An update on the case for holding precious metals

Chris: Welcome, everybody, to this Peak Prosperity podcast. I am your host, Chris Martenson, and it is December 12, 2017. Hey, let's start here. Primary wealth is the wealth of the natural world. Hey, it's rich seams of ore, teaming fish grounds, healthy forests. Secondary wealth is a derivative of primary wealth. The richness of the earth is captured, it's harvested, it's mined, it's transformed, brought to market; which means that without primarily wealth there cannot be any secondary wealth. No thick forest means no lumber in the marketplace. No ore bodies means no more metals. It's that easy to follow.

The last step in this story involves tertiary wealth. This is what people are almost always, 100 percent of the time, talking about when we say someone is wealthy. When Oxfam adds everything up and reports that five people now have as much wealth as the bottom three and a half billion people, they are talking about tertiary wealth almost entirely. Tertiary wealth – that's stocks, it's bonds, it's paper currencies, it's derivatives. Each of those is a claim on wealth, but not actually wealth itself.

Now, to understand this we like to use spot experiments at Peak Prosperity, so here's one. Let's imagine you had a thumb-drive one you, a USB stick, and it has on it the private keys to a Swiss bank actually worth $10 billion and another set of private keys for a billion dollars in bitcoin. What do you have? Well, in the next part of this thought experiment we're going to strand you on the same island as Tom Hanks in Castaway. Remember, his most prized possession on that island was a volleyball he called Wilson? So there you are with your thumb drive, and further, we're going to stipulate that unlike Tom Hank's character, you're not ever going to be rescued. Now, how much is that thumb-drive worth? Well, practically nothing unless you painted timey face on it and named it after your new best imaginary friend, right. It's just a thumb-drive. So now let's give you a chance, knowing all of that, to exchange that thumb-drive for fishing line and hooks. Would you do that? How about for a gigantic mound of coal, or how about a hand radio that could reach civilization?

That point here is that real wealth is primary wealth and secondary wealth because the are real intangible forms of wealth. At Peak Prosperity we regularly and consistently tell people to diversify away from purely financial assets because we think paper markets are bubbly. They're due for a massive correction. We think Central Banks have made the biggest compounded set of errors in all of human history, and it's entirely too risky to entrust all of your wealth to what are actually claims on wealth. And for many people a great diversification vehicle is precious metals; gold and silver being the main ones to consider.

Well, today, we welcome Ed Dagostino, a principle at HAA, Assets Alliance, or HAA, to the program. As full disclosure Peak Prosperity endorses the HAA platform for purchasing gold and silver, and we have a relationship with HAA. We really believe in them, and we are compensated when people we direct their way; we are compensated when people we direct their way do business with them. Now, we've done interviews with people at HAA before and so today's podcast is to find out what's changed since the last time we talked, and to better understand how HAA has improved its offering and matches up to today's increasingly uncertain and complex regulatory environment especially for the US customer. Ed D'Agostino is also the publisher of Mauldin Economics. He began his career in finance at a boutique investment house, later joined his largest client as Vice President of Business Development. He's been instrumental in the startup and expansion of several businesses, and his clients have included hedge funds, lenders, investment publishers. All of them have relied on him to recruit and mentor analysts, develop controls and systems and implement various growth strategies, so Ed has a lot of experience in the business. Ed, welcome to the program.

Ed: Chris, a pleasure to be with you.

Chris: Well, thank you. So why don't we start back here - Hard Assets Alliance. First, for people who haven't listened to the prior podcast, quick summary – what's the mission behind HAA? Why was it created?

Ed: So first, thanks for giving me the opportunity. Hard Assets Alliance was created about five years ago by Olivier Garret, and I was there helping him start it. He's our CEO. What we liked about the Hard Assets Alliance is we had an opportunity to partner with a firm in New York called Gold Bullion International that is the group that provides institutional trading services to big banks on Wall Street. They personally saw – the owners there saw – a need to deliver a similar service to the individual investor, but they really didn't know how to do it. They had no idea how to go out to the individual consumer market and offer what they felt would be a really high-class, high- value safe and secure way to own physical metal. And so they called us, and that's kind of what we do as publishers in the investment information space and also quite bullish in general on gold as an asset that you need to own.

