ReSolve Riffs Digs into Physical Precious Metals with Mark Yaxley

This week we had the pleasure of hosting Mark Yaxley, founding partner of Strategic Wealth Preservation, which specializes in the acquisition and storage of precious metals for investors around the world. He also brought his team member Philip Zappacosta to the conversation, which covered topics that included:

  • Mark’s journey through the commodity space, before founding SWP
  • The reasons that drive investors to own physical precious metals
  • Different wealth objectives – creation vs growth vs preservation
  • Property rights and jurisdiction considerations
  • Understanding the role gold has played throughout history
  • Watching the behavior of central banks
  • Why loyalty to an asset-class doesn’t always stem from being “bitten by a bug”
  • Why gold should be considered true money
  • The role of other precious metals in portfolios
  • The densest precious metal that you probably never heard of
  • Silver – hundreds of industrial applications, less attractive in Asia and Europe and likely the most underpriced today
  • Bar sizes, purity, utilities and different premiums
  • The importance of holding smaller bars for liquidity – fractional ownership in the physical space
  • Why gold hasn’t performed as expected in a year of high inflation
  • When to invest in futures, ETFs or miners vs outright physical metals

Thank you for watching and listening. Happy holidays, see you in January.

This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.

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Mark Yaxley
General Manager, Strategic Wealth Preservation

Following the completion of his studies at McGill University, Mark joined world-renowned Kitco Metals in 2006, serving as their Product Development Manager and Product Marketing Manager until 2013. Mark joined Strategic Wealth Preservation in 2014 and now serves as the General Manager, focusing on the diverse needs of SWP’s high-net-worth and commercial clients.

TRANSCRIPT

Mike:00:01:39All right. Good afternoon, gentlemen.

Rodrigo:00:01:40All right. All right.

Mike:00:01:44Cheers.

Mark:00:01:44Hey, guys.

Phil:00:01:45Good afternoon. Cheers.

Rodrigo:00:01:46Cheers. Cheers. Cheers. How’s everybody doing?

Mike:00:01:49Today, we have with us. Mark Yaxley. Is that — I’m pronouncing that right, Mark?

Mark:00:01:56Very close, Mike.

Mike:00:01:58Okay. Give it to me better.

Mark:00:02:00It’s Yaxley. It’s old English, means cuckoo over the hill. You can call me Yax. A lot of people …

Mike:00:02:05I love it. Yaxley. And you brought a special guest along with you. Again, because you were a late addition, I’ve forgotten your name.

Mark:00:02:14Philip Zappacosta.

Phil:00:02:16Right. Yeah. Thanks for having me.

Rodrigo:00:02:17So, both easy names. Thanks, guys.

Mike:00:02:19Yeah. Zappacosta. That’s a good handle.

Mark:00:02:23Yeah. His uncle was a famous entertainer actually.

Phil:00:02:26Yeah, yeah. Canadian singer, Juno Award winner. Don’t ask me to use my pipes though.

Mike:00:02:35Yeah. And you guys are both with Strategic Wealth Preservation, which is a precious metal’s custody, I guess purchasing, selling, owning, storing all the things relevant to precious metals, and in particular, the physical side of precious metals ownership, custodianship, the uniqueness of the bare asset and all the kind of crazy and interesting things that come along that side of that very unique asset class. Do I have that about, right?

Mark:00:03:09That’s about right, yeah. We basically touch on everything that is physical, precious metal. So, if you’re looking to acquire metal, if you’re looking to store metal, or you’re just looking to move it around the world, from Singapore, to Grand Cayman, we do all of that. So, pretty much anything that touches physical metal, we’re involved with.

Mike:00:03:28You know, what’s interesting too, as I was watching you, and we’ve got that little introduction video, and talks about sort of the FOMO markets and how sometimes the market that you may like the most or be most familiar with, isn’t always the market that does the best. And I think having you guys on today to talk about just precious metals in general as an asset class that should be considered within portfolios. And Ray Dalio says anyone who doesn’t own some amount of precious metals either doesn’t understand economics or history. So, you’ve got some pretty large investors who are quite vocal about having some allocation to this large and unique asset class. So, we’ll dig into that a little bit more.

But really, I was listening to that, just thinking of having you guys on, or that you’re coming on, and how interesting that was just thinking about 2003 to 2011, which were a, you know, sort of a huge sort of bull cycle for the precious metals area. And I can remember people being so excited about gold and so excited about all the equities that went along with that, right. And then from 2011 to today, we’ve had kind of a cooling off of that. And if you look at stocks relative to gold, if you do any of those ratio charts and things like that, I don’t know if you guys are going to show us some charts today. So, you’re certainly able to do that.

But you can see that that transition of FOMO that has gone on over the last decade, with people getting very excited about precious metals. Precious metals weathered the 2008 storm very well. People don’t remember that gold bottomed in October and was like 35 or 40%, higher by March when traditional markets didn’t bottom in October, they bottomed in March the following year at lower levels, and how that diversity of that asset class really adds value to overall portfolios. And I fear at the moment that we’re sort of tilted on that other side of the spectrum, meaning largely, investors are driven by a little bit of recency bias that feeds a little bit of overconfidence, bias. And they’ve either reduced their gold positions or precious metals positions, maybe even eliminated them in some cases.

And or just haven’t rebalanced back to a target reasonable weight if they’re doing strategic. Or if they’re doing some sort of tactical, are they even considering it as an asset class, just generally. So, lots to dig in there with you guys. But that’s sort of my initial foray as we begin the discussion just to sort of frame the conversation. I’ll throw it back to you guys for some more.

Backgrounder

Rodrigo:00:06:12Yeah, I’m — just actually would love to, before you give us your thoughts on that. Because I think you guys are qualified to discuss all things precious metals, why don’t you give us a bit of your background? I know, Phil, you’re just purely in entertainment. You and your family travel with the circus. Now, why don’t you guys give us your background, what you’re focusing on today in your area, and then let’s, give you — hear your thoughts on that space?

Mark:00:06:39Sure, I’ll start it up for us. So, my background is really finance out of school, and then that led me kind of in an indirect path, I ended up at KITCO Precious Metals back in 2006. And I’ve been working with gold and silver every day in my life, even on the weekends, it seems, since 2006. I have touched many different areas of the industry from product development to the marketing and sales side. And now I’m a founding partner in Strategic Wealth Preservation in the Cayman Islands. So, it led me all the way from home in Montreal, down to Cayman and across the world along the way.

So, my focuses at this point are trying to grow our business, Strategic Wealth Preservation, strategically, to try to diversify and add new products and services to a business that’s really timeless. It’s gold and silver, we don’t reinvent ourselves very often. It’s one of those businesses that’s been going so long, that there’s not a whole lot that’s new and exciting. But we try to find those opportunities and those value-add services for our clients. So, that’s really my focus these days.

Phil:00:07:46Yeah. So, my background’s in finance, as well, I studied in university. And then I was involved in some family businesses in Canada that were involved in some real estate investment, as well as retail luxury clothing. So, that’s where I started. And just over a year ago, when I was actually looking for a special location to actually be a client and purchase some precious metals, I come across SWP Cayman. And one of our colleagues actually is an acquaintance of mine. And I really was attracted to them being domiciled in the Cayman Islands, and having that privacy component. So, that was what attracted me initially. And then, with such a great team, I got involved, and now I’ve been involved for just over a year.

Mark:00:08:38So, Phil is one of our sales guys. So, he’s dealing with clients. And that’s why I thought it’d be cool to have him on today with you guys is that he speaks to clients about buying and selling gold and moving gold around the world. So, he can kind of answer some of the, kind of like what’s the word on the street, what are people thinking, why are they buying; Phil has those conversations every day. So, I thought I’d be interesting to have him on.

Clients Prefer Privacy

Rodrigo:00:08:59Well, let’s do that then. Let’s talk a little bit about that. What is the feeling right now — I know Toronto and Canada is unique. There seems to always be a gold tilt in most people’s minds there. So, it’s an easier conversation generally. But how are people thinking about that privacy in that silver and gold position for their, like, actual physical exposure to that? What do you see in the zeitgeist?

