modern history, you can see global monetary regimes get reset, or at least heavily disrupted every couple of decades.
You start with 1867, creating this global monetary regime. 1914, totally disrupted. All of a sudden, Britain leads the way, but a bunch of countries start pulling their currencies off of that classical gold standard.
Now all of a sudden, it just vanishes. No more gold standard. That existed for a couple of decades until you get to 1944.
You go from 1914 to 1944, 30 years of this kind of global monetary vacuum where people are passing around treasury notes and all these sorts of things. Some people started to cobble together a basic gold standard again, but it wasn’t until 1944 that once again, everybody got together. They sat in a room in New Hampshire in this case and said, we’re going to have, let there be a new standard.
They created a new system and that became known as the Bretton Woods system, where the US dollar was at the center of the universe. The dollar was tied to gold and everything else was tied to the US dollar. That lasted also for a couple of decades until Richard Nixon in 1971 closed the gold window.
Nixon’s the guy, again, gets the credit or really the blame for it, but it was actually Lyndon Johnson was the guy that pushed to do that. Nixon was just the guy who ended up executing it, but Lyndon Johnson was actually the guy who ended up doing that. Nixon closed the gold window in 1971, essentially ending that convertibility between the US dollar and gold.
Once again, massive disruption to the financial system. You have 1867, 1914, 1944, 1971. What was the next one? The next one came in the late 1990s.
This is one where you had the big Asian financial crisis, you had the Russian debt default, and all of a sudden you have these developing countries start piling into gold, not gold, sorry, they start piling into US dollars. You have these Thailand and Malaysia and South Korea, all these different countries, and then China as well. This is the thing that happened.
China went from being this little poor country to all of a sudden building up trillions of dollars of foreign reserves in US dollars, in US dollars. There was never really a name for it. There was never like a Nixon and the gold where the Nixon shock they call in 1971, the Bretton Woods and all these.
There’s no name for it. Essentially, what ended up happening is you had all these emerging and developing countries piling into the US dollar, buying US government bonds, and that has become the de facto financial system for pretty much since the late 1990s. Guess what? It’s been 25 years.
Yeah. I was just curious, before the 90s, there wasn’t a huge market for US debt? Because from the 70s on, what saved the dollar, correct me if I’m wrong, but was the oil being sold in US dollars. Essentially, other countries had to hold US dollars in order to buy oil, so that kind of perpetuated the standard.
You’re saying in the 90s, still today, mostly oil trade is done in dollars, but starting in the 90s, that was when the US debt really became big for international ownership. The biggest anchor for US dollars, yeah, took place when they convinced Saudi Arabia, they said, listen, we’ll guarantee you defense and weapons and all these other things in exchange for you propping up the dollar by selling oil exclusively in US dollars. The Saudis ended up pegging, they’ve done this here and there throughout, but the Saudis ended up pegging their currency, the rial, to the US dollar, which basically most of the other oil producing nations in the Gulf ended up doing the same thing.
You had that standard that existed for a very, very long time. Had it not been for that agreement with Saudi Arabia, it’s hard to really say what global demand for the US dollar would be. What you started to see post-1990s, though, is you saw literally some entire countries start to dollarize.
You have Ecuador, El Salvador, Cambodia, many specks as kind of a de facto dollarization. You saw a lot of emerging nations, developing nations, pile really big into US dollars. If you look at, for example, Chinese foreign reserves, just really went through the roof in the wake of all that.
Places that you wouldn’t necessarily have considered close allies at the time, including Russia, piled into US dollars. A lot of people started really dollarizing a lot of things all over the world. It wasn’t as clearly as significant a disruption as 1971 or a significant reset as 1944, but it was a major, major milestone in the global financial system as what went down really in the late 1990s.
Again, where we are now is 25 years hence, and we’re kind of watching this play out in real time. We’re watching, in many respects, almost what sometimes I think this is sort of by design. It was almost like a designed, what did you call it? We were calling it before.
A controlled demolition of the US dollar. The controlled demolition of the US dollar. You said in the past that a new monetary reset, if the US does it early enough and is still the most powerful person at the table, then it can set the terms again.
Or at least heavily influence the terms. Whatever deal essentially changes the financial system again, because no financial system lasts forever. It hasn’t since ancient Greece.
It has the Romans and the Byzantines and the Dutch and the Spanish, et cetera. There’s always been a reserve currency and that system has always changed. To think that that’s going to last forever is a little bit silly, but especially in light of all the evidence that we’re seeing.
