152: History of Money, Gold and Crypto

Buck: Welcome back to the show everyone. Today my guest on Wealth Formula Podcast is Jeff Clark. Jeff is a senior precious-metal analyst at goldsilver.com. He’s a globally recognized authority on precious metals and he also comes from a gold family. He’s the son of an award-winning gold panner and with a family-owned mining claims in California Arizona and Nevada. He’s an investor writer also Jeff’s also a mining industry analyst including ten years as a senior editor for the world-renowned publication Big Gold. Jeff has been a regular conference speaker including Cambridge house and Sprott resources events the silver summit and many others. He currently serves on the advisory board had strategic wealth preservation which is a boolean storage facility in Grand Cayman and provides analysis and market commentary for goldsilver.com. Jeff welcome to Wealth Formula Podcast.

Jeff: It’s great to be here Buck thanks for having me.

Buck: You bet. So you know whenever you get to the conversation surrounding precious metals etc I think you know so many times we kind of ignore what this conversation is all about and to me that conversation really begins with what is money, what exactly is money and where and and then ultimately we’re you know holding gold and silver and other precious metals fits into this. Can you talk a little bit you know obviously that’s an entire course right but give us a sense of what money is in your mind.

Jeff: So money is there’s a distinction between money and currency right? So currency is what you use at the store is that money well it meets most of the criteria of money but money also needs to be a store of value and where the current currency system falls short in my opinion is that it’s a Fiat currency, which means it can be diluted devalued and because of inflation it will lose some of its value over time so is that really money and my answer to that question is no because it cannot last and be a stable store of value over long periods of time and the only way to keep up with inflation which is built into a fiat currency system is to own something that is not that can’t be diluted over time. Here’s a good example remember Y2K, we were all worried about y2k back in 1999 well just since the year 2000 the dollar has lost according to the CPI 50 percent of its purchasing power, just this century alone. So a car that costs twenty thousand dollars in the year 2000 January 2000 the same car now cost thirty thousand dollars. So if you didn’t you use your money to invest in it and earn at least 50% return on that money you’ve lost purchasing power and of course as soon as you invest you introduce risk into your portfolio. So gold has been able to keep up with that and actually obviously far surpass that it was two hundred and sixty dollars or something around that time, now it’s over 1,300. But the point is in a fiat currency system you have a currency that could be devalued and diluted and that’s the big problem we have money must be a store of value in my opinion gold does meet that criteria and in fact Gold’s met that criteria for thousands of years right so mankind has decided for whatever reason that gold is the best store value all the movies about pirates and that were stashing gold on ships and things like that and hiding it, that’s because mankind has decided for whatever reason right or wrong that gold is gold as money gold as valuable.

Buck: Sure so let’s talk a little bit more drilled a little deeper on the idea of you know what’s wrong with fiat currency right? If you want to talk a little bit it might be helpful for those people who don’t really understand you know what exactly fiat is what is the fractional reserve system that we use that most of us probably don’t even really understand is going on?

Jeff: That’s a great question obviously much have been written on this subject but Fiat basically means by decree. So it’s paper money that the government by decree has declared is money and that’s fine it’s a debt based system that’s fine except for one thing because it’s Fiat because it can be reprinted because it can be devalued it’s going to lose value over time the more of those dollars you put in circulation whether from fracture reserve banking or from just outright money printing you devalue the dollars that are already in existence. I think everybody understands that and so the fiat system almost by default means that it’s going to be devalued over time whether it’s slow or quick usually it’s slow but there are times when your devaluation of your currency can happen quickly so that’s the issue with the fiat currency system is that it’s fine until you introduce this concept of automatic devaluation if you will and that’s what happens and the big fear today the reason I’m overweight gold when at other times in history I might be underweight gold is because the entire world right now is on a fiat currency system believe it or not every currency out there is fiat and based on our research we can’t find a time period where that has been the case there’s always been some currencies out there that have been go back to silver back there’s some kind of commodity backing today we have none of that and so the whole world is operating on a fiat currency system.

Buck: Do you see that there’s any sort of impending danger because that?

Jeff: Well the danger can be like I said slow or fast the reason. I’m overweight gold is partly because of the fiat currency system and the elevated number of risks that are in the financial system right now. So I think owning real estate is good but what I buy real estate right now it’s a little over value I’d rather buy something that’s undervalued. So I look at gold as a way of hedging against the risks that are elevated in the financial system right now. So I don’t like to make a lot of predictions but when I look at the investment landscape I see risks everywhere in the stock market being overvalued the bond market 37-year bull markets something like that real estate seems to be getting a little frothy again you would probably know that better than me though you know the cannabis index is up something like 5,000 percent Bitcoin was a bubble that has burst there might be some opportunities there again. The big issue for me is from Baudette in literally every segment of our society the debt is at all-time highs believe it or not so there’s a lot of risk I’m not saying the world is gonna crash and the world is gonna end I’m saying there are a lot of risks and many of those risks are elevated that tells me I need to be overweight gold at this point.