Phil:00:09:30Yeah. Rodrigo, I think what’s been happening lately is that people are concerned about financial institutions, and about bank valence. That’s definitely a prevalent concern in the US and with our Canadian clients. So, what we’ve seen is there was, for a long time, there’s a lot of over the counter business in precious metals, where clients could go to a bank and physically buy metals. That business has dwindled a lot and people are looking for an offshore option, namely, because they want to have some of their wealth outside of the mainstream financial system, because they’re concerned about inflation, they’re concerned about the current state of that system. So, that’s what we found is that…

Mike:00:10:17Are they concerned about confiscation as well, in that circumstance?

Phil:00:10:21That is definitely a concern that gets raised. I mean, there’s reference to when that happened in the United States in the past, that gets addressed, quite often. I think it’s a pretty remote chance that that’s going to happen. But nonetheless, you can never be too prepared. So, I think people do have that in their minds. And that’s why they’re looking for a jurisdiction that is more favorable to owning physical metals.

Mike:00:10:50Yeah, the property rights around the physical metals. And the reporting requirements. I understand that holding it in Cayman, as an example, is a very interesting way to sort of be outside of the, I’ll call it more OECD type of net with respect to any other kind of currency. So, someone calls in, and so you’ve seen a pickup in the purchases of physical metals over the last year, call it, with the significant amount of money printing, call it, from central banks around the world. Have you seen that sort of surge in interest?

Mark:00:11:31Yeah. What’s interesting, Mike, is you kind of nailed it earlier is that gold is one of the asset classes that people, first of all, I have found tend to either not have any knowledge about, any real knowledge about, which is a big challenge, obviously. If people don’t understand something, they tend not to invest in it. But it’s also one of the asset classes that in the modern world, people tend to hate on a little bit. Gold tends to get a rap, especially when the crypto, when the digital assets showed up, they needed someone to compete with and needed to try to create credibility. So, they started picking at gold right away.

But what’s interesting is that working in the industry, is that we see that there’s still a lot of underlying demand for physical precious metal, not only physical, obviously, there’s a paper market that’s massive. But really, that there is still strong demand for physical metals. And that has been really prominent since COVID became a thing. That was like an overnight event looking back at, like, February 2020, it’s like things just ramped up 300-400% in terms of physical demand in the north …

Rodrigo:00:12:40Starting in February.

Mark:00:12:41Starting as early as February.

Rodrigo:00:12:43Before the lockdowns and all that.

Mark:00:12:45That’s when we started…

Rodrigo:00:12:45Before we even knew it was a thing.

Mark:00:12:47Gold bugs are pretty paranoid investors, right. And they do tend to — I mean, these are people that are self-directed. So, they manage their own money Yeah, yeah. Yeah, I mean, I can say it. I’m one of them. So, I can call us whatever I like. But you know, these are people that they do read a lot. They are contrarian so they’re always analyzing, they’re always trying to pick apart the news, they’re trying to make sense of what’s happening in the world, right or wrong. But as early as February, we start to see an uptick. And then March, April, May, June, all summer 2020, it was the year of the decade for precious metal dealers, in terms of demand. And it’s only down about 10 or 20% from the volumes we saw last year.

So, it’s still a very strong underlying market. But it’s quiet because people look at the ETFs, they’re like ah, net outflows in ETFs. You know, everybody’s looking at other ways you look at the equities markets. And like you said, it’s easy to forget about gold, but the thing is, it’s always there. It’s always present. And it’s really doing exactly what it’s supposed to do. It just happens that right now is not one of those times that gold performs particularly well, because equities are performing very well or have performed very well.

Rodrigo:00:13:51Right.

Mike:00:13:52And then, so I’ve got lots of questions, actually. So, I’m just trying to figure out what’s sort of the next — So, we’ve got a certain type of investor who is thinking of precious metals, you’ve seen an uptick in that. When someone initially comes to you, let’s kind of start at the beginning or the evolution of a gold, I don’t want to say bug. I don’t like the fact that gold sort of polarizes folks. It’s an asset, it trades, it’s been around for 5,000 years, it’s 10 trillion in AUM. You know, silver’s a trillion. You got palladium, you got industrial complexes that underlie the demand for these items.

So, I think it trivializes things when you sort of say a gold bug. I don’t like that. But those who are enthusiastic about owning some physical gold in their portfolios, how do they travel the sort of dimensions of acceptance? Like, where do they start, do they start small, what’s their mind process and thought, how large do they usually get as their portfolio? What’s your experience been with folks getting into the physical side, sort of as a different use case or a different case than, you know, buying it as an ETF and whatnot?

Mark:00:15:11Yes, that’s a good question. Maybe Phil, you probably have your own version. I’ll give my short version answer to that. I think Ray Dalio referenced history. If you do study history, you will understand the significance of gold, not only for private investors, but also central banks, how important it is, on a world political stage. It’s really a large bargaining chip, when things get real in the world, and that’s why central banks continue to accumulate massive positions of gold, you know. So, I think, if you understand, if you’re a student of history, as a lot of investors are, they will have an appreciation for gold to begin with. It’s probably been introduced to them at some point in their life as well. There’s probably someone around them. I hear this a lot.

You know, we did some pretty deep dives into client behavior when I was with KITCO. And it was like, stories like my grandfather had a coin collection, someone in my family introduced me to this. Or Rodrigo, you could probably appreciate this, someone in their family went through hyperinflation. My wife’s German, on her side of the family, they talk about hyperinflation. They still remember that things were tough back then. And those lessons are passed down within families. So, it may not be kind of the mass retail investor that’s familiar with these stories, but there is a segment of the population that this is very real to them. And that’s kind of the starting point, often for gold and silver investors. And once that message has been ingrained in them, and they’ve held physical metal in their hands, like you guys have probably at the vault not too long ago.

Rodrigo:00:16:45Yeah, we should talk about that.

Mark:00:16:46I think it becomes real and it’s like, the gold bugs and I hate to use the term too, because it demeans these very intelligent, you know, very wealthy people in some cases. But once they become loyal to the asset class, it’s something that they tend to hold on to their whole lives. Whether it’s performing well or not, it’s a diversifier that they love having their portfolio. They sleep well at night, knowing that they have it. So, that’s kind of my take on it.

Rodrigo:00:17:12So, I had an interesting discussion with an Argentine client, who, this guy hit it out of the ballpark, right? Like he was — when I first met him. 15 years ago, he had absolutely nothing. A farmer in Argentina in the Salta region. And slowly would hand me kind of stock certificates, put this in, you know, I’m building up this company, see how it goes? Fast forward 15 years, the guy’s worth multi-million dollars, right? And so he’s ready to retire, ready to do something with it. And I’m trying to tell him we’re going to do this with your portfolio, maximally diversified global asset classes, futures contracts, like we’re going to do as much diversification as we possibly can. He’s like, that’s great. I love that. But I actually want something that I can touch. I want something physical. And like we buy some real estate or something — I just want to be able — I want to be able to seize my wealth, all right.

Which is a classic, when you think about developing nations, that’s what you see. My parents would rather have that than most of their wealth is in real estate rather than in liquid assets, because of what they experienced in hyperinflation and so on. And so I said to him, do you? I mean, do you just mean real estate? What about, like, physical gold? And I was talking about the gold vault. He’s like, yes. Can I see the gold, can I touch it? I definitely want a big portion of my money in something like that. It’s just there’s something about the — knowing that it’s a physical thing and that nobody can take it away from you and from a zeros and ones perspective, right. Which is like a chock one up for real assets and gold versus crypto, in a way. Like I wasn’t going to convince this guy to buy some crypto for wealth preservation, the ability to do anything, especially somebody like him.

Mark:00:18:54Yeah, and I think you have to make an important distinction between wealth creation or growth of your wealth versus wealth preservation. Typically, people that are purchasing from SWP are wealthy enough that that part of their portfolio is not designed to create wealth, it’s designed to protect wealth. So, even though they know that they can make more money somewhere else, and they have the rest of their portfolio to do that with, like your client, he’s already a multi-millionaire, he’s like well, I just want something that’s going to let me sleep at night and that’s okay. There’s nothing wrong with that. It’s not always about trying to earn, you know, a few more points.

