Backgrounder

[00:00:36]Adam Butler: Alright, here we are with Mark Yaxley and the rest of the ReSolve crew. You’ll recognize Rodrigo and Mike a little further away than usual, because today we’re filming from inside the Strategic Wealth Preservation Vault, with Mark Yaxley of SWP, hosting. You’ll see the actual real gold bars directly behind us.

And so I think this is going to be a really different and pretty novel and interesting episode. So, Mark, let’s start off with what is SWP, and how did you guys come about?

[00:01:15]Mark Yaxley: Yeah, well, first of all, guys, welcome to our Cayman Islands vault. We’ve never actually done this kind of format inside the vault before, so it’s pretty exciting to be with you.

SWP came about, actually, was an idea that was born around 2010. There was a family here in the Cayman Islands that had been invested in gold and silver for a long time, and they recognized that Cayman had a little bit of everything in terms of financial services. Obviously, companies like your own, you had the banks, and they’re like, you know what, this island could really use a gold vault.

And that’s kind of when the idea was born. And fast forward about four or five years of planning, doing market research to see what else was out there, and other offshore jurisdictions in particular, we opened our doors in 2015 to the public.

[00:01:57]Mike Philbrick: Fantastic. Amazing. The Christmas edition in silver and gold, baby. It couldn’t get more festive than this.

[00:02:03]Rodrigo Gordillo: I mean, it is a pretty spectacular, just the facility itself is, as you guys built it basically a few months ago, it’s been done, right? So, it’s top of the line. It seems like a MI2 movie.

[00:02:16]Adam Butler: This building is custom built for this purpose, right?

[00:02:18]Mark Yaxley: So, the building is actually built around the product, I guess you could say, and in terms of security, the layers of security, the thought process, nothing, was done just to look good. It was really built, like, with the gold being the central aspect of the building, and build it outwards, and design it outwardly, but it’s our second vault in Cayman.

We outgrew the previous vault, which you guys have visited before, so everything is new and shiny and exciting right now and we’re looking forward to filling this place up again.

[00:02:45]Adam Butler: We proposed to film us walking in through all the different security protocols and then realized that, probably don’t want to give away all of the security steps, but it’s pretty neat.

[00:02:57]Mike Philbrick: So hard no, we’re like, this is a secret location, really.

[00:03:01]Mark Yaxley: That’s true. We know you guys are excited.

[00:03:02]Mike Philbrick: Yeah, I’m, super excited. This is…

SWP is Different

[00:03:04]Adam Butler: So how does SWP differ from other ways that people have typically and historically bought gold bullion?

[00:03:14]Mark Yaxley: Yeah, I mean, the biggest USP for SWP is the Cayman Islands. I mean, we’re the only precious metals dealer and obviously the only storage facility like this in the Cayman Islands. And the advantages that this jurisdiction provides to clients, not only for those who choose to store here, but also those who transact through the company and store it elsewhere in the world, that extra layer of privacy and confidentiality is very valuable to some people. And I’d say that’s really where the unique selling points for this company begin. And obviously we try to treat people well. You know, everybody says that, but we actually treat our clients like human beings, not numbers.

It’s a, it’s a long-term proposition. When you run a gold business, you’re not in it for a quick buck, so you don’t nickel and dime your clients. You don’t bend them over. You treat them well and you hope that they and their families stay with you for a long time.

[00:04:01]Mike Philbrick: Yeah. And it’s amazing to see an actual physical bearer asset in form, in its secure location, with bars that are numbered in a way that guarantees that your bar is your bar. It really is something that it’s, it’s almost a deja vu thing. You know, the whole, what was it, the thirties when no safety deposit box in the US would be open with an IRS agent present. Those types of things.

And today we’re in this digital world where everything gets digitized and can be rehypothecated and whatnot, but then you see the granddaddy of them all, the 5,000  year sort of first physical bearer asset in modern finance. It is a surreal experience

[00:04:50]Mark Yaxley: Yeah, It is pretty old school, and to some people that’s not attractive, that’s not sexy, it’s not flashy. You know, digital assets obviously tend to be top of mind and top of conversation. But there’s a lot of people that still enjoy saving their money this way.

[00:05:06]Mike Philbrick: Digital assets, not your keys, not your coins. I mean, part of the whole world of digital assets revolves around the fact that you have a finite, you know, in the Bitcoin sense, you have a finite number of these things that will be created and you, through this other mechanism of accounting and tracking, have real ownership of that thing. So it’s sort of, everything that’s old is new again. You know that the idea of custodying your securities and your certificates and just holding them in street name at the brokerage house, I mean, when I entered this business, people were still bringing in certs. Like you’d have a cert, they’d have it at home, they’d get their dividend checks.

And they, those people were products of the depression and of an era where banks failed, and things failed, and having your assets held in some other name other than your own didn’t actually work. And so it’s just really interesting that what’s old becomes sort of new again and it’s a layer of security that’s very, it’s very meaningful in the accumulation or storage of your wealth.

[00:06:14]Rodrigo Gordillo: And I think that the idea of wealth preservation is much more poignant for third world countries. I’m Peruvian. I know how important physical things are to them, whether it’s owning real estate, owning businesses that they know they have control over, and owning precious metals.

Bitcoin has become a huge thing because of the inability to transact across borders, right? So that’s one of the things that I think is a good use case for the cryptocurrencies. Maybe the only use case in a lot of cases, but the, to physically own things is, it’s much more important in places like, let’s take Argentina right now for example, right, where you have inflation over a hundred percent and no end in sight.

Maybe Milei is going to do something about it soon, but the reality is that how do you, the only way to maintain your, any sort of purchasing power is by owning hard assets. And this is an important aspect of it, in a way that in a financialized world, in the Western countries, it continues to be a struggle to, when I ask a room of people, how many of you have over 5% gold in your portfolios and nobody raises their hand? How many, do you own any physical gold, and only a handful continue to raise it? It’s like we’ve forgotten that anything could go wrong, but if you look at history, it’s so clear that there’s always a place for that diversifier. And it is, excuse my language, and in case shit-type of thing that you actually want to have, right?