Buck: Yeah you know you talk about a little bit about real estate and this is something I think I’m sort of you know grappling with myself because well it certainly you feel that there is some froth in real estate. Fundamentally it to me gold serves as sort of the anti dollar right it’s like it’s hedging inflation and I kind of see real estate doing the same thing. Can you suggest a time in history where there has been significant inflation or any you know it doesn’t have to be you know hyperinflation but inflation where real estate and gold necessarily didn’t both move in a positive trajectory? Well my point being that listen I totally get the point about gold being a inflationary hedge I completely agree with that but when I look at real estate I think of real estate as an inflationary hedge as well and I just want to know if your what your thoughts are on that.

Jeff: Real estate is an inflationary hedge but there’s other factors that play into it. Interest rates, the political environment, where that real estate is located, if it’s cash producing or not it has a lot of similarities with gold it’s it’s a real asset but I see them as two different asset classes. Gold rose, gold and silver rose quite a bit in the 1970s if you’ll recall during high inflation. Now real estate rose as well but gold and silver rose so much because of that inflation because of all the economic issues that were going on at that time that it actually outpaced inflation and your purchasing power relative to real estate was actually far superior at that particular point in time b]]. But my take on this whole issue is you know cash flow real estate is an excellent excellent investment, I just think at this point in time real estate has gotten a little bit a little frothy I probably wouldn’t want to buy it now. I want to buy low sell high as we all say and what’s low right now but the only thing is really low out there is gold and silver. And gold and silver are more than just an inflation hedge they are definitely that but they’re more of a crisis hedge. So what if we don’t get inflation but we get some other kind of crisis? Well real estate may or may not do well at that point in time, but gold and silver will, historically have done very well. So I think of them more as a crisis hedge as opposed to just an inflation hedge. What if we get deflation for example you know what if we get some kind of geopolitical event so there’s a lot of issues out there historical studies show that gold especially will hedge those kind of events and so I like being diversified and right now based on what’s out there my gut tells me I need to be overweight, this asset because of the potential for whatever crisis may result out there.

Buck: You mentioned you mentioned interest rates and rising interest rates wouldn’t that also have a negative effect on gold?

Jeff: That’s a great question and the answer to that is it depends on the real rate. So gold doesn’t necessarily fall look at what interest rates did in the 1970s and look what gold did gold rose that’s because inflation was rising higher officially than the interest rate was so therefore gold was not a negative asset at that point in time and rose in direct response to it. So it depends on the real rate the real rate being inflation minus the nominal you know usually ten-year rate is what we use so that’s what you really have to look at is the real rate. So if rates are rising inflation is dead so that’s probably not the best investment it’s probably not going to do as well but if rates are rising inflation is rising just as much or more investors we’re not shying away from gold in fact may turn to gold in that very environment.

Buck: Right so what are you you know you tell us a little bit about your background, let’s back up a little bit . You grew up in a you know a gold household so to speak. So tell us a little bit about what that was like what you learned and how that shaped your view of the world.

Jeff: Well my grandparents have always believed in holding gold and they grew up in the Great Depression let’s be honest so you know they have some other reasons for holding gold. But my father became very interested in gold probably 20-25 years ago as a prospector. So he went out and within a short period of time became this fairly successful prospector. He actually attended mining events where they had gold panning contests and he won some of those he wasn’t necessarily the first place but he was always you know finishing with some kind of award and he got very good at it and he also got very good at finding gold and so our family did own mining claims in California and Nevada and Arizona and I’ve been to many of those. So it’s a fun thing but Buck it’s kind of like fishing you know you never know what you’re gonna find when you go out you may go out and find something in ten minutes or you could be there all day and find nothing so I don’t like that and for me it just it got a little boring I just didn’t have the patience for it.

Buck: That’s something I’ve just said of curiosity you know and I am you know listen I don’t live in that world at all is that some it still goes on do you go out there and pan for gold still is that something?