We’re seeing central banks looking around going, I got to get out of the dollar. These people keep threatening me. They keep threatening to cut off my access to dollars.
They keep threatening to sanction me. They keep threatening tariffs. Their debt’s going through the roof.
They spent more money on interest than on national defense. Inflation is crazy. Their central bankers don’t know what they’re doing at the Federal Reserve.
I got to do something. What are they going to do? They get into gold. They get into gold.
They’ve been driving gold because central bankers buy gold irrespective of price. They don’t care if it’s $2,000 or $3,000. Some of them might a little bit.
Again, I think Singapore, Hong Kong, some of these guys, they’re very smart. They’re very clever. You get other central banks.
They don’t care. They just buy it because to them, it’s a strategic asset. We should actually bookmark that and come back to it is the sense of what does that reset look like later? Because there is actually some hope for the US here, similar to what happened with Saudi Arabia in the 70s and 80s.
To get back to your question, what about silver? Is silver part of that? No, it’s not. The reason is very, very simple. It all has to do with wealth density.
What do I mean by that? If you think about a bar of gold, we actually did the math on this. If you think about a bar of gold now, and if you were to stack up a bar of gold with the same global shipping, if you had a bunch of gold, you had to ship it from point A to point B. It goes on a boat. It goes on a big shipping vessel.
Shipping is based on volume, 20-foot containers and 40-foot containers, etc. If you think about wealth in terms of volume, if you were to stack up gold, let’s think about, for example, a barrel of oil. Fun fact, there’s a barrel of oil in terms of what oil is priced in.
There’s also a barrel of oil in terms of what it’s shipped in. Those are two different standards. For the purposes of today, we’ll talk about a barrel of oil in terms of its price.
Let’s call oil for now, let’s just say $70. You take a barrel of oil, that barrel of oil is worth $70. If you were to instead fill that same barrel with an equal volume of gold, if you were to empty out the barrel, take out all the oil and fill it up with gold, an equal volume of gold, you’d have about $140 million.
It takes $140 million of gold to fill a barrel of oil versus oil is $70. If you just look at the two and you got to transport a lot, you go, I got to get my money out of dollars as quickly as possible, and I got to ship it from point A to point B. Most people, you could put a barrel of oil in the corner of your bedroom. You could put it in your closet.
You put a little flower pot on it and it becomes a piece of furniture. That’s $140 million. That’s how much wealth can be stored in that volume.
At the beginning of the pandemic, this is why oil went to zero or negative, because people needed a place to store it. To take physical delivery of that oil on the markets was going to be really hard. Oil went down to nothing because people thought, again, we were all told that if you get COVID, you’re going to spontaneously combust and everybody’s going to die.
That’s what we were told. A lot of people did die, but let’s be honest, a lot of people didn’t. The idea, the thinking at the time was, everybody’s going to be locked down, there will be no economy.
If there’s no economy, there’s no need for oil. The oil price basically went to zero, then it went negative. The reason it went negative was because people go, oh, shit, there’s no place to store all this oil.
Now there’s all this oil that’s coming onto the market and there’s no place to store it. The negative oil price essentially reflected zero value for oil. On top of $0 for oil, additional cost to have to store it.
It’s so weird to think that there’s actually an asset that can have negative value, but it happens from time to time. Sometimes even real estate, by the way, can have negative value. I remember seeing at some point, it’s not the case now, but a long time ago, there were lots, there were houses in Detroit that were actually going for negative value because the house was, the lot was worthless in some super impoverished, super high crime neighborhood and the house had been condemned by the city.
Not only is the lot worthless, but you have to spend money now to tear it down. Just to get to an empty lot, just to get to zero, you have to spend money to tear the house down. Even something like real estate can have negative value.
We saw this, I mean, there’s even some commodities, some metals that have periodically actually become negative in value because there’s so much of them and the cost to store, et cetera. That’s never going to happen with gold. Never say never, but it’s pretty hard to imagine because again, gold has this very long history, this very, very traditional history, and it also actually has some industrial use.
Silver has more industrial use. If you just look at the percentage of silver that goes into industrial use versus the percentage of gold that goes into industrial use, silver has quite a lot of industrial use. But again, if you look at that wealth density in a single, if you have a container that’s literally the same size and volume as a barrel of oil, if you’re transporting oil, that volume is worth $70.