Rodrigo:00:19:36But it’s an interesting thing to think about. When I went into the vault and I, you know, hopefully in the future, we’ll do a podcast inside the vault or maybe outside of it with — just for people to see how crazy it is in there. By crazy, I mean, it is in perfect working order and very organized, but you’re sitting there and you feel like McDuck where you’re looking at these big gold bars and silver bars that look like they’re wrapped, they’re just chocolate wrapped around in foil. Like it seems like — why do we care so much about this thing? And so we started having conversations. Why is it that the world, generally speaking, seems to have a large appreciation for these precious metals? And I’ve heard a few arguments around it. But what is the argument? Why did the world at large tend to adopt these two metals, in particular, over anything out?

Phil:00:20:38Yeah. I mean, I think, Rodrigo, like it really, it’s about generational wealth transfer. And it is about that physical, tangibleness of the metal. So, gold is an extremely durable metal, and it does not lose its shape, or it does not corrode, right. So, it’s something that can withstand the test of time. And I think that’s what has attracted investors to gold over generations. And it’s been used for thousands of years. So, it’s considered really true money. And that’s why sovereign nations are acquiring it.

Mark:00:21:19Yeah. I mean, as much as you know, especially when you get into the conspiracy theorists you know, people like to trash the central banks. But I often remind them, I say, like, these guys aren’t stupid, you can say what you want about the flow of money and some of the things that central banks are doing, but when it comes to the people that they employ, and the thinkers that they employ, these people are students of history, they’re very educated, and there’s a reason why they acquire gold. And so you have to give them some sort of credit, even though they might not always take the actions that we deem would be correct at the time.

But yeah, I think historically, like Mike talked about earlier, 5,000 years, it’s so ingrained in our society and our cultures. When you are the best athlete in the world at something, you win a solid gold medal. Like, it’s so — it’s just a simple example. But it’s so ingrained in our day to day lives, if you start paying attention, how often gold is mentioned, or platinum or silver, we associate it to so many different things in our lives. And that’s why when people say gold is dead, I’m like you have no clue. You know, that’s just like a silly statement.

Rodrigo:00:22:28Some of the origins too, that I’ve heard with regard to mass adoption globally, is that gold is dispersed around the planet in relatively equal ways, in ways that other metals and other materials aren’t necessarily found in every geographic place. Right? So, you already start with this thing that is bright, it’s shiny, it doesn’t corrode…

Mike:00:22:57Well, it’s culturally pervasive. It’s culturally pervasive.

Rodrigo:00:23:01And it has certain qualities, and like you can transport it without it being an issue like, this is — it just happened to be the thing that everybody needed to be able to trade when trade first started, right. So, that’s another like, legacy thing that you can — it’s part of our human’s race, DNA. You know, from Incas to the Aztecs, like the Europeans, always been a part of it.

Mike:00:23:27Well, it’s malleable. It’s easily shaped and formed from an early stage. It does not degrade or decompose in any way. It’s hard to come by so it has a good stock to flow model in that it cannot be sort of made from thin air like we make fiat currencies. And I think people have to remember that this is not a binary decision, right. So, sort of the idea that we’ve circled around a little bit of being a gold bug, like, I don’t think being the gold bug is particularly healthy, either. I think that if one is thinking about the allocation of assets across a portfolio, what an investor wants to think about is what are the structural levers that play into the price action of this asset class? When does it perform? And under what economic circumstances of inflation and growth does it do well, and under what circumstances doesn’t it do well? That’s the first question.

And then the second question is, how often do I think I can make those calls? If I think I can make those calls, then I might impart some active positioning in my portfolio. If I think, you know, I can’t, then I won’t. And that’s where Ray Dalio ended up with his family trust in just setting some allocations longer term across risk parity, of which gold is one of them. But also you can be active about that. And if you think about that, you know, what’s striking to me is if we go back through time, and we think about the 1930s, the 1970s. Those were times where traditional assets struggled mightily. But what did well, what did well in periods of time where you have weird inflation and deflation dynamics? What structurally does well is the precious metal sector.

And through the 70s, when stocks and bonds struggled in real returns to have negative real returns over sort of a 10 to 12 year period, well gold produced a 24% compound, real rate of return. The problem is we’re at such a dangerous point where everyone has disregarded every other asset possible in their portfolio, except for US stocks and bonds. I think that’s probably, on mass, where we are. If you look at charts of where the US investor is, with respect to allocations to US equities, is at all-time highs. Who’s going to come in and buy the stocks from here? Like over the next 10 years, where are the allocations going to come to, come from to drive these equity prices that much higher? And I’m not, maybe they’ll come, I don’t know, maybe. I don’t know, something will happen, maybe we’ll just print that much more money. But it just seems strange that when we get these massive spikes in valuation and sort of concentration in the markets, and the concentration in the type of asset class, even US stocks versus any other stock market in the world is at extremes. You know, these are the times where you got to start thinking about diversifying your portfolio to other areas of the market.

Now, we’ve talked a lot about gold. I do want to expand that horizon a little bit into the other precious metals, and maybe give us some insight to things like platinum, palladium, silver. And are those markets largely driven by the dynamics of store of value? Or are they driven by more dynamics of economic use cases, where we have production, CapEx for production versus the production of the metal versus in industrial demand? So, maybe you can like, let’s broaden the scope away from gold a little bit. And let’s talk about these other precious metals and give us some insight into are they driven by economic fundamentals, to some degree? Are they more driven by sort of investor demand?

Mark:00:27:33Yeah. We tend to use gold to kind of, when we talk about the precious metals family, we tend to use gold, we overuse gold, you know. So, it’s a good question, Mike, because we tend to lump them all together and expect people to kind of understand that we’re actually speaking about a family of precious metals, including rhodium, the often forgotten rhodium.

Mike:00:27:53Isn’t that the heaviest one too? Is that the most dense one?

Mark:00:27:56I believe it’s the most dense, it’s also the most valuable of the precious metals.

Rodrigo:00:27:59Wait, rhodium is the most dense? I don’t know, I actually don’t know. I’m actually —

Mark:00:28:07That’s a good question. Maybe …

Rodrigo:00:28:09Oh, you said you don’t know it’s the most dense. Okay.

Mark:00:28:11The periodic table, I was terrible at that. I was in drama class back in high school, actually. But yeah, I mean, people don’t talk about rhodium. But it’s been a phenomenal run. If you were willing to speculate on rhodium 10 years ago, your returns would be — have been incredible. But those are very small market metals. So, first is the disclaimer, very small market metals, silver being excluded. But if you’re going to get into platinum, palladium, rhodium, you need to be ready for a fairly wild ride. You know, rhodium at one point traded for over $10,000 an ounce, retracted to $900 an ounce, I think it was within a year or two after the last bull run in — after the last financial crisis ended in 2011-2012, rhodium took a huge dive. So, for anybody who’s looking at those platinum group metals, platinum, palladium, rhodium, you have to be ready for some volatility. Yeah, I mean, those are industrial metals.

So, to answer your question, Mike, the supply and demand side of that is driven in large part — You mind grabbing that? I think we have a visitor at the door.

Mike:00:29:28Room service.

Mark:00:29:29No, I think we might have two more colleagues that are coming back from their missions. But on the supply and demand side, yeah, a lot of industrial use. The platinum group metal is driven primarily by the auto industry. So, their usage is primarily in the catalytic converter space. So, all, you know, combustible engine vehicles that are being produced in countries that have regulations about emissions output, that’s basically where the industrial demand comes from for those three metals. But there are still investors who speculate on the price and who do use it, I wouldn’t say as wealth preservation, but more of a speculative investment in the precious metal space.

Silver is really somewhere in between. It does have over 100 different industrial applications. It’s a really interesting metal, it has antibacterial properties. So, you’ll see a lot in medical applications, you’ll see it in … Yeah, you’ll see it in Lululemon pants because it’s antibacterial. So, it cuts down the smell that would come from your outfit, after your workout in a yoga class. But it also, obviously, silver is something that it’s very popular amongst American investors. Not so much in Europe, because there are, I think, between 15 to 22% VAT applicable to silver in Europe, and in Asia as well, you have some countries that apply VAT to it. But in North America, it’s a very popular investment choice still with precious metal enthusiasts.