We know people in the world that want to invest. Olivier Garret, just for background, his – he was previously a partner and a CEO of Casey Research, so has a lot of experience in both physical metal and mining. So we partnered with them to create a new entity called Hard Assets Alliance. And in a nutshell, what HAA does is it gives individual investors a way to open up an online account, fund your account just like you would with an online brokerage account, and then you can buy physical precious metal: gold, silver, platinum and palladium, fully allocated. You're not buying a fraction of a big bar; you're not buying an ETF, you're buying a coin or a bar of whatever size you want. And it's stored in your name in a vault run by companies like Brinks in either the US or internationally at your choosing. You can take delivery of it whenever you want. You get good price execution because we only deal with the largest wholesale coin dealers, and then for the bars we deal directly with the refiners. And you can take delivery, like I said, whenever you want, or you can sell it back to that same refinery or wholesale dealer network. So you’ve got good liquidity, direct ownership, safe fully insured storage, and online access with human beings behind it. So it's not just virtual. You can pick up the phone, and call our toll-free number, and somebody is there waiting for your call to give you a hand. So that's the service, basically.

Chris: Excellent. I do love that service, and if you happen to have a bar that's in a vault in one country or jurisdiction, could you have that, or a representative swap be conducted in a different jurisdiction?

Ed: Not yet. That is a question we do get, and we are working on it. The difficulty comes in the fact that the – there's different dealer networks in different countries, so we do have a storage facility in Singapore – it's actually our most popular storage facility – is in Singapore. And the dealer networks don't 100 percent overlap with, say, Salt Lake City's location. So that makes it a little more tricky. We're working of solutions for that. It's probably going to be another six months or so, realistically, before we can pull it off.

Chris: Great. That would be the ultimate in liquidity as well, so glad to hear you're working on that. Now, so what has changed at Hard Asset Alliance since the last time we talked? I know you're constantly working on improvements and additions like the one we just mentioned - that jurisdictional bar swap – that would be amazing. But what's new in the world there?

Ed: There's a program that we rolled out about a year ago called – we call it Metal Stream, and it is essentially a way for you to get started. You can dollar cost average into a position over time automatically. It's pretty simple. How it works is once you get it set up in your account you have an automatic ACH withdrawal from your checking or savings account every month for an amount that works for you. Could be $100 bucks a month, could be $1,000 bucks a month. And each month that money gets deposited into your Alliance account, and three days later it gets invested into metal – your choice of gold coins, gold bars, silver coins, silver bars. You can have it stored in either the US or Singapore.

So what's different about it is the second your holding reaches a full coin or a full bar, a whole unit, it automatically converts to being 100 percent yours. It's no longer sort of shared or fractional, so the second you get to a dollar value where you own an entire unit, that gets converted, it gets moved from that program shelf over to a shelf that is attributed to you in the vault.

Chris: Now, does that happen in that moment at the current spot price plus whatever premium is involved at that moment, or how does that actually work?

Ed:
Each month the value gets set, so the price of the respective coin or bar that you're buying – and there's different sizes offered – but say in one month your automatic deposit is $500, and that might buy you 40 percent of a one-ounce gold bar. And the next month your $500 might buy your 43 percent, maybe the price went down a little bit. It keeps going in that regard until you’ve got to a whole bar, and then that bar converts to being 100 percent yours. You can literally, the next day you could take delivery of it if you wanted to.

Chris: Got it. Okay. So that is real dollar cost averaging. And of course, you know, I keep talking about the need for real assets at the risk of certainly dating myself. I do not believe in printed prosperity, although the Central Banks are working hard at that, but not at your – while we're recording this, out of the last ten weeks, gold and silver have gone down nine of them. It's just relentless. If that sort of selling was happening in any other market like the premiere treasured stock markets it'd be a national, if not a global, emergency. So I know people who've said it's difficult to keep the faith. Some have even thrown in the towel. In your view, is it merely darkest before the dawn, or is it time to throw in the towel?

