Welcome to Merendalks Money, the podcasting which people who know the markets explain the markets.
I'm maren' unset web.
This week I'm speaking with John Reid, the World Gold Council's senior market strategist for Europe and Asia. John has over thirty five years experience in the gold industry. He's worked for mining companies, he's worked for investment banks, he's been a gold strategist, and he's worked as an asset manager as a portfolio manager. So fair to say, if anyone knows gold, it's probably John. And the precious metal, as you know, is really moving. It is up well
over twenty percent since the beginning of the year. It is smashed through the five thousand dollars an ounce level for the first time this week. There is a lot going on, so we are hoping John will put the rally into some context and maybe give us some insight into where gold will go next, which of course is actually the only thing we really want to know.
John. Welcome to Merrin Dogs Money.
Thank you very much, Merily.
So let's start at the beginning. Just answer for me the basic question, what an earth is going on? What started this massive bill? Rarely and why is it going so far so fast.
Well, it's interesting because that goal's been running pretty strongly now for over three years, but the reasons why it's been going up have been changing. I mean, I think it started off by central banks dramatically increasing the amount of gold that they were purchasing following the Russian invasion of Ukraine, and the reason for that, I think was the sanctions that were placed upon the Central Bank of Russia.
It really made many central banks around the world think, hmm, am I really happy having such a large proportion of our foreign exchange reserves invested in the Western financial system, which can be sanctioned at the stroke of a pen. That was the first trigger I think for this move. We then saw tremendous investment buying in gold coming from emerging markets and even from time to time strong jewelry
demand as well. So emerging market economic strength was the second wave I think behind the move higher and gold, and then from well last year was about Western investors getting onto the bandwagon a bit late, to be honest, but joining the bandwagon and buying gold largely in reaction to what's been coming out of the United States, whether it's economic policy, whether it's interest rate cuts or whether it's pronouncements from President Trump and his administration.
Okay, so three constantly moving reasons.
And the central banks are still buying, right, so that demand is still there, still coming.
They're still buying, and they're bought just a little bit less last year than they have done for the previous three years. So there's still an important component of the move higher and gold. But they're not the only story in town. And that's something I like to say upfront, because the number of people that say to me, oh, well, central banks are buying gold, we should buy gold too, It's like, yes, but it's not as simple as that. There are other factors too.
Yeah, and it's a bit of a backstop to the price, very much.
So, and probably one of the reasons why the goal price doesn't go down very much when it does correct, because you know, when it like this year, for example, the goal price has gone up very rapidly. I don't know, but I doubt central banks have been driving the price higher. But I'm sure that they're sitting below the market waiting to step in on any correction, and that prevents the price from falling like it usually would have done. When people take profits.
And if it is true as many people say that the Chinese Chinese Central Bank continues to build its gold reserves in the anticipation of conceivably launching a gold back currency at some point, there will be a way to go.
Look, that's one of the theories about why China has stepped up its goal purchases. It's a gold back currency. I see the arguments about backing a currency is sometimes misunderstood. The only reason you back a currency as an out of weakness, not out of strength. If you think about all the countries in the world that have backed that currency, and Zimbabwe is a great example, they back it with a dollar every now and again, then the peg fails. They've tried to back it with gold and then that
peg fails. It's always done because you're in a weak position. And China's many things, but I don't think it's in a particularly weak position. Where I think the logic of a gold back currency could come in is something that might be used for trade within countries that don't want to depend upon the dollar. And look, China's a massive current account surplus country, so that would mean China would get more gold through settling this these this crossbook border trades.
So again it's not clear that China's buying gold for this purpose. It is one of the potential reasons it could be.
I suppose, okay, so let's leave central banks. Then we accept that they're buying for a variety of reasons, but particularly geopolitical instability, independence from the dollar, all these things, and that they will continue to buy it to a certain level emerging markets.
I mean that demand continues.
As long as there is good GDP growth in emerging markets, you will see demand for gold as a savings product effectively.
That's true, but also sometimes when other savings and investment choices are less attractive. And I think the story in China has been the weakness in the property market, which I'm sure you've spoken about many times over the last few years. Traditionally, Chinese savers and investors buy real estate, they buy apartments. That's their saving and investments vehicle of choice.