So, it’s really somewhere in between. That’s why silver tends to follow gold, when you see price action for gold, silver tends to follow it either — but it’s more volatile to the upside and the downside. Whereas platinum, palladium, rhodium, they really operate in their own markets. You will see a little bit of, on the speculative side, you’ll see a little bit of a pattern following gold, but they have their own market conditions that really determine those prices.

Catalytic Converters and Diversification

Mike:00:31:23And how have you seen — so, we’ve got the catalytic converter use case, we’ve got automobiles, but we are moving to more and more EV structured type vehicles and battery based transportation underlying. So, what’s the role for some of these precious metals in sort of the battery side of things, if that’s going to be a transition that we encounter? And I know you’re not supposed to ask two questions. But anyway. So, let’s talk a little bit about the EV side of things. But I think it’s worth emphasizing the fact that when you have a different marketplace, a different sort of set of economic circumstances, you get a diversity in the underlying asset class, right.

So, the platinum, palladium area is going to have different sets of supply and demand dynamics that are different for the price structurally. And that’s what’s so advantageous for a portfolio is to put together a number of these very different demand supply characteristics so that you have different characteristics coming into the portfolio. Now, on that side of things, on the sort of the more those, a little bit more esoteric precious metals, how has the CapEx been? Is it similar to sort of the more commonplace metals like copper and nickel, where we’re seeing sort of uranium, we’re seeing pretty chronic under investment and under capitalization and under investment in CapEx for the mining and reproduction of these. Is that pervasive across that area? So, are we seeing a contraction in the amount of supply that’s actually going to be produced? Or is that pretty robust in those markets?

Mark:00:33:16You know, neither of us are experts in the mining space. Our scope of expertise begins and ends really around the physical retail investment market. But I — the latest numbers that I’ve seen on the supply side for platinum, palladium, I haven’t seen rhodium numbers or that’s becoming quite specialized actually, is fairly stable from what I’ve seen. Because a lot of that output from the mines is going in, again, into the auto industry. And although the auto industry has struggled, obviously, with the, you know, COVID has been a factor in terms of the demand for new automobiles worldwide, you still have emerging markets like China and India, where people are starting to buy their first ever combustible engine vehicles.

And so this ties into the EV, Mike, and it’s a really good question, because I hear that all the time. People are like, well, why would I buy palladium when I know that electric vehicles are going to take over the market? And they’re not wrong, but they have to — they’re thinking of it from a North American perspective, often or a European first-world developed nation perspective, where in their local market, yeah, they’re seeing electric cars, they’re seeing Tesla’s driving around. China and India are not there. You know, that is not where those markets — those markets, people are just buying their first homes. They’re buying their first vehicles and those vehicles are not electronic.

And in fact, the growth rate as of like two years ago for traditional combustion engines versus electronic, sorry, EV engines, the traditional engine was far outpacing the EV engine growth because of those emerging markets. So, the reality is yes, they will take over one day because they are better for the environment. And we all know that. And we’ll probably all drive one in our — own one in our lifetime. But that’s still 20, 30, 40 years out in some markets, potentially. And that ties into the demand side for platinum, palladium and the funding side for mining. And so the output is still pretty steady.

Rodrigo:00:35:26And so when it comes to the physical ownership of those other metals, do you guys play heavily in that space or not?

Phil:00:35:36Well, I think that it’s important to diversify in a precious metals portfolio. So, they would be in an investor’s holdings, but in a lower percentage. And silver is actually something we’re kind of — we haven’t talked about too much. But that is what everyone really believes is the big trade. It’s the most undervalued at the moment of all the precious metals. And the industrial use case for it is extensive, not only in electric vehicles, but also in solar panels. And what we’re seeing, such a spike in energy prices, especially in Europe, there’s going to be more and more of a demand for greener energy to stabilize economies and not be dependent on other countries.

And basically, there’s a lot of geopolitical factors that are weighing in to make people have to, or to make countries have to move towards greener energy. So, silver is such an important input. And a lot of these companies, they are going to require it regardless of what the price is. So, it’s important to acquire silver now while you can still get your hands on it as a retail investor, because soon it’s going to be the industrial demand and the industrial users that are going to be acquiring it all.

Rodrigo:00:36:53Right. Right. And so there’s got to be — Sorry, Mike, do you have a follow up question?

Mike:00:36:59Well, just to put it in context, the market cap, I think for silver, is about 1.4 trillion. And then, I think gold’s around 10 trillion and not sure platinum, palladium, I think, are much smaller.

Mark:00:37:11They are. Yeah.

Mike:00:37:12Yeah. So, I mean, just to your point, these are not large asset classes like that, even you talk about silver. But it’s a $1.4 trillion dollar asset class. That’s not — that’s very small, in the grand scheme of things. So, if there’s this demand surge, it doesn’t take much to force the price to go a lot higher, potentially.

Precious Metals Infrastructure

Rodrigo:00:37:35I imagine that there’s got to be a difference in terms of infrastructure for holding industrial quality precious metals for manufacturing, and retail quality infrastructure for those blocks with the serial numbers where you can trade it from retail investor to retail investor, bank to bank, or central bank to another central bank. How does — maybe give us some insight into the network that that you guys have or like that anybody has that needs to trade in this space, right? How do you — How does that ecosystem work?

Mark:00:38:12Yeah. No, so it’s a really good question. And so we’re at the very end of the spectrum, basically. So, obviously, starting with the mining output from the mine, that metal will, or sorry, I should say that kind of crude products or doré. Like you’ll hear the term doré bars. So, that’s a product that can be semi — is like semi-refined. That product will be shipped to a refinery, where they will refine it to whatever standard is required. So, whether that be the investment bullion products that are going to be produced, whether it be, you know, 90% silver that’s required for an industrial application, or even a mix. Oftentimes, you’ll have a mix of precious metals, for different industrial applications. So, that happens at the refinery level.

Now, that same doré that’s coming from the mines could either go to a refinery that’s producing specifically for industrial applications, or it could go to a mint, like the Royal Canadian Mint in Ottawa, like the US Mint in the United States or several locations that the US Mint operates. And from there, the mints and refineries have their approved distributors. So, there’s probably in the United States, I don’t know the exact number of approved distributors, but there are really four or five large players that people like SWP or other brokers/dealers would be able to purchase from. Those distributors are really the market makers for the retailers like us.

So, we’ll have a trading line with these distributors, if we can’t get a direct line to the mint or refineries. In some cases, we can get a direct line to a mint or refinery, but in most cases, we’re buying from these distributors. So, yeah, it comes down — then it goes down to the traders that are, you know, and it’s the old school trade desk, calling up and buying ounces and then selling them on to the retail investor at a small premium, a small spread.

Rodrigo:00:39:59Okay. So, can we — You can illuminate me, illuminate us on the difference in premiums from being able to buy from the manufacturer versus the mint, versus third party broker? What type of spread of these guys taking along the way?

Mike:00:40:14Well, just if I can add to that. So, there’s a spread, but there’s the spread on the different products, right? So, you got the size of the bar that you have to think about because you got to think about if I own one big bar, how do I — I can’t sell half a bar. And so how do you think through that whole, I think Rodrigo’s on a great question. And I’m just thinking, as a physical owner of this physical asset, how do you think through that whole sort of decision dynamic?

Phil:00:40:46Yeah, I think — Let’s kind of just look at it broad strokes first. So, really, you want to look at the total premium on a product. So, you’re looking at about a 4% premium on most gold products. It gets lower, as you get into larger products, like the one kilo bars, you’re getting closer to a 2.6% premium. So, that’s one thing as an investor, you want to look at, you know, buying in larger increments so that you can save on the premiums. And when you get into silver, you’re looking at sort of eight to 12% premiums, and the same thing applies.

So, as an investor, like with any investment, you want to look at not only what you’re getting in for, but how are you going to get out of your investment. So, you want to know when you’re in the money. So, we always advise our clients to look at the total spread. And we’re one of the few companies that’s actually transparent about that. So, if you go to our website, you can click any of our products, and look at the live purchase price, as well as the live buyback price. So, you can get an idea of the total spread and compare across products this way.

