Jan Nieuwenhuijs on China's Gold Strategies: Market Impact, Myths, and Future Prospects

Could China's gold buying strategies be reshaping the global economy? Join us as we sit down with Jan Nieuwenhuijs, a leading expert in the Chinese gold market, to unpack this fascinating question. Jan shares his unique journey from the glitz of the movie industry to the world of economics and gold analysis, offering a deep dive into China's complex relationship with gold. From the days when gold ownership was banned under strict communism to the rise of the Shanghai Gold Exchange in 2002, we explore the cultural and economic shifts that have led to significant gold accumulation by Chinese citizens and the People's Bank of China.

In our conversation, Jan reveals some startling insights into China's strategic gold acquisitions. Could the People's Bank of China be underreporting its gold purchases to maintain lower prices? Jan discusses this intriguing hypothesis, supported by discrepancies between official figures and estimates from the World Gold Council. We also delve into the broader implications of China's gold demand on its holdings in US Treasuries and the shifting global reserves landscape, emphasizing the historical and present-day significance of gold as a counterparty risk-free asset, especially in the face of global uncertainty.

Finally, we tackle some enduring myths and truths about the gold market. Jan debunks the notion that traditional supply and demand dictate gold prices and dispels conspiracy theories about price suppression by a nefarious cartel. We also explore the potential for a gold-backed BRICS currency and its implications for the US dollar's dominance. Whether you're considering investing in gold through ETFs or physical ownership, Jan offers valuable insights into the pros and cons of each method. Tune in to gain a comprehensive understanding of the intricate dynamics at play in the global gold market, with a special focus on China's pivotal role.

The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.

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Transcript

Speaker 1: 0:08

My name is Michael Guyot, publisher of the Lead Lag Report. Join me for the rough hours. Jan Nieuwenhuis, I apologize if I put your last name there. Jan, introduce yourself to the audience and to me. Who are you, what's your background, what have you done throughout your career and where are you currently?

Speaker 2: 0:25

I'm currently in the Netherlands, in Amsterdam. I'm about to move to the Caribbean, by the way, so I'm very excited. The 1st of July I will be moving to Bonaire, a tropical island. It's very rainy here, so I'm off to hopefully a better place, but anyway, yeah, my name is Jan Nieuwenhuis hard to pronounce in English, but it means new house, so just saying Nieuwenhuis.

Speaker 2: 0:50

I started my career in the movie industry. I did a sound engineering. Then I worked myself up in the movie industry and became a sound mixer, Did a couple of feature films. I think it was in 2012 or 2013 that I got a knee surgery and I got a rare pain syndrome after the surgery. So I couldn't do my regular work and my hobby was economics after the great financial crisis.

Speaker 2: 1:19

So, while being homebound with a sore leg, I did a lot of studying uh, studying, reading and I started a blog on the chinese gold market. Uh, I became an expert actually on the chinese gold market. Um, uh, I was writing on the name kuz jensen, by the way, at the time, so maybe some people still remember me under that name. Um, I gained some popularity on the internet through my work on the Chinese gold market. I worked for a company in Singapore first and for a company in Finland. Now I'm working for Gainesville Coins, writing about still gold, but also economics, financial markets. I do a lot on what central banks are doing and, yeah, that's basically it I do a lot on what central banks are doing and yeah, that's basically it.

Speaker 1: 2:11

There's an instinct that you say the Chinese gold market. I am in the US and the perception of gold is, I think, perhaps different than the way other cultures view gold. We know with India. Obviously it's very important from a wealth generation perspective and from a depository perspective because of their banking system there. But what makes China unique as a country culturally when it comes to their way of looking at gold?

Speaker 2: 2:38

Well, I would first say that when the Communist Party, when it was strictly communism in China so from 1994 until 1979, sorry, 1949 until 1979, the country was strictly communist under Mao right, so holding gold or silver was forbidden. And then came Deng Xiaoping, he took over and then they shifted their economic policy and they started allowing people to own gold and that developed, of course, and it gave China a lot of economic growth, this model, and so they wanted to take that a step further and internationalize more and boost their exports and and all that. And so in 2002 they also they also liberated their gold market and they actually thought it was very important for their financial system to have a developed gold market, a a sophisticated gold market. So they liberalized the gold market. They launched the Shanghai Gold Exchange, which is, you know, in terms of physical gold in China, it's just the centerpiece of the entire Chinese gold market. You have also the Shanghai Futures Exchange that does the futures, but all the physical goes through the Shanghai Gold Exchange and, in terms of China, they actually motivated, supported, stimulated the people to own precious metals, especially gold, because they knew to have a robust economy but also be able to absorb shocks from abroad. You need to have this neutral international asset, not only at the central bank but also among the people. So they really had a look at how many people own some gold, what was the grams per capita for China? And they have been buying thousands and thousands of tons of gold ever since 2002, but especially after 2013, when the price started going down. It was just crazy. And, let's say, they have been importing about 1,500 tons a year, plus their own mining output, which is, let's say, 400 tons. So that's a lot of new gold every year being added to the Chinese private sector.