But probably price has been going down now for what two three years, so that's taken away, you know, the backstop of where a Chinese saver would put their money. Now there are other alternatives, of course, but gold is benefiting I think enormously from this, and that's been very much a story of the last few years.
And that's interesting.
You know, we often talk about demographics on this program, and one of the reasons why the Chinese property markets can continually in a state of gradual decline is because of the rapidly falling household formation numbers and that we saw recently these very low number of births in China.
So there's a strong suggestion that household formation will continue to fall in China, and therefore the property market will continue to languish, and therefore it seems likely that savings will continue to shift into other.
Products, not the golds of products, but do you know what I mean?
It will continue to be a savings product of choice in China and possibly other parts of the emerging world, where of course populations are also statical falling.
Yeah. And look, that's a really interesting point as well, because I've spoken about investment for gold in China, but historically jewelry demand has been a bigger component. And if I think about demographics, demographics worry me in the long term for jewelry demand in China.
Yes, for the regions that.
You've pointed out in India, but much later. India is in the middle of a demographic dividend at the moment that lasts until about twenty forty. If you look at the structure the pyramid of the population in India, it's very young, much much younger than China. It's now that I think the largest country in the world in terms
of population. It's the second largest gold consumer. They love gold, and if I look at all the marriages coming down the line, I'm very confident about media and long term jewelry demand out of India, irrespective of the price in China. As I say, it's really important that investment demand continues to grow and continues to gain market share there because of the demographic challenges.
Okay, right, Let's move on then to the third and the thing that's really been pushing the price recently, which is West of the investors suddenly getting in on the game.
What did they notice.
Did Western investors suddenly start listening to this podcast, or did they notice the price going up and suddenly get fomo or is it the genuine reaction to geopolitical change?
I think all of the above, and I think your podcast has been highly influential. But seriously, I think about the drivers behind Western investment demand. It's been very much concerns about the US dollar, about what's happening with monetary policy in the States as interest rates get cut, and then what's going to happen with FED independence in the
medium term. If we get to a situation where the US economy runs hot, so we get strong economic growth, but inflation interest rates too low, that can get nasty really quickly. And I think that that's one of the things that's attracted Western investors towards gold. And I think the second thing is FOMO. As you say, this is to a large extent, a momentum trade. At the moment, I mean, we advocate that investors have a sensible allocation to gold in their portfolio. It's a strategic asset for
the long term. We don't do that because we expect gold prices to go up sixty five percent in one year or twenty percent in one month. There's no doubt that investors have jumped on the bandwagon to a degree, although not to the degree that they have in silver, which is, to be frank quite crazy what's going on there. But yes, there's an element of short term speculation in the gold market. As well, and that's that's been Western investors that could deploy an awful lot of capital at
a very short space of time. We've seen that to a degree over the last nine months.
I'd say, well, we'll come back to sil related because that's that's ridiculous and kind of exciting and also fascinating and definitely a momentum tride for now.
But let's talk about where gold might go.
So you're at we're at the point in this cycle where everyone who didn't think gold was going to do this is suddenly trying to catch up. And you've got the strategists and investment banks or raising their targets for this year always going to go to five thousand, Oh, whop's missed that?
Six thousand, Oh, I don't know, maybe seven thousand, And.
Then you've got the people saying, well, well, we'll hit ten thousand before you know it, etc. And of course, even if that were to happened, it's not going to be a smooth past. We know there's always always fairly significant draw downs in im momentum markets like this, but what how do you figure out.
What the right price is or where it should be?
And there's so many different methods of attempting to value gold something without a cash flow and therefore impossible to value. You can look at it as a percentage of the value of the US dock market, for example. So we now see it running at what fifty percent of the value of the US dock market is the total market capitalization of the gold above ground, So you can look at it like that, and at the moment.
It's been way higher in the past.
But on the other hand, the US market is you could argue significantly if we're valued at the moment, so that changes the way that ratio works. And then I was very taken by George Cooper at Aquatile. He has got this gold dinner, a gold dinner at the Savoy grill ratio right and back in nineteen seventy one, he says, you could get hang on, I think three dinners at the Savoy for an ounce of gold. Now you can get fourteen dinners at the Savoy for an ounce of gold.
Maybe gold is cheap, you know what I mean.
There are so many different ways of trying to value gold, but basically it's impossible, right.