Mark:00:41:58Yeah. And I think Phil’s done a good job. And Mike, really, that’s where the role of the relationship comes into play. It’s like you guys are graded in advising your clients on how to allocate their assets and creating a portfolio. That’s where the professional guidance comes in. And that’s why we earn our living by doing this is because clients need to understand those small — they need to answer these nuances. Yeah, the nuances. They need the questions answered. And those are the basic kind of questions we feel all day long is what product, what are the premiums? What’s the best buy for me? What should I invest in? Those are the questions we’re answering all day long.

Mike:00:42:37Right. And you almost have to think a little bit about if I were to sell at some point, right? So, I’m sitting on silver, and I’ve got a 10X and I have one bar. Well, that’s tough and it’s interesting, it’s an interesting challenge with a bearer asset, right? So, something that if you’re not used to dealing in these assets, that’s why you’re going to have a conversation with Phil and Phil is going to say, well maybe not one big bar, let’s get at the core and then let’s do some satellites of some of the smaller pieces. And I do want to get into some of what they’re called and what they look like, because that is a great fun conversation too.

Rodrigo:00:43:16Well, yeah. I definitely want to, in that kind of — Let’s do a transition here, because you have the premiums across the bigger they are the less the spread. Smaller, the higher the spread. But I’ve always seen these smaller purchases that you can make, for example, from the Canadian Mint, or the KIWI, I don’t know if it’s called the KIWI. I’m totally making this up, Australia and the coins are beautiful, well designed. I mean, is there a collector’s premium to the smaller items as well, that might actually create its own little market?

Mark:00:43:52Go ahead.

Phil:00:42:53Yeah, I mean there’s definitely a collector’s market. We’re really focusing on making investments in the underlying bullion value. So, we really focus on curating a product mix on our website of the most liquid products from the most reputable Mints. So, we’ll carry products that are on the London Bullion Market Association’s good delivery list. So, this is an association that ranks Mints and refineries and ensures that they’re up to code, have good practices, and that you’re guaranteed as an investor that you’re buying real bullion. And the percentage is what they are stamping on their product. So, we’re selling products that are three and four nines. So, that’s 99.9% pure or 99.99% pure.

Mark:00:44:48Yeah. And what you’re seeing from the Mint, when you see those limited edition collectible coins, I don’t want to advise against them because they make a great gift. And if you know what you’re doing and you’re buying extremely limited edition or very rare coins, there is a good market for that, there are proven returns.

Rodrigo:00:45:09Yeah, because you can take a picture of it and NFT it, right?

Mark:00:45:11You can NFT it, now that’s a new thing. But …

Mike:00:45:14But those are not on TV at 11 o’clock at night.

Mark:00:45:17Well, that’s it. The ones on TV at 11 o’clock at night, I would recommend you stay away from. But if you want to become a collector and speak to a numismatic — numismatist. In Cayman, you’ve got Charlie, for example, down in the waterfront. Go into Charlie’s shop. He’s got some excellent rare coins. These are real, proper rare coins, high grade. It’s like if you’re buying hockey cards. I got some really good advice lately. I started investing in sports cards. They’re like don’t buy —

Rodrigo:00:45:46You’ve been talking to Brad.

Mark:00:45:48Yeah, I’ve been talking to Brad Watts. Don’t go and buy Sidney Crosby.

Rodrigo:00:45:52He’s my neighbor now by the way. He lives down the street.

Mark:00:45:55Yeah, he’s a great guy. So, you know, you can go and buy Sidney Crosby rookie card, we’re all Canadian here backgrounds, we know that. So, you can go about the Sidney Crosby rookie card. But if you get a nine on 10, it’s pretty common. It’s not really a rare card. If you get the 10 on 10 graded Sidney Crosby card, the value jumps tremendously. So, that’s comparable with collector coins. If you’re going to go into collector coins, go very high end. If you go common collectibles from the Royal Canadian Mint, it’s a gift, in my opinion.

Portfolios and Precious Metals

Rodrigo:00:46:22Right. So, okay. So, that makes sense to me. Let’s go through, you have a particular service, right? So, you go in, you can kind of curate a portfolio for somebody that really wants to have some hard assets. What type of investors should be thinking about that service, given their level of AUM? Like, what’s the minimum that makes sense to start creating a portfolio of precious metals here, versus going to the mint and just buying some coins for yourself?

Phil:00:46:54Yeah. Well, respecting the privacy of our clients, I mean, we have clients starting at smaller amounts, and then we have clients with multi-million dollar investments. But the mentality is the same. And we talked a little bit about silver and how it’s a smaller ticket price. You can start getting into investing in metals with a lower initial investment. So, I mean, if you’re going to store with us, I would say you want to at least start with 10,000. It makes sense, put it in our vault, pay the storage fees, and you know, start stacking, as they call it.

Mark:00:47:32I would add to that, too, is I think it goes back to the wealth preservation versus wealth creation, and how proactive you want to be in creating wealth, and really for a lot of people that comes down to like, what stage of your investment life are you in? You know, are you still a young person who should be thinking more aggressively, perhaps, taking a little bit more risk to create that nest egg. Whereas, look, if you’ve got a few million dollars already, and you’re comfortable, and you have real estate, you have equities, you’ve got — everything that you guys do for your clients, if you have that already, you’re in a different cycle where you’re like, I just need something that I don’t ever have to worry about. That’s what I want.

And I know it sounds crazy, like because in this day and age, we’re always talking about returns and you guys nailed it, the FOMO is so bang on when I watch that ad at the beginning. I’m like whoever wrote that ad is a genius. I don’t know which one of you it is, but it was very well done.

Rodrigo:00:48:28No big deal.

Mark:00:48:30You really nailed it. Everyone is worried but there are some people that aren’t worried about that anymore, because they already have what they need. And those people tend to be our clients a lot of the time.

Rodrigo:00:48:40So, what’s interesting is, I’ll tell you a little story on this idea of return of capital versus return on capital. When I was in Toronto, as everybody in the world now knows, I mean, Toronto real estate has, for the last 20 years, has been ridiculous, right? And every year from when it started, I’ve been saying it’s going to crash tomorrow. And so I just, we’re going to rent, we’re going to rent and we’re going to, like, we’re going to wait till the crash, then we’re going to buy. And of course, like I nearly got divorced three times throughout these 20 years. Luckily, I moved to Cayman, which is much of the same.

But what was interesting to see is that we were able to get two million dollar houses for, like a return on capital for these, the rental properties were less than 1% is what they were getting on. Like, the rent was so cheap, and we’re talking about like pristine areas of the city of Toronto. And I started noticing who the companies that were renting to us was. In fact, I got really close to one of them. And I asked him like, why is it that you guys are renting out for so low? Like who are your clients? And he’s like, well, our like clients are Middle Eastern clients and Chinese clients and they don’t — like my job is to get this rented out as fast as possible to somebody that’s not going to ruin the house. Like, my clients do not care about getting a yield off of this, they care about making sure that they can get their money when they need it if they need to leave their country.

It’s the return of capital, rather than return on capital. And because they’re like that, I don’t care. I’ll just rent it out in the cheapest price I can get it rented out that they’re not going to complain about. So, I think this is the mentality of people out there in the world with some wealth, that recognize there’s risk to their AUM, whether it’s from a nation that might be confiscating their assets in other respects, or whether it’s just a history of Peru and hyperinflation or any other nation that has had to deal with that, right. And I think real estate is the new gold in many respects for the nouveau riche. But gold continues to be a similar thing. As you said, having something physical is super important for most people out there, right? We just in North America have such trust in the financial institutions, that it’s less pronounced. But I think that’s about to change, honestly.

Mike:00:51:02I also think that not many people know that over the last 20 years, gold has outperformed the S&P 500. So, whilst one might say … and I get hate on this every time I show it, even emerging markets have outperformed, it’s getting close now. They just haven’t performed over the last 10 years.

Rodrigo:00:51:23What have you done for me lately, man?

Mike:00:51:25What’s that?

Rodrigo:00:51:26What have you done for me lately?

Mike:00:51:28No, of course. But this is the whole problem with investing. I mean, investing, unfortunately, is driven by recency bias, which feeds overconfidence, bias, which makes you put more money into things that have treated you the best lately, which will work for a period of time. But at the moment, I mean, you are getting to areas of valuation that are interesting, and some extremes. Who knows when that will end?

