Russia Is De-Dollarizing & Hoarding Gold at a Surprising Pace

With Palladium Correcting, Is It Platinum’s Turn to Skyrocket?

Mike Gleason Mike Gleason
Interview with: Stefan Gleason
April 5th, 2019 Comments

Also listen and subscribe on:

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Coming up we’ll hear an interview with Money Metals president Stefan Gleason, who was a featured guest during the recent 360 Gold Summit. Stefan addressed the fundamental question of “why precious metals” and also gave some helpful tips on how to avoid making big mistakes when investing in gold and silver. Don’t miss this foundational and enlightening conversation coming up after this week’s market update.

As precious metals markets continue to consolidate, new leadership is emerging. After the white hot palladium market suffered a severe pullback last week, its sister metal platinum hung tough. This week platinum is surging – boosted by traders unwinding their long palladium, short platinum positions.

Platinum prices rallied Thursday to a 10-month high. As of this Friday recording, the precious metal checks in at $900 per ounce on the heels of its best week of the year and is sporting a 5.5% weekly advance.

So should investors consider buying platinum on this breakout…or opt for more popular metals? Firstly, investors should understand that platinum is not widely recognized as a monetary metal like gold or silver. The market for platinum is narrower, with demand being concentrated in the automotive industry.

We generally suggest investors acquire core positions in gold and silver before venturing into other metals. That said, platinum is available in the form of coins and bullion bars just like other precious metals. And on a relative basis, it remains cheap despite the recent rally.

Determining whether platinum is a bargain compared to its main competitors is pretty simple. Historically, platinum tends to command a higher price per ounce than both gold and palladium. During times when platinum trades at a discount to both metals, it can be regarded as a good long-term value. That remains the case today.

Checking in on the gold market, spot prices are unchanged now for the week. The yellow metal currently trades at $1,292 an ounce – a near $400 premium over platinum. Palladium comes in at $1,382, up 1.2% now for the week. And finally, silver continues to hold close to the $15 level, with spot prices now trading at $15.22 – up a slight 0.2% since last Friday’s close.

Well, it turns out that there may be something to those Russia conspiracy theories. No, not the ones CNN, MSNBC, Buzzfeed, and The New York Times endlessly promoted month after month. They turned out to be little more than fake news.

The anti-Trump media suffered perhaps a final blow to whatever credibility they had left when The Mueller Report they spent so much time hyping was finally released. It essentially confirmed President Trump’s main contention all along – no evidence of any collusion between the Trump campaign and the Kremlin.

A different Russian conspiracy that The Mueller Report didn’t focus on actually deserves far more attention than it’s getting. Russia is engaging in a long-term effort to undermine the U.S. dollar’s standing as world reserve currency. And that’s not fake news.

It’s a fact that since the United States and its allies began imposing economic sanctions on Vladimir Putin’s regime, the Russians have responded by pursuing de-dollarization. For Russia, de-dollarization entails forging closer alliances with trading partners such as China and settling international trade outside the global dollar system when possible.

Russia is rapidly dumping dollars held in reserve and replacing them with Chinese yuan and gold bullion. According to the latest foreign reserve data, the Russian central bank’s gold reserves rose by 31.1 tonnes in February to a total of 2,149 tonnes. This follows on the heels of a gold buying binge in 2018 that saw Russia outstrip its own mine production and officially surpass China in hard money reserves.

Russian central bank gold stockpiles have nearly quadrupled over the past ten years. They now represent 20% of Russia’s foreign exchange reserves.

Russia shows no signs of slowing down its gold accumulation program as tensions with the United States escalate over the fate of Venezuela. The U.S. is pushing for regime change there, while Russia backs strongman Nicolas Maduro, both financially and militarily. Russia’s interference in the battle for control of Venezuela is prompting the White House and Congress to draw up even more sanctions against the Kremlin.

It’s a dangerous game. In a worst-case scenario, Russia could threaten to deploy nuclear weapons. Russia’s massive stockpile of nukes dwarfs those of North Korea or any other U.S. adversary.

For now, Russia is banking on its de-dollarization strategy and the long-term rise of China and other Far East economies. If Russia ultimately succeeds in dethroning King Dollar in international trade, it would establish a new epoch.