Ed: You know, my general sense is I think we'll kind of keep grinding sideways like we have been for a while until some sort of event happens. And then you'll see the real value of gold in your portfolio because in a black swan event gold tends to hold up quite well, whereas other more conventional investments - equities have all the headlines these days – equities will struggle. Gold, for me, is not a religion. It's not the asset that you should own. It's one of the essential assets that you should have in a portfolio. And if you look at it that way then periods like this, for me, become good times to accumulate.

I personally accumulate my precious metal holdings using the Metal Stream system that I just described to you. I dollar cost average. I have a rough idea or percentage of my overall net worth that I want to keep in physical gold, and that's – and I just don’t worry about it. I set this program up, and then I forget it. I just know every month I've got X dollars going into gold, and I'm happy with that. And when the price drops, that makes me actually happier because it means I'm getting more.

Chris: Look, I'm right there with you. Here's my view. Real assets are going to have their day in the sun, they have to because eventually there's only so much real stuff out there. So this becomes a supply/demand sort of a story. And bitcoin right now – a lot of people are following it - it's just like bolting like crazy therium, all this stuff. But part of that story, when you unpack it, is there's very, very little float meaning bitcoin available for sale out there. Out of the 21 million possible total, I think maybe people are – the numbers I've heard are – basically scrabbling over maybe five, maybe ten million of those. The rest are out of the picture. They're held by a few whales. They’ve been lost in the landfills, whatever the story is, a lot of them aren't available. So you have very few people – a lot of people sort of trying to get their hands on a very, very small, a very constrained place, marketplace of bitcoin, and so that's part of the story.

Now, the reason I like HAA is because you're aligned with Gold Bullion International, and what I saw personally a few times when markets really began to more for silver and in particular, it became very difficult for people to get their hands on it. There were times when I heard people saying that they were waiting six to eight weeks for delivery of just a monster box of eagles – silver eagles, or even Canadian maples, things like that. So what I know is that if, when, the market really begins to move for gold and silver that your platform actually gives retail participants an actual shot at participating in what I consider to be one of the more liquid systems out there.

Buddy the coin dealer is probably your least liquid system right up the road. You get a little more when you get into the people who are out there retailing the monster boxes and things like that, but those dried up really quickly. So can you speak to what they system you’ve got, the access that gives the more average investor, if I could put it that way?

Ed: Sure. We're lucky in that HAA drives quite a bit of volume in and of itself, and then when we partner with GBI, the wholesale dealers and refiners and look at GBI, or Gold Bullion International, as one customer. So I'm lucky enough to be in a high-volume business with HAA, but then we also ride the coattails of our partnership with GBI. So we buy directly from wholesale coin dealers, so – an individual investor could not buy from the dealers that we buy through. And then we buy directly from the refiners for our bars. So basically, we are buying straight from the source; so if we don't have the inventory, nobody has the inventory. And that's one of the nice things about our business, we're not taking inventory risk. We are really – we are making the market for the customer.

Chris: Now, has any of the refiners been talking about any particular oddities, tightness, shortages? We've noted for a long time at Peak Prosperity the flow of gold from West to East. We've been hearing rumors through our own refiner network of bars that we might call from the bottom of the vault starting to show up. And so there's just been this general movement from West to East. Do you have any sort of anecdote stories about what the refiners are saying, and are you noticing anything about buying habits?

Ed: I notice that the refiners are tending to produce larger bars, and that – in the event of a squeeze that becomes problematic for your individual investor because…

Chris: By larger you mean kilo or larger?

Ed: Even larger, yes, especially on the silver side you can buy thousand-ounce bars, but who wants a thousand-ounce bar? And how many people realistically want to buy a thousand ounces of silver at a clip? So that is where things get tricky in the marketplace is you see – a couple months ago it was really hard to get your hands on a ten-ounce silver bar. So there is some constraint. It's in weird little pockets that you wouldn't expect. But coins, in general, are pretty readily available right now. Mints are having, overall, an off year compared to years past. So there's still decent access. I am noticing an increase in KG bars on the gold side.

Chris: Kilo bars, you mean, right?