Rodrigo:00:51:50Okay. Can we talk a little bit about — can we talk a little bit about recency, like the underperformance of gold in a highly inflationary year? Like, I got my views on that. But I’d be curious to hear why am I constantly fielding calls on why hasn’t gold been in inflation this year? So, what’s going on? And what can we …

Mark:00:52:14I’m surprised to hear you’re getting calls about gold.

Rodrigo:00:52:19In an inflation year? Are you kidding me? Absolutely. Well, people are trying to figure out what the hedge there — I was in your podcast, right, Mark? People are talking about inflation and they want to know what they can use. And I have, like part of the conversation is get your commodity exposure, you get some physical gold and get some active commodity exposure through what we do. And the question is why has gold been flatlined this year? Anybody have any thoughts?

Mark:00:52:47Until yesterday, thank God. But yeah, what I’ve heard is that, because I’m not an expert in inflation and I love your comments, Rodrigo. I learned a lot from you the other day, honestly, it was really eye-opening for me. But what I’ve heard is that in traditional inflationary periods, that inflation had found its way into the commodity sector, much more than it has in this inflationary period. The inflation these days seems to be finding its way into the stock market, in the equities markets more so than the commodities space. That’s one theory that I’ve heard. And that seems to be holding water thus far. But I think my expectation for precious metals’ role in the world that we live in now in this near term, say six to 18 months that we’re going to face is that when rates —

I’ve been cautioning precious metal investors, because everyone — precious metal investors, as loyal as they are, they’re still impatient. They still want returns, they still think silver’s underperforming, they think gold’s underperforming. So, I’m saying, once the Fed starts to actually take action, they’re now moving up the tapering, and rates, I think inevitably have to go up. I can’t see them letting inflation continue to run. I think that’s when you’re really going to start to see gold and silver do what it does best. And that the uncertainty or the reaction that those actions take or have on the market will lead to gold and silver rising. So, I think right now, a little bit of patience is required, but I agree that the performance has not been what people expect so far. So, you know, we’re …

Rodrigo:00:54:27I think in the podcast, we talked a little bit about the three levers of inflation, right? Whether it’s supply chain, supply side issues that lead to inflation, or whether it’s demand side where you have labor costs going up and everybody’s kind of buying a bit of everything. So, all commodities in certain sectors go up depending on what’s been popular. And then there’s monetary inflation, right? And that monetary inflation seems to be what gold is tied most to, which is not unexpected, given that the role that gold has played in central bank policy for all these years, right. So, I think real rates have a lot to do with the direction that gold takes. And most of the inflation that we’ve seen in the last 12 months to 18 months have been supply chain issues with the world.

This is what we’re talking when we — about inflation, is that you need to have three pistons in place, right. You need to have your certain commodities that can deal with supply side, you need to have your TIPS that might deal with labor side and you need to have your gold to deal with the monetary side of things, right, you know, the US dollar going down for five straight years, like we saw in the 2000s. And so inflation is a complex thing. It’s not one thing. So, the answer is, there will be an inflation issue that correlates beautifully to gold and not so beautifully to commodities.

Phil:00:55:54You sound like Dalio in his video, How the Economic Machine Works. That’s exactly.

Rodrigo:00:55:59He took it from me. The guy plagiarizes. He’s the worst. He’s the worst. He reads my journal and makes it public.

Phil:00:56:10But that’s exactly right. And I think we’re still in the process of seeing it deleveraging, right? We haven’t seen that happen. And when that happens, I mean, they’re trying to inflate away the debt in the US. And that’s where you’re going to see the price go through the roof when — it’s going to take more US dollars to buy an ounce of gold. And I think I think even though it’s been trading sideways, it’s important to understand that any smart money is quietly still stacking at these prices, because they see it to be undervalued. And they really want to have a certain percentage allocation for their portfolio.

So, I just kind of want to circle back to your question also, like, how much does someone have to start investing? And I think it’s important for as a little homework assignment is, take a look at your investable assets. And if you read a Jim Rickards’ book, or listen to any of his videos or interviews, he always advocates that you have to have at least 10% of your investable assets in gold. And I think if you’re at a stage where you’re just getting into the game, you can substitute that with silver, because of its smaller cost.

Rodrigo:00:57:30Lower nominal value, yeah.

Phil:00:57:31Yeah, it’s lower nominal value, exactly. So, I think that’s something to consider. And I think, even though we’ve seen a pullback in silver, I think they’re — as the US dollar devalues further, that’s where investors are going to start to really see the price per ounce go up for both of those metals.

Mike:00:57:55And that’s probably been the challenge recently as the US dollar’s had some pretty significant strength. And precious metals being denominated in that will create a bit of a headwind. I think you raise another great point on silver. It’s not just the smaller denomination. But on a vol adjusted basis, you need to hold less to do the same. So, when you think about volatility adjusting your position size, if silver is two or three times more volatile, let’s call it two times more volatile both on the upside and the downside, than gold. It’s liquid, it’s got a higher in and out cost. But at the same time, you need to hold less. So, if you were going to hold 10% in gold, technically, you could hold 5% in silver, if it has double the volatility, although the volatility is a little bit different, right. Silver’s got a little bit more of an industrial use case. So, you know, I’m playing a little bit fast and loose with the math here. But if all the …

Rodrigo:00:58:53No, but in runaway inflation, you’re going to be broadly correct, Mike.

Mike:00:58:57Correct. So, you can say, well I could do a smaller position in silver, but these things are all very interesting conversation points. Maybe walking through someone says, okay, I have X percentage, I have 100 grand, I have a million. Build me a portfolio. What do you guys do? Like they say, I don’t know, I should hold some physical metals. So, we have a hypothetical client. Let’s make him me. I don’t know just so we can get away from any of this being advice, but you know, whatever. What should I do, guys? I’ve got 10%. I’m long term. I’m going in precious metals for 10% of my portfolio. And that number is 100K. What would you do? What would you recommend that I think long and hard about as I allocate?

Mark:00:59:42Okay, aside from being long term, Mike, what are your objectives with this 100K means? Are you looking — Is it for wealth transfer to your children? Is it something that you want to see …

Mike:00:59:56Yeah, I suppose if I was doing physical, I would want, you know, I’m looking to have it in a jurisdiction where it’s outside of the rules of any kind of overreach by my current environment. I’m definitely thinking long-term. Like, from my perspective, I’d be thinking long term just because the cost of getting in and out is rather large. So, I’m thinking of this as 10% of my portfolio, it’s real assets, it’s a hedge. I’m buying and dying. Right? So, when I die, I’m going to hand the keys over to my kids, and or whoever, and they’re going to take it from there. I don’t need the money. But you know, I’m just trying to get a — what do I do with the money that’s there? I’m buying to die.

Mark:01:00:37Sounds like one of our clients. Perfect. Well, you already live in a great jurisdiction, Mike. You know, at the forefront of the conversation, especially with our clients, is really the jurisdiction that you live in, the jurisdiction that they’re choosing when they store this. We would not be the same company that we are, if it wasn’t for the Cayman Islands, and all of the things that that entails. But in terms of the portfolio itself, I would say, based on that description, if I were giving you my two cents, I would say the core of your position should probably be in gold. Because long term, gold has outperformed silver and will likely to outperform silver, except in bull markets when silver will outperform gold because it is more volatile.

But because you don’t know the exact exit point for your portfolio, knowing when that silver is going to be outperforming gold is impossible for either of us to really say. I would encourage you to include some platinum group metals, because they do perform differently. You know, if you look at palladium, in the last like three years, they really had a breakout, where it went from like $1,200 an ounce all the way up to $3,000 an ounce. It has come back down. You know, supply chain issues, there’s been all kinds of issues with the automobile industry and it’s pulled that price back down. But I think that’s the play. You know, Phil alluded to silver being the trade. Silver is the trade. But the speculative position is really your platinum group metals. So, I would say for you, crystal ball, 65 gold, 30% silver, 5% palladium would probably be my most standard kind of recommendation for a portfolio.