Instead of an arms race, there could be a global race for gold among nations. The mega trend of central bank gold buying is already in place and shows no signs of abating. The race to grow gold reserves is currently being led by Russia, China, and Islamic countries such as Turkey.

This growing monetary demand could act as a major driver of higher gold prices in the years ahead.

Well now, without further delay, let’s get to this week’s featured interview between Money Metals president Stefan Gleason and Pete Fetig during a recent summit on all things precious metals.

Stefan Gleason

Pete Fetig: Stefan, I would like to start with what are precious metals and why should someone even own something like that?

Stefan Gleason: Thanks Pete. That is obviously the most fundamental question to this entire conversation. Is what are precious metals and why should you care? And this is something that has been driven out of the public consciousness to a great extent over the last 80 or 90 years and especially in the last 40 years. And that is that the role the precious metals play in our society and in our monetary system and as an investment. First and foremost, I would say that people should understand gold and silver is money. It is true money. It is been chosen throughout time as a medium of exchange, a store of value, and has been used in trade ever since several thousand years B.C. So gold and silver is first and foremost money. It has been chosen as money for a lot of reasons and those reasons are still in existence today.

First of all, it is tangible. It’s an actual asset. It cannot be created from nothing. Like paper money today is created from nothing or even electronic equivalent of paper money. It is private. It is something that you can exchange between people and it is not tracked or traced. Like so many things are in our electronic monetary system today. It is highly liquid. It is accepted by all people or governments at least. Certainly, private individuals understand that it has value. Always going to have value. It has always been accepted. Ultimately, even central bankers view it as that. Even though, they have waged a war against gold and silver and gold and silver ownership, particularly in the last several decades, they hold it as a reserve asset. They understand that it is the ultimate form of payment. It’s a form of payment that has no counterparty risk. It is not also someone else's liability at the same time, like the dollar is. And so central banks, while they do not talk about it, are holding gold and silver as reserve assets because they know that it has timeless value.

More immediately gold and silver are precious metals that are really a form of financial insurance. It’s a non-correlating asset. It does not move necessarily with the stock market, the bond market, the real estate market. It’s something that you should have as a part of your asset allocation because when everything else falls apart, gold and silver typically does very well. Just like an insurance policy that you do not necessarily want to have to cash in. You still have it. You have an insurance policy in your house. You probably have one on your car. You should have an insurance policy against your financial asset. Gold and silver is that insurance policy. It is also of an excellent hedge against inflation. It is really the ultimate hedge against inflation.

That is today, in the last 40 years in particular, since the United States and really the whole world, went off the gold standard. You’ve had an explosion in debt. You’ve had an explosion in the creation of fiat money. We now have really a competition going around the world to devalue fiat money. It’s a race to the bottom. That is done with the creation of new debt and the printing of new money to sort of prop up the economy, prop up the bond market, the stock market. And as result of that, as a result of more paper money and electronic money being created, it has caused data reduction in the purchasing power of these other currencies. Gold and silver have maintained and even increased their purchasing power, over time.

Since the Federal Reserve System in the United States was created a little over 100 years ago, the US dollar has lost over 97% of its purchasing power. In the 100 years prior to that, except for a short period of time during the Civil War when they went off the gold standard, the purchasing power of the dollar was relatively the same, but then declined dramatically since the Federal Reserve system was created. So you have this massive devaluation of currencies happening all across the globe, and gold and silver are tangible assets that are a hedge against that, that benefit from really the devaluation as they rise in price. We have seen that, gold and silver, have reached all-time highs in recent years. They got a little overheated and pulled back in dollar terms since 2011, but at the end of the day you want to own a certain amount of gold and silver as a hedge against inflation and financial turmoil.

Ultimately, if you think that governments are going to live within their means, and if you think that they are going to respect property and not go into huge amounts of debt, then maybe you do not want to own that much gold and silver, but I don’t really see a change in that policy. No matter who is in power. We seem to be heading down this sort of unstoppable, this road with no turns if you will, towards larger amounts of debt, more inflation. Ultimately, that is all going to benefit gold and silver. I personally believe that it is downright dangerous not to have some of your money in gold and silver. I am talking about the physical metal, not necessarily mining stock, or paper alternatives that are supposedly back. I am talking about having the physical metal with no counterparty risk. Gold is money. It’s insurance. It’s always trusted and accepted and everybody should own at least some.

