Why Are People Investing in Gold Now?

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Craig: Hello, again, from Sprott Money News at sprottmoney.com. It is the middle of March now, 2024, and it's time for your "Ask the Expert" segment. I'm your host, Craig Hemke, and joining me this month is my old friend Grant Williams. Grant is an author. He's an analyst. He's the publisher of the fantastic newsletter called "Things That Make You Go Hmmm..." And he's joining us today to share some wisdom. Grant, it's always good to see you, my friend.

Grant: Hey, Craig. Likewise, mate. It's been a long time. How are you?

Craig: I'm doing fine, thank you. And it's great to see you. I was thinking as I was saying "Things That Make You Go Hmmm..." that betrays our age a little bit, doesn't it? I remember that song from, like, the early '90s.

Grant: Yeah, sadly. Sadly, you and I both are of a similar vintage, I feel, and so, yeah. It was a while ago. I would even say maybe late '80s, but it was a long time ago.

Craig: Yeah, yeah. It's one of those that the younger set maybe can look up and know what the heck we're talking about. Let's do two things before we get started. One, I wanna remind everybody this, all this content that you get on the Sprott Money channels is brought to you by Sprott Money. So, please keep them in mind anytime you're in the market, looking for bullion, especially this time of year. It is tax season for all of us, and if you're in Canada and you wanna fund an RRSP, or if you're in the U.S. and you've got an IRA contribution you wanna make, hey, put that in physical precious metal. Sprott Money can help you with that. Go to their site, sprottmoney.com, or give them a call at 888-861-0775. Next, Grant, tell us about "Things That Make You Go Hmmm..."

Grant: Oh, boy. Let's keep this quick, so we can talk about important stuff. It's a letter I've been writing for 15, 16 years now, almost. [inaudible 00:02:01] go to grant-williams.com and have a look. That's the easiest way to talk about it. We've got far more important things to talk about.

Craig: Grant hyphen Williams. Is that right? Okay.

Grant: Yes, yes.

Craig: That's where we wanna look?

Grant: I say "dash." I'm English.

Craig: Ahh, you know, it's that common language that we share...

Grant: Right, yeah.

Craig: ...throwing us off. All right, my friend. I thought we'd have just a couple of topics that I know are on everybody's mind. As we record this, it is Wednesday, the 13th. Hey, Grant, guess what? That means it's only a week that we have to wait till the next FOMC meeting.

Grant: All right. Well happy days. Happy days.

Craig: Happy days.

Grant: I'll mark that in my calendar. Geez.

Craig: Things have been somewhat turned on their head a little bit since the beginning of the year, where it seemed like everybody was far too optimistic, if you wanna call it that, of how many rate cuts were coming, back two months ago, at the end of December. And now, you know, maybe we got to a point where people got too pessimistic about too few cuts are coming. Where do you fall on all this?

Grant: You know, look, it's, you and I, we talked about that song and how it dates us, but you and I are products of an environment where people didn't even know the name of the Fed chair, never mind when the meetings were, right?

Craig: Right.

Grant: And that's a huge change. Everything is now fixated around the Fed, because the Fed, and monetary policy, and liquidity, and cost of capital are what's been driving markets for such a long time now. Which is crazy. You know, the tail is wagging the dog. It used to be that the markets would respond to economic performance and company-specific performance. And now we get the inverse, you know? The economy responds to the stock market because if the stock market's weak, the Fed's gonna cut rates, and things are gonna get... It's, the whole thing is just crazy. And so I try not to pay too much attention to it. Obviously, you have to. But I think fixating around what the Fed's gonna do, when they're gonna do it, and what the response to the market is gonna be, gets you away from the business of investing. Now, if you're a trader, and I talk about this all the time, you know, if you're a trader, it's very, very different, because you're looking at a much shorter timeframe. You're looking to capture those movements. You know, you're looking to buy if you think the market's gonna suddenly jump on Fed announcements, or the inverse.