Speaker 2: 5:14

What we don't see in import numbers and this is my analysis. Some people may differ what we don't see in import numbers and also the mining stuff the domestic mining which is going to the private sector is what the People's Bank of China is buying. Now I have some sources, and this is from people that worked at ICBC, which is one of the largest Chinese banks. Chinese banks ICBC and a few other state-owned Chinese banks are the ones that buy gold for the People's Bank of China as proxy banks abroad. They do that refineries in South Africa, switzerland, also in London, and that's how they do. So we don't see that in import numbers.

Speaker 2: 6:01

So there's a mass accumulation of gold and there's really this you know they're really choosing for gold as a bet. You know, I don't think it's a bet, actually. You just you know gold is an insurance on your savings. But where was I? It's not only what we see and it's also a lot of it is also done by the central bank in China and they buy. It's hard to estimate, of course, this is the best kept secret on the planet, but they're buying a lot of gold, also after the war has broke out in Ukraine, but also before, and I think they have at least twice as much as what they say. So people think of China say they have like 2,500 tons and I think they have at least 5,000 tons. So that's a little introduction on the Chinese gold market.

Speaker 2: 6:55

And what's really interesting is that previously, before the war in Ukraine, many nations in Asia and in the East were price sensitive. So the price was set in the West. Every time the West was buying, you know, the price went up and the East became a seller, dampening volatility and vice versa. So if the West was selling, the East was a heavy buyer, and now that has been reversed. So China is leading the dance in the gold market, so to say, being reversed. So China is leading the dance in the gold market, so to say. They're the ones who are buying very aggressively, driving the price up. You can see this by the import numbers in China. What you also can see is that investment demand in the West is nowhere. Etfs are declining. London and Switzerland are not importing gold. Forget about all the consumer demand, because those are not the marginal buyers. The price is now set in China. Yeah.

Speaker 1: 7:58

I actually find this whole dynamic fascinating. I would think and this is my own naivete, I would think that because China has been trying to push their own CBCs Central Bank Digital Currencies that the focus would be to create demand for that, as opposed to gold, which is obviously outside of the digital economy. How do you square that circle? How is it that there's this sort of push for gold within China? At the same time, there's maybe this desire for CBDCs?

Speaker 2: 8:36

Well, I think that the Chinese Communist Party knows, of course they want to push their CBDC, but they also know, at the same time, that their fiat money is not risk-free. So you have that. And then there's another element. I was just writing an article about this, by the way, what China is doing? I'm looking at Enbridge. I don't know if you've ever heard of this.

Speaker 2: 8:59

Enbridge is a project. It was first started at the Bank for International Settlements innovation hub in Hong Kong in 2021. The first participants were China, hong Kong, thailand and the UAE. What they're trying to do and this is about de-dollarization. Of course China wants to de-dollarize, especially after the war. What they're trying to do is create a technological system that connects their CBDCs so it's much easier for them to trade in their local currencies without dollars, and this is where gold comes in. They can do that through Enbridge in. They can do that through Enbridge. Enbridge, on the 5th of June, has reached its first pilot stage, so to say, its minimum viable product stage, I believe it's called.

Speaker 2: 9:55

But what these countries, of course, have is trade imbalances. If they trade with each other, you have a little imbalance. One country is a surplus country or a deficit country, and then they can store surpluses not in Chinese renminbi, because the Chinese also know they have capital controls, they have underdeveloped financial markets, but the surpluses can be stored in gold, and gold is a neutral asset, and so that's what the East is clearly choosing for Europe also. By the way, I mean Europe never sold its gold. The US didn't sell all their gold either, but it has been very.

Speaker 2: 10:34

You know, it's kind of obvious that the US has always been against gold. You know, all through bread and woods they wanted to ditch gold out of the system and promote the dollar and have the world use dollars. So they had more power. But Europe wasn't actually that fan of this whole dollar system. So they kept the gold, and in recent years Europe has become quite vocal about gold again, and the funny thing is that they also started repatriating gold. For example, I know that Germany and France also refined all their monetary gold to current wholesale industry standards. So Europe is also pretty much pro-gold, and Asia is too. So it's a very interesting development.