Jeff: Yeah that’s a good question it does still go on but there’s been a lot of restrictions placed on it especially here in California where I am so it’s not as you know easy to do it of course a lot of places here have been picked over you know Arizona Nevada might be a little better but again a lot of the easy to find gold has been has been has been picked over so it takes a little bit more advanced equipment but I will tell you this little tip is the best time to go out is after any kind of natural disaster. So if there was any kind of earthquake or flood or anything like that at all that’s the time to go back to the spots you’ve been to before because those kind of events tend to you know bring the gold more accessible so.

Buck: No kidding well I gotta tell you I’ve been looking for a hobby so maybe that’s something.

Jeff: It could be a fun hobby yeah but you gotta have the patience for it.

Buck: Right. So uh you know how did that how did that experience I mean shape your perspective? Obviously it had a lot to do with what you do but what how did how did that affect your worldview?

Jeff: I think finding gold Buck and holding it in your hand yeah and the weight that comes with it and it’s distinguishable. You know it’s gold as soon as you see it there’s a lot of little metals and color different things in that pan but when there’s gold in there you know that’s gold in your gut it’s very instinctual and especially if you hold a real gold coin or a gold bar or something in your hand, it’s got weight to it you you can relate to that as a human that okay this is real this is something that is not just any other metal this is gold and I think that’s what impacted me the most another thing that impacted me is my grandfather left me the US Mint started producing gold eagles in 1986 and he bought one for me unbeknownst to me and when he passed away that was one of the things I inherited from him was that one of the very first US Gold Eagle coins that was produced by the US Mint believe it or not they didn’t start producing them until 1986 anyway I got one of those and it just meant a lot to me because not only was it from my grandfather but this was a real gold coin and I think that’s when I first started getting my interest in gold and kind of linking that up with my you know writing abilities and things like that and sort of getting in the industry of that way but yeah.

Buck: Interesting. Well you know we saw talked about gold. Is silver worth talking about right now?

Jeff: There’s a very compelling set up in silver right now yes supply new supply is starting to roll over. So supply has been rising when prices rose up until 2011 and then supply kept rising for a few years afterwards because of all the money that had been going into the ground. Prices have obviously fallen dramatically too silver is priced like one third of its 2011 high that obviously affects revenue which obviously affects budgets which affects exploration and development of projects and this is true for both gold and silver but for silver new supply has already rolled over and it’s already starting to go into decline so there’s going to be some type of supply demand issue at some point for both gold and silver that process is really already started with silver so there’s that there’s a compelling argument there but the biggest thing for silver and I just did a talk up in Vancouver on this at a conference and the number one issue for me for silver right now is just how small it is it is it is a very very tiny market it is 0.02 percent of global wealth right now. Not 2% or 0.2 percent, 0.02% of global wealth. In fact, get this I love this stat. So in Apple computers q3 report they had something like two and a half billion in cash well they could buy with their cash every ounce of investable silver last year every coin bar and every coin bar represented by an ETF every investment ounce of silver with 0.5 percent of its cash.

Buck: So why are people not buying more silver right now?

Jeff: That’s a great question the answer there I think is the same as it is for gold, that nothing has broken yet if you will. I mean let’s be honest gold is a is a fear hedge right it’s usually when uncertainty rises or there’s some type of crisis or there’s inflation or there’s something breaks in the stock markets or the economy or geopolitically that’s when people tend to go to gold and silver. Those things haven’t really happened yet the risks are high as I pointed out so that’s why I’m overweight those things but when those things happen if any of those happen to whatever degree they happen in my opinion that’s historically that’s what gold and silver a movement I think that’s when they move again so I don’t think that’s you know things aren’t going to stay the way they are forever and so I do think when those things occur whatever they may be to whatever extent they may be that’s when gold and silver will move.

Buck: So let’s just assume for a moment that I don’t own any gold and I’m listening to Jeff Clark right now and I’m like wow I really should get some exposure to gold or silver, should I buy physical gold should I should I go and buy GLD I mean what’s tell me your perspective on that what’s the difference?

Jeff: Yeah that’s a great question because you can get exposure to the gold price through an ETF it’s easy to buy and buy just like a stock but that’s the catch that’s all you’re gonna get is exposure to the price if you cannot get physical gold out of that it’s just price exposure nothing else. There are a couple ETFs that will allow you to take delivery but it’s very expensive to do so and you have to wait for it and you’re gonna pay a premium to do that so it’s not really the best way if you’re gonna buy physical gold to buy one of those ETFs that’s not the best way to do it. So do you want just price exposure or do you want the physical metal well one of the advantages of physical gold and silver is that they’re not just a crisis hedge but they can be used in any type of crisis whether it’s personal or in the economy around you. So if you have physical metal you always have money if you will that you know can’t be altered anyway it’s a tangible asset that’s in your hand that you can use for barter or to sell for currency at that time or whatever the case may be so the worst the crisis this is the best guideline in my opinion the worse the crisis you expect to be the more likely you should have physical gold. If the crisis is not that bad you could you can buy just a you know an ETF and get exposure to the price that way for me that’s not enough I don’t personally so in full disclosure I don’t own any paper gold products I only own the physical stuff.