Ed; Kilo bars, sorry, yeah. So a lot of our clients on the higher end are moving towards kilo bars. I don’t have an explanation for it except that I think what's happening is you're seeing on the higher end of this sort of upper middle class and wealthy individual investor who maybe has make a killing in equities and is now thinking about how do they rotate some of those gains out. Those are the people that are starting to look at gold more, at least in our experience, and when they do, they're looking at the value proposition of a kilo bar in gold. It's a very efficient way to – you can get $40 thousand or so worth of gold in something that is the size of an iPhone, and not the new iPhones, the old ones that were small.

Chris: You could tuck it in an envelope if you wanted to. It's be heavy, but it's be an envelope.

Ed: Exactly.

Chris: And for people asking about gold and silver all the time, and I increasingly have to tell then those are two words to me. Gold has one use and utility to me, and silver has another. And I just was recently at the Munich's precious metals show, got to talk with a lot of miners who were in representation there. I've been to the New Orleans Investment Conference, so I've been to a variety of places talking directly. And the miners in particular have a story to tell which is that at the current price of silver there are very few of them that are able to produce at these levels. And, as well, their ability to access the equity markets all but ruined at this point in time because of just an absolute trashing there. And the debt markets aren't even all that open to them, or if they are, at a very high rate of interest or high cost of capital.

So you add it all up, the direct miners for silver are really in deep trouble here. This is one of the ways I consider our current computer algorithm dominated markets to be wildly inefficient because they know the price of everything, the value of nothing. You can't have a commodity below its all-in cost of production for long until you drive producers out of business. That's where I think we're at in this particular story. And silver is my bet that we need it, it's irreplaceable for a variety of purposes, and if you believe that we're going to have a future where an industrial economy exists, you kind of have to believe in silver from a supply/demand standpoint. But silver is just the wackiest metal ever. We've got all of those things going on, and when you look at the short interest that exists on COMEX for silver, there's not even any other commodity that comes close to it in terms of days of production. It's just something weird and magical if not unfortunate and manipulative has been allowed to not only emerge but persist for silver. Your thoughts there?

Ed: Yeah. Two comments. One, I think you're right on terms of supply. I think that the sector, in many ways, has a self-correcting aspect to it. If producers can't produce and make any profit, and that's really where they're at now in the silver mining sector, eventually that situation will correct. Mines will shut down, and the price will go up. We're seeing something similar in oil right now. So it's pretty simple - supply and demand. But then when you introduce the short position on the COMEX, that is, I suspect a little bit more nefarious, and it's always been a source of confusion to me.

I have sat with people who have vehemently argued both sides. And guys that would surprise you, guys like Doug Casey who has said to me there's just no way that market is manipulated. Now, Doug is a guy I would think would have the opposite take, but he doesn't think so. And yet I've spoken with others who flatly disagree.

Chris: Well, look, the principle description of a manipulative position is one where you’ve cornered the market or in some way you’ve got too concentrated of a position, and when you look at the number of bullion banks that are actually involved in that short position, it's a heavily, heavily concentrated position. Nothing else comes even close to it anywhere else out there. And I'm sure if you had some entity attempting to get a similarly concentrated position in oil they wouldn't be allowed to do that because it would be clearly, clearly wrong and dangerous for the market.

And the mysterious part to me, Ed, is that if you think that's there's maybe a billion ounces of silver above ground somewhere, right now $15.5 billion you own the whole market. It's not a lot; it's a tiny amount of money relative to what the ECB is creating or what certain individuals own or the market cap of bitcoin at this point. Like really it wouldn't take much for somebody to come in and legitimately make a giant mess with the shorts by going long. Hasn't happened. Again, I have my own nefarious reasons for why not – it's called the Hunt Brothers - but if you try to do that they will come after you.

Ed: Yes. You will get smacked down.

Chris: You will get smacked down. You just got to know that. But still, it means we have, I think, an actually - a very unusual position not just for silver but for a variety of metals. I really like palatium here as well, and platinum too when you look at what we need to do industrially going forward with respect to alternative energies, clean technologies, all of those things. Each of these platinum group metals and silver have a very strong story to tell, but the whole world seems to have lost favor with all things commodity related at this point. One of my favorite contrarian charts is a ratio of financial assets to commodities. It's never been lower than it is, and it's only been down here two other times in history in the chart I'm looking at.