Speaker 1: 11:25

It's a question from Gene Wexler. I was actually looking this up to verify it and it looks like it's true. Would you agree that China stopping gold purchases during the month of May is, overall insignificant? I just looked this up as we were chatting, but apparently the holdings were unchanged. I saw some headlines that said gold is getting so expensive that that's why China is no longer buying, or at least in that one month. Any thoughts on that?

Speaker 2: 11:48

Yeah, I don't think that what the People's Bank of China is reporting it buys is true. I mean, you know, they have still like three trillion in foreign exchange reserves and they only have a few percent. They say in gold Now, given the circumstances, and they have been few percent. They say in gold now, given the circumstances, and they have been. You know, it's been like this for, let's say, 10 years now, given the circumstances. Of course they it's not hard to to imagine, uh, that they would have bought um, a lot more um, but if they would be honest about buying so much, you know they would even drive up, it would create maybe a panic on the market and the whole world would buy more gold and then they could buy less, you know. So their strategy is they only tell us what they want us to know and in that process they can buy more gold with the dollars they have. So I think this is just politics by saying, well, we didn't buy anything this month. Maybe they will stay silent for a couple of months.

Speaker 2: 12:59

But I also know that from industry insiders that they are buying a lot more than what they say, and you can calculate this yourself, or people that are watching, listening and are interested, because every quarter the World Gold Council comes out with their estimate on what central banks have bought. They compile these numbers together with Metals Focus that's another consultancy firm, and that number is let's say, every quarter is about twice as high as what all countries combined report to the IMF to have bought. So there's a big gap between those numbers and that's what we call unreported buying. That's what the World Gold Council and everybody calls unreported buying. Now the people in the industry tell me the unreported buying is mostly the People's Bank of China, so they are buying 200, 250 tons, sometimes a quarter, instead of the tiny numbers they publish. So I don't think so yeah, maybe it works. They say we stop buying, the price goes down. Excellent, they get more gold for their dollars.

Speaker 1: 14:22

Is there any possibility that the demand for gold from China is somewhat correlated or related to concerns around US treasuries, just given how much of a big buyer China is when it comes to US government debt?

Speaker 2: 14:37

I haven't done that. This is a good thing to research, but I do know, of course, if you make a chart of what percentage of US public debt is held by foreigners, that's going down. So I think what foreigners are buying in terms of US treasuries nominally is staying steady. Of course the debt is going up. So what foreigners are owning in terms of share of the US boat is going down and, of course, gold reserves as a percentage of international reserves globally is going up. So I think that trend is very clear.

Speaker 2: 15:20

I also I just told you that I have my own numbers for how much the PBOC is buying. I also have my from that. I have my own numbers of what world official gold reserves are and I, yeah, make my own charts and you can really see that you know the dollar in terms of because it's funny always when economists or also other people on Twitter compare you know, okay, so let's, they say, let's investigate this de-dollarization, and then they map out all the foreign exchange components of COFR from the IMF and you know de-dollarization is declining. You know the dollar is declining very slowly in terms of all foreign exchange. But if you add gold, you get a totally different picture and it's very clear that gold is going up and most fiat currencies are losing ground relative to gold. And actually, according to my numbers, a couple of months ago gold overtook the euro in terms of international reserves, and let's see if it can take up the dollar next.

Speaker 2: 16:31

Don't forget that gold, until the 1980s, was the largest share of international reserves. So only from, let's say, 1984, the dollar has been the largest share of international reserves, which is a relative small time, now that a fiat currency, a credit asset with counterparty risk, is the largest share of international reserves, the backbone of the international monetary system. All in previous history it was gold or silver without counterparty risk. And of course now, with geopolitical tensions and with inflation, and with the sky-high debt levels and high equity valuations, I don't think credit assets like the dollar and national currency are going to take up. The are going to stay, uh, the largest share of of these international reserves. So I think gold is going to gain more ground and and the dollar will uh, to the detriment of the dollar uh, you had made that point that in the west, you know, nobody's that excited about gold.