What happens if and when you need hard assets, real estate being one of them, but then there’s, what is the added benefit away from real estate? Maybe I can ask you, in terms of the fungibility of gold bars and physical gold, when you, let’s say something does happen, what do you see the easy way for people to access their gold and precious metals wealth for transactions?

[00:08:12]Mark Yaxley: Well, I mean, gold is very liquid and I think that’s one misconception that people don’t have, especially physical gold. They know ETFs are liquid, but they may not understand that you can buy and sell physical metal just as easily these days with the use of technology and online shopping carts, or just picking up the phone and emailing your dealer/broker, you can do that.

So in terms of liquidity in a crisis or a crunch, you can access cash really quickly. And these days, companies like ours will even couple that with cryptocurrency. So If you want to get paid in crypto, we can do that. So, from a liquidity standpoint, you know, certainly not an issue. I think, just going back to what you were saying previously about crises and such, really, the positioning for gold is wealth insurance, general positioning, and why do people own this stuff? And I think there are much better ways to make money. And I, certainly we’ve never advised anybody to buy gold to make money, which sounds weird to a lot of investors. That’s, you have to get over that hurdle first. Yeah, exactly.

But a lot of our clients, especially wealthy clients who have already earned a lot of money through their businesses, through their other investments, at that particular stage in life, all they want to do is preserve that money. And when gold really, obviously, some historical examples, 2008 financial crisis, COVID crisis, that’s when gold really surges and helps protect the overall value of their portfolio as a true diversifier.

Because there’s not many asset classes like gold, and it really does hedge well in a crisis situation, whereas the real estate market in ‘08 took a hit as well. So even if you owned a home, you know, you took a pretty big hit.

[00:09:39]Mike Philbrick: Well, and I think in the, if you think about it through the lens of also a market capitalization perspective, if you think about, well, I have the S&P and I’m diversified.

Well, if you look in the S&P, there isn’t much in the way of metals and mining producers as a percentage of the market cap. It’s, I think, less than 1%. It’s very, very small. Even oil and gas is only 5%. So here you have, in the context of this insurance asset, this return of capital, this solid asset, and then you look across your traditional portfolio, and if you’re just considering those financial assets, well, you’re extremely underexposed.

From a global asset perspective, as a market cap of what’s precious metals, maybe, is it 10 trillion, something like that, in market cap, and if we sort of say there’s a hundred trillion in global assets, generally, that’s maybe 10, maybe double it, it’s 200 and it’s 5%. You’re just not getting any of that exposure through sort of traditional market cap type holdings, whether they include international stocks or not.

And, so on top of that, you have this kind of lack of insurance from a, just looking at it from a global market perspective.

[00:11:02]Rodrigo Gordillo: But, I’m just looking up right now. So from March 31st, 1973, I guess that’s when gold went free floating. It’s no shrinking violet in terms of nominal returns, right? You’ve got Sharpe ratio of 0.4, annualized returns, 6% percent for gold. Now, it seems to me that this is above the risk free rate, long-term. So it’s also providing some sort of real return above cash, from what I’m seeing here anyway. And because of its unique non-correlation, from a portfolio construction perspective, that rebalancing premium that you get from matching it up with bonds, with equities, maybe other commodities, you actually, it becomes another piston to a portfolio engine that can actually smooth out the ride a little bit more, right? So, it is, you’re getting an excess return in a portfolio basis from non-correlation. You’re getting that security, you’re getting that place of last resort in case everything else goes down, your bank goes down, you can’t get access to it, and you can walk into your vault and pick it up and start shaving it off to start transacting in the zombie apocalypse.

[00:12:12]Mark Yaxley: Not all bars are this large, so you can go into smaller denominations, and that’s probably another misconception that’s worth mentioning at least, is the people. You know, when you mentioned earlier you were in a room of a hundred people and you said, how many people invest in physical gold? And I think there’s a misconception that you have to be extremely wealthy to invest in gold.

So, you know, It’s obviously not true. I mean, you know, an ounce of gold only costs 2,000 US dollars. An ounce of silver is $25. So the entry point is $25 US to be in the precious metal space. So again, you know, that’s just a lack of education in general. And a hundred years ago, this conversation would have been totally different because people carried gold as money in their pockets, but like you said, we’ve forgotten…

[00:12:50]Adam Butler: I do think that there are lots of people who recognize the value of gold as being something completely different than anything else in their portfolio. And there are other ways to get access to exposure to gold, right? So, you know, through the GLD ETF, or through gold futures, et cetera. But unsurprisingly, I know Mark, you’ve done some research on the pros and cons of some of these other ways of getting access to gold, even sort of just going to your local bank and getting exposure, buying some bullion from them, right?

So maybe just walk us through some of those different options so that people understand what the trade-offs are.

[00:13:28]Mark Yaxley: Yeah, or Costco more recently. Obviously, we can talk about that a little bit, yeah. Yeah, … Canada, they sold out. They had a two bar maximum, now we’ve brought it up. So Costco announced that they were in the gold business. You could order online, so you couldn’t go to the store and get it. You did get your 2 percent cash back, though, which was also very attractive. But they maxed it at two bars per client, and they sold out, and it was headlines all over the place.

[00:13:51]Rodrigo Gordillo: Two bars of what, one ounce gold bars?

[00:13:52]Mark Yaxley: One ounce gold bars. Yeah, Yeah.