And so, it's more important, but that's not what I wanna do. I'm an investor, and so I think the more time you spend focusing on the market's response to the Fed, the less time you're focusing on, okay, this particular company that I want to invest in, what are its business prospects? And yes, interest rates, and yes, the Fed will impact those business prospects, but, you know, a well-run company shouldn't be completely hostage to them, and so that's always been the trick for me, is to find companies that are well-run, and which won't necessarily fall 20% just because a guy stands up at the lectern the Marriner Eccles Building, and says, "Hey, we're gonna do this tomorrow." It's, you know, it's the period we live in, and this is the what we have to deal with, and I suspect, one day, this will end, and we will go back to the way things have been for hundreds of years. But we have to deal with it. And so, you have to pay attention to it.

Craig: How about, if we kind of go off on the tangent of that, where do you fall on this soft landing, no landing, buzz-the-field stuff?

Grant: Yeah, look, it's...well, let's talk about this no landing idea, right, which, if you think about it, on the basis of the economy is cyclical, is farcical to begin with, right? The idea that we just have an upcycle, you know, we're back to the permanently high plateau of the late 1920s, right? Unfortunately. So, I think, at face value, it's ludicrous. But, again, I come back to my previous point, the no landing, what people are really talking about here is the market, not the economy. They're talking about, if there's no hard landing, what they mean is there's not gonna be a big downdraft in the stock market because we get a recession. The economic data is always noisy, it's always lagged, it's always difficult. You know, recessions are always announced after the fact. So, this no-landing thing, what people are really talking about is the stock market, and that just tells you how much the whole thing has been flipped on its head, and the market is what people are focused on. It doesn't, no one really cares what the economy does if the market performs well, because we've become a society of speculators.

So, look, I don't know what's gonna happen to the economy. I believe it to be cyclical. I believe the central banks try to smooth out those cycles, and they've done, if that's their mandate, they've done an okay job at it, but they've exacerbated the problems, because they make the fools that much more perilous, which means they have to come and throw more fuel on the fire to keep the thing going, and ultimately, this has all been building up and occurring over time. You only have to look at this idea of the extent of debt in the world, [inaudible 00:07:12] far beyond the Fed, to understand at some point, there will be a reckoning. So, again, you know, it's time horizons. If you are in the no landing camp, and you're a speculator, it gives you an awful lot of things to play with. If you're an investor, the no landing stores that problems for further down the road, and you have to be cognizant of that, and adjust accordingly.

Craig: Grant, what do you think... Well, let me phrase this way. If you were, I'd kind of consider you a generalist, though that's, you know, I think too all-encompassing of a term. You're not just precious metals focus, I guess is what I'm saying, like I am. As you look out around the world, what gives you the most concern for economic stability at this point?

Grant: Boy, I mean, where do you start with that? I mean, who'd have thought we'd be sitting here with war in mainland Europe, right? I mean, you know, if that wasn't something to give you concern...and it doesn't seem to, at the moment. Markets are at all-time highs. So, I think this idea of things to be concerned about, there are so many of them. The question really is, how much energy is it worth expending being concerned about? And I think, again, that comes down to your time horizons. You know, if you are a long-term investor, then, to me, the single biggest thing you need to worry about is the level of debt in the economy, the level of debt in the corporate sector, level of debt everywhere. For a long term investor, that, to me, is the biggest thing you need to worry about. If you are a speculator, then, I mean, pick your poison. Pick your poison from getting the Fed wrong, to the incredibly narrow markets we have in the U.S. now, to private credit, to private equity, to commercial real estate. I mean, the list goes on and on and on and on. And if you're a speculator, you need to be aware of all these things, because, you know, one bad headline can cause a short-term blip in the markets. So, I, you know, I've always tried to steer clear of that side of things, because I just think it's a one-way ticket to the nut house. But I appreciate, the longer this has gone on, and the more people have been incentivized to be speculators, as opposed to investors, the more people have to pay attention to this stuff, and it's, the threats are all around you, if this is your fascination, getting the short-term direction of the markets right.

Craig: Do you find this period analogous to other times in the past?