Speaker 1: 17:42

Um, I'm going to put the comment up just to create some conversation around with somebody. You had made that point that in the West, nobody's that excited about gold. I'm going to put the comment up just to create some conversation around it. Somebody saying, by the way, gold is dead, which is a pretty strong statement. Rumors of my death have been greatly exaggerated. I go back to that quote 13 years and nothing. Now, there's some degree of truth around that, although obviously it's pushed higher since. But I'd remind viewers that lost decades are common in all asset classes, including equities. So just because something hasn't worked for the last 10, 11, 12, 13 years doesn't mean that the next decade can't be totally different. So let's make the argument for why, from a long-term, very long-term perspective, this time is different than maybe we go from this, you know, seven years of famine to seven years of feast, 13 years, 14 years of famine to you know, a better time period ahead.

Speaker 2: 18:39

Yeah. So what I just touched upon, I have a fairly basic framework for how I see gold. I use uh extras inverse pyramid. I think most people will know it, but I will explain it in a bit. First, back to. Let's go back to uh, 500 years ago, not not too long. 500 years ago, let's say at the end of the Dark Ages, most money was gold and silver and that gold and silver didn't have counterparty risk. Of course the kings could devalue it. But let's say, you know, in general, gold if you just hold it in your hand doesn't have counterparty risk.

Speaker 2: 19:17

Okay, then came credit assets. So you know, banking developed banking deposits. You got a lot of equity was. You know that was actually developed in my country. But VOC, the stock market, the bond market, all derivatives came a lot of credit assets. And credit assets are great, you know. I mean they stimulate growth, they are very efficient in doing things, pulling capital together. People get dividends on the interest rates, excellent, you know it's all. Everybody loves it. But this so. But I see the economy.

Speaker 2: 19:57

You know, especially now, because it's so interesting now between the ratio between credit assets. You know, on the one hand, so that's national currencies, bank deposits, equity bonds and money, a financial asset, without counterparty risk. So if you look at the ratio between the two and you can make charts about this I made a few charts that go back I don't know 140 years about the ratio, for example, between the value of the US monetary gold versus US M2, or the value of all the gold which is above ground and global financial assets, and then you can see how much trust there is in credit assets by looking at those ratios. And it's actually sky high, the trust in credit assets. So national currencies, equity bonds, everything is sky high. It's just coming off of the, let's say, the valuation of gold.

Speaker 2: 21:07

In terms of the model I just described, it's just coming off of a very low bottom which was formed in 2015. And now, if you look at the world, with, again, with the war and geopolitical stress and inflation, asset bubbles, inequality, social unrest, political instability, you know, look at the US. We have a little bit of the same here in the Netherlands Everything Is this the point that we think all credit assets will have a very good run for the next 10 years. I think that gold will have a have a very good run for the next 10 years. I think that gold will have a better run. But so that's my uh simple framework you think it's just gonna be oh sorry, I couldn't hear you.

Speaker 2: 21:57

Can you go back five seconds?

Speaker 1: 21:59

yeah, no thing is that? Yeah, the um, aside from from gold, do you think that's a gold specific and gold isolated uh theme or is it a broader statement around commodities, you know silver also participating other industrials?

Speaker 2: 22:15

I, I I have to say I think other commodities as well. I think you know uranium, I very much like uranium. Um, copper, you know, because of also there is obviously is a trend towards more green, uh, energy and thing and things like that. Um, oil can be, you know, because it's it's about geopolitics. Other commodities are very important as well silver, I own silver. Um, to be honest, I'm not a silver fan. Maybe it's because so many people on Twitter are absolutely infatuated with silver and I, just the thing is, with silver.

Speaker 2: 22:53

You know, I have looked at precious metals, like for going back thousands of years, and in the beginning, in ancient Sumer, silver was actually more valuable than gold. But and then, you know, a couple of centuries later, gold became more valuable because it's more scarce and silver was always used as a medium of exchange. But we, of course, when it comes to precious metals, we will never use gold and silver coins as a medium of exchange. So the whole monetary idea of silver is gone right. So we don't have to pay with silver coins, we don't have to pay with gold coins, only with, you know, we just keep it as a store of value. We pay with digital, with zeros and ones. So I actually think that, um, you, you, we can see this happening. Since the what was it? The 19th century, gold has become more of an industrial uh metal and not so much a monetary metal anymore. It's it's about 50, 50 now, but for gold it's it's like 95 to 5% in terms of monetary use and industrial use. For silver it's 50-50. So I'm much more focused on gold in terms of everything that I'm saying about monetary developments in the whole world.