If you’re transporting gold, it’s worth 140 million. If you’re transporting silver, 2 million, $2 million, same volume, $2 million. You would actually have more if, in case you’re curious, we did the math on this.
If you were to take a barrel of oil, empty it out, and just stuff it full of $100 bills, you’d have about $10 to $15 million, depending on how tightly compacted you put those $100 bills in there. You would actually be able to transport more wealth literally by filling it with paper currency than you would with silver. Of course, the idea is to get out of paper currency, to get out of US dollars.
But you understand the premise that gold is the most, if you’re talking about a monetary system where people want to get their hands on a real asset, on a physical asset, gold is $140 million relative to this volume. I mean, 90 some odd times the value of silver. So just based on that alone, you’re able to transport and store so much more wealth than you are with silver.
So that’s why silver is probably not going to factor into that global monetary standard. Well, but do you think silver might be undervalued anyway? Because I know there’s been a ton of manipulation in the silver prices, the paper versus the physical silver prices. So do you have an idea of what you think silver should be at in terms of value right now? I think it’s a crapshoot.
I mean, it’s just a guess, right? I would just be guessing if I said, what’s the value of gold? I could think directionally, and I could think this certain level is kind of a no brainer, but in terms of like, what’s the fair market value of silver? I think with all these things, that’s just sort of a guess. Silver has been heavily manipulated. That’s 100% true.
For a while, that was considered a conspiracy theory. And like a lot of conspiracy theories, oh, it turned out to be true. Oh, wow, what a surprise.
JP Morgan got its ass handed to it. A couple of guys went to prison. JP Morgan got a deferred criminal prosecution agreement by the Department of Justice exactly for manipulating the price of silver.
What were they doing? It’s funny. I learned about this firsthand from a guy a couple of years ago, a group that I used to be part of. This guy came and he was the CEO of a silver company.
And he came to talk to a group- Like a physical silver company? Yeah, like a silver mining company. And he was talking about manipulation. He said, silver is being manipulated.
And he went and talked about exactly what’s going on and all this kind of stuff. And basically, you got to understand there’s a difference. And this is the same for gold as well, gold and silver in particular.
You have what you call the paper price and the physical price. And when you have traders, Wall Street guys, when they go and buy gold, for example, a lot of times they’ll go to the futures exchange, one of the futures exchanges in New York or Chicago, and they’ll put in an order. And they’re not buying physical gold or physical silver, they’re buying contracts.
And those contracts are futures contracts. Sometimes they get really exotic. They buy options on futures, but they’re buying basically a contract that says, I’m going to lock in a price of gold at whatever, $1,000 three months from now.
And if the price is more than $1,000 three months from now, then they make money. And so they were doing the same thing with silver. And the thing is, silver is more easy to manipulate because it’s a very, very small market.
There’s not that much silver. Gold, it’s often said that all the gold that’s ever been mined in the history of the world still exists, versus silver when it’s used, especially in industrial applications, it gets used up, it’s consumed. Gold’s a lot more easy to recycle, there’s a lot of things related to its chemical properties and so forth.
So silver is just a much, much smaller market. It’s much smaller in terms of volume, in terms of the dollars involved. So because that’s a lot more easy to manipulate, you can manipulate something that’s a small market.
And so what happened? These traders are basically taking, they were going short the paper price and they were going long on physical. So the paper price, again, is the futures contracts. And usually the paper price and the physical price, the physical price is like when you go to the coin store and you tell the like, Hey, I want a coin and I’m going to hold it in my hand.
Well, there’s a slightly different price for having physical silver or physical gold in your hand versus what the quote is on the commodities exchange. So those are sometimes two different prices. Usually that variance is very small, but there are other times- That’s what they call the premium, the difference? That’s the premium would be the difference between the two.
The premium might sometimes be because there’s certain numismatic value or some difference between the milling and the coinage and the minting and all that sort of stuff that goes into the coin. There’s some cost that goes into taking the raw silver in this case, and then minting the coin. So it’s like $20 price of silver and a $24 coin or something like that.
But what happens during particularly times of extreme uncertainty, and we saw this in the early days of the 2008 financial crisis, this is the first time I saw it, is the paper price of silver, the value of these contracts on the commodities exchanges was plummeting. Silver was going down, down, down, down. But the physical price, you couldn’t find physical silver.
I was going to coin shops and dealers and all this. You just couldn’t find it. It just didn’t exist.
