Golds Performance Over Last 23 Years Why Investors Keep Buying It | Arcadia Economics
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Transcript
Our Aussie dollar has been performing a lot worse than the US dollar has. So something that I mentioned to everybody that’s looking into precious metals for the first time here in Australia is that over the last 23 years, gold’s averaged 9% a year in Aussie dollars. And last year it went up 13 and a half. The land of Arcadia. Well, hello there, my friends. Chris Marcus here with you for Arcadia Economics.
And a quick announcement before we get to today’s show, because as you may have noticed, we’ve been doing a little bit of a different schedule so far this year and we’ve been moving towards something we’re going to change, which fortunately has the benefit in that every morning on trading days, we will have Vince Lancey giving a morning market update. Obviously a big focus on gold and silver, but wanted to create something that if someone was pressed for time and only had ten or 15 minutes to watch something each day, that you’d get a full variety of the news that’s affecting the markets.
See any big changes in the levels, any analysis on gold and silver, but also keeping it on the shorter side so that easy to watch each day. And that will be at 09:00 a. m. Eastern every morning. And we will still have Rafi on Friday, Andy will be on Monday now, and then we’ll have another interview on Wednesday each week. So still plenty of coverage of the silver market as well as the gold market, but wanted to let you know that we’re shifting into a new schedule.
And again, you can find Vince at 09:00 a. m. Every morning to get your day started. Hope you will be enjoying that soon. And now with that said, we’ll turn it over to today’s show. Fortunately, we’re going to get a bit of an international perspective today because joining me once again is Sam Laurie from Adams bullion over in Australia. Obviously that’s the partner of John Adams, who took the gold and silver world quite by storm.
And hopefully we’ll be seeing more of John soon, although Sam here is John’s partner and student of the financial markets and going to check in, I guess. Sam, last time we talked, I believe, was mid September. And we talked about how gold actually setting record highs in a variety of foreign currencies and higher in us dollar terms since then as well. So great to have you back here and get an update on how things are going.
But first of all, how are you doing, my friend? Thanks for having me, Chris, it’s great to be here with you again. And yeah, been going really well, on our end, it’s been a busy six months for us at Adams bullion. We’ve been growing substantially. It’s been great on our end. Yeah, it’s been interesting watching the markets as well. We’ve been watching the gold price just climb slowly but surely in both us dollars and Aussie dollars.
So good to see for all of our clients out there that have taken advantage of that and stacked along the way. So, yeah, it’s been a wild ride over the last six months. We’ve seen a lot happen, no doubt that we’ll talk about in the coming few minutes, but yeah, great to be here with you today and great to see the gold price on the way up. Yeah, and especially as we look back to September in the 1940s, 1950s.
So about $100 higher in that six month period. Obviously, we were briefly over $2,100 in us dollars for an hour or two before that came in. Although settled in a range primarily above 2000. We had a slight dip below when CPI came out two weeks ago. But curious what you’re seeing. Obviously a slightly different perspective, as you mentioned before we started hitting the record button, that the australian market tends to have a bit of a western perspective on the gold matter.
But obviously you’re talking with people all day who are considering gold and silver, so I would love to hear just any thoughts on the past six months and how people are responding to that. Yeah, absolutely. So, yes, you’re absolutely right. Here in Australia, gold and silver is not something that’s very common for people to invest in. So it’s got quite a western perspective, I guess, there. Having said that, though, we’re seeing plenty of people coming in and buying bullion, both existing buyers, people that have been buying for years and years, as well as new buyers, people that are buying for the first time.
It’s really good to see the new buyers coming in. I think what’s really driving people towards bullion at the moment in Australia is interest rate policy and inflation. So inflation here in Australia is really bad at the moment, arguably worse in the US, but who can trust the data? I can compare our CPI to your CPI, but which central bank is lying more about the CPI data just devolves from mean.
Something that I guess is really a tailwind for australian precious metals investors is that our currency, our Aussie dollar, has been performing a lot worse than the US dollar has. So something that I mentioned to everybody that’s looking into precious metals for the first time here in Australia is that over the last 23 years, gold’s averaged 9% a year in Aussie dollars and last year it went up 13 and a half.
So you can’t really cry too loudly in the face of that kind of performance. I mean, yes, it’s not the kind of performance that maybe we’ve been expecting or that we saw in the 1970s, but again, 13 and a half percent in a year. It’s better than you get in a term deposit, it’s better than you get in a bank account, a savings account, et cetera. So again, it’s not bad at all and it’s enough to get people looking at the space.