Speaker 2: 24:13

If you look at the big guys, investors like Ray Dalio or Druckenmiller, they're all into gold, not silver. Central banks all have gold, not silver, not Bitcoin. It's the gold. Also because gold is equally distributed across the globe right, and money only works if everybody has a little, so you can trade with each other. If only one country or one person has all the gold or the Bitcoins, it's very difficult to make it function like money. So I'm not much of a silver bug. I own it because you know, indeed it has shown in history that if gold goes up a lot, then silver does too. But I think then in the end but maybe I have too much of a macro view, you know, zoomed out view In the end silver maybe I have too much of a macro view, a zoomed out view. In the end, silver will lose its monetary status.

Speaker 1: 25:10

I will say that the thing with Twitter slash X is that everybody gets infatuated for a moment in time and everybody's an expert for a moment in time.

Speaker 2: 25:18

Yeah, true, yeah, but the silver crowd is quite aggressive. So I'm, uh, I just wanna, I don't know, and I shouldn't be bothered by it, because you know who cares, but uh, I still know. Regardless of that, I, that's my opinion now. I, I do think that silver will become purely industrial metal, but I'm bullish on it.

Speaker 1: 25:57

2011, when the same sentiment you would have around bitcoin being the new world order and the confidence with which people say it on social media that was the gold bugs right over a decade ago, but you don't see any of that, uh, today no, no, I'm just.

Speaker 2: 26:14

I'm reading a comment by alexis uh, gold is dead for 13 years, right? So excellent, yeah, no, uh, I think that's a good thing. Maybe, uh, maybe they'll, they will come up, uh, again, and then maybe that's time to sell. I don't know. But, um, um, yeah, regarding bitcoin, I have, you know, I, I think, just to be a maxi in any asset class. Why would you bet on one horse? Why not just diversify? And you know I'm, I like, I like to stay humble, you know I like to tell myself, I just don't know what's going to happen in the future. So I diversify and I feel comfortable with that.

Speaker 1: 26:53

But so every now and then there are these uh headlines that pop up around uh, uh, golded BRICS currency. Right, you hit on China there, and I see this on the periphery. I'm aware of it. It sounds like it's more fringe than anything else when I initially look at it, but maybe explain to those that are listening what this direction is about when it comes to Brazil, russia, india, china and if there is any real viable threat to the dollar if the BRICS are able to really get their own gold-backed currency in that way.

Speaker 2: 27:34

Well, the thing is that gold in itself, you don't need to launch a new currency. Gold in itself is the new currency, right? So the BRICS could embrace that. Uh, I hope they do. Uh, maybe they're, they are in the process of doing that.

Speaker 2: 27:48

I'm a little bit, uh, skeptical towards this topic of bricks because you know, uh, I've been hearing this all this bricks, you know when? When the bottom line is that the BRICS produce very little. I see, you know, I've been hearing about a BRICS new gold-backed. There's a friend of mine asking me about the bold index. I will tell you, charlie, okay, the bricks are all this talk about a new bricks currency and if you look at all the documents and there is just nothing they have. You know, I mean, if you look at, for example, the euro, they have been working on the euro for 30 years. There were 30 years of research and all sorts of documents and work and thinking, and there is nothing on a bricks currency. You know, I mean, maybe they do it all in hiding, but you know, and it's also quite obvious, that only Russia is really putting out all this news about oh, we're working on it, we're trying and we have a blockchain and we have this and that All the other countries, yeah, okay.

Speaker 2: 28:55

Sometimes they say you know, sometimes the president of Brazil says I don't like dollars or whatever, but to tell you the truth, I don't think they have a lot. You know, if you can make a diagram right with a bar, and this tiny end is there is no BRICS currency. And this tiny end is there is a BRICS currency. This is black, this is white. This whole gray area can be we are working on it. You know so every time they say we are working on it. You know so every time they say we are working on it. Yeah, can be.

Speaker 2: 29:24

So where are they? You know? Are they at the? We still basically have nothing, or we're nearly there. It's hard to say. Um, I I spent, like I said in the beginning, I I I spent more attention to um, to embridge, because you, you can see documents, you can see um contracts being signed, a cooperation, uh, everything, uh, it's much and maybe it's the, the bricks will uh, embrace embridge, um, but it has no point in for me to chase this, this bricks, um ghost, no, no I actually had, uh, charlie morris on a spaces, uh like a year ago or so.

Speaker 1: 30:11

Uh and uh, he's doing what he always, uh, what everybody should do. When you have your own product, you want to get people to talk about it on the next, uh, charlie could see it in this. Okay, so this gets into discussion around how do you position for this multi-year cycle? The easiest answer is just buy gold, but there's a lot of different ways of buying gold. There's ETFs, there's the actual bars, there's insuring them in vaults, there's all this stuff. So talk about the pros and cons of doing it through an exchange traded fund versus holding the physical, because, just in the same way that you mentioned, you have these sort of extremists on the silver side, on the Bitcoin side, you do have extremists in terms of saying, paper gold versus physical.