And if you could, the price is going through the roof. There’s a huge difference between the paper price if you want to invest in silver in the market versus the physical price if you actually go to a dealer and buy a bar or a coin. This happened again during COVID.
In early 2020, March 2020, April 2020, the price, the paper price of silver, the price of gold versus the physical price, there was a massive disconnect between the two, massive disconnect between the two. We actually put together a special alert for some premium research for our premium subscribers that said, hey, if you want to get your hands on physical silver, here’s a very inexpensive way to do it. You can actually use a little loophole in the system that most people didn’t realize, use the commodities exchanges, use Wall Street against itself, and you can get your hands on physical silver.
And then you can turn around and sell it and make a profit just because the premium was so high between physical and paper. It was actually taking physical delivery of it. We were talking about earlier with oil, if you had a big storage facility to store oil, and you could have done that.
But with silver, it was taking delivery of 5,000 ounces or something like that of silver. And that was how you had almost no premium at the time. Right.
You got the silver for very, very low premium, and then you turn around and actually sell those same bars and sell them at a very high premium because the physical price was so much higher than the paper price. So this is basically what these guys were doing is they were shorting the paper. They were making the paper price fall at a time when there was a very tight relationship between paper and physical.
They would short the paper price to make the paper price fall, go out and buy physical, and then let the physical price go up, let the premium increase, and then go around and sell the physical. And they made a shitload of money. They made so much money on this.
And then JP Morgan had to go and pay, I think it was like a billion dollar fine. And they ended up in a deferred prosecution agreement with the Justice Department. Because their paper manipulations were changed.
So they would physically have the actual valuable metal in hand while influencing the price to go lower with their paper. Yeah. One of the other things I remember now, one of the other things they were doing was they were placing orders and then cancelling them.
And what happens is in a lot of these institutional trading systems, you put in an order, then other people can see your order. And so people go, oh, snap, there’s a bunch of silver orders coming in. And so people would think that the price would go up.
So they would get their hands on all this physical, then they would go and put in all these orders into the marketplace to make people think that they were buying. Then they wouldn’t be buying, but that would be enough to manipulate other people into thinking there’s going to be a bunch of buyers coming in, that the price of silver is going up. That would cause people to buy, the price of silver would go up, and they would basically sell into the volume that they created.
Right. And so, yeah, I mean, like these guys went to jail. And I remember there was some, there was some, there was some, let’s say, prominent finance guys in the room that kind of stuck their nose up.
This silver CEO is explaining all this manipulation. And he was saying they did it specific times of day, they’d come in, it was like 10 o’clock in the morning, they’d put these orders in, then the orders would disappear. They would wait through these certain windows when they knew everybody’s going to lunch, and they would come in.
And I mean, and there were some very, you know, some pretty pompous guys in the industry that stuck their nose, that’s ridiculous, it’s not happening. Why would anybody do that? And the guy was like, because it’s profitable, duh, they’re bankers, this is what they do. They come up with ways to make money.
And that’s what happened. And so all these are basically reasons why silver is just not, it’s just too small. Central bankers are not going to go out and buy, you know, hundreds of billions of dollars worth of silver.
I mean, what would happen to silver? There’s just not, I don’t think you’re even dealing with enough silver in the world to be able to absorb all of that demand and the, you know, the industrial demand and all those sorts of things. I mean, and frankly, we better hope that that doesn’t happen. Because a skyrocketing silver price is going to make a lot of other things more expensive, because there is so much industrial use for silver.
Right, exactly. All that green new deal stuff is going to get a lot more expensive as silver, if the silver price goes to the moon. I think the one thing that I think you could make a case for, and you can make a case for oil, even though oil is in terms of the wealth density is so much less, but oil is a strategic resource.
It’s an incredibly strategic resource. And they talk about the strategic patrolling reserve in the U.S. as if the U.S. is the only country with a strategic patrolling reserve. Sorry, not true.
Japan has a strategic patrolling reserve. A lot of European countries have strategic patrolling reserves. China has a strategic patrolling reserve.
So a lot of countries buy oil as a strategic resource, but there’s a limit, right? And so gold is definitely, you can take, you know, you can take a couple of square meters worth of gold and just have hundreds and hundreds of millions of dollars. You know, you could take a warehouse full of gold and have hundreds of billions of dollars as a result of that. So it’s just, it’s a lot, it’s a lot easier to be able to store and transport that wealth with something that’s that dense.