It's it doesn't fit into conventional valuation frameworks. As you say, it doesn't produce a yield or a dividend, so you can't do a discounted cash flow on it. We've spent a lot of time in the last probably the last seven or eight years, but in particular, trying to come up with different ways to think about gold valuation, and
particularly from a long term perspective. So if you're an asset allocator, you know, you could make assumptions and think, Okay, what is my bond portfolio going to give me, I don't know, three four percent? Well, what are equity is going to give me? Maybe six seven percent over the long term? And what about gold? And it's like not sure.
So the work that we've done, and it's all available, by the way, on our website goldhub dot com under the tools section, we've put together something which we call glitter very good at acronyms in our shop. So gold's expected long term return and what that works on is
it thinks about the structure of the gold market. So all the gold that's ever been mined, who owns it, who's buying it, who's bought it, and what are the drivers of that demand and what the conclusion that we come to is in the long term, you should be expecting gold to deliver US inflation plus about two to three percent per annum, so somethink in line with nominal GDP. Now that's very different from the sort of returns that
we've seen over the last few years. So nineteen percent, twenty six percent, sixty five percent, and then twenty percent
year to day. So one of the questions that we face a lot internally is like, well, if you think the long term returns are going to be in that order of magnitude of four to five percent, assuming US inflation is two maybe a bit more of US inflation's a bit higher, what do you do after gold has gone up so as much as this, And what I say to people under those circumstances is, look, gold has had a long track record of benefiting your portfolio through
diversification and returns and helping prevent you against bad things happening. It is impossible, like everything else, to forecast where it's going in the short term. I mean, we're at I think one hundred and three all time highs now in gold since the beginning of twenty twenty four. If you'd have bought gold at any time in twenty twenty four, twenty twenty five, you're up so in Otherwise, just because gold's at an all time high doesn't mean that it
can't go up any higher. But what I do say to people is you shouldn't expect the sort of returns that you've seen over the last three or four years to continue. Don't buy gold expecting it to deliver fifty percent per annum. It's much more likely to deliver over the long term five or six percent. Now in terms
of twenty twenty six, what's the likelihood going forward? What we said but the start of the year is that if you look at the drivers of gold last year, if you look at the reasons people were buying gold, and I've listed some of them before, looks pretty certain that they're going to continue. We're going to see more policy announcements out of the United States which are likely to rattle the markets from time to time. So why wouldn't people keep buying gold under those circumstances?
Fair enough, I mean, a dollar is weakening, But let me take you back to what you said about US inflation. Surely one of the reasons why the why gold is going up so much is the assumption that US inflation will at least in the medium term, be very significantly higher than two percent a year.
Potentially, in that case you can expect better returns. But if you think of US inflation plus two to three percent over the long term, maybe if inflation's five percent, which would be historically very high over the long term, you're still only getting seven or eight percent return in gold.
Okay, you said earlier that everyone should have a sensible allocation to gold.
What does that mean? Is that five percent, that two, ten percent, fifteen percent?
What is it sure? And I guess the starting point is it depends what else is in your portfolio. If you have a very risky portfolio of all equities, or maybe all NASDAK equities, or maybe NASDAK equities plus some crypto, the risky of the portfolio you've got, the higher. The ideal allocation to gold is based on work we've done looking in the UK, the US, Europe, pretty much every major country in the world, looking at historic returns of gold and other the assets that are available for people
to buy. You get to put an ideal or an optimal allocation somewhere between four and maybe just over ten percent. Now four percent allocation would be if you had a very heavy bond or fixed income portfolio, and the sort of ten twelve percent would be of you're much more riskier than that sort of like sixty forty or seventy thirty in portfolio terms. So that's the sort of allocation that we've suggested is sensible or would have been sensible
for people in the past. Now, obviously those sorts of calculations are done on the basis that what's happened in the past will continue in the future. And you know the risk disclaimer that you get at the bottom of every financial product. You know, just because it's happened in the past doesn't mean that happened in the future. So start to think about where we are now. Equities, as you mentioned, particularly US equities where most people have most
of their equity exposure, are quite expensive. Think about the outlook for government bonds. We've just come out of a forty year bullmarket for bonds that arded in nineteen eighty and probably ended in twenty twenty one. We're probably not going to see the same sort of returns that we've seen in government bonds as we've seen in the past. And that's before you start thinking about government deficits and debts.