So great time to be a contrarian. So dollar cost averaging is a way to get into that. Now, I like the HAA program for how simple you’ve made it. If you just have this ACH out on a monthly basis, you don’t have to try and be a market timer. All you have to do is be somebody who says, yeah, I want a percentage of my portfolio over here. We can make that easy, and couple that with the idea that your platform gives people, I think, some of the best access, particularly when things begin to move fast. If things are moving as fast as they are in bitcoin right now, good luck trying to get anything out of the usual retail distribution channel. At least, that's been my experience.

Ed: Exactly. I agree. You know, I always try to tell people that you want to buy any asset class, gold and silver or anything that you're interested in, when it's out of favor. So while we are in a great position because of our volume and our relationships, we are in a great position to have access to the physical product when things get hot. The time to buy it is before it gets hot, right, so if you just take a long view of your metal holding, don't let it take over your life or become a religion, have it be a component of your investment strategy. and then take a long view. Now is a great time to be implementing that strategy.

Chris: Absolutely. So we've got all the details we can link through, but if people wanted to find out specifically what the details are of getting an account open at HAA and what the storage fees are and what the transaction costs, all of that, because our tribe of people very much curious about those things and they do their due diligence. Where would we direct them to get more information?

Ed: They should go to hardassetsalliance.com. We're very transparent. You can see all of our products, all of our prices, you can get ahold of some special reports that we've put together that explain how both our system works and how it is differentiated from other options out there. So hardassetsalliance.com, or give us a call: 877-727-7387, and just be sure to tell our great customer support folks that you heard about us from Chris Martenson.

Chris: Well, fantastic. And as well, we'll put a link through at the bottom of this podcast, so people can click through on that. But again, I do believe that we've got – unless, of course, you want to buy low, sell high – buy things when they're out of favor. That's a good time. And that real assets will, of course, have to have their day in the sun, I think, unless this time is different, and we have figure out how to print our way to prosperity, and reality doesn't matter. But you have to believe all three of those things at once, which is six impossible things before breakfast.

Ed: Seems a bit of a stretch.

Chris: A little bit. Maybe. So maybe you just want to have just a little bit of your eggs in the real asset basket just in case those people who are sitting around the mahogany table deciding the price of everything might have made a few miscalculations. It's possible.

Ed: In the US, for some reason, in the US gold has been – well, it's not for some reason, there's a very good reason – the government has, in my opinion, beaten gold out of the collective consciousness of the American citizenship. So because of that, Americans tend to be very under-invested or under-exposed to gold. If you talk to any Canadian, just about every Canadian investor that I've ever spoken to, they all own some gold and some silver. It's sort of a, of course I do, when you ask. Whereas your average American, my guess is less than 10 percent have any real exposure.

Chris: I'd be way less than 10 percent based on my informal polling. And, of course, I'm sure you've seen those videos of that guy – Andrew Dice – who runs out and holds up a silver bar right out in front of a coin store and offers it people. Did you see that one? He offered a ten-ounce silver bar or a chocolate bar, and it's an entire stack of chocolate bars and they all got taken, and nobody took the silver even though they were steps away. At that point in time I think it was like $18 an ounce, and they were steps away from having $180 payday; they took the Hershey's bar.

Ed: Well, instant gratification.

Chris: Well, yeah. And a total lack of awareness because you're – it's really actually – it is a little bit nefarious because one of the things I track is how propaganda works, and it's also in marketing. It's influence, and it's called persuasion. There's all these words, uses, and things that you can use to nudge people this way or that, and the – not just antipathy, it goes further than that – there's a real – it goes a little bit further than that, but maybe that's a good word. There's an actual hatred of gold that sort of infects the wording use in the Wall Street Journal and The New York Times. There's a little glee when it goes down, and there's a little grr, growling when it goes up, so it's – I don’t know how or where or when that got embedded, but I have my ideas about that.