Grant: Look, I think if you want to find an analogy, you can always find one. And sometimes they're stretched, and sometimes they fit very easily, you know. Right now, the parallels to the 1920s are clearly obvious in society, for a start. And people will take that, those societal similarities, and then translate them into stock markets, and, you know, overlay the charts and say, well, "Look, the last time we had wealth disparity like this, and this kind of hedonistic approach to life, look what happened." Doesn't necessarily mean we're gonna have another Great Depression. It means the situation's similar, but they're never the same. So, I think an awareness of history is crucial, in terms of understanding what can happen when certain conditions are in place, but assuming the same thing's gonna happen every time is a very dangerous way to be. You know, I think we've had the perfect example of this the last 15 years. After 2008, everybody said, "Ah, if the Fed do QE, there's gonna be massive inflation." And of course, they were wrong. We were all looking for massive headline inflation. We didn't get it. We saw massive asset price inflation, but of course that doesn't really matter unless you own the assets, and a relatively small part of population owns those assets, so it didn't really show up. And then, of course, it did. After COVID and the stimulus money, we finally got that inflation, and there are a lot of people doing a lap of honor 15 years too late, you know. And to be perfectly clear, I was one of the people, back in 2008, '09, who thought this was gonna be incredibly inflationary.

Craig: Me too.

Grant: It probably took me until 2011, and the European debt crisis, to figure out what was going on, and understand why we weren't gonna see it. But you knew that at some point in time, this was gonna matter. Because it all does, right? You cannot do what's been done without it mattering at some point. The question is when, and that's why I think trying to take the short-term approach is so dangerous. And so difficult. And so, that, to me, is, this idea of understanding if you're a speculator or an investor is the first decision everybody has to really, really, truly understand. By the way, if you can hear the noise in the background, they've decided to demolish the building next door to me in the last couple of weeks.

Craig: Good timing.

Grant: So, if you can hear that, it's not the world falling about my ears. It's a building being taken down.

Craig: I can't hear [crosstalk 00:12:00] It's okay. All right, Grant. Let's talk about the precious metals a little bit. I bring up, so often, and I still go back and watch it on YouTube, this presentation you had in 2016, for crying out loud, called "Nobody Cares."

Grant: Nobody cares. Right.

Craig: And I would encourage anybody, because so much of this is still valid, if not even more so, eight years later, go to, it's, I'm sure you can find it on YouTube. Just type in "Grant Williams nobody cares."

Grant: It's on my website, on the About or the Contact page, whatever it is, I'm not sure, but it's on there.

Craig: There you go. So, Grant, nobody cares, still. I can only, I mean, it only seems like it's less than nobody cares. Where do you see us, I mean, in terms of the metals and the mining shares, in terms of increased adoption, or acceptance, in the weeks and months and years to come?

Grant: Well, look, at the risk of flogging a dead horse, let's go back to this investment/speculation idea, right, because you have to.

Craig: Yeah.

Grant: And I think, you know, when I actually gave that presentation first, in, I think it was early December 2015.

Craig: Oh, geez.

Grant: And I said at the time, you know, and I've been consistent in this for well over a decade now, you know. I've always said that I'm not interested in speculating on the price of gold. I think, over time, it will do what it's supposed to do, and it will protect your purchasing power, and there will be periods where it will outperform and periods where it will underperform, but over the longer haul, it'll do what it's supposed to do, and at that time, in December 2015, it was clear to me, looking at the gold shares, that hey, look, there is a good setup here. There's a good case to believe that the gold price is gonna go up from here. And there's a good case to make that the shares are beaten down, unloved, under-owned, and they will perform very well. And look, purely by happenstance, they did. In the next six months, they went on a rocket ship ride.

And funnily enough, I haven't come out and been publicly bullish about gold mining shares, as a sector, rather than individual names, since then, really. I mean, I haven't seen a similar condition, until the end of January this year, when I spoke in Vancouver. And the presentation I gave there was called "Rise and Shine." And again, it seemed to me that there was a very, very good background for the gold price itself to go higher. You had, all the planks were in place for a really solid platform for people to wanna buy gold, in the right places, i.e. price-insensitive central banks were gonna be leading the charge, and that was inevitably going to put a floor under gold, and we were gonna move higher. And, on the basis of that, given where the gold mining shares are, I believe that there was a strong set of conditions in place that would lead to outperformance of those shares going forward.