So maybe that historic five to ten percent allocation for gold is looking a bit low, and indeed, I think that's probably where the potential for gold to continue to prosper is going to come from. There was an article produced last year by Morgan Stanley's chief investment officer that said, the sixty forty portfolio is dead. The idea of having sixty percent of your assets in equities and forty percent
of your assets in bonds is dead. The new portfolio should be sixty twenty twenty, sixty percent inequities, twenty percent of government bonds, twenty percent in gold. And that really excited us because, first of all, we'd never suggested such a high potential allocation to gold, but it comes. But the reason that Morgan Stanley have been highlighting this is something we recognized a few years ago and published on, and that's the breakdown of the negative correlation between equity
markets and bond markets. That's what the whole sixty to forty portfolio was based on. Buy your equities, hedge yourself with bonds. When equities do poorly, bonds will probably do well. But that's not happening as reliably as it used to. Therefore, think about other alternatives that tend to do well when equities do badly. And indeed that's what's been happening in the last few years, and you know, and that's why
gold is such a good inclusion. So coming back to your argument before about about valuation and gold, and we don't look at the US stock market on its own, and we certainly don't look at the total stock of gold out there in comparison. We look at the stock of investment gold and lords how much what is the total value of the investment gold out there that people have bought, bars and coins and ETFs and everything else. And then we look at the market capitalization of the world,
both equities and bonds. Now, last time we looked at that number, it was about one and a half percent. Gold's up a lot since then. Other stuff's moved to it's probably about two and a half percent now. So you can see where the potential is for more investment to come into gold. Even if you get up to the lower end of the historical recommended allocation that's five percent.
If you think about the higher end of it, of the historical allocation that's ten percent, And if you listen to Morgan Stanley, maybe it should be closer to twenty. So there's a lot more room for investors to diversify into gold, particularly if they don't trust the outlook for
government bonds. And I don't know about you, but one of the things that's been frustrating me tremendously in a post pandemic world is the fact that governments are running such large budget deficits in comparatively good economic times, and the stock of debt seems to be rising inexorably.
So effectively, gold is becoming the new safe haven asset for a lot of people. So it replaces in the old days, your safe haven with treasuries or other government bonds. You bought these, that was your safe haven and something went wrong, you knew you had those as your backup. But in this new environment, with these incredibly high levels of debt that we get increasingly concerned might not be server's long term gold becomes your new safe haven asset.
And you can see that in the performance as well. Historically, when the US equity market had a really bad down day, the US dollar would tend to strengthen as people were putting money into the dollar. Now because the US equity market. When it does have these corrections, it's often because of something that's coming out of Washington. The dollar tends to weaken as well, so you're getting hit in both ways.
So bonds aren't your safe have. The US dollar isn't the safe haven that it was, and gold's benefiting at their expense to a degree.
Interesting, and it's also it's part of a of a shift in general away from investors thinking to themselves digital assets or the answer, software assets are the answer, and beginning to think, actually, physical assets are the answer. And this environment so it's not just about gold, as we've discussed, talk a little bit more about that. It's about silver, it's about other industrial metals. It's about stuff manufacturing, about factories,
about physical commodities. So as part of that general mind shift as well, isn't it.
I think it is. I'm a little bit cautious about some of these industrial metals, by which talking particularly copper, but arguably silver as well. A lot of the gains that we're seeing in silver are touted on the basis of its industrial uses, but the global economy isn't growing that quickly at the moment, and my experience in covering commodities for many years now is industrial users of metals are very good at reducing the amount that they use
when the price goes up a lot. You know, even copper. Copper prices have gone up a lot in the last couple of decades. There's a lot less copper used in water piping than they used to be. For example, now there's a lot of plastic used even in this even in some places they're using it for they're using aluminium for electrical conductivity, although not in the UK. But the cure for high prices and commodity markets is high prices because substitution comes in.
Although interestingly, can I just go pick you up on it briefly?
Is it in the past when they said the solicient high prices and commodity markets is high prices, part of what they meant was not so much substitution. They meant that supply would rise significantly because everyone would say, oh, look cop has gone up, I'll just go dig myself another copper mine.
And of course you can't do that anymore. You can't do that.
You can easily.
Yeah, you've got a very long timeframe. Planning is going to take you significantly longer than it used to. So you can't have a new copper mine up and running in eighteen months. Is going to take you ten years, fifteen years, whatever it is. So it's a very different supply environment and that has to make a difference, doesn't it.