[00:13:53]Adam Butler: But the…

[00:13:53]Mark Yaxley: Which was a really great headline for the gold business. You know, obviously any time a major retailer steps up and starts creating waves, that’s great. But the truth is, major retailers like Walmart have carried gold for a long time. So it’s not really new, it’s just, Costco did it for the first time, but Walmart carries it, yeah, in the States. Yeah, eBay, Amazon, any major retailer you can find gold and silver, but to your point, I mean, for a lot of people look at the mining stocks and I don’t, I don’t follow the mining space very closely, but my advice, having had dinners and many drinks with guys who are in the space is, nine out of ten of those juniors are dogs.

And if you don’t know what you’re doing, you are going to lose money. So either pay someone who knows what they’re doing, or do your homework. So for most average investors, I think trying to pick, stock pick miners is a very risky way of getting exposure to gold. ETFs make a lot more sense in terms of usability, you know, cost of entry. If you have a shorter term that you’re trying to capitalize on the precious metals market, you know, three to six months, I’ve used ETFs. Definitely, I think it’s a way to do it.

[00:14:58]Adam Butler: And how are those, how do those ETFs custody this? This is where I was going with this.

[00:14:59]Mark Yaxley: So after many, many years of people asking me, what’s better, ETFs, physical? Why would I buy physical and pay you guys storage when I could just do it through the ETF? I read the fine print and it was lengthy. It was a deep read. I was on a long flight somewhere and I said, finally, I’m going to do this. And what really struck me, obviously the funds themselves try to de-risk themselves and de-expose themselves from any kind of potential third party risk, but what it really boiled down to and what caught my attention Adam, is that a lot of the risk was shifted to the custodian.

And in this case, the custodian was a very large financial institution in the US, one that did not have a good reputation when it came, in terms of managing physical metal, because they had run a desk for many, many years and that desk had actually closed because they did a horrendous job, and they had lost a lot of physical metal that belonged to people.

And when I saw that name at the bottom of the fine print, that they were the ones ultimately responsible for the, for taking care of the underlying asset, I became very concerned. And if you’re an investor and you think I’m doing this to save myself a quarter point or half a point on my cost of entry, versus physical gold, like, is it really worth that added risk of dealing with a large American financial institution whom you know is not going to fully allocate and segregate that metal, going to loan it, lease it, co-mingle it. They’re going to do what they can to make money from that underlying asset.

[00:16:22]Rodrigo Gordillo: Because this is the, part that I think people misunderstand and I would love some clarity on. So, you hear these stories of a person that thought he owned gold at a certain bank, goes and tries to grab it, and they simply do not have those inventories, right? Rehypothecation. You say the banks are going to do all these things. If everybody goes to the bank, at once and tries to withdraw their gold, what tends to happen? Like, what is the outcome?

[00:16:48]Mark Yaxley: I mean, all they can do is share stories that I’ve heard through my time in the industry. I’ve never worked for a bank, or been privy to how they manage their gold bullion inventory, other than having audited the very same financial institution that I won’t name, for fear of what could happen. But, I did do an audit of that vault when I was a very young man. And, true story. We found a wood coin in their inventory that belonged to our company, within their vaults. And I’m like, okay, if you’ve got a wood coin that’s infiltrated your inventory, we’ve got problems. And that just goes to show how little they actually cared. They cared about what the balance sheet looked like and they cared about that bottom line, but they certainly didn’t care about the quality of the products.

Another story that I can tell you is that I worked for a large precious metals dealer prior to coming over here to SWP. And they had what’s called a pool program. So this is where, basically, it’s unallocated gold. So as a client, you pay a very low premium over the spot price, but you sign away any kind of allocation and segregation of the asset in your name. And you’re basically saying, I’m comfortable with this company maintaining a position of ounces. What that position is, is very undefined. It could be scrap metal that’s going to a refinery. So it’s in transit, hasn’t even been melted yet. We think we have so many ounces. We’ve got futures contracts. We might have a spot price hedge in place. Basically, whatever total ounces they held as a company, that was their promise to you.

But when this company got in some trouble for owing some tax money to the government, all of a sudden, that property and who that property belonged to, became a really big deal. And if you’re a client, basically a creditor of this company, you’re now saying to myself, don’t I wish I had paid half a percent more to have a bar on a shelf with my name on it, or in a box that belongs to me?

[00:18:32]Rodrigo Gordillo: So, let’s unpack that.

[00:18:33]Mike Philbrick: Very similar to a brokerage house goes down.

[00:18:38]Adam Butler: Yeah.

[00:18:38]Mike Philbrick: Securities at the brokerage house and the accounts, a margin account, and your security is now co-mingled, and now they fall under bankruptcy law and they are not your assets anymore, versus having this, you know, accounted for. Maybe you will walk, you can walk through the actual process here of how it works and how it’s accounted for, so that people know, that bar has your name on it, almost.

[00:19:03]Rodrigo Gordillo: Yeah, so before we do that, I want to, cause that’s an interesting case. I hadn’t thought about that, right?. So you have a company that pulls these assets. You mentioned there’s gold coming from, scrap metal gold or whatever, that you if you wait long enough, you’re going to get that. You have a futures contract that if you wait long enough, you should get delivery of that. And then you have other methods that, you might’ve mentioned. Now if the company’s financials, because you’re doing all those derivatives trades, there are, I guess, tax issues that you then have to account for. These negative externalities that you have to account for that might affect your cash flow negatively, and then you have to, as a company, come up with the money, I guess, and it might infringe into the assets of your owners, right? So, yeah, I kind of see the dangers there of having those pooled assets. In contrast to that, how does a fully segregated company work?

[00:19:57]Mark Yaxley: Yeah, I mean, it’s pretty boring actually. It’s pretty vanilla. So when you buy any particular product, so let’s say one ounce Royal Canadian Maple Leaf coin, it’s the second best selling coin in the world.