Buck: Do you see any significant risks of an ETF as for example GLD in some regards you just you know I’m not even really sure I understand how that ETF works does it own you know does it own gold? You know what I mean so so is there some danger inherent and in that that kind of setup as opposed to physical gold?

Jeff: Yes the danger is you have counterparty risk okay. So if I have a gold eagle in my hand I have zero counterparty risk. If I own GLD I have counterparty risk. Now I have to rely on the markets are functioning properly I have to rely on management and their prowess and their abilities I have to rely on the custodians that are holding that gold I have to rely on the system to make sure that that price is always going to match what the spot price of gold is so in ETF is like anything else it has counterparty risk but a physical metal does not have that counterparty risk so that’s the greatest advantage that you could have by holding the actual physical metal.

Buck: How to Taxation work in terms of physical gold say you wanted to sell something. Taxation for physical gold I mean I’m assuming the ETF works like regular capital gains right and is there a difference between the way those are taxed?

Jeff: So if you own physical gold yeah there is a tax rate specific for physical gold and silver and platinum palladium any metal like that that you hold it’s for most people that tax rate it’s going to be 28%. It’s very archaic but the government declares gold a collectible well to this day even though bullion which is really not a collectible item because collectible gold would be a rare coin but the law has not changed and it still you it’s still viewed as a collectible and therefore taxed at 28% rate. The way to escape that would be to to buy some gold stocks because then they would be taxed at the capital gains reign which would be lower for most people the catch there of course is that you introduce all this other risk now when you buy a mining stock I love mining stocks I own a bunch I’ve been an analyst for a number of years I think they’re gonna provide leverage to gold and silver but they have risk and just watch the movie gold with Matthew McConaughey that came out of here to go great movie very fun but that’s a true story and I know some people that own that stock at that time and they have lost everything from that from that stock so you have other risks when you do that so there’s a balance there so the balance for me is just like your gold versus real estate question well I have both. I have both physical gold and I have gold mining stocks or mining services.

Buck: Are mine stocks taxed differently then like a pure gold ETF? are they are they both goods.

Jeff: Yeah that’s that’s a security it’s an equity and so therefore yeah it’s taxed differently in it that’s a capital gains issue as opposed to a collectable issue. So GLD is considered capital gains but that’s it that’s a good question I actually don’t know the answer to that because I don’t I don’t own any it got it or paper gold products that’s easy to find out it’s probably even on our website to be honest with you. I don’t need any of that so I can’t answer.

Buck: Sure I get it. So if you want to buy physical gold, do you know of ways that you can borrow against it?

Jeff: Ah well there are ways to do that you can link up with some entities that will borrow your gold that they will then use to turn that gold in you know sell to a refiner or to a dealer or manufacturer or a mint or something like that the percentage isn’t you know the return is not that high maybe something comparable to Treasuries but again now you introduced counterparty risk again because you’re lending your gold out that’s what the Indian government is trying to convince people over there to do is to lend their go it out so that’s one of gold’s great attributes right is that it doesn’t have counterparty risk so I you know to take my gold and introduce that to it I I bought it that I don’t know if I want to take that risk if I want to take some risk with gold who go out there try to earn more than what the return of gold would be well I want to buy a gold or silver mining equity that’s what I want to do so yeah there are entities out there that will do that there’s not a lot of them but there are ways to do that. I personally just went to it because I’m introducing the counterparty risk issue.

Buck: So what exactly does goldsilver do?