The other honorable mention here goes to platinum because platinum is, has a lot of wealth density. You know, platinum’s, you know, let’s say $50 million. If you’re talking about like a barrel of oil size volume, you’re talking about $50 million.
So it’s a lot. And it also happens to be also somewhat of a strategic resource. You need it for, you need it for energy.
You need it for catalytic converters. You need it for a lot of green stuff, you know, different hydrogen power, hydrogen fuel cells, all these different things in a different vehicle and electric vehicles. Yeah, exactly.
So, so there’s definitely some strategic use for platinum. So I think you can make an argument that, that, you know, this might be something that, and because platinum is relatively undervalued right now, I think you could see some foreign governments and central bankers buying up platinum and seeing a significant increase in the platinum price. But I don’t think that foreign governments and central bankers are going to step in and try and buy hundreds of billions of dollars worth of silver.
I mean, just the feasibility of that, the logistics involved, whatever. I think what you’ll probably see though, because silver is so easily manipulated, I think the same, honestly, I think the same soulless traders that, I mean, it’s just, it’s the same guy. Not to say that all traders are soulless, but I mean, there’s going to be a lot of these, just a lot of these wall street guys that don’t care what they have to manipulate.
I mean, they’ll, they’ll, they’ll sell their, their fricking grandmothers if they have to, just to make an extra buck. And I think you’re going to see some of these guys go, ah, gold’s going through the roof. So let’s see if we can manipulate a higher silver price and let’s go out and buy a bunch of physical now while it’s cheap, and then manipulate a higher paper price and wait for that premium to skyrocket.
And then we’ll sell the silver into the volume that we create. So I think you could definitely see some of that. I think you’ll probably also see what they did last time.
Yeah. They’ll just, they’ll manipulate the other direction, right? They’ll pump it up instead of pumping it down and then they’ll dump it in the volume that they create. If somebody is a big silver investor, should they have an exit strategy? I think, yeah, silver is not something to hodl.
I don’t, I wouldn’t be hodling silver. I don’t think that I think because I just, it’s one of these things that because so much of it is industrial. And I, again, I have nothing against silver.
I’m not, again, I’m not fanatical about gold. I’m not anti fanatical about silver. I think that, I think they both have their uses.
The issue is that with gold, there’s a clear catalyst. And the catalyst is central banks losing confidence in the U S dollar foreign governments, losing confidence in the U S government looking for an alternative. And they have literally trillions of dollars to try and invest and find some other alternative trillions of dollars.
So they invested a couple hundred billion and gold went from $1,500 an ounce to 3000. So what happens if they, instead of taking a couple hundred billion, they take 10 times that amount, what’s the price of gold. And so that’s something that we can actually kind of calculate a little bit.
It just depends on how much of their reserves they want to put into gold versus some other things. Silver, where’s the catalyst? The catalyst I think is more speculation. The catalyst is, you know, central banks are buying gold.
And so there’s some people that go, Oh, silver is next. It’s good. The silver train is coming, baby.
And so people kind of get into silver, or you’ve got some wall street guys that manipulate the silver price higher because they can because silver is such a small market. But I think that’s a relatively short lived phenomenon because at the end of the day, like what’s going to drive silver is a lot of that industrial use the industrial applications. Now, sure.
I think that if all that, you know, that green new deal nonsense ends up actually really kind of going through and you need all this bazillions of amounts of silver for all the solar panels and all the thing, you know, they want to blanket the world with solar. Sure. You’re going to have a lot more.
You’re going to have a significant, that’s a huge catalyst for silver demand. And on that basis, I think you can see a significant increase in the silver price. But aside from that, I think it’s a if industrial demand, that’s the catalyst.
Yeah. Okay. Yeah.
That’s a long, long term though. It’s still a pretty safe against inflation in terms of if all the prices are rising, then silver is still going to hold your purchasing power for decades or whatever. Yeah, I think it could.
I mean, you know, you go through periods where it doesn’t, I mean, frankly, you go through periods where gold doesn’t hold its purchasing power. I mean, if you, if you were to look at the decline of gold, right. I mean, from, from you know, from the early 1980s through the late 1990s gold, the gold price sank, right.
The gold price lost a lot. Meanwhile, inflation was going up. So if you looked at the inflation adjusted return of gold over like a 15 year period, right.
