Many people are not only scared about the stock market, but even their local bank. Is there a better place to store money? Could gold be the answer right now? What are the different ways that you can store REAL gold without burying it in your backyard? Our guest is a leading authority on this subject, and his company has advised clients on this for 50 years. David McAlvany, the CEO of McAlvany Financial Group, discusses how you can build wealth with gold and why it is a safer investment today. Tune in to this episode and gather insights on building wealth with gold.
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Is Gold The Safer Investment Right Now? With David McAlvany
Welcome to the show that’s for you, those that work so hard for your money and are ready for your money store working harder for you right now. You want that freedom and cashflow now. Not 30 or 40 years from now but right now so you can live that life that you love with those that you love. It’s not only about getting rich. It’s about living a rich life because as you are blessed financially, you have a greater capacity to bless the lives of others.
That’s what we’re here to do in this episode. Thank you so much for reading. It’s been amazing to see how much you’ve been bingeing. You’ve been sharing this with others and on social media. Thank you so much for doing so. We appreciate all the efforts you guys do to help our ripple effect continue through you as well.
As a reminder, if you haven’t done so already, go to our website, MoneyRipples.com. Take the Passive Income Calculator where you can find out how much passive income you could create in the next twelve months. Check that out and see what your number is. I love to see it because if it’s over $15,000 or $20,000, we need to talk. There’s something we can do to help bless your lives. Check that out now.
I brought on a special guest on the show whom I had met at another conference. It was a conference that was full of dentists and orthodontists. He’s talking about things like precious metals, gold, silver and metals in general. It was fascinating to see how this can work in an overall plan. I want to bring David to this episode. David is the CEO of McAlvany Financial Group. They also have done a lot with McAlvany Precious Metals, which is a metals brokerage. They got a wealth of experience here. He’s got McAlvany Wealth Management and Vaulted, which is an online platform for investing in allocated and deliverable gold.
He’s also the author of The Intentional Legacy and a featured speaker of major media outlets. Something that he’s doing is CNBC. He is commenting on some of the banking industry and things like that going on. We might ask him about that as well. Also, talking in general about global events, the economy and financial markets. He also has a weekly commentary with world leaders, bankers, economists and investors. David, welcome to our show.
Thank you, Chris. It’s great to be with you. It’s good to see you.
Give us more of your background. When I talked to you, I said, “How do you have 50 years of experience?” You’re born into this but you have an interesting story even with your childhood. Tell us a little bit more about you.
This is a second-generation business. We focus on metals brokerage. My parents were instrumental in getting gold legalized going back to the 1970s. It had been illegal from 1933 through January 1st, 1975. We found a religious exemption where you could sell gold if it had some theme. We were making 1 and 2 ounces gold bullion medallions. We were able to get into the business about three years before anyone else into the bullion business here in the US.
We have been an industry leader for five decades. The asset management company came from a love of mine. I had spent enough time in the world of financial advising to realize that it was a broken system. I love your anti-FA, Financial Advisory, comment at the beginning but managing and then delegating the responsibility to other people to do something or to do nothing, I don’t think is a recipe for great success.
What we do on the asset management side is focus on hard assets. In complement to our metals business, asset management focuses on publicly traded companies that are in specialty real estate, infrastructure, global natural resources and precious metals mining. It’s a very small niche within the world of investible companies but in a period of this with inflation and money printing galore and even with the bank bailouts, the case can be made for creating a defensive posture even in your growth assets.
I remember hearing a story. You were 6 or 7 years old. You’re asking about inflation and things like that.
I grew up in a crazy family interested in things that for most families might be boring but public policy, inflation, financial markets, volatility and perhaps your interest in cashflow are things that we would talk about around the dinner table. At six years old, I gave my first speech on inflation standing at our coffee table in our living room.
Yes, in a three-piece suit but comfortable with the content. After traveling the world with my dad, I started traveling with him when I was three. I started young. In our generation and the next generation, we’ve done the same thing. Our kids travel with us all over the world to meet with clients and present on various media outlets.