Speaker 2: 30:59

Yeah, I think. First of all, there's a lot of misunderstandings on X about paper gold. A lot of people think that a hundred times more paper gold has been sold than there is gold backing it up and that, let's say, 99 of the gold buyers who have paper gold are being fooled that they own physical gold while they own a paper contract. That's not what's going on. I mean, if people, for example, buy a futures contract, they know they don't own physical gold and it says in the LBMA brochure. If big investors go to London and they sign up with JP Morgan in an account and they say we want to buy some unallocated gold, it says very clearly in the brochure that unallocated gold has counterparty risk. It's not the same as physical gold, et cetera, et cetera. Physical gold, et cetera, et cetera. And still people use it not as physical gold but as a trading part in the London bullion market.

Speaker 2: 32:10

Now about the difference between owning physical gold outright and ETFs I think ETFs are very easily traded. You can go to your broker, you can buy some GLD, the storage fees are low, you pay storage fees, you don't have to pay it, but the amount of gold backing each GLD share is declining every day. Actually yeah, so that's how you pay storage fees. They actually, yeah, so that's how you pay storage fees. But the downside, of course, is what I said earlier Gold has no counterparty risk. You want to ride on that feature having no counterparty risk.

Speaker 2: 32:52

Etfs have counterparty risk. For GLD, for example, there's a trustee and a sponsor and there are authorized participants and et cetera, et cetera. If the financial system goes haywire and it happens all the time there's a trustee and a sponsor and they're authorized participants and et cetera, et cetera. If the financial system goes haywire, you know, and it happens all the time. Last, you know, in this on this continent, last couple of times it was Cyprus and Greece and they closed the banks. You never know how, how long the banks are closed for.

Speaker 2: 33:17

And maybe you, you know if those banks, um, or or a bank goes belly up like, uh, lehman brother did, and if, if those banks that go belly up are, um, are, are connected to to your ETF, maybe your ETF is halted or is seized by a curator or whatever. So so I wouldn't take the risk and buy ETFs only for short-term trades. I would store it outside the banking system in physical form and be secured, because gold as a physical element is completely independent of the financial system. Only when you put it in an ETF and et cetera, it becomes part of the financial system and it stops serving as an insurance against the financial system.

Speaker 1: 34:47

There are these constant headlines around Costco in the States selling gold bars and then running out, so clearly there's some demand there, but maybe this is a little bit too nuanced. But why gold bars versus gold coins? I mean, I want you to talk about the company that you're a part of, because there was an earlier question which I'm trying to find, asking about Gainesville coins. So bars versus coins, why coins?

Speaker 2: 35:21

Any real difference there. Well, bars, you know, the smaller the physical amount of gold you buy your gold in, the higher the premium on the gold, so the more money you pay extra for the gold. So, if you buy a very large bar, a 12 and a half kg gold bar, the premium is basically nothing, also because it's the largest bar around and that's the price for you know, it's the benchmark. So, and if you go to a one kg bar, the premium is, I believe, $60 an ounce or whatever, no, $60 for the kg bar, the kg bar anyway. If you go to coins, I believe on coins, the average premium is five percent. Now you can also, if you sell, um, if you sell the, the coins, you can get the premium back.

Speaker 2: 36:08

But I'm just more of um, you know, also because of technology. I don't, you know, I don't store uh segregated physical coins or bars in my house or in a vault. I just have it somewhere in switzerland. To be honest, uh and uh, I, um, I make sure that the, the company that I buy gold through is, is not a bank, you know, and and and the vault that where it's stored is is not a bank, you know, and the vault where it's stored is not a bank either, so it's a bit shielded from the financial system, and I just buy it per gram. You know why the hassle of all these? I'm just not a coin collector, but that's me so, uh, but every some people you know like to buy coins also because they think that, um, when there's an armageddon scenario, they can go to the supermarkets and pay their groceries with, uh, with gold or whatever. Um, I think, um, that could be, but maybe also paper money will do um, so that's my view on it.

Speaker 1: 37:15

So that's my view on it. There's a question here what does Jan think about Pax Gold, tether Gold, these kind of blockchain-backed ways of getting gold? Because, just to your point about the counterparty risk, you can argue that gets eliminated with a blockchain sort of protocol.