So you say, I want 10 of those coins. You buy them from a company like ours. We’re not the only ones out there. A lot of people do this. You actually get a tube of physical coins There are 10 coins in there. And then that tube is placed in a bin, which behind us here, you can see some of these segregated bins.

They belong to individual clients. They’re sealed. They have a license plate on them. So, we say it’s fully allocated because we’ve got the 10 coins that you purchased. And it’s fully segregated in the sense that it’s segregated from your neighbor’s holdings. What’s most important here, and I was going to raise this before Mike, is it’s considered personal property, under the law.

So this isn’t on the company’s books. This isn’t asset and offsetting liability on the company’s books. It is personal property that belongs to our client. So something, if we mismanage our company, and mismanage funds, whatever it might be, the government says we owe them tax money, whatever the case is, it’s very easy to prove that that asset belongs to our client. And it’s very easy for the stakeholders, or…

[00:21:01]Rodrigo Gordillo: The shareholders of the company are on the hook, not the clients of the company.

[00:21:06]Mark Yaxley: Yeah, and even further so, if the company were to go bankrupt, it’s not an asset on their books anyway. So it’s not subject to creditors at all. So it makes things very, very clean. But again, for that, you have to pay a little bit more for your physical bars and coins. You have pay a little bit in storage. And that’s the decision, ultimately, that people have to make.

[00:21:22]Mike Philbrick: …

[00:21:24]Rodrigo Gordillo: But…

Personal Prosperity

[00:21:24]Mike Philbrick: And I don’t know if this is a good jumping off point for the, for some of the programs you have here to actually, if you did as an owner of gold, personal property at SWP, where you could do some loaning of that asset, where at least you’re the one deciding on that, and you’re the one actually receiving the benefit rather than having it commingled with some other organization who, at best may give you free storage, right?

So, it’s kind of, it reminds me of the social media story, right? If, you’re not paying for the app, you’re the product, right? So if you’re not paying for your storage, whatever you’re storing is being used on your behalf and they’re making a profit. So it’s kind of that Catch 22. At least you have a program. Maybe you could go into that. Do you feel comfortable chatting about that and just kind of link it up with at least specifically, you decide, and you would prosper to the extent you want.

[00:22:20]Mark Yaxley: You’ve nailed it, Mike I mean, that’s exactly why companies offer these things. The banks and refineries do it best. In fact, we had an offer recently where a large refinery, we had a client similar to someone who holds about this much gold. They were looking to do something and the refinery said, so you’ll pay us or our client 75 bips to move his gold into your vault. How does that work? How does it, what are you going to be doing?

Well, obviously they’re going to monetize it, right? So they don’t hide it very well. But to your point, that’s exactly what they’re up to, whether it be a pool account or whether it be a large refinery.

[00:22:56]Mike Philbrick: And where were we going with this? You wanted, oh, the lending…

[00:22:58]Mark Yaxley: …

[00:22:58]Mike Philbrick: Yeah, the…

[00:22:58]Mark Yaxley: Yeah, the lending.

[00:22:59]Mike Philbrick: So, you guys do have some programs?

[00:22:59]Mark Yaxley: So yeah, we do have a program here. I won’t spend a lot of time talking about it. But if you do hold fully allocated, fully segregated gold, silver with us, you can borrow cash against that. So we match the borrower or our client with a lender, and usually they’re one year terms. Loan to value ratio is 75%, so there’s very little risk to the lender, because they know the underlying asset is gold and silver and we have margin calls in place to protect them. And the borrower, you know, with questions free, simple application, a lot less troublesome than going to a bank for a loan. A lot faster than, here in Cayman, they can borrow up to 75 percent of the value of the loan.

[00:23:38]Adam Butler: The metal.

[00:23:38]Mark Yaxley: Right. Yeah.

[00:23:40]Adam Butler: So this is private loans. Private individuals are making those loans. I see. Interesting, yeah. As opposed to, again, is to revisit how this is typically done. At a bank, your gold is co-mingled and the bank is going to loan against, well, the bank’s going to co-mingle the gold as assets on their balance sheets, and then they’ll make a loan against their balance sheet. And so there’s no segregation on either side, whereas this is a private arrangement that…

[00:24:10]Mark Yaxley: Yeah.

[00:24:10]Mike Philbrick: That’s neat. Well, what’s the client mix here? Is it, is there, is it all retail? Is there retail in some institutions? Are there funds that store their gold here or in other vaults around the world that you guys have arrangements with? Not to mention any names, obviously, that’d be upside. But what’s that institutional/retail mix?

[00:24:29]Mark Yaxley: Heavily retail. I would say 90 percent retail. We’ve got some trusts in here, some foundations. Very little institutional business. Institutions, in terms of gold, tend to look for exposure in other ways, and that’s just, you know, a different mentality. It’s a different crowd, and so they tend to stick to their own. You know, they’ll go to the financial institutions as custodians for metal in general, and there’s, again, there’s, I’m not going to say that’s the unwise choice for them. They have those relationships, but, … came in, also this isn’t, it’s not an LBMA approved facility, which means all the metal that is stored here is outside the chain of custody, they call it. So yeah, most of those funds will use vaults that are COMEX and LBMA approved.

[00:25:18]Mike Philbrick: So then how does gold re-enter the system? Is there a testing process? How does it like, so there’s the gold bars behind me. They now go, someone decides to sell them. There’s the state, whatever. They reenter the, what did you call it? What, chain of custody?

[00:25:32]Mark Yaxley: Chain of custody, yeah. Chain of custody. So there’s an agreement amongst certain financial institutions and members of the LBMA and the COMEX that they’ve decided that the Brinks facility in Jamaica, New York would be considered a COMEX approved facility. And so anything that enters that facility and doesn’t leave would be considered within the chain.

So, in the case of these 400 ounce gold bars, if they were to be repurposed, or try to reenter the chain, they actually have to be melted, recast by an approved refinery and then deposited into one of those facilities. So, that’s another reason. And Cayman is not, it’s not a hub. This is a long-term storage depot. This is the offshore side of the world.