Jeff: It’s very simple goldsilver.com is a bullion dealer so all they do is sell bullion that’s all they do. And they store it for you as well. So we don’t sell any rare coins or numismatics there’s a lot of issues with that so I would encourage people if they don’t all go don’t start with those dealers you see on cable TV or something like that because a lot of those you know I have a little bait-and-switch going on they’ll tell you about a coin A but they’ll want to sell you coin B C or D because it has a higher markup once they get you on the phone so I would stick with investment grade bullion which is standard bullion. Gold Eagles gold maple leaves same with silver you want to start with the sovereign coins because the sovereign point just means is produced by government so it’s produced by a government mint so there is some backing there, it will always be honored by a government and there’s certain certainties in terms of purity and things like that to come with that as well so if you’re starting out I would definitely start with sovereigns if you want to buy a bar, as bars are ideal for storage that’s the shape they’re made and if you could picture a gold bar they’re made in that shape so they’re stackable and so especially when it comes to the silver right so the silver takes up so much space for the same dollar amount as you would buy gold you probably want to put that in storage because it just takes up so much space. And of course you don’t want to keep a lot of that in your house either so a lot of us use professional storage I actually have a story where I had some gold stolen out of my house it was stored in a safe that was in a closet hidden from view and the key was located in a different room. Our house was broken into they found the key they found the safe and boom you know I lost a lot of gold from that episode so I always remember that and so I personally don’t keep any gold in the house anymore but I have a dummy stash. I have a stash of dummy coins that just aren’t worth that much there in case we were to get robbed again you know so I personally don’t like to have it in the house you have to think twice about that that is your risk if you keep it in the house is theft or some kind of you know natural disaster or something like that so most of us use professional storage.

Buck: If I go to goldsilver.com I can buy gold and silver can I also kind of you know automatically get that stored as well.

Jeff: Absolutely it’s very easy in fact it’s as easy as opening up a bank account there’s a tab for that you just click and it check out or ask you if you want to deliver or storage it’s that simple. So I think for most people the the bulk of one’s holdings probably should be out of the house and I don’t like to keep it in a safe deposit box at a bank either because there you go counterparty risk now we’re in the banking system and one of the great advantages of gold is you can hedge against any type of banking crisis so I like to keep it out of the banking system as well, there’s no insurance on you no safe deposit boxes and there is with professional storage so yeah.

Buck: I want to shift top a topics a little bit your colleague Mike Maloney did a very interesting documentary some time ago talking about Bitcoin. It was one of the original documentaries that got me really interested in Bitcoin and I know this is not necessarily your area but I presume you know a little bit about it is do you feel like bitcoins more like gold or the US dollar?

Jeff: That’s a great question. To me all these things have some similarities but all these things have some differences. So what’s your purpose what’s your investment goal what’s your investment purpose and then you pick the asset that’s gonna match that purpose and of course being diversified is good you know looking at the investment horizon the economic horizon might tell you if you want to be overweight or underweight something that’s just how I approach things but of course they have some similarities they’re both you know Bitcoin and gold for example are both limited they’re divisible but gold is indestructible gold can’t be hacked gold can’t be erased you know so it has some advantages over Bitcoin so I wouldn’t put all my money into a crypto just because it has some of the same attributes as gold I would you know use that for the purpose that it’s intended to be used for use gold for the purpose that it’s intended to be used for so. I do own some cryptos I do think there’s an interesting opportunity there but it isn’t crypto right it’s the blockchain and it’s the cryptos that come out of the blockchain and use that are probably going to be successful that I would want to invest in most of those you know in my opinion probably still need to be washed away most of them are going to amount to nothing so you got to you know as an investigator to find which ones you think are gonna be a game-changer and make a difference so.

Buck: Got it. Well listen Jeff it’s been really great having you so we can find you at goldsilver.com. Any other place we should be aware of your work or anything else you’re doing?

Jeff: Well they post my articles at swp.com as well. I am on the advisory board there but the same articles are on goldsilver.com if someone is interested they can actually get Mike Maloney’s a book for free now we have a free download on our website right on the home page it is still believe it or not the number one best-selling book on gold and silver investing still to this day even though it was written ten years ago so but you can get it for free a free download there. And the other thing I would say is Mike has commented a lot on cryptos and gold and silver in his video series they hidden secrets of money you know people have not heard of that they might want to check it out these are movie quality it’s videos that are excellent. They go in everything we you and I’ve talked about the hit from the history of money to Kryptos to you know gold and silver so it’s a it’s a wonderful series it’s very educational and very enjoyable and very well done so those are worth checking out I think on the site if anyone’s interested.

Buck: Yeah I’d love to have Mike on the show as well to talk about the cryptocurrency but at any rate Jeff it’s been great talking to you very useful information and again I just want to thank you for your time today.

Jeff: Absolutely. I enjoyed it we’ll have to come back and debate the real estate and gold argument more but again they’re not mutually exclusive I think that’s the point I want to make is you can have both, I think real estate will be better valued in the future and you may disagree with me but I think it’ll be better valued in the future and if my gold and silver is worth more I may be able to do a little bit of a swap there so we’ll see but we’ll have to debate that again another time.

Buck: You bet. We’ll be right back.