This was at the end of January. You know, since then, we have seen gold do crazy things. It's up from probably just under $2000 at the time to almost $2200. It's very quietly been performing strongly. I'm reading articles like, you know, "Gold's Confusing Rally," and, you know, analysts don't understand why gold's going up, because, again, they're looking for a near-term catalyst, right? They're looking for a headline, two days ago, as to why it went up. It's not that. This is an accumulation of factors. This is people investing, if you like, in gold, rather than speculating, and feeling they need to own it, rather than buy it. Because if you buy something, the implication is you're gonna sell it. If you own it, the implication is you're gonna keep it.

And so, you know, have the gold shares gone yet? No, because people don't believe in this. There's still that short-term mentality in gold being up here as a trade. And look, it may well fall back to $2100. But if you look over time, you'll see it's making higher highs, it's making higher lows, and that's a really good chart pattern. And at some point, the gold shares will respond to this, and they perform horribly. But you can buy them now, with a view to investing in them, i.e., you think that, from this level, over time, the price is gonna appreciate. I think you've got a built-in margin of safety there, if you like, in the fact that you're buying them at such unloved, beaten-down, unowned levels that you just have to be patient. And, you know, if you see the picture change in gold, it's difficult to see, not impossible, because this is what they do. They break your heart every which way they can. It's difficult to see how gold mining shares, silver mining shares, will get battered from here, because they are so low. So, if you do see the picture in gold change, and the market conditions deteriorate, and central banks come out as sellers, or anything meaningful that might change the fact that $2000 is now a floor rather than the ceiling, you can change your mind about investing in gold shares.

But I think, if you own them now, and you own them without leverage, or with leverage you can handle, and you own them, you know, with a clear idea that I'm not gonna put all my capital in now, I need to keep some back, you know, I'm gonna allocate 5% to gold mining shares, invest 2% now and just sit and wait, because there will be other entry points, I guarantee it. But as I said, it's really the first time since 2015, '16 that I've felt this way about them. And that really comes back to the setup I see in gold. And, again, I'm not a trader, so people shouldn't take this as trading advice, but I've been buying gold since 2001, '02, somewhere around, early 2000s anyway, and just adding to my position, because I think, over time...and it's done a tremendous job for me over that period. And I get cherry picked, obviously. I get accused of cherry-picking, because that's [inaudible 00:17:58] but that's just when I started looking at [inaudible 00:18:00] around me, and figuring that was what I was gonna buy.

But yeah, it's funny. I was looking at the chart of gold today on, I think it was TradingView. And when you bring up a chart there, it has, you know, one day, five day, one month, one year, whatever it is. And one of the parameters there is all time. So, it gives you the all-time performance in gold. Now, I have no idea where all time goes back to, because, realistically, we're going back to the dawn of civilization. But I think it was 10,000% or something, was the all-time performance in gold. And I'd be curious to know how far that does go back. But the simple answer is, you know, you made 10,000% but buying a rock, and putting it away somewhere, and not stressing too much about it. And I'm sure you can find assets that have performed better than that over time. But gold is very much a buy-and-hold investment for a lot of people, particularly in the Eastern part of the world. Whereas the S&P and such like that, until the advent of passive investing, it was never really a buy-and-hold investment, for the most part, right? It was something you'd buy, and then when stock markets crash, you dump it, and it's something you swing around.

So, you know, it's a long-winded answer to the question, but to me, I think there's a tremendous setup here, to own gold and own gold mining shares. And I choose my words very carefully, because I think, if you say, "Oh, it's a good chance to buy them," I think implicit in that there is a sale, and that makes you a trader, and go with gold if you want to trade, gold miners, so you get plenty of chances to trade. If you're on the wrong side of it, though, it will be worst thing you ever got involved in, I promise you that.

Craig: I know a little bit about that, my friend. I can tell you that.

Grant: Yeah, we all do.

Craig: Let me, just, in a final question, to that end of the "Nobody Cares," because you had all those great slides, you know, about if you added up all the, you know, the GDX and the GDXJ and the market cap of that, you know, compared to, you know, whatever the top, now, we call the "Magnificent 7" or whatever, I mean, it's minuscule. I've been toying with this idea, and I wanna get your thoughts on it, that it's kind of like, you know, back in the day, when we were younger, you had growth versus value. And one would kind of go in, you know, one would be in phase, and then, you know, the other one would come around, and people would be more excited about it. Could it be that kind of argument too, that right now, all anybody wants is growth, you know, and you gotta be in these high-growth, high, you know, beta stocks, or high-alpha stocks... See, I don't even know my terms [inaudible 00:20:35] whatever. And there would...will it take a time when people, you know, want to instead look at a dividend and a high value and that kind of thing, to get the rotation, the sector rotation, to get institutional interest in the shares, and really drive them in a new bull market?