[00:26:09]Adam Butler: …

[00:26:10]Rodrigo Gordillo: So, what about, I know that you guys have arrangements with other vaults, globally. So is there a way to kind of send your gold to somebody else, or simply do a swap? You’re in, I don’t know, Germany. You want to take out some of your gold bars and there’s a program?

[00:26:29]Mark Yaxley: Yeah. Two ways to do it. You can either ship it. So you do that through common carriers like UPS or FedEx. And I know people shudder immediately, because FedEx got left at my front door. It’s fully insured, adult signature required, all those kinds of things. We only ship to the United States and Canada.

We don’t ship via FedEx to many countries because of corruption, or issues at the border. Criminality, all that stuff. We’ll also deliver to any vault around the world. So any vault within a recognizable network we’ll deliver to, but the easiest way to do it is the location swap. So if you had a 400 ounce gold bar here in Cayman and you wanted the equivalent amount of ounces in Singapore, we’ll do a weBuy transaction here. We’ll buy it from you. With the proceeds, we’ll sell you the gold in Singapore. It’s a very easy way to do a transaction. And you know, one of the benefits for the client is they avoid, what our clients would consider, a paper trail, where metal is flowing out of one country into a new country. They kind of, they like privacy and confidentiality. So we can execute that swap for them.

[00:27:28]Rodrigo Gordillo: So one imagines that if I grab my gold bar, put it in my pocket and head to the airport, you have to, you have more than $10,000 worth of currency, but there’s no issue taking my bar from here and somewhere else, with the exception of the fact that I’m probably going to be on a list somewhere. Is there, like, if I walk in with a bar into Canada, and it’s personal property…

[00:27:51]Mark Yaxley: Another beautiful thing about personal property is, as the owner of that personal property, a very strong, from a legal perspective, a lot of support in your benefit. The government has no title to your personal property without doing, you know, if you had committed a, they could tie it to a proceeds of crime. But I’ve traveled with gold, silver many, many times in my career.

I actually enjoy doing it once in a while, just to get kind of the rush of re-testing the system. Like, what are they going to ask me? What forms are they going to fill out? How difficult is this? And generally it’s very simple and they know your rights. I mean, these guys are, if there’s one thing that the customs guys are trained for, is they know when you’re within your rights and you know, I’ve done it at JFK, New York, one of the roughest airports to enter. You’re entering the United States, they treat you like garbage.

And then you’re like, oh, I have over $10,000 worth of gold bars in my backpack. And they’re like, well, let’s go have a chat. And honestly, they take a look at it. Like, where are you going? Going home to Canada. It’s personal property. Like, hey, have a good day. Thanks for letting us know. So if you don’t declare it and then they find it, so that’s when you’re going to have a longer conversation.

[00:28:53]Rodrigo Gordillo: And so, the fact that, so now that you’re stopped all the time for no apparent reason at, you still think it’s a good idea?

[00:29:01]Mark Yaxley: I’m not actually, believe it or not. I don’t have that problem. Usually security, when you go through security, it’s going to come up on the x-ray machine as a very dense material in your backpack. And that’s really the point where you’re going to have the longest delay, is the security guy’s going to want to check your bag. And she, or he or she doesn’t have any idea what they’re looking at. So, you usually have to tell them what it is.

[00:29:22]Rodrigo Gordillo: Sorry to interrupt, but I did want to take a quick second to remind listeners that while we do absolutely love providing our audience with world class guests and weekly investment insights, we wanted to remind you that we actually do our best work outside of this podcast. And we try to do this by providing cutting edge, globally diversified, and systematic investment strategies that are designed to be broadly non-correlated to traditional equity and bond portfolios.

So we actually manage private and public funds as well as bespoke, separately managed accounts for investors that seek the potential to smooth out portfolio returns in the long run. So if you do want to see that theory that we’ve been talking about put into practice, please do go ahead and check us out at www.investresolve.com. Now back to the podcast.

That’s very interesting. I mean, the fascinating world of, traveling with gold, would it be any different with currency? Probably be a process.

[00:30:13]Mark Yaxley: No, you just have to declare it. It’s the same thing on that declaration form. Usually it says cash or equivalent, which you know, in most places they consider gold or silver an equivalent, and platinum.

[00:30:22]Rodrigo Gordillo: Palladium, silver?

[00:30:23]Mark Yaxley: It’s private property. It’s private property. You have to know though, in most countries, those are considered industrial metals because they have industrial applications. You know, silver has many, platinum. Palladium obviously is almost exclusively for industrial purposes, so generally subject to VAT in Europe. It’d be like, well over 22% I think, came in as a 22% tariff on palladium and platinum bars. So again, you just need to do a little bit of homework before you show up with the…

[00:30:54]Mike Philbrick: Okay, those matter. So silver as well is in the industrial side. In certain countries in Europe, in the EU, it’s considered an industrial metal. And so that attracts the industrial side of it, and the VAT tax. So only gold is the actual currency.

[00:31:08]Mark Yaxley: Gold is very rarely taxed in most countries. Actually I said, Oh, the big asterisks.

[00:31:12]Rodrigo Gordillo: So exactly. So that’s again, another incredible use case that humanity has put around gold as a unique asset. I mean, absolutely fascinating. Cool.

[00:31:25]Mike Philbrick: Well, what’s the mix for SWP in those, are you allowed to say approximately? Do you, platinum, palladium, silver? Is there…

[00:31:32]Mark Yaxley: It’s, inside this wall, if you looked around, you’d probably think it’s mostly silver, but it’s about 80 gold,17 silver and 3% platinum, on a value basis. On a value basis, yeah. In terms of ounces, definitely silver would, yeah.