Sam here we have pulled up the gold chart in australian dollars so you can see that it has been doing quite well. I guess it was about to break 3000 right when we talked last time. Certainly well above that. And something I’ve been thinking about a lot recently is just the difference in motivation from some of the people that enter gold and silver. Obviously there’s some of us who look at how much money has been printed, the levels of debt that are outstanding, and you hear the possibility of bigger gold and silver numbers.
Although like you said, over 10% for the last handful of years. The people that you talk with, are they expecting a big appreciation? Are they looking at it mainly just as protection? And they’re concerned about something systemic happening. What do you run into more often? Yeah, so a lot of the time, twofold there. There’s, I guess one half of the buyers that are looking for a large price increase, particularly in silver.
So at the moment we’ve been selling more silver than we have gold, substantially more. You look at the gold to silver ratio where it is. At the moment I’m buying silver myself personally. Not to say that I’m not a fan of gold, but at the moment I’m all in on silver. So yes, silver has been very popular and most of the silver buyers that have been coming in, they are expecting the price to jump substantially this year.
I’m quite bullish. If they do drop interest rates like everyone’s talking about, I think that could really put a fire under silver’s price there and really lead to some rocket ships, I guess is the way to say it. But the other kind of half of clients that are coming in are really looking at it as a wealth preservation tactic. They’re worried about the things going on around the world.
They’re looking at inflation. They don’t expect it to get any better. I certainly don’t. They’re looking at their other options and alternatives. You look at other financial markets, they’re quite bubbly at the moment. You look at the US stock market with Nvidia at $800 a share. That’s just crazy. So in terms of where to allocate capital or looking at the grand scheme of things, there’s a lot of things that are very highly valued at the moment.
And precious metals seem to be quite unloved. So from a contrarian perspective, it’s a place to put money that’s not too highly overvalued. And of course, it’s got that safe haven aspect as well. So people diversifying their other assets. Real estate here in Australia is massive, hugely common. So lots of people looking to diversify their real estate portfolios, kind of protect it from any unforeseen circumstances, any black swan events, that kind of thing.
So, yeah, lots of people diversifying away from other assets that are at nosebleed valuations. Yeah. And in there, Sam, you mentioned the possibility of interest rate cuts. Fascinating that in a short period of time now we’re hearing the possibility of hikes in the conversation as well. Obviously, we have the bank term funding program that helped some of the banks out last year when a couple of the banks failed is coming to an expiration.
We also have a reverse repo tank that is running low, and certainly many who feel that that is going to be an issue in the treasury funding after that. So I’m curious what you’re seeing this year, what you’re watching out for. Obviously, we’re talking about probabilities and percentages here. So I don’t know if there’s a hundred percent lock of what is the path that plays out. But based on everything you’re looking at, perhaps you could walk us through what you see happening in the coming months and rest of this year.
Yeah, well, there’s certainly a lot to be watching at the moment. You’ve mentioned the bank term funding program as well as the reverse repo market. So both things to be watching closely there. There’s kind of two ways of looking at that. So one of which is that when the bank term funding program finishes at March, people are saying that’s only a few days away until we hit March.
Then if the bank term funding program is what papered over the regional banking crisis that we had last year, and it’s the reason that banks with massive unrealized losses on their balance sheets can continue operating and not falter, then the removal of that program could really spell trouble. A lot of people out there are saying, though, that, well, the Fed understands this and must have a replacement program for it in the works already.
They must have another kick of the can down the road. And the way that I look at that is, okay, first scenario that they don’t, well, as I said, that leads to trouble. And the second scenario in which they do have another fix on the way, it can only be inflationary at the end of the day. What can they do? They can only provide liquidity to a system that is awash with it.
So, yes, I see. Either scenario there is good for bullion, either in terms of counterparty risk and removing counterparty risk there, or the second scenario as a hedge against inflation. So that’s the big picture thinking as to what’s coming down the pipeline this year. I don’t know whether they’ve got a replacement program up their sleeves. If they don’t, they probably should. And if they do, well, that’s highly inflationary.
And you mentioned in there how you think that we are going to see more inflation. Obviously, as I mentioned earlier, we saw CPI, PPI come up higher than expected. We do have the PCE data coming out later this week. Do you think that we’ve seen the last of the decreases in some of those numbers that were coming down for a while yet now we’re seeing with oil somewhat on the lower end of the range, the inflation data is going back up.
Do you think the fed ever hits that 2% mandate in the whole process of how this unfolds? So I do see the bottom in inflation having occurred or being very close to it. The way that I see it is I’m quite bullish on oil. I think that oil will have a good few years to come, to say the least. I mean, probably a good decade to come, but particularly a good few years to come.