It does, and I think it does for metals where you don't have a pool of potential recycling to come back to the market. And in the case of copper, there's lots of recycling that takes place. If you, you know, knocked down a building, they take out the copper wires and they send that off and get recycled and it turns up in another building somewhere else in electricity or piping. Fine, but there's not a potential flood of copper to come
back to the market on the recycling side. There is, however, in silver, and that's something I think that that some of the silver fanatics have been missing, is the fact that pretty much every silver refinery in the western world is closed to accepting new scrap at the moment because it's full. So we're seeing these these announcements coming from the refineries or the scrap collectors saying we're going to close down for a week or two, because you know,
we can't get this stuff refined at the moment. There is so much silver coming back to the market. Now, I'm not saying that that means the price is going to go down, but it does mean that there's a lot of a lot of Granny silverware which is being sold into these high prices at the moment, a lot of US coins because you know the coinage system in the US prior to the seventies, you know, silver dollars, silver quarters, silver nickels, or at least containing decent quantities
of it. So that stuff is coming back at such a speed that the refineries can't cope with. At the moment, they will process it, it will come to the market. There is supply being brought to the market by higher prices, as you suggest, So do you.
It feels to me like you're suggesting that silver might be well into the mania phase.
Look, there's no doubt that we are seeing enormous retail demand for silver in various ways, whether it's via investment products, whether it's by physical silver. In China, I was talking
to one of my colleagues, Rajr. Who's head of China Research, and he was saying that in Shenzen, which is one of the centers of the precious metals market in China, they're moving silver around on these trolleys so much so that the roads are getting destroyed because of the weight of silver that's being shipped around as people are trying to get their hands on physical silver to invest. So, yeah, there's no doubt there's tremendous investment demand for silver at
the moment. But if you look at historically at the performing of all precious metals, to be frank, you do get these phases when people buy them with great enthusiasm, expecting the prices to go up forever and then there's a correction. And we don't give investment revice, we don't make short term forecast, but let's put it this way. I'm looking at the silver price with disbelief at the
moment and waiting at least for a decent correction. Not saying it's over, but wow, you know, one hundred and ten dollars an ounce.
Yeah, we got so excited on this podcast and it went through fifty.
Well, fifty was the Yeah, fifty was the previous all time high back to nineteen eighty. Absolutely, so it was a big number to go through, but then again, so's one hundred.
Well, well, I mean I.
Think we kind of stopped being excited after seventy and started just being mildly incredulism, wishing that we held more minus silver, you know, small silver miners and all that, which brings me back to the thing that we're going to get lots of questions on, which is when you talk about having a five to ten percent allocation to gold, do we mean actual physical gold or do we mean a mix of gold in your hand, hidden in your basement? Gold ETFs and perhaps gold miners as well.
Where are here? What does it mean?
The work we've done has been on gold, gold in all its different forms, but not gold mining companies or exploration companies. And there are merits to investing in gold miners. Just look at the performance that they delivered last year and massively outperforming the gold price. But there are risks. Think how many mines have been have I think how many minds have been taken away by governments or where taxes have suddenly been increased. So there's lots of additional
risks positive and negative investing in gold miners. So we don't make We don't do much studies on that, but you know, as I say, at the right time, and generally speaking, when the gold price is going up faster than their costs, gold mining companies also with mining companies, can increase more than the underlying metal. So that's what's happened last year. So in terms of gold itself, you can buy gold or get exposure to gold in a
number of ways. You can go and buy physical gold, you'll have to pay a premium over the spot goal price. That premium, when the market's quite hot, which it is at the moment, could be five, maybe ten percent premium over the goal price, and when you come to sell it back, you might only get the goal price or maybe a slight discount. So there's a big bid ask spread in owning physical gold potentially, So that's something to bear in mind.
I was just gonna say that, you know a lot of people hold gold for armageddon reasons, right, and I have my gold because everything's going to go horribly wrong.
The world's going to collapse.
It's going to be a massive cyber attack and the stock markets will collapse, everything will be gone, etc. And if you are that kind of gold buyer, there's really only one way to hold gold, and that.
Is physical, actual physical gold hidden in your house.