Pete Fetig: Well that’s an excellent answer and very astute observations. Appreciate that very much. In your estimation, which precious metals are best to invest in and why?

Stefan Gleason: Gold and silver are the primary precious metals. There is also platinum and palladium. Gold and silver are really the ones you want to focus on. In particular, I would urge people to look at silver. Gold has always been considered money as has silver. Silver has in recent years been demonetized more than gold. But that is reasserting itself. Silver is currently historically at an extremely cheap level when priced against gold. In the last 200/300 years, the gold/silver ratio is averaged in the 30 range, 30 to 1. Meaning 30 ounces of silver to 1 ounce of gold. But prior to the Federal Reserve system, it was generally in the 15, 16, 17 to 1 range. It fluctuated a little bit when those huge silver discoveries in the late 1800s, but the bottom line is that the gold/silver ratio is way out of whack. Silver is way undervalued versus gold.

So as of right now, I would say that the first precious metals investment somebody should buy or the first metal they should buy, would be silver. I am not saying to buy just silver, but I would emphasize silver over gold. Probably have 60, 70% of your money in precious metals in silver, in physical silver. Now gold is less volatile when priced in dollars. But for a number of reasons, including the ratio being where it is today, silver is definitely the one that has the most potential, as things unfold. I think they are both going to go way up when priced in dollars continue to go way up, but silver should outperform gold by at least a multiple of 2, possibly 3 or even 4. We could see at the end of this bull market that we’ve been, although we are in a 4-year correction within that secular bull market, but we could see silver get down to 10 to 1. It is quite possible. And the reason for that is not because of this ratio, although that is certainly an important data point.

But silver has some amazing qualities that come into play in the supply-demand picture. It is not a monetary metal. For that part, it is being remonetized. It is being invested in at a much higher rate, when it comes to new dollars coming into gold and silver. A lot of it’s going into silver. The silver market is much, much smaller. There is less silver available above ground. There is fewer ounces of silver above ground on the earth then there is gold. There’s about a billion. We do not know exactly, but somewhere in the neighborhood of 1 billion ounces of silver available in pure form above ground up. There is 4 to 5 billion ounces of gold. If you think about it, silver is more rare, at least above ground, than gold. Which is remarkable. Gold is hoarded, it is kept and it almost never gets consumed. Silver, particularly in the last several decades when it has been demonetized by governments, it has been consumed and sold off and a lot of it is unrecoverable.

When I talk about consumption, I am talking about things like, particularly in recent years, electronics, medicine, solar technology. Photography has given way to digital photography, so that one aspect of silver demand has diminished. It has been more than made up by an exploding demand from the standpoint of high technology, micro technology, solar, medical use, medical devices. And the reason is silver has qualities that are unique in many respects. It’s one of the best conductors of heat. It’s the best reflector of light. It’s the best conductor of electricity. It is also the best natural biocide. It kills something like 400 viruses and bacteria. That is why medical devices and hospitals and so forth are using silver, nano-silver technology, to kill bacteria and to clean things. There’s all kinds of sprays and mists. Silver has an amazing supply-demand picture. You have both increasing industrial use and then a significant re-monetization of silver as an investment asset, happening at the same time. Meanwhile, mining supply is falling and we probably reached peak silver production last year. So you have a perfect storm coming together in silver. Anyway, both are great. You should have both. If you are going to invest in one versus the other, I would favor silver.

Pete Fetig: That is very, very interesting. What is the biggest mistake that people make when investing in precious metals?

Stefan Gleason: Well this is a really important question because we have talked about the importance of owning gold and silver. We’ve talked about silver being possibly advantageous, probably advantageous to own over gold, and that message is getting out. People are starting to look at gold and silver seriously again. Like they did decades ago. And you’re seeing a lot of promotion of gold and silver in recent years. It is still very under owned. Probably 1% of the American people own any physical gold or silver, unless you count jewelry, which is also very small use of it, of gold and silver compared to the monetary demand in the U.S. or the potential monetary demand. There is a lot of advertising out there. You see TV ads. You hear radio ads. Stuff on the Internet.