Speaker 2: 37:36

Any thoughts there? Yeah, as far as I know, pa gold and uh, tether gold don't, uh, you don't pay storage fees, uh, on that. So, um, they I don't know actually how they do it. Um. So, and whenever I see a gold product that, uh, and the gold is stored somewhere, but you don't pay storage fees, then I don't trust it, because who pays the storage fees?

Speaker 2: 38:00

Just like Kinesis, that's some kind of blockchain system and they issue tokens and you can buy the tokens. Those are backed by gold, and then you don't pay storage fees. But every time you pay with with gold, you can use these tokens actually to, you have a debit card and you can pay with the gold in stores. Well, I really like that idea. You know, to uh, to, to, to, to create that, um, but then every, every time somebody pays with kikinesis, a fraction of that is being taken and is being distributed among all the participants, all the holders of the Kinesis tokens, and in that way, again, you don't pay storage fees.

Speaker 2: 38:45

But then, of course, people need to pay with gold in supermarkets or there isn't any income. So I wouldn't buy those products myself. Also, because I see gold as a store of value and and not as a medium of exchange. I just, you know, own gold as as uh, as yeah, as a store of value and and for daily purchase I use euros at the moment. Um, so that's my view on Pox Gold and also Tether Gold. Yeah, I'm quite sure they don't have storage fees.

Speaker 1: 39:21

Yeah, I mean, your natural place of skepticism is like mine. If it's too good to be true, it probably is. Yeah, I had never actually come across either of those, but when that I think it was when the first missile went off between Iran and Israel that I think it was Pax Gold went like vertical overnight. There was some crazy pricing that was going on, so everyone thought that this was the moment for gold.

Speaker 2: 39:51

Speaking of that, I had that was in a weekend, right or not?

Speaker 1: 39:54

Yeah, exactly right, and nothing was really kind of trading. So everyone looks at that and said, oh, gold's going to open up huge. Yeah. Which actually is interesting, because I myself have made the argument that, because I tend to look at market prices more from the standpoint of signaling than anything else, I've argued that gold has been sending a warning in terms of the short-term movement, because one of the more unusual dynamics of gold movement here is that it's actually performing very well when you don't have negative real interest rates. Usually gold is very inversely correlated to negative real rates. This time you have positive real rates and gold is doing really well. Is there anything historically that suggests that money goes into gold when there's there's fear that something's coming, that it's it's sort of you mentioned the term insurance hedge more than just sort of story, value arguments, things like that but that there's something more imminent, there's like an event that is causing some kind of rush into gold yeah, well, I think what you first said was, uh, of course, a correlation between gold and real rates, right?

Speaker 2: 41:02

So from 2006 until 2021, gold was very tightly inversely correlated to real rates as measured by the 10-year tips yield. So you know, if the tips yield would go up, gold would go down, Because if you get more real rates, it's less interesting to own gold. That was the very tight correlation and that has broken down since the war and now actually, you often see when long-term rates 10-year treasury rate goes up, gold goes up as well. Treasury rate goes up, gold goes up as well. And you can look at the 1970s. Actually, all through you know, I think you know that. You know gold in the 1970s started at, let's say, $35. And at the end, in 1980, it was $850. And all through the 1970s, long-term interest rates of the US went up. So and of course, if there's a lot of, let's say, lack of confidence in your currency, people will dump your currency and the interest rate can go up, right. So it can also mean you know that that inverse relationship has also changed because of there's now a lack of confidence in the dollar.

Speaker 1: 42:57

You can, you can look at it at that let's talk about, um, what, uh, people get most right and most wrong about gold and the perceptions of gold, to your point, about people being experts on Twitter, slash X, what are some of the things that when you see people talking about gold, you just kind of shake your head and you want to kind of say you're blatantly wrong and naive for sticking in those terms.

Speaker 2: 43:28

Well, there are a lot of myths about gold. First, I would like to point out uh and that's something I uh have written about extensively is about gold supply and demand. It's, it's impossible to to measure gold supply and demand basically. Uh, I have a framework for it and blah, blah, blah. We can talk about it, but, uh, the basic thing is that you know some people, when it was demonetized in the 1970s and the world was slowly being pushed on the dollar standard, some companies, mining companies, started making gold supply and demand balances. So we mine so much. Demand is jewelry, demand is this, industrial demand is that.