[00:31:48]Rodrigo Gordillo: So, just out of curiosity for the group here, do you, think back as to the properties that gold has, that has made it as prominent as it has for society as a whole? Do we have any idea why gold over anything else? Like, is there a strong case for it, or is it an emergent phenomenon?

[00:32:05]Mark Yaxley: Is this, you’re talking about like the 6000 years of progression of gold. Or why was gold so important until about 100 years ago? Well, you guys, this is a round, easy one. I mean, one of them is, it’s an asset that doesn’t deteriorate easily. Gold doesn’t rust. For example, you find, you see those hidden treasures at the bottom of the ocean. They pop open the crate and it still looks like gold. You’re like, that’s amazing. It hasn’t deteriorated in any form. So obviously it has longevity, which is one attribute, malleable, fungible. I mean, it’s funny, now they call crypto, or specifically Bitcoin, kind of digital gold. I find that really amusing, because they love hating gold but then they’re like, they go and steal it, and they actually put a little gold coin with Bitcoin on the front.

[00:32:50]Rodrigo Gordillo: Good marketing. Yeah. And I think the other one is that it happened to be kind of spread out around the earth’s crust in every area of the world, right? So it became…

[00:33:05]Mark Yaxley: I mean, it is a little bit unnerving when you watch documentaries about how much earth they have to really destroy the planet to get it. And obviously nobody likes seeing that, but, it’s not why I got into the business, but definitely become a reality as I’ve learned more about that industry. It is destructive.

[00:33:26]Mike Philbrick: Well, I mean it’s, yeah, lithium, I mean, being Canadian, we’ve seen a few tailing ponds and oil and gas and all those types of things.

[00:33:37]Adam Butler: So, a low melting point. Definitely, that’s a useful feature. And then of course the amount that’s mined every year is a vanishingly small fraction of the total amount that’s above ground, right? So there’s just no, over time, right, and it’s almost used. It’s not used hardly at all for industrial purposes.

[00:33:56]Mike Philbrick: Right.

[00:33:58]Adam Butler:…

[00:33:58]Mike Philbrick: That’s a great point in sort of, maybe addressing specifically the idea of that stock to flow type of thing, and the fact that the money supply changes in far greater magnitudes, than does that. So if we’re going to double the money supply in the world, we didn’t double the number of these gold bars, so it has some implications for the price long-term, which is probably why over 6,000 years again, that durability. That ability to be a malleable, ubiquitous-ness around the world, put a governor on, or as we go through the fiat currency world, I mean, this is the appeal.

[00:34:44]Rodrigo Gordillo: It’s just not easy to replicate. And a key reserve for any major, political power, right? So that everybody has little bit of gold.

[00:34:53]Mike Philbrick: Well, it’s amazing that political powers, or the reserve banks of the world have been acquiring more gold of late.

[00:34:59]Rodrigo Gordillo: Yeah. So let’s talk a little bit about the influences of the price of gold. If we can unpack some of that. Have you guys, I know you’re mostly on physical and trying to provide a service, but what are the drivers of gold broadly speaking? And then maybe we can get into what we’ve seen recently.

[00:35:18]Mark Yaxley: Yeah, I’ll just kick off the conversation with few talking points. So from a production standpoint, it is fairly stable, year to year. It might fluctuate 5% give or take, but it’s very stable. Obviously the market determines how much activity the mining –  the market price will determine how active mining companies are and so on.

Central bank buying has really been the key headline in the last year, providing a floor for the gold price. So China, Russia, some Middle Eastern central banks are loading up and the, from the commentary I read, it’s really based on geopolitical risk. So you’ve got, obviously you’ve got a major conflict in Europe. Now you have second conflict in the Middle East. You’ve got the BRIC countries, you know, becoming more influential potentially. You may be, closer to home in the States, you’ve got an election coming up.

So all these things factor into central banks and why they might accumulate these assets on their balance sheets. And that’s really been what’s, or I should say, supported the price of gold, even in the raising interest rate environment that saw, which is typically really bad for gold, that’s a lot of pressure on gold. So that’s one thing that’s definitely influencing the price right now.

[00:36:22]Adam Butler: When they carved Russia out of the SWIFT system, that I think put a lot of global central banks on alert, because it then was a signal that the West was willing to use the monetary system as a lever to exert control, political control.

[00:36:40]Mike Philbrick: Selective default, basically, right? So when you think about being selectively defaulted on by the US government on your Treasuries, all of a sudden you start to think about, wait a second, are my assets mine or are they, where are they held again?

[00:36:54]Adam Butler: Yeah, if you’re a non-cooperative state, then conceivably the Treasury could shut down interest payments, or fail to redeem the value of the coupons, or what have you. Yeah, absolutely. That’s a good point. So it definitely is used as a political lever.

[00:37:10]Rodrigo Gordillo: And then the other areas of influence that I see, that I think tend to confuse people, so I definitely see gold as having this unique property for periods of duress and political turmoil. But all things equal, when that’s calm, what you end up seeing is a correlation between the gold price and real returns. I think that the way gold has moved in the three…

[00:37:36]Adam Butler: Rates, you mean?

[00:37:37]Rodrigo Gordillo: Sorry, the way gold has moved in the last two to three years has confused a lot of people, post 2020, during COVID because you saw kind of a thrust up. Then you saw demand pull inflation on the commodity front, while gold flat-lined. And now it’s been affected mostly by geopolitical and real returns, right? So what you tend to see is as real rates go down, gold appreciates, which makes sense, right? You’re not getting, your real money isn’t giving you any real returns, you go to gold. As real rates go up, as they have been, this is the confusing part, right, As rates went up and the Fed was actually willing to pay you more for your cash reserves, gold went down.