Grant: Yeah. Well, look, we've started to see that, right? We've seen Stan Druckenmiller come out and talk about the gold mining shares he's buying, right.

Craig: Yeah.

Grant: And look, Stan is a trader. Let's get that straight, for a start. I don't think Stan is buying them for, on a 10-year view. But he sees value there, even if it's short-term value. And, you know, this idea of growth versus value, right there, in those two words, you know, growth is, or it certainly has been, in terms of what we're talking about here, it's been, again, cyclical. These companies go through periods with rapid growth. Look at NVIDIA, right. Look at NVIDIA. I mean, NVIDIA, on a daily basis, makes and loses the entire market cap of the gold mining sector, right, in its market cap, in single-day swings. It's incredible. It shows you how tiny that sector has become. But there's this growth narrative, of, when you buy the growth stocks, the idea is, okay, you wanna get out before they go ex-growth, before they become, you know, they're no longer growth stocks. So, there is this idea of timing involved.

With value, again, it's much more of a long-term investment. If you buy something that offers value, that value is likely to sustain, and the time when you sell it is at a time, by definition, after everybody else has come and seen that it's good value, turned it into a growth stock, and taken it and sucked all the value out of it, but they suck the value out by sending the price higher. And so, it's a very, very different mindset. And so, I think that's, again, it comes back to standing in front of a mirror, and saying, "Am I a speculator? Am I an investor?" If you're a speculator, then you wanna be looking at these growth stocks. You wanna be trying to figure out, "Okay, which are the moon shots? Which are the stocks that, in the next three to six months," or in some cases, the next 24 hours, "are gonna go crazy? And I want to own them, and I'm gonna get out before everybody else, because I'm that much smarter than everybody else."

But I believe in two things. One, I think, if you buy things at the right price, that's the single hardest and the single best tailwind. Single hardest thing to do and the best tailwind you can have, you buy it at the right price, you have that cushion of being wrong. And I believe that price is what you pay for something, and value is what you get. And I am much more intent, because of my inclination to be an investor rather than speculator, I wanna focus on what I get, not the price, because the price is subjective. Price, as John Burbank said to me in an interview, "price is a liar," and he's absolutely right. Price is an indication of the collective emotions of everybody in the market. It's not necessarily a reality. It's an emotional benchmark. You only have to look at Tesla to understand that, and what Tesla's done, and what Tesla's doing now, now that the emotion has changed towards Musk. So, you know, if you want to try and trade emotion, I wish you luck with it, and some people are very, very good at it. Let's make no mistake about that. But a lot of people believe they're better at it than they are, and they tend to be the people who bought GameStop at the highs, and bought AMC at the highs, and are holding on still, even though it's down 99%, because they believe. And again, I wish everybody luck, but knowing what you're in this to try and achieve is the first thing you should ask yourself, and then trade accordingly.

Craig: Great stuff, Grant. Again, this has been Grant Williams. You can find his work at grant-williams.com, the newsletter "Things That Make You Go Hmmm..." And, encourage everybody to check it out. And again, I encourage everybody to like or subscribe to whichever channel you've been watching this stuff on. Sprott Money puts out great content all month long, and you don't wanna miss any of it. There'll be more coming even here, still in March, so please, give us a like or a subscribe. It'll help you. It also helps Sprott Money cast a wider net. All those algorithms that crawl all over the search engines and everything else, they notice that kind of stuff. It's amazing.

Grant, my friend, it's so much fun, always great to visit with you. Always learn so much just listening to you. And it's not just the accent. You really... I know the accent accentuates, but it's always great to hear from you. Thank you so much for your time. I really appreciate it.

Grant: Likewise, my friend. Anytime. Always good to talk with you.

Craig: And from all of us at Sprott Money News at sprottmoney.com, thanks for watching. And again, keep an eye on this channel. We'll have more great content for you later on in March.