Tell us your take on inflation going on right now. What are your feelings on it?
Inflation has always been and will continue to be one of those lumpy things where it’s big and then it eases off a little bit. It comes raging back and then eases back again. When you see the policy responses to inflation, they’re also a little bit like putting the foot on the gas pedal and then on the brake and then on the gas pedal and then on the brake.
That was the case even with Volcker when he was killing inflation with higher rates. There was a point in time when he lowered rates before his final jacking of rates to double digits. He lowered them and inflation came roaring back. He had to raise them yet again to very high levels. Those are the days when mortgage rates were 18% and 19%. You can imagine what that does to real estate values
That’s one of the challenges that you have when you balance what you do in the world of real estate and passive income investing. It’s being aware of how much risk you have in the equation, how much debt you have in the equation and how many reserve assets you have in that picture with you. One of the reasons why I like gold along with real estate, particularly unlevered or lowly levered real estate, is this cash alternative which works under any circumstance.
If you know the history of gold, you know the history of money. Gold has been the currency for 5,000 years and it’s only since the 1970s that we think of it strictly as a commodity and don’t give it its currency role. We’ve got something better, which is the Federal Reserve note. It’s better if you say so. It’s lost 96%, 97% of its value since it was created. It was originally issued in 1913. Scoring in terms of the job that they do and maintaining purchasing power is pretty poor.
Gold has been the currency for 5,000 years, and it's only since the 1970s that we think of it strictly as a commodity and don't give it its currency role. Click To TweetGold on the other hand is basic. It’s a better form of currency. If you’re looking at real estate deals, if you find that you’re not happy and engaging with the market for a certain period, maybe you don’t want all of your money in the bank. Maybe this weekend in particular you didn’t want all of your money in the bank but this is a better store of value through time.
We have an inflation target now of 2% and soon to be 3%. They’re intentionally chipping away at the value of your dollar by that amount. Gold is basic money. It allows you to engage in the financial markets when you want to without being subjected to the Nixon scrapes from the Central Bank monetary policy, whether it’s our central bank or any others.
To see gold as a reserve asset in complement to what you do with real estate is to understand the role that it plays. It’s meant to be spent at some point. Developing a cash hoard, you’d like to see it put to work but it needs to be done on the basis of compelling value. If you have cash or in my case, gold ounces, Vaulted is the program that we launched to substitute for cash in the bank. It’s a very inexpensive way to own ounces.
We partnered with The Royal Canadian Mint and the app is the best you can find in terms of 21st-century technology. It’s enabling that deposit transfer and all the functionality you expect but gold is money. That’s what you have to start with as an understanding. It’s interesting when you have challenges within the financial market or international relationships.
Geopolitics certainly factors into why people are interested in gold at different points. You see a gravitation towards gold and it takes on the character of being a safe haven. It’s people moving out of risk assets into something they consider to be less risky. That is a risk or safe haven asset. That’s because it goes back to its old role as the more reliable denomination of money.
Why gold over silver?
There are a couple of reasons. One, there’s between 15 and 20 times the amount of silver on the earth. When the world’s metallic money system was either a gold standard or a bimetal system, gold and silver, the silver standard tended to be easier to play games with and inflate. You could create inflation with silver too like they’re doing with paper money.
With silver, it’s far less than you could with the current fiat paper money system but gold was considered the most stable as a basis for a monetary system. Silver is nice but you always found that it was the agrarians who were arguing for it. Farmers wanted to see a little bit more inflation because they were okay if the price of their products was going higher.
A bushel of corn or bushel of wheat, if it was a buck more this year than it was last year, that’s good for us. It’s a slightly inflationary biased monetary system and silver was that. It brought silver at least into the equation. I like silver a lot. If you look at the two metals as an investor now, not only from a historical perspective, you can look at gold and divide gold by the current price of silver and it gives you a ratio, the number of ounces of silver that it takes to equal 1 ounce of gold.