So there is that correlation between those two things that I think often times confuses people. And then the third point of discussion, that I was in Toronto the other day with a mining friend, and he was completely baffled by why gold was doing well, but the gold miners were not. And again that’s, going back to gold miners, even the ETF, a diversified set of gold miners, you have to disaggregate the actual physical underlying metal and the business that they’re running. And what that means, if you’re in a negative economic growth shock and there’s less people doing business, you are going to get hit in the operating revenues.

So those are kind of in the areas of gold, I think, levers that people need to understand so that they can translate what’s going on with the price of gold. And it’s not just geopolitical, it’s not just real rates. and especially when you bring the gold miners, you got to take into account the fact that it’s not a pure stock beta. It is stock beta and it’s levered. levered on their cashflow.

[00:39:18]Mike Philbrick: You couldn’t get people to the mines during COVID. Like, there was a mining, a human shortage. of, workflow, workforce, There are all kinds of fun stuff that happens when you’re operating …

[00:39:32]Adam Butler: I think also it’s worth mentioning that, gold has failed to make new highs. Well, it just recently made a very quick new high, right? But it’s made new highs in virtually every other currency except for the US dollar, right? We’re sort of waiting for that secular breakout in US dollar terms. I guess people are still maintaining sufficient faith in the Fed’s mandate to preserve the value of the currency.

[00:40:00]Mike Philbrick: Well, and be able to pay it back in dollars that are worthwhile.

[00:40:02]Adam Butler: That’s right, and they aren’t nearly as certain about other central banks.

[00:40:05]Rodrigo Gordillo: Well, inflation is higher in other countries than it is in the US. I mean, the US has done more to curtail inflation than European countries. They stopped …

[00:40:15]Adam Butler: That’s true. But also the, some of the other countries are not as strong economically, so they can’t afford to raise rates sufficiently, despite the fact that they’ve got these, this high inflation. So they’re still at negative real rates, whereas the US economy was sufficiently strong to raise rates above the rate of inflation, and therefore protect the value of the currency. So it’s definitely been an interesting couple of years from that perspective.

[00:40:40]Rodrigo Gordillo: But again, it just speaks to, as a diversifier, what is it diversifying against, right? We, there’s a lot of confusion about what inflation is. A lot of things. And gold does protect a certain portion of inflation. It’s devaluation of currency versus other types of inflation, like what COVID, when COVID hit and we had supply lines be hit, and we had a lot of demand because there was a lot of money in pockets. That was a demand of goods at a time where there wasn’t enough supply. So, commodities and other things are going to help you in that environment, and not necessarily gold. It’s just too many people give up on it because they feel it’s supposed to be one thing and it doesn’t, so I’m …

[00:41:19]Adam Butler: You know, that’s a feature, not a bug, I think, that so many people miss, right, the fact that gold doesn’t trade for the same reasons, and in the same direction, at the same time as other commodities. That’s why it’s such a unique diversifier. And I mean, the Golden Rule, so to speak, of portfolio theory is you want to find as many truly uncorrelated, diversifying asset classes as you can, and hold them in the right balance in your portfolio. That’s diversification, right? And that’s why gold is, I think, so strangely underappreciated. It really is completely different. I like the way Don Coxe characterized gold as the only asset that is no one else’s liability, and it really does serve that purpose, right? When you have some, you know, any sort of debt deflation or, Japan explicit, the … plan explicitly said, we are going to sacrifice the value of the yen. And the benefit of gold is that it’s a stable denominator against all currencies, right? And so, you know, gold exploded higher against the yen. The yen fell in value also against the US dollar because the US dollar is still considered to be stable. But at some point, it could very well be that the Fed has to decide between having, saving the fiscal situation of the US, or defending the currency, and you can’t do both. That’s what happened in Japan. And we may very well come to that in other jurisdictions.

[00:42:50]Mike Philbrick: And in South America.

[00:42:51]Adam Butler: Oh, yeah, of course.

[00:42:52]Rodrigo Gordillo: Sorry to interrupt, but I did want to take a quick second to remind our listeners that, the team works really hard on these podcasts. We spent a lot of hours trying to get the right guests and we do a lot of prep work to make sure that we’re asking the right questions. So if you do have a second, just do hit that Subscribe button, hit that Like button, and Share with friends if you find what we’re doing useful.

Thanks again. Now back to the podcast.

So, let’s explore as to why, when you think about asset allocation, there isn’t a lot of demand for anything outside financial assets, and I think the main point is the fact that people see that you get a return on risk for equities. There is a yield that, there’s a dividend. There’s a return on bonds with whatever yield you’re getting, a real return that we’ve seen historically.

And the question really is, I think in most allocators’ minds, is why would I allocate to gold and commodities that do not, don’t seem to provide any sort of cash flow, and I think that’s why people stop at equities and bonds. What, you have any thoughts on that? Does anybody here have any thoughts on that?

[00:44:00]Mike Philbrick: Well, first I would say, it, a little bit is of where you are in stopping there, right. We just talked about South America. If you’re in India, obviously there’s a huge culture of accumulating gold as an asset, whether that it’s a little bit different, I think it’s more jewelry oriented. But so there is, there are specific and different cultural differences, I think, across various cultures in the world. But when you start to talk about the most hyper-financialized economies of the world, you start to see I think, exactly what you’re saying is that there’s this what’s the cash flow connection? And then you get in a situation where you had a long disinflationary period that it didn’t have a lot of inflation, that you saw opportunities for globalization that enhanced, the profits that were coming from those businesses, enhanced the ability for bonds to both pay their interest, but also have a falling, predominantly falling interest rate. And so during that regime, you have this sort of the perfect storm, for those stocks and bonds that are cashflow oriented assets. And so you do end up having a habit in those areas, and those financialized areas to say, well, yeah, why would I have gold? It’s been nothing but something that’s been an albatross around portfolios.