So that’ll be a serious inflationary pressure there now that they’ve finished draining the strategic petroleum reserve and they’re now adding to it, plus all the geopolitical stuff going on around the world at the moment as well, in the Middle east, et cetera. So that’s one massive inflationary pressure there. I mean, another inflationary pressure as well at the moment is that with the closure of the red Sea shipping channel there and having to send boats around Africa instead, that’s putting shipping costs through the roof.
So companies here in Australia are already raising their prices due to said shipping costs, and that’s going to filter through the rest of the economy as well there. So there’s other reasons in that as well that I see inflation going up, but those are the two main ones there so for those reasons, yes, I do think that inflation has bottomed. I think it is on the way up again.
It reminds me of the mid 1970s where we’ve seen economists come out and declare victory against inflation. We’ve won the fight. I mean, here in Australia, it’s still over double the 2% target rate that the RBA sets. And it’s funny as well. I’ve seen a state premier here in Australia, the chief politician for the state of Queensland, come out and say that we need lower interest rates, his constituents need lower interest rates.
People are really hurting from higher interest rates here in Australia, it’s mostly variable rate mortgages. We don’t really have fixed rate mortgages very much. So most people are feeling the pain of these interest rate increases. And I’ve also seen the prime minister of Australia, our version of your president, come out and say that the Reserve bank, our version of your Fed, should lower interest rates as well. So you talk about the political independence of central banks.
I mean, here in Australia, that’s really being called into question at the, you know, whether they do achieve their inflation targets. I don’t think so. The pressure is already on to drop rates again, both over in the US and here in Australia. And inflation, as I said, I think is getting worse. So you combine those two together, and I think inflation could really kick into gear this year, and hence it could be a great year for precious metals.
Yeah. And like you mentioned earlier, when faced with the choice, do they save the dollar or the treasury? Gee, it sure seems they’ve given you every indication to believe that they will back the debt. The Fed will do what they need to do, the various other central banks will do what they need to do. And I’m curious, when you take a step back and perhaps look at this from a longer term perspective, obviously we have debt skyrocketing in the US, but it’s not just the US.
So you have this same phenomenon building in most of the major developed economies in the world. Any thoughts on how this plays out? Again, we have the metric of the dollar index measuring the dollar against the other currencies. So there’s some degree that we see things shift from area to area. Yet with, with all of them experiencing still those, those big western developed debt loads, what do you see happening over the next ten or 20 years? Or if you could take a leap forward, where do you think we end up and how this gets resolved ultimately? Yeah, well, what a big picture question there.
I mean, looking at currencies for a second, the US dollar, so look, something that I think bringing the international perspective here to look at is the. I mean, it’s been dropping significantly against the US dollar for years and years and years. We used to be back at parity with you guys. One Aussie dollar used to be worth $1. Today we’re at around that 65, 64 cent level. So we’ve dropped significantly.
And here in Australia, we’ve got economists talking about our lower exchange rate leading to inflation. We’re talking about importing our inflation, which I think is probably the wrong way of looking about it. Not to say that a weaker currency doesn’t have inflationary pressures, but it’s not really talking about why our currency is weakening against the US dollar. I mean, you’re american, you know what’s happening to the US dollar, printing it out of thin air and debasing it, et cetera, et cetera.
Financial repression, rates below inflation, all that stuff. And that applies even more so to the Aussie dollar. Our interest rates are lower than yours are. Our inflation rates have been around the same, if not arguably worse in some ways. I guess what I’m saying there is that the US being the cleanest shirt and the dirty laundry basket, from my perspective, as an australian, your currency is better than ours.
So yes, your currency is nothing compared to real money, gold and silver. But the US dollar as a fiat currency, relatively speaking, actually isn’t that bad. Let me have a caveat there. That of course the US dollar is not a great store of value, and it’s lost 99% of its purchasing power over the last 100 years since the inception of the Federal Reserve. But taking it back to that international perspective there of fiat currencies, the US dollar, it’s remained strong over the last few years.
Bringing that forward in the future, though, that the next ten to 15 years, I do see a drop in the US dollar compared to other currencies around the world because of the loss of the reserve currency, global reserve currency. With this brick stuff coming through and the rise of China and Russia and India, the world is rapidly changing. And the US dollar will probably lose a lot of its value for that reason.
But that’ll take a long time to play out. That’s not a trade to hop on for tomorrow. That’s a trade that will take years and years to play out. And it could go the other way first. So if there was some sort of banking crisis or some sort of massive risk off event, I could see the US dollar rallying in that sort of scenario, particularly against other global currencies.
So it’s a bit of a funny one, where of course, I’m bearish us dollar long term, but anything can happen in the short term, particularly if there’s a massive risk off event. And as I said, compared to other currencies, as an australian, I’d prefer to be holding us dollars than I would Aussie dollars. It’s worked out a lot better over the last few years to do that. Having said that, I wouldn’t want to hold us dollars.