Take the spot price of gold and divide it by the spot price of silver. Now, you come up with between 85 ounces and 90 ounces. On the high side, it’s at 100. On the low side, it’s at 15 or 20. Anytime you’re on the high side, silver’s dirt cheap and on the low side, silver’s way too expensive and should be gotten rid of. You can swap it for gold. To me, the case between the two metals is if you’re looking for a growth asset, silver wins, hands down. If you’re looking at a store of value, then gold still is more reliable because silver has this aspect of needing to be used up in some commercial enterprise.
Yes, it’s a precious metal but it’s also an industrial metal. Gold doesn’t have that industrial component. You can see ebbs and flows in the business cycle and in the demand for the products that use silver in them. That gives it an extra vulnerability but it also gives it an extra source of demand. It’s a trade-off and that’s why you ignore the price of silver, look at that ratio and allow the value equation that’s pegged in that ratio to be your guide.
What do I want as a growth asset if I want hard assets in my total portfolio mix? If growth is a priority for you within the hard asset space, then silver’s a compelling value. You could do the same math for platinum and gold whereas now, platinum sells at half the price of gold. If you do the ratio of gold divided by the price of platinum, it ends up being a point. That ratio is typically 1.5 to 2.5. In other words, platinum typically sells at a premium, not a discount. If you look at that and say, “Shouldn’t I be owning platinum instead of gold,” you could make that case as well.
It’s got industrial risks because platinum and palladium both get used a lot by the big three autos in catalytic converters. If the economy goes off the rails, people aren’t buying cars. You can see what I’m saying. There’s a complexity with the white metals that the yellow metal doesn’t have. Chris, it comes back to what’s your motivation? If it’s asset preservation or a reliable store of value as a cash substitute, it’s gold. If it’s a speculation on price and growth, your silver metals are going to be a winner over the next few years.
I’d be curious to see what your opinion would be on the markets. I heard in the news that it was The Perth Mint that has been mixing their metals not sending out pure gold mostly to China. It almost reminds me of 2002 with stocks when they were cooking books and that’s why stocks tanked in 2002. Do you think that might happen with gold and silver right now where people might say, “I can’t trust that these bars are solid gold or not? What if these companies have been pushing out stuff trying to take advantage of the higher prices but they’re sending us something that’s not pure?” What’s your opinion on this?
With The Perth Mint and to be clear, they’re still sending out gold that is four nines fine. It’s just as you get to those far-off decimals that they’ve played a very small amount of the game. It’s benefited them significantly with hundreds of thousands and millions of dollars but they’re still sending out a quality product that’s full gold. This is not a tungsten bar. It is nothing like that.
They are playing with a penny here or a fraction of a penny there, which is far less egregious than even our Central Bank is doing at the 2% or 3% inflation target on our current cash. Do I like what The Perth Mint did? No, it was an ethical breach. Are they going to pay for it? Yes. The Chinese will insist that they pay for it.
Our counterparty is the Royal Canadian for the only conflict-free gold in the world. They’re sourcing it from North America. This is not Congolese or metals that have come from places where child labor is parred for the course. We like the fact that the goal is coming from a great place and jurisdiction where employees are fairly treated. In terms of the social and governance aspects, things are being tended to. It’s crown property.
You’ve got some reputational risk if you do things wrong but this is the group that’s been making British sovereigns going back to 1908, 1910 and 1911. It was the last time they made British sovereigns in Ottawa and now they’re making beautiful kilo bars. They make probably the best 100-ounce silver bars. My favorite bars are the Royal Canadian Mint bars.
The quality of the product and the platform that we have allows you to own gold very inexpensively and treat it like a cash position. It’s easy in, easy out and low-cost. Also, you’re getting the economy of scale. Even if you’re buying $5 worth, you don’t have to buy an entire kilo bar. You could buy $10 worth of gold and you have your allocated segment of the bar or you could own ten of those bars. It’s easy to use. They’ve been a great partner, the Royal Canadian Mint.