[00:45:29]Adam Butler: Barbarous Relic, right? When none other than Warren Buffett says that nobody should own the Barbarous Relic, then I mean you can certainly figure out why many people have shunned it over the years. I want to be respectful of your time too, because …

[00:45:45]Mark Yaxley: No

[00:45:45]Adam Butler: …we’re past…

[00:45:46]Mark Yaxley: We’ve got a couple more for…

[00:45:48]Adam Butler: But I mean, it does serve a unique role in portfolios and, but I also, discounting, people just have very short memories. What’s done well lately, what has hurt me lately, and you know, you chase the hot asset. What’s ironic, of course, is that gold has sort of quietly crept higher, delivered returns somewhere between stocks and bonds. Commodities over the long term, if anything, have been a bit more questionable in terms of their real return value. But gold has steadily preserved value and actually delivered returns above the rate of inflation, even the US dollar’s. So, it is a bit of a mystery why it’s not more widely held in portfolios.

[00:46:36]Rodrigo Gordillo: Well, I just think the link, terms of logical connection, to why it would give us an excess return or any sort of cash flow is…

[00:46:43]Adam Butler: Well, and I think, yeah, because it’s a deep risk that only sort of manifests once every 70 or 80 years, not enough cycles to give it statistical or quantitative basis. You can’t get a look, sort of look historically, and say well, you know, gold does well. You can look at the correlation between gold’s big spikes and other asset classes. how many big spikes have we had in gold? They happen to, they typically happen during forced currency devaluations or coordinated currency devaluations among many developed economies, that sort of thing, right? So because of the sort of spiky nature of the risk that it protects against, I think it’s, it’s hard for people to price.

[00:47:26]Rodrigo Gordillo: So Mark, what is, when it comes to gold production on a given year, what percentage of new gold are we pulling out, you know the…

[00:47:38]Mark Yaxley: I don’t know that number. No, I don’t. I don’t know that number offhand to be honest. Yeah.

[00:47:43]Rodrigo Gordillo: Because I wonder if when you, what’s important here is real return on any asset. And if productivity is outstripping the amount of gold that we can produce, then that would…

[00:47:54]Adam Butler: It’s a vanishingly small percentage…

[00:47:56]Mike Philbrick:  I think it’s…

[00:47:58]Adam Butler: … that’s produced, and yes, some of that does go into manufacturing.

[00:48:02]Rodrigo Gordillo: So if all the … is above that, then that would create a deflationary asset that would increase it’s price. It would just be, a smaller amount would purchase more, from a just pure productivity perspective. And that could be the estimation for real return. And then above and beyond that, if there’s outsized returns from a nominal basis, it is connected to geopolitical risk and inflating away your currency, right? So if we can make those links and, you know, from a portfolio theory perspective, I think we can get more people on board, but there’s I’m sure, many things written about that and more that we can talk about.

[00:48:37]Mike Philbrick: Right. I mean, Dalio’s quip famously is, if you don’t own gold, you either don’t understand economics or history. Yeah. I mean, it’s a quip, but it has, I think there’s some germ of knowledge in that.

[00:48:51]Rodrigo Gordillo: Yeah, and just to reiterate, let’s assume that it doesn’t. Let’s remember that there is a yield that you can extract from non-correlated volatile assets just from simply rebalancing. And we wrote a paper called Optimal Commodities that gets into the types of yields that you can achieve from non-returning commodities simply because they’re different and they, and different timescales, we kind of go through, I think, daily, weekly, monthly, quarterly, yearly. And you will see yields just purely from rebalancing between 0.5 up to 4%. So that’s another area that’s just pure entropy and mathematics, that is just too difficult for people to comprehend, right? So again, gold plays an important role and I’m glad we were able to sit down talk about it today.

[00:49:41]Mark Yaxley: Yeah, no, glad you guys came in.

[00:49:43]Adam Butler: Thanks for sharing ideas. Well, thank you so much for hosting. It’s quite an amazing, quite a place to have a podcast.

[00:49:48]Mike Philbrick: I think people should remember if you don’t know the serial number on your bar, it’s not your bar.

[00:49:53]Rodrigo Gordillo: But don’t have to memorize.it.

[00:49:59]Mike Philbrick: Yeah exactly 27, what is that, how many, tell you 12 words?

[00:50:02]Adam Butler: Where can people find more info on you and on SWP?

[00:50:05]Mark Yaxley: Sure, swpcayman.com is the website. I’m on Twitter. I don’t have that many followers. I don’t tweet that often.

[00:50:12]Adam Butler: If you didn’t say that, no one would…

[00:50:14]Mark Yaxley: Yeah, exactly. But, you can find me @yaxleyyax on Twitter. Try to spell that. If you spell that, that’s why I don’t have a lot of followers. Nobody can spell it.

[00:50:24]Rodrigo Gordillo: You have programs in the US for qualified accounts to buy gold as well, don’t you?

[00:50:28]Mark Yaxley: Yeah, we have few, kind of secondary offerings. People can own gold in their IRAs. Not enough Americans know about that. Not nearly.

[00:50:38]Mike Philbrick: Canadians, really? So in a registered account in Canada, you can actually own physical? I thought you would have to go through some of the physical fund ownership .

[00:50:44]Mark Yaxley: Folks, you can buy gold and silver produced by the Royal Canadian Mint in your, for your RSPs or TFSAs in Canada, in your IRAs in the States. Actually, we store IRA gold here in the Cayman Islands, believe it or not. So a few interesting ways that you can work it into your portfolio.

[00:51:01]Adam Butler: Not Irish Republican Army, just to be clear.

[00:51:06]Rodrigo Gordillo:  Awesome. Well, thanks for letting us come into your vault. This is a real treat, and we hope to do it again sometime.

[00:51:15]Mark Yaxley: Next year.

[00:51:16]Adam Butler: Silver and gold, it’s the Christmas edition.

[00:51:17]Mark Yaxley: Happy holidays, everyone. Alright.