Unfortunately, and this is what is really, really upsetting to me as somebody who is not just an investor, but somebody who obviously owns a precious metals company and is concerned about people not being taken for a ride. So say you’ve figured out, "I need to own gold and silver." You figure out the reasons to own it. That is great. I mean 98, 99% of the American people have not figured that out yet. They will figure it out. I think there is going to be many multiples of the current population in gold and silver as an investment in the coming years. But say you are on the cutting edge and you’ve figured out that you need gold and silver. Then the first opportunity you are given to buy gold and silver might be one of these TV type promoters. They talk about the merits of gold and silver, which of course they are right. Unfortunately, many of these companies are doing what we call a bait and switch. They take those folks who have figured out they want to own gold and silver, but do not know much about the market. And then they try to switch them or sell them on rare or numismatic coins.

First of all, let me say at the outset. Rare coins, they do exist. There is value. It can be a fun hobby. And it’s a big hobby. However, so much of what is being sold as rare or valuable is not. In many cases, it’s an outright rip off. Where you are being asked to pay many multiples of the melt value of the metal for a supposedly rare or proof coin or commemorative coin. And unless you are a real expert, you really should not be involved in that market. You should keep it very simple. Don’t buy anything that cost very much over the actual melt value of the gold and silver that is in it. And that’s called bullion or bullion coins, bullion bars. Stuff that you know exactly how much it’s worth. If you have access to the Internet or the newspaper, you know at any given time how much an ounce of gold is worth, how much an ounce of silver is worth. And that’s what you want to be buying. It is much more liquid.

By comparison, these rare coins are sold with a huge bid-ask spread. Meaning, you might pay ... Say if gold is roughly a little over $1,200 an ounce. Say you pay $2,500 for a supposedly rare St. Gaudens coin, which has a little bit less than an ounce of gold in it. First of all, you are probably paying way too much for that. It may not be worth very much more at all than its actual melt value. When you sell it back, you are probably going to take a 30%, may be even a 40 or 50%, haircut on that premium that you paid above the spot price. You might only get $1,500 back for it. And in some cases, you might only get what it is actually worth in terms of melt value. People are sold on rare coins and commemorative and proof coins, as though there’s some additional value there. In some cases, there are, but most people are not knowledgeable enough to know the very details of all these different sub-markets. Is a 1923 that is a mint state 69, how much is that worth versus a mint state 68 or a mint state 67? There are these different grades. It’s a very different situation. You are buying artwork, when you are buying rare coins. You’re buying a painting. You’re buying a collectible. You’re not buying something that it’s based on its actual melt value.

Unfortunately, a lot of folks are being pushed and pressured into buying the so-called rare coins. They often will try to talk you out of buying bullion coins, rounds and bars because the profit margins are so small in comparison. That does not serve the investor very well at all. In fact, we have had to pick up the pieces when people come to us and find out they bought some of these things and they find out they’re really not worth that much. Much more than their actual melt value. It’s really a sad situation.

On top of that, because there is so much money involved in profits for the company selling these, you have commission salespeople that are very aggressive. They may call you repeatedly. Pressure you. We don’t take that approach at Money Metals Exchange. Obviously, we don’t even sell the stuff that they are selling. We sell actual bullion coins, rounds, and bars. The tactics are also off-putting. Unfortunately, it is has given the precious metals dealer out there a bad name. There is a lot of good dealers, but there are a lot of them that are involved in this. And we think it is wrong. In fact, we founded Money Metals Exchange specifically in reaction to the practices of those kinds of companies. I was involved in publishing and we had lots of precious metals customers or people that were interested in precious metals. The only people that could advertise, afford to advertise were a rare coin dealers, and we were not interested in that because we have heard the stories. We didn’t want our people doing that. So I ultimately launched the precious metals business as an additional offering and focused again on the actual melt value. The biggest mistake people make is buying rare coins or proof coins or commemorative coins and not bullion. Stuff that is actually valued at its market price.

Pete Fetig: Well let’s say that someone is ready to buy some gold and silver. They know that they should be avoiding any type of numismatic or proof points. What denominations, sizes or weights, of those precious metal are best to own and hold?