That was going to be my next question about that because a lot of times, we buy bullion. It’s the physical tangible stuff and you try to store it. How is it different from what you have with Vaulted?
The vast majority of our clients prefer to take physical delivery of gold or utilize dollars in an IRA. You were talking about that ratio. For years, we’ve helped people play the ratio back and forth and be able to compound their ounces through time. It’s not only a buy once and sees what happens to the price of the metals but you can play that intra-market arbitrage between the metals.
If you’re doing it under the tax-deferred umbrella of an IRA, now you’re getting to compound your ounces without having to panicle Sam along the way. Either with a Roth, you’ve already done it or with a traditional you’ll settle up at the tail end. That’s a very effective way of owning metals. We were one of the first companies back in 1986 to put metals into IRAs.
Being able to innovate in this space, that’s our reputation for 50 years. The appeal of the Vaulted program is for somebody who says, “I want to own gold.” Silver’s going to be launched in June. “I want to own these metals but I want to do it cost-effectively. I don’t want the burden of storage. Please don’t send it to me. I travel too much. What would I do with the product?”
On the other hand, they need to know that the metal is there, whereas in some of the ETFs, the Exchange Traded Funds, you can buy and sell gold as you can of stock but you can never take delivery of it. It’s not allocated to you. The differentiation between our products is you own a basket and inside that basket is a certain number of shares that reflect a certain portion of ownership in bars.
However, even the language that I’m using is a degree of separation between you and the asset. What we like in the Vaulted program is it’s you and your gold. Do you want to take delivery of it? Send us the shipping instructions and we’ll get it to you or you can keep it on a hassle-free basis and use the technology to be able to buy or sell as you prefer.
That’s a much better way of doing it. There’s the Vaulted program where you can have that ownership but you don’t have to keep it on site. If you people have IRA money, they could have you help balance between gold and silver and help people move metals around to create growth in the IRA. Is that correct?
That’s right. I’ve even taken that to an extreme where I’ve started Roth IRAs for my kids. They don’t know this. Hopefully, they’re not looking online to see these interviews. That’s a future conversation. Think of legacy, planning and training your kids to think intergenerationally about money. My wife and I have always thought about the next generation and not just us. For us, Roth IRAs for our kids made a lot of sense and as business proprietors, we can do that very easily.
You own gold and silver. Sometimes you trade back and forth between them. That tax deferral is such a huge advantage. If you’re interested in metals and you want to compound your wealth through time, what a great way to have hard assets in a portfolio. The old version of owning gold, if you go back 50 years, is the end of the world. It’s a year worth of freeze-dried food and maybe an AR-15 and a couple of Krugerrands and you’re good to go.
You can withstand the zombie apocalypse. That’s not the way I live life and see the world. I see every decision we make in terms of our finances as being in a time sequence. As stewards, in this particular time sequence, we are managing resources. We’re doing so with respect to the people who came before us, the blessings that we received and the people who will come after us and the blessings we plan on extending through time.
Understanding how to do that with real estate is the trick of the trade. You need to know them. If you’re going to have an allocation of real estate, then play it smart. If you’re going to own stocks and bonds, know something about it and know how to play those markets. That is not only to buy and hold in a Vanguard fund and not hand everything over to a financial advisor and say, “I hope for the best.” Know when to hold or fold them. Know when to walk away or run.
There are times when you should be engaged in equities. Right now, I would say this is not the time. Why? It’s because even though they’re cheaper this year than they were last year because of the market selloff, 1/3 in Nasdaq, 19% for the S&P 500 and under 9% for the Dow, they’re only partially discounted. We are now at valuation levels on par with the market peaks of 1929 or the year 2000.