So I think a lot of people are holding their gold for is insurance for very bad things. But if the very bad things they have in their mind happen, their ETF will be of no use to them in the immediate exactly.
And it's when I worked at an investment bank and we would see the flows coming through and you could see in which way people were buying gold. You could see the motivations behind them because you didn't have to tell you you could understand what they were doing. Consider the bid ask spread or the premium that you're paying for physical gold as part of the insurance policy you're
having to pay for this armorgain. If, however, you don't think the financial system is going to collapse, if you don't think that there's going to be a huge run on banks, then maybe you're interested in buying gold via financial product and you can buy futures, you could buy gold certificates, you could do derivatives with banks, etc. Or you go sort of a halfway house in between the two, which is buying a goal backed ETF which is listed
on the stock market around the world, different ETFs, different stock markets, and this gives you the financial performance of gold in as close a way as to owning the physical yourself without having to pay that premium, without having to worry about holding it at home and thinking about insurance and theft, etc. So there's a number of different ways, and again it depends why you're buying gold. There's lots
of reasons to do so. We generally speak to investors and think about portfolios, and you've got a portfolio, you're probably thinking that the financial system isn't going to collapse, and in that way, some sort of exposure of ron ETF or another financial product is probably the best way to think about it.
If you got gold buried in your garden, John m.
Couldn't possibly tell you. I do know a story about a hedge fund guy I bumped into again when I worked at UBS, and this was in the early two thousands, when gold has started to go up again. He said, I've got fifteen hundred kruegerands buried in my ranch, but I can't remember where I put them. So every spring I go out there with my metal detector trying to work out where they are. So even burying gold in
your garden is not without risks. Either the gophers have got it, or maybe a robber's got it, or you can forget where it is.
Well, that'll be very exciting for future archaeologists, won't it.
One day somebody will find that and we'll probably everyone forgets where they buried their stuff.
It's like pretty much everyone has that.
I can't find my jewelry story, and it as I've been founded that bottom of some Yeah, everyone has that story. Okay, So I want to ask you about a couple more things, And the first is an idea of my colleague John's. He wrote a piec the other day about how one of the reasons that gold is rising so fast at the moment, it's a sentiment thing.
Of course it was a sentiment thing. But gold used to be considered to be.
A right wing metal, and now it's more of a left wing metal, a more of a hedge against trump Ism, a hedge against political change in the US. So you know, if you're anti Trump, you can buy gold to hedge the weakness in the dollar that results from his policies. So that John wrote about there, I encourage everyone to go and read his amusing column on it. But there is that sense, isn't there the sort of sentiment shift that is bringing a wider audience to gold.
Yeah, And it's interesting if you look at the physical gold demand, so demand for coins and small investment bars the one market that really hasn't taken off to the same degree as the United States, and it's something that we were anticipating actually because we've seen it before. You're right that many physical buyers of gold in the United
States tend to be Republicans. They tend to buy gold as well as guns and ammunition actually during democratic presidencies because they're worried that the US is going to hell and they'll be unable to buy guns and ammunition soon because they'll all we banned. And during a Republican leadership or Apublican government, everything's going to be fine. So they don't need to buy guns because they can get them, and they don't need to buy gold because everything's wonderful
in America. So you're right in a way, I think that, and John is right here is that it is a bit of a right wing metal. It's a bit of a male metal as well, certainly in the West, and it's a bit of an older metal emerging markets. Of course,
it's very different to you if you speak. When I go to India and speak to groups of investors there, I sometimes do presentations only to Indian women, high net worth individuals and their own right and talk to them about why everything they think that they think about gold is wrong because they hone it's jewelry. Should be considering it as an investment asset as well.
But don't they consider jewelry to be an investment asset. They should carry a wealth.
It is how you carry a wealth, and when it becomes seriously rich, you don't have enough gold. So you can't physically own enough jewelry to diversify your portfolio effectively. So you should think about financial exposure to gold as well. Always fun talking to Indian women about gold. They know far more about it than I do.
Okay, fascinating. I think we have a reasonably high female audience. So, ladies, that your bracelets aren't.
Enough exactly, okay, John.
Now a lot of the listeners to this podcast will have been buying gold. They will have a lot of gold. They may now have too much gold.
So let's say you've been holding it a while, it's now probably going to be thirty thirty five percent of your portfolio. Of you've been holding a long time, it was going to feel tough to sell, right. You can see that price moving up and up and up. But maybe you know in your heart it's time to top size at least to diversify some of that away from gold.