Mike:01:02:10How would I break that down from the standpoint of, so I’m a guy who’s going to run a rebalance. I know that silver’s going to run at 2X to gold at some point, I’m going to want to rebalance. So, I’m going to want to take a few of my ounces of silver, sell them off and buy gold, when silver’s outperforming and gold’s lagging, I’m going to do the same in rhodium. If my 5% becomes 15, I’m going to be like, okay, I need to rebalance this a little bit across my portfolio. So, how might I — How do I think about that? Do I just kind of sit down and scratch it out and say, okay, well my bulk is I can own half in one chunky piece so that I know I’m never going to sell that. And then I’ll kind of have 50%, you know, another 25% chunk, and then a bunch of 5% chunks. Is that as simple as that, or?

Phil:01:02:56Well, look, there’s kind of two approaches you can take to that. I think, not to drive business away from purchasing precious metals, but purchasing physical, but you can — There is a place for ETFs if you’re not opposed to some of the additional risks there. And if you find ETFs are backed with physical, if you’re trying to keep a balanced portfolio on a quarterly or annual basis, those are products that you can move around to keep your allocations in line with your overall strategy. But generally speaking, I mean, because of the friction of getting in and out of physical metals, it’s advisable to sort of buy and hold, especially with your strategy where you’re looking at a generational wealth transfer.

Mike:01:03:43Yeah, but even in that case, right, I’m not really talking about quarterly. I’m thinking okay, over the last three years, holy shit, silver has crushed. You have some rhodium that goes up 20 times. All of a sudden, it’s 20% of your portfolio. And you’re like, oh, I didn’t want quite that risk. So, I’ve got to think about how I rebalance the bars, actually, and I don’t want to do it often. It might only be once every five years. But if I’m sitting on one chunky bar, I can’t do that necessarily. Or there’s probably a cost for me.

Rodrigo:01:04:11I guess, yeah, can you do fractional sales in — once I have it in your vault, do I have to sell my bars? Or can I get you guys to do fractional sales of my bars?

Phil:01:04:21Yeah. Those are good questions. I think, if you want to look at trading in and out of your positions in physical, I mean, the benefit of having it right in the vault is it’s just a phone call or quick email away where you — the market’s live. So, when you feel your — if you know, okay, the value has gone up on your rhodium and you want to get out of it. I mean, the critical thing is to have — this would be something we discuss up front so that you’re not only in large bars. That’s where we’d make sure that you’ve purchased some smaller products as well, so that you can sell in smaller increments to rebalance.

And then that way you know you’re not overselling. And then you’re out of balance in the other direction. That’s what we’d recommend. And because we’ve already verified your products upfront, there’s no lag. So, you’re going to be able to trade in a timely fashion that way when it’s stored with us.

Mike:01:05:17And I think actually, your facility actually does store for some professional products, right? So, and I don’t know how much you can talk about that or how — your professional clients.

Mark:01:05:30We can talk about kind of broad strokes, some of the types of clients that we service for sure.

Mike:01:05:35Yeah. So, it’s not just sort of an individual or a family office, there are actually some institutional products that are in the public domain that store their precious metals through SWP. I think that’s a fair way to say it without divulging who …

Mark:01:05:51Yeah, I would say in the public domain, you would find a client like Loomis International that uses our services. So, these are other vault operators that have a network of global storage that they offer to their clients and Cayman is an attractive jurisdiction. Now, it’s not a traditional jurisdiction for gold storage. We weren’t the first on the map. We are the only ones on the map at this point, happy to say. But companies like Loomis do use our facility as well. So, we do have some commercial business. We also store for IRAs. So, Americans can hold precious metals in an IRA offshore, it is legal. And we do have two American IRA administrators that offer the Cayman Islands location. I’m sure we’ll do more in the future as they warm up to the idea.

Cayman, you know, it’s funny, it has that kind of double-edged sword. It’s like, it’s risky, but it’s sexy. It’s like somewhere they’re not sure, the compliance guys are always like, attracted to it, but they’re also put off by it. So, yeah, we have a growing commercial client base. But again, Cayman is never going to be New York City. It’s not going to be London. It doesn’t have the geographical — because it’s so isolated, the cost to import product, for example, is obviously something that we have to contend with and is a reality of being offshore.

Rodrigo:01:07:06As in there is a tax to import gold or is it just a cost of shipping?

Mark:01:07:11Well, you guys know no taxes in Cayman. So, there’s no import duty.

Rodrigo:01:07:15Well, there is an import tax for other stuff. I just don’t know where precious metals falls in.

Mark:01:07:20There are no import or export duties on precious metals. And there is no tax on the storage of precious metals either. So, in our industry in Cayman there are absolutely no additional taxes or VATs or tariffs that apply to the industry at this point in time.

Mike:01:07:35It’s more that you got to fly this heavy chunk of metal from — you’re not putting it on the slow boat to China anyway, you’re going to probably fly it over. It’s got to be highly secure and there’s a cost to all of that transport, I think that’s what you’re alluding to.

Mark:01:07:49Especially with silver. I mean silver for the amount, you know, if you’re talking about ounces of gold, relative value and weight, it’s very cost effective to bring it to Cayman. Silver is obviously the bulkier and costs us more money to bring it in. But because we do it in bulk from suppliers, we still — we have to compete with US domestic dealers. So, we still have to do it cost effectively.

Rodrigo: 01:08:13Well, Mike was given the opportunity to walk away with a large gold — with a large silver bar at your vault. They put it outside and said if you can pick this up, you can walk away with it, we’re good. One hand. Like show everybody your hands, Mike. Just show — look at those hands …

Mark:01:08:31Don’t feel bad, Mike.

Rodrigo:01:08:32He played football.

Mike:01:08:33This is a three liter bottle of pop.

Rodrigo:01:08:44So, the last question I have actually is can I Scrooge McDuck this? Can I — like, is it part of the offering that I can go and visit and snuggle with my gold bars if I want to? Or is this purely an email-based transactional reality? And I have to depend on auditors to tell me that my gold is actually in there?

Phil:01:09:06Yeah. No, that’s a great question. I think the fact that we allow visitors to our fault, and we have a special room where we actually will allow you to come in and actually see your holdings and go through them with the LBMA certified vault operator, gives people a lot of peace of mind. And in the event, you’re not able to travel to Cayman, we actually have a virtual vault audit service for our clients as well. So, they can have a similar experience remotely as well.

Mark:01:09:38So, not quite Scrooge McDuck, Rodrigo.

Rodrigo:01:09:41That’s pretty close, I think.

Mark:01:09:42I wouldn’t recommend a nosedive into a pile of metal. It’s …

Rodrigo:01:09:47You just haven’t tried it. You don’t know how to do it right

Mike:01:09:49It never works out the same as it does in cartoons, does it?

Rodrigo:01:09:55Well, that’s all I had. Like, I love that space. It’s interesting.

Paper vs Physical Precious Metals

Mike:01:09:58So, the only other thing that I did want to ask is sort of the paper market or the derivatives market versus the physical market, is there any kind of points there you can share with us and the listeners on, you know, why you should prefer physical over sort of a, some sort of derivative or commodity contract? Is there any kind of, like, normal course, explanation that you provide that can glean some insights?

Mark:01:10:31Well, I think Phil touched on it earlier. There is a place for ETFs. There’s a place for mining stocks. I think your options boil down to miners, and ETF or physical at the end of the day. And there’s a place for all those. My general answer, kind of keeping it broad strokes is mining stocks are great if you pick the right company. If you do not have the time yourself to do that research or have an understanding of what you’re looking at, then you can lose. And I’ve seen a lot of people and I’ve — you know, junior miners especially can be fairly risky. There are very well established miners out there that are almost blue chip at this point that you can invest in.

The ETFs, there’s a time and place for them. I use them personally. I’ll use RBC’s Precious Metals Fund, or if it’s not an ETF, it’ll be a fund that’s professionally managed. Generally, I’ll use that when my time horizon is three to six months, I don’t need to — the friction and the additional costs that physical do present. And then you know, for the long term thinkers or those who are not looking to create wealth, physical tends to be the right answer. Or if they just like the feeling that it brings them and the peace of mind that it brings them.

Mike:01:11:47Right, a derivative — derivative contract has a counterparty risk. I mean, even though it’s through an exchange, and there’s lots of discussion on how much gold is there and how much paper is laid alongside that, or over the top of that. I think there’s — gold stocks represent a beta risk too. So, you have market beta, so you’re conflating a number of risks there trying to get access to the precious metal itself, whether that’s silver or gold or palladium. So, that has it’s — a very difficult set of multi-dimensionality that’s hard to navigate if you’re looking for like gold beta, if that’s what you want.