Speaker 2: 44:10

And then there's a surplus or deficit, and some people make reports about this and they sold those reports and but the thing is, I mean, gold is a currency, so how do you measure supply and demand with it, with a deficit and a surplus of a currency? Well, I've never seen you can't make a supply and demand balance of the dollar or of bitcoin and and state that, well, there's a. You know, if there is, there can't be a surplus in in bitcoins, the price just goes down. So same same with gold. Um, you know, forget about supply and demand. I mean in. In essence, it's about supply and demand. But this gold supply and demand balance just doesn't make sense. And you can do this yourself. You can go to the World Gold Council or people that you know, I don't. The World Gold Council is great in terms of putting out a lot of great useful data and they've actually changed their supply and demand statistics now they don't say a surplus or deficit statistics. Now they don't say a surplus or deficit. But if you go back in time you'll find all those surpluses and deficits and you can just make an excel sheet and write. You know in every year if there's a surplus or a deficit and what the direction of the price is, and there's just no correlation. While if you do this with, let's say, soft commodities coffee, sugar, corn, pork, bellies, whatever there's always a correlation A surplus means the price goes down and a deficit means the price goes up.

Speaker 2: 45:40

So one of the biggest myths around there is about supply and demand and I think it's very harmful because there's just so much misinformation and misunderstanding about gold and this part feeds into it, because a lot of people you know that are obsessed with the comics and price suppression. They start with this or they take this and they say you see, it doesn't work. That's the evidence that the gold price is suppressed. Now, maybe the gold price is suppressed, but I don't think actually that it is. But you can't. That's another myth.

Speaker 2: 46:22

An evil cartel cannot suppress the price of gold through just futures contracts for decades. Right, just futures contracts for decades. Right. Of course you can short sell futures. But suppose the Fed or JP Morgan or some entity of the evil cartel shorts gold for millions and millions of dollars or ounces or whatever. Now then what? Either they have to roll their short position or they have to deliver the medal, which is, of course, they might as well just sell the medal outright to suppress the prize or they have to close their position and the gold price then goes up, because if you close a short, you go long and you know your action is undone. Now about the rolling. If there's a massive short out there suppressing the price of gold, we would see this in the roll data, because then, if that massive short would roll, then during the roll, one contract is pushed up and the other push is down. If you look at this, there are no fingerprints. It just doesn't happen in the market. So I think the other myth is that gold is not suppressed on the COMEX.

Speaker 2: 47:42

Another myth, for example, is that coin demand drives the price of gold. You know, sometimes in 2020, during COVID, you saw premiums on gold coins going to 50 percent and everybody would say you know, how is it possible that the gold price is not, you know, tripling or whatever? Sometimes we just do nothing for a while, and while premiums on gold coins were 50 percent, and so, of course, gold coins are just a tiny part of the market, maybe just a few percent of the entire trading volume, and saying that gold coins would drive the prices like saying that a bag of chips drives the price of potatoes. Of course doesn't happen like that. The premium on gold coins is set by supply and demand of coins and how mints can react to that.

Speaker 2: 48:40

The gold coin demand is very volatile. It's sometimes very high, sometimes very low. The United States mint doesn't increase its production capacity times 10, you know, one month and then decreases its decreases it by 10 the next month. So if you have a a panic buying happening, then the premiums will rise, and but it doesn't mean much actually about the market. You have always look at uh I mostly look at uh customs statistics. So import numbers from the uk, switzerland, india, china, whatever the us. And then it becomes apparent what drives the price of gold, and it's's mostly institutional demand. And it used to be the West that would drive the price of gold, and now it's the East, because now you see Chinese imports going up concurrently with the price going up, and that's, yeah how I look at it. So those are a few myths about gold.

Speaker 1: 49:52

Jan, as we wrap up, how should people track more of your thoughts for your work? The comments have been getting very positive. I mean your approach to explaining things, especially when it comes to China. I think it's a really informative education, so thank you for that. But where should people look to to find you?

Speaker 2: 50:09

On the X just maybe you can drop a link. I believe it's uh jan gold underscore on uh. On x, you can also go. You know I work for gainsville coins, which is a coin dealer in um in florida. You can also look on on their blog. So go to the gainsville coins website and with at the blog page you can see my uh articles. But but I also put out my articles on X and that's where I see X as sort of a bar. I share my thoughts on X, I share things I'm interested in and I speculate on X and I engage a lot with people on X. So yeah, you can follow me there.

Speaker 1: 50:51

Everybody. Please make sure you follow Jan. Again, this was a great conversation. Appreciate those that watched this live. I'm now going to go do another morning few video, but given the time difference, I need to do this podcast first with Leadlag Live. Jan, I appreciate you, appreciate those that watched and hopefully I'll see you all on the next episode of Leadlag Live. Thank you, jan. Thank you.