How do you manage that?
Well, what I said of people is and this question has come up a lot, and twenty thirty percent is actually low compared to some of the questions that I get. I bunt into one guy at a reception the other week. He said, you know, you know put lots of my pension into gold and silver a few years ago and it's done really well. And I said to him, well, look, think about the reasons why you own gold. Think about it from the perspective as a diversifier, As a strategic asset.
You always want to hold a certain proportion of it. And if you thought maybe you wanted to put in ten or fifteen percent of it and it's now worth forty five percent, then you know, think about reducing that perhaps, think about are the better reasons to own gold than there were when I put in fifteen percent of it back in the day, and maybe there are, but there's probably not forty five or fifty percent allocation. And he said to me, oh, I've got eighty percent. I said, well,
to be frank, yeah quite. By the way, this was if you had eighty percent, it's probably more like ninety now because this was a few months ago, you know. And I think the point there is is that gold has a role in a portfolio. It shouldn't be your entire portfolio. Then you are just basically betting your farm on one asset class. And you know that, as we all do, the best way to invest is to have an appropriately diversified portfolio, and then you know, you flex
those weights a bit. But with the performance that gold has had, and particularly the outperformance that gold and silver have had of other assets in the last eighteen months or so, there's nothing wrong with reducing exposure a bit.
But if you have no gold at all, you should buy itself.
We believe every portfolio will benefit in the long term from having an appropriate amount of gold in your portfolio. That doesn't mean to say that you buy gold at fifty two hundred and fifty dollars an ounce and it's guaranteed to go up because it's not. But every portfolio that we've looked at would have benefited past tense from having gold in that portfolio over the last five, ten, twenty, or since nineteen seventy one when we came off the gold standard.
John listen, Okay, here comes a difficult question. You ready, how does bitcoin fit into all this? I mean you will remember not that long ago we had to put up on this podcast with and as people telling us that bitcoin was digital gold, and then of course we got our kicks by calling gold physical. Yeah.
Have you get your laugh somewhere right now? Bitcoin and gold are clearly not the same thing.
It is clearly not digital gold. It is not moving in the same way. These are different things.
What's going on?
Absolutely? So first of all, i work for the World Gold Council, so I'm not going to say anything whether I think you should own bitcoin or not. Fine, that's not my job. But what I would say is they are different and as you've pointed out, they move in different ways. So I got really irritated with bitcoin being described as gold two point zero because it isn't. Bitcoin and other digital assets are. As one of my friends, Charlie Morris would say, they are tech stocks effectively, or
at least they perform like tech stocks. If you've had if you've added bitcoin to your portfolio, you've increased your effective equity exposure. And in fact, what you've really done is you've increased your effective tech exposure more. That's fine, that could be a great decision. Bitcoin's done very well over the last ten years. But it doesn't behave in the same way as gold. It won't diversify your portfolio.
It will increase the risk of that portfolio. Now again, no reason why you shouldn't own it, but do recognize that you've added risk to your portfolio. If you've added risk to your portfolio, what should you do diversify more? What should you consider as a potential diversify gold?
Have bitcoin by gold?
I suppose that the other problem with bitcoin, I suppose with all cryptocurrencies, one way or another, is that there are so many substitutes.
I mean and with silver, as you say there may substitutes.
Gold really doesn't have a substitute. It does gold and bitcoin can be substituted in many, many ways.
Sure, there may be finite numbers of bitcoins, but there are not finite number of cryptocurrencies. And yes, silver is a bit of a substitute for gold. It's a bit of a substitute for gold and jewelry. It's a bit of a substitute for gold in investment, particularly when the silver price is moving like it is. But in the end, gold is a much much bigger market than silver and always will be in my opinion.
Amazing, John, Thank you so much, Thank.
You very much, Maren, great conversation.
Thanks for listening to this week's maryn Talks Money.
If you like our show, rate review and subscribe by ever you listen to podcasts and keep sending questions or comments and merror money at Bloomberg dot net. You can also follow me and John on Twitter or x I'm at Mary Nurse w and John is John Underscore Stepic. This episode was hosted by Me Maren zumzep Web. It was produced by Samersadi and Moses and sound designed by Blake Labels and special thanks to John Read