Between let’s say the mid eighties and the late nineties, even almost a 20 year period gold did not. I mean, that’s, I would say 20 years is kind of a long-term horizon and gold did not hold its value against inflation. And so, again, you can’t be fanatical about these things and say that, you know, it’s always, the answer is always gold or the answer is always silver, whatever.
You got to look at this sort of detached and rationally and say, well, here’s the data, here are the catalysts that could drive this and drive that. Here’s the challenges and the rewards and the risks. And you just look at gold and say, what other alternative do central banks really have? If you’re, if you’re constantly being threatened with sanctions, if you’re constantly being threatened with trade wars and tariffs and the guys that, you know, you own a bunch of government bonds and the government whose bonds you own can’t even pass a budget.
And when they do, they’re $2 trillion in the hole, you know, year after year. I mean, you’re looking for an alternative and what alternative is there? Gold is, you know, if you’re looking for what’s universally marketable, what’s valuable, what can I transport? What’s not going to corrode, right? I mean, you don’t want to, you don’t want to buy something and then it’s just going to rust, right? It’s, it’s super dense in terms of its wealth density, all these different things, check, check, check, check, check, check, check. Gold has all these benefits for foreign governments and central banks.
And that’s not a fanatical view. That’s a rational view. Silver doesn’t have those same benefits.
Oil does not have those same benefits in terms of wealth density, etc. So, you know, this is why gold in this respect kind of is, I think, the answer to the central banker foreign government question, what are we going to do now with the dollar, especially if we kind of presume that there’s this controlled demolition, and you’ve got, you know, the US government deficit spending is still crazy, the trade wars, the tariffs, the, you know, etc, etc, etc. And people going, I got to find an alternative.
What am I going to do? What can I do? If I’m a central banker, what can I do? I’ve got a trillion US dollars in reserves. What can I do today? If I want to start diversifying my US dollars, I buy gold. I can do that today.
You know, yeah, you’ve got the Chinese and what are they, you know, they go buy land in Africa, and they, you know, all this sort of stuff. And so they, they’ve got huge portfolios of all kinds of different assets. And you can do that.
Sure. There’s some alternative that, you know, they go out and they actually buy real assets. And that makes sense.
Gold is kind of an easy one, though. It’s really, really easy. I was just gonna say like, if you go, if you go, sorry, if you if you go and buy like a bunch of land, you know, in Africa, somewhere, so Oh, look, I got this farmland in Africa.
That’s a little bit harder to use to settle international trade. Yeah, right. Right.
Exactly. Exactly. You know, I mean, you got the Chinese, like the Chinese, I mean, I remember being in Tanzania, sitting at this stoplight, you basically sit there for like 45 minutes, because the Chinese own it.
And all their all their construction, infrastructure trucks, everything is just going back and forth in the crossroad. And you just got to sit there and basically wait for the Chinese to be done. This is the main road from the airport from Dar es Salaam going into town.
And it’s just it’s just so clear and obvious. But I mean, what are the Chinese going to do? They’re going to put that up for collateral and say, Oh, we’ll give you this road in Tanzania. I mean, you can’t you can’t you can’t settle international trade with that.
But you can with gold. Right. And so this is just another it’s it’s liquid, it’s universally accepted.
So this is why if you’re a central banker, and you’re trying to figure out what do I do? I’ve got hundreds of billions of dollars I need to diversify. Right now, gold is the answer. It’s it’s basically right now the best answer that they’ve got.
And that’s the catalyst. Silver doesn’t qualify. And so the thesis holds, but gold is still at an all time high of $3,000.
So what do you what would you say to people that think they might have missed the boat on gold? Kind of sounds like you don’t think they did, but it’s still right. When gold was at $2,000, we said the same thing. We said, Look, just because something’s at an all time high doesn’t mean that it can’t get even higher.
And that’s what happened. Now we’re $1,000 later, I will say the same thing, just because something’s at an all time high doesn’t mean that it can’t go higher. I mean, last time we talked about this with stocks.
And we said, you know, in some respects, you got to kind of stop worrying about big macro ratios and stuff like that. Because, you know, just because the, you know, the Shiller S&P is at this level, sure, it could go down. And the historic average is much lower than it is today.
But it could also go higher. It’s the same thing people with gold, like people point to the silver gold ratio said, Oh, but the silver gold ratio is near its all time high. Yeah, so what? Who cares? There’s no law that says that the, you know, the gold should be X number of times the value of silver, there’s no, there’s no law about this.