Stefan Gleason: Well, first of all, if you have made the decision not to buy proof, rare, or commemorative coins, unless you are a true collector and an expert and have the time to learn. You’ve made the best decision that you can make. The following decision on exactly what the denomination, weight, or size is somewhat inconsequential in comparison. But, obviously, there are different products, there are different choices. One ounce is the most popular size generally of both gold and silver. I think that is probably a good place to start. If you are looking at gold and silver as emergency or crisis type hedge, which is part of the reason I own it, and you might even worry about the potential for having to use gold and silver as a currency or as in barter or so forth. Well, in that situation, you want to have some fractional gold and particularly silver, which is a nice, small increment way of owning it. It’s a little higher in premium. Not much higher, but it is higher. You do not necessarily want to put all your money into small fractional in half ounce, quarter ounce, tenth ounce, type stuff. But it’s nice to own some of that. I would say that 1 ounce is probably the best place to start. Then to get a little bit of fractional silver on top of that. From there, we can talk about coins and bars.

Pete Fetig: Is there any reason why an investor might consider a foreign origin coin or bullion, versus an American coin or bullion? And what about privately minted rounds or bars versus coins?

Stefan Gleason: Foreign coins, the most well-known probably in the modern era, anyways, is the Krugerrand. That’s an alloy, there is a little bit of copper in it. I think it is about 92% gold and 8% copper. It has got a full ounce of gold. That is a very popular way of owning gold. It also tends to be a little less expensive than an American Eagle. Again, if I sold you on the idea that you should be looking at the melt value of the metal, then the next question would be, "Why do you want to pay huge amount of premium above the melt value?" Maybe you should focus on the things that have the lowest premium as a percentage above the melt value. And you’re not going to be able to buy gold at the melt value in most cases, unless you have a special situation. There is minting cost. Wholesaler has a small amount of gross profit. A dealer, obviously they can’t run their business if they do not make a little small profit. You have, again, the minting and fabrication cost. So the range in gold on premiums is low as maybe 3% over gold for a gold bar to 7 or 8% for a gold coin. But again, we’re talking about just a few percentage points.

Some people like the Krugerrand. They like the Australian Kangaroo or the Austrian Gold Philharmonic. These are all great coins to own. In fact, all three of those are less expensive per ounce, slightly less expensive than the Gold Eagle bullion typically is or the Gold Buffalo. On the other hand, some people want to focus on U.S. coins because perhaps they are more recognizable one and they might get a slightly higher premium or price when they sell them back. So a lot of it is personal preference I would say. As long as you are making sure that you are buying bullion coins, bars, and rounds, as opposed to rare or numismatic coins and you are paying attention to what the melt value is. You’re probably not going to go wrong with what specific item you buy.

The other thing I mentioned silver rounds and silver bars. Silver rounds are privately minted coins, so to speak. They’re not technically coins because they are not legal tender and they are not guaranteed by governments, but they are less expensive. And that is particularly helpful in silver. A silver round might only be a $1 over spot. A Silver Eagle might be $3 over spot. That is 10% more, if you look at the price of silver. Obviously, it depends from dealer to dealer, but generally silver rounds are a cheaper way to buy practically silver. And bars, are also, a lower-priced way to buy gold and silver. These are again not legal tender, but they are privately minted. They’re usually assayed and guaranteed. There are some very common well-known bars out there. That is for somebody who is putting some real money, a significant amount of money, into gold and silver. We generally would urge people to buy bars, 1-ounce gold bars, 10-ounce gold bars, 10-ounce silver bars, 100-ounce silver bars, kilo bars – which is 32.15 ounces. That is a great way, a low cost way of buying precious metals. Again, the most important decision was making sure that you are buying bullion and not rare coins.

Mike Gleason: You’ve just heard the first half of Stefan’s interview with Pete Fetig during the recent 360 Gold Summit, I hope you enjoyed it. And we want to wish everyone a great Independence Day holiday weekend. And remember, without liberty there is no freedom. So let’s all band together and keep fighting for it

You’ve just heard the first half of Stefan’s interview with Pete Fetig during the recent 360 Gold Summit, I hope you enjoyed it.

Well that will do it for this week, please check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.

Mike Gleason

About the Author:

Mike Gleason is a Director with Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.