I’d much rather hold precious metals of the cause. Yeah, I think that’s well said. Because let’s say we had another credit issue tomorrow or next month. I don’t think we’ve seen the last rally to us dollars and us treasuries where there was chaos to the extent that it was really circulating around the globe. I think we’re getting to that closer to that point where there’s one day where it doesn’t play out like that, although not sure that we are there quite yet.
And Sam, I know you also had a note as we were talking and setting this up. You’ve been fascinated by the magnificent seven. Obviously, you mentioned Nvidia earlier. Anything that you would say about the growth in these seven stocks where, see, about a year ago today at 128, now at 233, so not quite doubled yet, but quite a rate of return under higher interest rate environment. And we see, just as we’re saying that new 52 week high popped up today, any thoughts on what we’re seeing in some of these stocks here? Well, I look at it and I just see insanity.
These companies, they’re not necessarily doing too badly from a fundamental perspective or anything like that, but it’s more so just the extreme rally. I mean, Nvidia is now the third most valuable company in the US. It’s worth more than Goldman Sachs, than Bank of America, all these huge companies. And you look at it, it doesn’t make any sense. The price to earnings ratios that applies across the tech sector there, that’s not just Nvidia, the volatility in the space as well.
It’s just wild. Semiconductors in general, it’s just wild. So I look at it and I’m just in disbelief. You know, the Nvidia rally, I mean, it felt like not too long ago the Nvidia was at $500 a share. And I was looking at it going, is it going to top here? This is quite overvalued. And then today it’s at $800 a share, only a few weeks later. And how does that end? Well, is my question how does that sort of rally end? Well, it reminds me of the tech bubble of the early two thousand s.
Not to say that we’ve seen the peak yet. It could very well keep going from here. But I look at it and I think this is not a long term investment, this is a short term trade at best. At best. Well, certainly has been a stunning rise. And I get why you’re saying it can certainly remind one of what we saw around the turn of the century. Although, as you point out, which by all means is not, be careful if you’re shorting it, because certainly in an environment like this, we don’t know where the top is.
So, fascinating times and something I’m sure people are keeping an eye on. And Sam, perhaps just in wrapping up, can you let folks know where they can find you and reach you? And perhaps a quick update on our friend John Adams. And just the best way to stay in touch with the research you’re doing and the services you offer. Yeah, absolutely. So John, first of all, John, he’s very busy at the moment.
He’s working on something with ASIC. So that’s our corporate regulator here in Australia, kind of our version of the SEC. Big news that’s coming. So he’s alleging fraud in the bullion industry at another bullion dealer here in Australia. Keep an eye out is what I’ll say there. But it’s quite explosive when it does break. In terms of how to reach out to us, though, look, you can follow us on Twitter.
I’m quite active on Twitter, Adams, bullion on Instagram, Facebook, so social media there. We’ve also got a YouTube channel. We’ll be looking at uploading some more content in the near future. So feel free to follow us on YouTube as well. And then, of course, you can reach out to us via email or phone call if you’d like to get in. Yeah, more than happy to answer any questions, et cetera.
Well, Sam, I sure appreciate that, appreciate what you’re doing and offering us a bit of an international perspective once again. I think people like hearing Americans talk about gold and silver, but always helpful to see the impact and the way people are viewing it in other portions of the world. So appreciate everything you shared there. And we’ll have to check back in with you soon, see how things develop.
And especially after March, I wonder if that won’t be a little bit of a volatile time, although we’re getting closer. So thanks for everything you shared today and laying it out, and we’ll catch up with you again soon. My friend. Awesome. Well, yeah, thanks for having me, Chris. It’s been a pleasure chatting with you, as always. And, yeah, really looking forward to the next time. Well, thanks to Sam for joining us on the show from Australia.
Hopefully that was helpful in terms of getting a little bit of an international perspective today on some of the things happening in gold and silver, as well as what to expect in the year ahead. Real quick, before we wrap up, would like to thank Silver Viper Minerals, who brought us today’s show. And obviously, Silver Viper is advancing its LA, Virginia project where their maiden resource estimate came back with 17.
7 millionoz of silver equivalent in the indicated category and another 31. 1 millionoz of silver equivalent in the inferred category, for a total resource of 49 million, of which silver Viper obviously excited to eventually get out there and continue drilling. To update that resource, which will eventually include some of the new targets that they are exploring, including El Molino and macho libre. And to find out more details about Silver Viper, where they’re at in this cycle, and what they’ll be doing going forward can go to silverviperminerals.
com. And we thank them for bringing you today’s show. Hope you’re having a great day out there and we will see you again sooner. .
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