But it's people in America need to understand that when you read about gold in the financial press you're being exposed to what's almost equivalent to a psyops campaign – it's a marketing campaign that gets you not to be in it. And so the next question ought to be why is that? Do they have my best interests at heart? Whose interests are being served here? What's the actual thesis for why I should not believe in this stuff? And really it boils down to you need to have a complete faith in the system. It's kind of like if you're a Syracuse fan, and everybody's wearing orange, there's just a strong sort of social trending thing. You don't want to show up wearing blue. You got to wear your orange. So it's something really about that.

And you're right, when I travel to other countries it's so refreshing because there's none of that antipathy, it's not baked in, people don't scowl at your first before they begin to address the gold question. It's sort of, and 'of course', but it's not a religion, it's just an 'of course' it's part of it. And so that's my view, as I've been working so hard, like you have, to help convince people that this is part of a rational, prudent portfolio.

And as I said, gold and silver, two words. Gold is my bet that I want to have a financial asset that's not somebody else's liability. It's my – yeah, it is – my holding gold – I'll be honest about this. It represents my lack of faith that the powers that be, the Central Bank, the PhD economists who are attempting to control every price, might not get that right. That they might just, in their third giant bubble blowing in the last 17 years, have once again done something that they shouldn't of. And so that's why I hold gold as a monetary asset that represents my – let me put it in positive terms – complete faith that they’ve gotten it wrong again.

Ed: Well, if you look at history and you compare how many thousands of years gold and silver both have been considered a financial asset and a tool for facilitating commerce and storing wealth, and you compare that to how long fiat currency has been around. my guess is gold and silver are going to continue globally to be seen as having value.

Chris: Well, absolutely, and particularly this part of history. Let's widen back a step and understand the role of the petrodollar, the role of the US dollar as almost a hegemonic currency that you had to have. But watching China, Russia, Turkey, other – sort of the BRICS countries in general – being to de-dollarize. And also, they’ve just opened up a new – or announced – I haven't seen the functioning of it yet – a new gold trading platform that operates independently of the dollar. China buying one of the largest gold repositories in London, also the Shanghai gold exchange – there's so many moving pieces that say that the rest of the world is not only de-dollarizing, but also accumulating gold.

And I just look at that sweep of history and say well, it would be a bad time to be completely out of it. You mentioned Canada, I don’t know if it's still true, but there was a point in time I personally held more gold than the Bank of Canada because they were down to like 40 ounces or something at one point on their balance sheet, like they totally gave up. And so I just look at who's accumulating and who's hoarding and where we really are in history, and that, what you just mentioned, that gold is always had a monetary role through all of history that's been recorded. And I just say, yep, I'm comfortable sitting here even as I'm very uncomfortable with the campaigns that are being run to convince me that I shouldn't be here. I would love to know who's running those and why, but that'll be for the history books later.

Ed: That could be a second podcast, and we could – I'd love to chat with you about what's happening with bitcoin right now, too, because I think there are a lot of aspects of bitcoin to like, but there's also a very dark, nefarious side to bitcoin that I think a lot of people haven't really thought through.

Chris: I'd love to have that podcast, too, because there's – I do think we need to consider all the aspects here and by the way, increasingly I won't let people get away with calling them cryptocurrencies because there's nothing crypto about then.

Ed: Exactly. That was going to be my point is you are basically providing a very detailed record and ledger of your activity, and that activity will be seen. There is no doubt about it.

Chris: Absolutely. Not secret at all. So you want to call them digital currencies, I'm there with you. You want to say blockchain is a very interesting technology that might have a myriad of uses, I'm with you. All of those things, but so – at any rate, we'll leave that for another time. Ed, thank you so much for your time today. Again, Ed Dagostino of Hard Assets Alliance, and hardassetsalliance.com. If you're interested, and I really think for those of you who would be very keen to know that you’ve got the best access you can have to the gold and silver market at good prices, especially for when times begin to move, the time to establish those relationships and of course be accumulating your positions is before you have to. So let's just leave it with that. Ed, hey, thank you so much for your time today.

Ed: Thank you for your support, Chris. Much appreciate it.