We were so overblown. Now, we’ve come back to what were previously all-time highs in the year 2000. The all-time high is 1929. Are they of value? No, they’re not. You have to be very careful how you’re allocating money in equities. The larger point is if you’re stewarding wealth through generations, appreciate what each asset class you can put money into. Appreciate how it behaves and where the advantages can be gained so that you can steward from one generation to the next and hopefully, leave what you have better off for the next generation.
We’re dealing with terminal math. When you’re dealing with multiple generations, you are multiplying the number of people who have a claim on a particular asset. That means it’s being divided up and it’s shrinking on a per capita basis. How do you engage with the multiplication of those resources such that future generations can be beneficiaries of that? Such that they can learn and do the same thing?
You’re only responsible for this period. Will they be educated and learned it? Will they receive the wisdom of you in your generation to be able to know how to handle resources in their generation? It’s not about setting your kids up with an infinite amount of money so they have nothing to do with their lives except seek pleasure and leisure. That’s not it. If you have kids and grandkids, you want to do well for them. You want to help them in any way you possibly can.
You’re not trying to hurt them but one of the ways that you help them is not by giving them a bunch of money. It’s by giving them the skillset. If that’s compounding revenue, to your point, the ripple effect and what you want to see in terms of current cashflow or if it’s compounding ounces within the metal space, it’s about having skills. It’s about knowing what to do with what you have. If it’s 1 ounce or 1 million ounces, if it’s 1 property or 100 properties, it’s not what you have, it’s what you do with it.
To me, that is so much part of a legacy and being intentional about making sure that the dinner table conversations are had. At age six, I was giving my first speech on inflation but being deliberate about the conversations you want to have so that your kids know how to do what you’ve done and have some gratitude for it as well.
That’s a ripple effect I like. A quick question because we got to get going here. I want to ask you. The banking industry has red alerts going off left and right, especially with anything from Silvergate. We’ve also got the Silicon Valley Bank and things like this happening in the market right now. What’s your opinion? Often when this stuff happens, people will flee towards metals instead. Are you seeing that to be the case? What are you seeing?
Here’s why fleeing to the metals does make sense. I’m saying this from an objective standpoint and yes, give me the criticisms for having a vested interest in it but here’s what’s happened. It’s not only Silicon Valley Bank and Signature. If you go back and look at what the Federal Reserve and the Treasury did throughout the pandemic, they created a tremendous amount of liquidity.
If you look at the deposits of your regional banks prior to the pandemic versus after, you’re looking at a 50% to 100% increase in bank deposits in that period. Liquidity is created. Bank deposits swell. It’s not like bank lending to small businesses went up by 50% to 100%. What are they forced to do? They buy the safest paper they can. Unfortunately, it’s at record low yields and its Treasury bills and its mortgage-backed securities.
This is not only a story about Silicon Valley Bank. This is a story about the entire banking industry because of the choices that the Fed and the Treasury made to create the liquidity to save us from the pandemic but you see how it’s connected. Which bank does not have access to deposits that they had to put to work and stuffed into Treasury and mortgage-backed securities papers? To the degree that interest rates continue to rise, the value of those portfolios continues to drop.
It was a $700 billion mark-to-market loss. The total bank capital is roughly $2 trillion. You’re talking about 1/3 of all bank capital in the United States has disappeared. We knew this last year but nobody panicked. We decided to pay attention last week. The $43 billion came out of Silicon Valley Bank and all of a sudden, they have to sell their portfolio, realized on a mark-to-market basis the loss on that securities portfolio and they’ve got a hole to fill.
In fact, they can’t fill it. It’s too big. They’re insolvent. We have a variety of banks that are now technically insolvent. What the Federal Reserve and the Treasury have done has been to say, “We’ll guarantee all deposits. It doesn’t matter if it’s above or below $250,000. Everything’s covered.” What’s your risk? It’s not much. To stay in the banking system, they’ve covered your butt. There are no problems whatsoever.