I mean, the gold to silver ratio can go to frickin, you know, 300 to 1501. There’s no reason why it needs to be at 50 or 30 or anything. So the point is, is there a catalyst? And we can say this about gold and continue to say this about gold.
And I think the catalyst still holds, I think, you know, we said, it $2,000 ago, we said this, this is the beginning of this story. And at $3,000, I’m not going to say obviously, it’s the beginning of the story, but this is definitely not the end of the story. There’s a I think there’s a lot more here.
But I also appreciate that some people don’t have the constitution to buy something when it’s at an all time high. Right. There are a lot of people that a lot of people that that did that with crypto.
And you remember the fateful Thanksgiving 2018, when like Bitcoin got really big for the first time. And it was like, Thanksgiving tables across America, and everybody’s going, Hey, what about this Bitcoin? And then all of a sudden, throughout the after Thanksgiving, there’s that post Thanksgiving boom in crypto prices, where that’s where Bitcoin first crossed over into the into the 20,000s, before ultimately kind of collapsing all the way down to like 2000 or $3,000 or something like that. And you know, a lot of people, a lot of people don’t have that constitution to watch something go up, and then watch it go down, and know whether or not okay, do I hold it? Do I sell it? Do I take the loss? And so it’s, it can be kind of nerve wracking.
And I and I get that. So, you know, you either when you when you make investments and speculations, there’s either sort of a fundamental thesis driving that saying, here’s my outlook, here’s what I’m going to do. I believe that this X, Y, and Z is having we’ve articulated our thesis many times, we say, here’s what we think is happening.
And on that basis, we think the logical asset that foreign governments and central bankers are going to get into is gold. We’ve also said, well, here’s how we could be wrong. And there’s, you know, in theory of X, Y, and Z happens.
So far, X, Y, and Z haven’t happened. In fact, kind of the opposite is where we say what we are seeing is actually kind of controlled demolition of the dollar. And maybe we can explore that a little bit more.
Another time where we talk about some of the things that happened between the US and Saudi Arabia, and why the US may have some of those things going for it now. But it seems pretty clear that this story is far from over. So I don’t think it’s too late for somebody who says, Well, I wish I’d bought gold earlier.
I you know, oh, you guys been talking this for a long time. I wish I’d followed your, your suggestion earlier. I would still say, you know, number one, it’s not too late.
Because the story is, is I think it’s still early days. And again, look, nothing goes up or down a straight line. So I just want to be the first to say like, you can’t buy this and expect these massive returns like tomorrow and you and you should probably steal yourself for a correction.
Because sometimes those things are inevitable, it goes down, and then it goes back up, and it goes down a little bit, and it goes back up. But the easier one that we’ve said for a long time, has been not necessarily gold, but gold companies and silver to that, I think that silver, there’s the cab, the short term catalyst for silver is rampant speculation and even manipulation. I think that could see significant, a significant boom in silver prices, as a result of speculation and manipulation.
But I think, again, there’s silver companies, just like gold companies that are extremely undervalued. And, you know, that’s, that’s still the case to a degree, some of them have really gone up a lot. I mean, there’s some that we put together in our, our premium research, there was a couple, I mean, we had one in December that I think that was a silver company.
In December, that’s up like 20%. We had a gold company in February, that’s up 20%. And we had a silver company that we published just like a week and a half ago, that’s up 40%.
We said, we said, the research is very clear. We said, this is undervalued, these guys are going to come out with results, we think the results are going to be off the charts. What a surprise, the results were announced, they were off the charts, stock went to the moon.
And I think we’ve got some very, very happy subscribers to our to our research. I don’t think that’s over either. I think we still have, I think we still have legs in that trend where you see really great, profitable, you know, cash producing, pristine balance sheet, sometimes even dividend paying businesses that are doing well, and yet are extremely undervalued.
So I got to go really undervalued gold company versus $3,000 gold, I probably go with a gold company, because it gives me the exposure to gold. But a lot of my downside risk, I mean, there’s a difference between investing in a company, because a company can go bankrupt, a company can be, you know, all kinds of things can happen. Gold, you hold gold in your hand, it’s never going to go bankrupt.
So it’s a different, it’s a different risk profile, right? It’s a different risk profile. But for people that are sort of more value conscious, etc, it might be a reasonable alternative, still to consider that. And I think that thesis absolutely is still the case.
And I think we still have a little bit ways to run with that. Thanks for the insights. I appreciate it.
Okay, yeah, let’s leave it there for now.