And then I do think there’s a continuum of the ETFs as well, right, because you’ve got the ETFs that are futures based. So, they’re going to have some sort of roll issue with trying to, whether they’re having positive or negative roll, they’re going to have some roll issue with tracking error. Then you’ve got this spot ETFs, and then you’ve got those ETFs that actually will deliver to you some of, if you have more than X, and has a few of those different types of ETFs. So, there’s kind of layers of ETFs too that you can think about. And then you get into the physical actually holding the asset. It doesn’t take much to get a run on silver. On a side note, it’s interesting the Reddit crowd that kind of got in the AMC and GameStop deal. There is that Side-Reddit, that’s like, let’s buy a whole bunch of physical silver.

Mark:01:13:17Over squeeze. Yeah, Wall Street over-seller squeeze. Yeah. Yeah. Didn’t really amount to that much to be honest, in reality on our side.

Phil:01:13:26No, it was a quick start-stop. I mean, they moved — They may have moved the needle a little bit for a few days. Came back down pretty quickly. Yeah. Yeah. So, it’s a harder …

Mike:01:13:37No, they need to get it. They need to get it all.

Phil:01:13:42It’s one thing to move an individual equity, right. But it’s really hard to move a market like that.

Mike:01:13:48Yeah. Yeah. Especially with so many fairly savvy players in the market that are willing to hedge things in other ways that are close enough. But –

Bitcoin and Precious Metals

Mark:01:13:57I can’t believe you guys haven’t asked us about Bitcoin. I’m —

Mike:01:14:01Well, you know what, I did want to get there. I did want to get there. Because I think there’s lots to be learned. Thank you for bringing that up because we have been — it’s on my mind. Because I think it’s the idea of a barer asset is something that a whole bunch of — a whole new generation of folks are thinking about, and you know, the whole not your keys, not your coins mindset. There’s a lot of challenges with that as well. But let’s go back to the original bearer asset, right? The granddaddy, the GOAT of bearer assets, which is precious metals, and what can people learn from what you guys do in precious metals versus how they have to custody their own digital assets? Do you think Bitcoin is, you know, it’s gone to a couple trillion dollars in digital assets? I mean, that’s — some of that would have gone to gold likely if it didn’t exist as a store of value. So, what are your comments on all of that stuff?

Mark:01:14:55Yeah, I’ll share a few. I mean, I tell everybody whenever I’m asked the question first, I invest in Bitcoin and I’m — so, it’s not, for me, it’s not a black and white issue. Let’s not make it one. Back in the day before Bitcoin was around, it was equities versus gold. Now, it’s gold versus Bitcoin and the answer is still the same, is you should have a well-diversified portfolio, and there’s a place for both. Bitcoin, which is like an option on the future, I think Raoul Pal summed that up so beautifully, it’s like going in an option on the future with your Bitcoin. And I look at gold as like an option on the past. It’s very traditional, it’s very well established, it’s not going away tomorrow.

What I find most interesting recently, is in the market, we’ve seen like the last 30 to 60 days, is you know, Bitcoin’s taken a little bit of a hit, it’s been extremely volatile. And I don’t think it’s been able to establish itself as a store of wealth at this point. And so if you’re trying to draw a comparison between gold and Bitcoin, I think there’s still a big struggle there, there’s still a very big gap in that comparison, even though they do share some of the same attributes, they’re limited supply, especially, it’s divisible and all these things, I think it’s still a very speculative investment at this point in time. Maybe that will change in the future. And I’ve looked at the day to day performance, and the correlation is not there. So, they’re not acting or performing the same role at this point in time. So, if you own both, I think you’re in a good position, personally. I think you’re in a better position than trying to pick one over the other at this point.

Rodrigo:01:16:23And let’s be clear, gold has a volatility between 15 and 20%. And Bitcoin has a volatility between 80 and 100%, currently, right. And that is because of the amount of people adopting in the liquidity in these asset classes. So, just still a lot of differences and there’s a lot more risk in one versus the other. I don’t think Bitcoin has figured out what it is, whether it’s a store of value, whether it’s an asset class that is going to benefit from positive growth shocks and liquidity in the market or negative growth shocks. Like we just don’t know yet. But certainly, as it stands today, gold continues to be much lower volatility and non-correlated to Bitcoin.

Phil:01:17:08Yeah, I think like Bitcoin, it’s a speculative investment. And unless you’re Michael Saylor, I mean, any major investor advocating maybe two to 4% of your investable assets that would be how much you’d want to allocate to Bitcoin. So, it plays a different part in your portfolio. And I think there’s a lot of attributes to the crypto space that are really comparable to the tech bubble. So, there’s going to be some major winners, but there’s also going to be some major losers. So, you know, it’s not a space you really want to bet the farm on so to speak.

Mark:01:17:46As an individual, mind you if you have professionals doing it, or if there’s a fund that’s been created, that’s managed professionally, I think it’s a different story. But yeah, I don’t know. I see my friends, they’re on WhatsApp. They’ve got the boys chat. You know, they’re all rolling the dice on these tokens. And I’m like, I can’t convince you guys to buy one ounce of gold. But you’ll go …

Mike:01:18:08Hit the doge. Hit the doge for 10 grand and get the …

Rodrigo:01:18:13You need the juice, man. You need the juice. Only 20 vol, are you kidding me? Give me some of the 100 stuff.

Phil:01:18:21It’s play money, just don’t bet the farm on it.

Mike:01:18:24Any other topics that we didn’t cover before we sign off? We’ve been at it for about an hour and 20 minutes, and I really appreciate your time. And we’re going to make sure people know where you are. And I got to make sure I tell people that none of that was investment advice. But before we go, any final thoughts? Anything we missed?

Mark:01:18:40No. I mean, thanks for having us. You know, obviously, if anyone wants to learn more, SWPCayman.com, they can check us out. And we look forward to hosting you guys. We’ll do this next time in the vault, inside the vault.

Rodrigo:01:18:51We’ll do a live one in the vault.

Mark:01:18:53Rodrigo can do a Scrooge McDuck dive.

Rodrigo:01:18:55I’m going to start practicing …

Phil:01:18:58Bring your hockey pads.

Rodrigo:01:19:00I’m going to be just — My forearms are going to be freaking massive. I want to take away that prize.

Mike:01:19:07We’re here in the vault. And where can they find you guys on Twitter and whatnot?

Rodrigo:01:19:13I got my chalk here for my grip strength.

Mark:01:19:16Twitter is

Mike:01:19:17I know Mark you’re active on that

Mark:01:19:18@SWPGold is our Twitter handle.

Phil:01:19:22Yeah. And check us out on YouTube as well. There’s a lot of great educational videos there, a fantastic series called Inside the Vault.

Mark:01:19:30Yeah, a lot of stuff …

Mike:01:19:33Perfect. So, Inside the Vault on YouTube. Mark, you have a Twitter handle as well?

Mark:01:19:37Yeah. Yaxley Yax, I think, @YaxleyYax.

Phil:01:19:43And our channel is SWP Cayman for YouTube.

Mike:01:19:45SWP Cayman for the YouTube. Make sure you go check that out. learn lots more. And by the way, for everybody who didn’t know, this is not investment advice. If you’re looking for investment advice, you don’t find it on YouTube at four o’clock in the afternoon on Friday from four guys having a cocktail. So, there’s that. So, I’ve covered that off now. And it’s been a great year 2021. I don’t know if you guys know that but you are our final ReSolve Riffs for the year. And we look forward to 2022, some enhancements in the format. We’re going to do a bit of a reboot on the show and stuff like that. So, we’ll look forward to all of that into 2022. And happy holidays and good tidings of cheer and joy over these couple of holiday weeks that we have coming on.

Mark:01:20:35Raising the glass to you guys. It’s been great to meet you over the last few months. And look forward to working with you guys in the future. Cheers Cayman.

Rodrigo:01:20:42Likewise. Thanks.

Mike:01:30:44Cheers.

Mark:01:20:45Cheers, guys.

Rodrigo:01:20:45Have a good one.

Mike:01:20:48Queue the music.

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*ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.