What’s the cost of being able to backstop $700 billion in losses? This is one other version of quantitative easing. We go back to what has been driving gold crazy over the last 2 decades from $350 to $1,900 and what takes it from $1,900 to $5,000. We are trying to save the world from coming unglued and every version of trying to save the world from coming unglued. Whether we go back to the year 2000 and it’s the tech wreck or we go back to the global financial crisis or we fast forward to the pandemic, it’s more and more money to try to keep things together so that there’s never a financial market comeuppance.
We don’t want to pay the piper and the Fed and the Treasury are guaranteeing that doesn’t happen. Why that translates directly to gold is you’re talking about inflation not only being an issue of the last year or two but it being the issue of this era. This is not going away anytime soon. Inflation concerns will continue to build. We have frailties within the financial system, the powers that be when a paper over all of it, and there’s a cost to doing that.
It means that you’re not going to have the 2% or 3% inflation hit on your savings. It’ll be 5% and 10% and it may be 5% to 10% for the next decade. What would you rather own? Deposits in gold and silver or $1 million sitting in the bank getting clipped 5% and 10% a year? That’s why gold makes a ton of sense now and why it’s not overthinking it to think, “Maybe there’s panic in the market. Maybe it’s just one bank.”
No, every bank has had the same problem. I’ve talked to our local bankers here in Durango, Colorado. It’s the same thing. We don’t know what to do with all these deposits. We’ve got to stop taking deposits. What are we going to do with it? It’s because their securities portfolios were already too large and they were putting in that money to work at an inopportune time. Now rates have risen. The value of those bonds is down. You’ve got so many technically insolvent banks.
When you’re dealing with liquidity insolvency issues, gold is one of the only assets that have zero counterparties. We saw this in the years 2008 and 2009. We had hedge funds calling us to buy $50 million and $100 million of gold at a time because they’re like, “I got to get out of the system. I don’t know if I can get my money back. Where’s my money? Who’s got my money?”
When dealing with liquidity insolvency issues, gold is one of the only assets with zero counterparties. Click To TweetI don’t think it’s a panic move. It’s a reasonable allocation. We’d be happy to give you guidance on that. With 50 years of experience, we’ve got a crew that’s second to none in the industry. There are plenty of people out there who sell gold and silver widgets. Very few people know how to handle it from a strategic standpoint and how to gain in terms of that compounding of ounces starting with treating you very fairly.
I was talking with our marketing department. It’s amazing because we have a lot of competitors who will spend millions of dollars a year in marketing and that is coming out of the hides of their clients. That’s not the way we operate. If you hear somebody advertising on radio or television guarantee you, those ad dollars are coming out of the hides of their clients. Find somebody who’s been doing this for 50 years. We’ll take care of you. We grow by referral business only. You have venues like this. We can provide value in some way like with our podcast. That’s now sixteen years old. Hopefully, it’s an educational resource that your readers can tap into. Chris, thanks for having me.
David, this is fascinating stuff. This is great timing. There are a lot of things unraveling right now and it’s good to be able to see that there’s another safe haven somewhere that has better store value. I appreciate you being on, David. Everybody else, reach out to them. Make a wonderful and prosperous week. We’ll see you later.
Important Links
- Passive Income Calculator
- McAlvany Financial Group
- McAlvany Precious Metals
- McAlvany Wealth Management
- Vaulted
- The Intentional Legacy
About David McAlvany
David is the CEO of the McAlvany Financial Group, which includes McAlvany Precious Metals, a 50-year-old precious metals brokerage, McAlvany Wealth Management, and Vaulted, an online platform for investing in allocated and deliverable gold. David is the author of The Intentional Legacy, and a featured speaker on major media outlets, analyzing the impact of global events on the economy and financial markets. He shares his weekly market commentary with world leaders, bankers, economists, and investors. A graduate of Biola University and Keble College, Oxford University, David holds a series 65 license.