An overview of the gold and silver markets...
TRANSCRIPT of an interview with Hard Assets Investor by Miguel Perez-Santalla, BullionVault's vice president, business development.
You can watch the interview here.
Mike Norman, Hard Assets Investor: Hello everybody, and welcome to HardAssetsInvestor.com. I'm Mike Norman, your host. Today my guest is Miguel Perez-Santalla, who is the vice president of business development at BullionVault. Miguel, thanks for coming back on the show. Always good to see you.
Miguel Perez-Santalla, VP Business Development, BullionVault: Same here.
Mike Norman: So I haven't spoken to you in a while. I'd like to get your feeling now on the overall precious metals markets. Been kind of a stall, I would say.
Miguel Perez-Santalla: Well, today [Nov. 8, 2012] especially it's been very quiet after the election. The first reaction yesterday was a lot of volatility, and a lot of people thinking that the positive result for the Obama administration also means that the Fed is going to be able to continue the QE, so it drove the price higher.
Then we had some people trading back out of the market. But the platinum group metals continued to suffer, as a weak economy is still apparent, and because of the struggles that the industry's having down in South Africa and whatnot.
But on the positive side, this storm that has hit the northeast is actually going to increase the economy, because a lot of that insurance money is going to come into the economy, and there's going to be a lot of repairs and new cars that are going to have to be bought from that insurance. And that should stimulate the platinum group metals.
But in terms of gold and silver, I still believe we're going to see long-term higher prices, and specifically because of quantitative easing.
Mike Norman: But the quantitative easing at least in the recent episodes of quantitative easing, you see the initial pop in gold and silver. But then they come back off, and they ultimately end up below the level where we saw the quantitative easing. How is that story still in play? The Fed has taken its balance sheet from under $1 trillion to about $3 trillion. And a lot of that has been done in the last two years. But gold is kind of stagnant. We're not seeing this surge in prices that one would expect from all the quantitative easing.
Miguel Perez-Santalla: Well, yes, that's partially because people are disinvesting from other markets and looking into stocks. There are also areas of growth and pockets of growth where things earn money, where gold does not earn money. But that still does not alleviate the fact that there is loss of value in both the US Dollar and the European currency, and the fear of worsening economic conditions from the currencies in the weakening of the currencies.
So even though some people are very bullish, seeing gold going to $5,000, I don't see that in the short term. But I could see a pop of $2,000 by the end of the year. Even if it doesn't, for the average investor, it's a smart thing to hold gold, because gold will always be gold. The value of the Dollar goes up and down, but your one ounce of gold is still an ounce of gold.
Mike Norman: Let's talk about the supply outlook; particularly, I'm interested in silver, where we see the price hovering in the low $30's well above its average cost of production. When you look around, I think silver could be anywhere from $7 up to $14 an ounce. Can we sustain that price level given the fact that it seems to me the price will cause a lot of new material to come onto the market?
Miguel Perez-Santalla: The high price level of silver I think is sustainable to a point because of the consumption from the investment market, where that metal's being taken off from the industrial supply. So the industrial consumer has to continue purchasing that metal. And so we see a dichotomy...
Mike Norman: But you just talked about the weak economy hurting the platinum group metals because of that connection as an economically sensitive metal. How do you argue the opposite in the case of silver?
Miguel Perez-Santalla: No, I was going to say I think silver's sustainable more because of the investors, not because of the industry—it's the cheap man's gold. So they go into buying...
Mike Norman: But is that the smart money?
Miguel Perez-Santalla: Silver's the most volatile, as you and I have discussed in the past. And it's a dangerous metal to be involved in. In terms of long-term investing, if I were going to say a percentage of my portfolio should be in a precious metal, I would choose gold, which is the most liquid of the two.
Mike Norman: There are signs in the economy that things are actually getting better. We see housing market improvement, we see job market improvement; the last jobs report wasn't that bad—just under 200,000 new jobs. We're under an 8 percent unemployment rate. What happens if we do see a rebound in the economy, and it benefits the stock market? How does that make the precious metal landscape look?
Miguel Perez-Santalla: From your lips to God's ears; I would love to see that. But that doesn't change the fact that people will want to maintain a portion of their investments in precious metals just as a hedge. A stock certificate could be worth nothing, as we've seen in the recent past. So people want to start to continue to develop some kind of commodity investment portfolio, and in something that is liquid. And gold is the most liquid commodity.
Mike Norman: Now what's the most utilized instrument? Is it physical bullion? Do investors just want to own that physical gold, or gold coins? Are they using ETFs? Are they Buying Gold stocks?
Miguel Perez-Santalla: The interesting thing about that is that some people mistakenly Buy Gold mining stocks.
Mike Norman: They haven't performed very well, right?
Miguel Perez-Santalla: They haven't performed very well. And that's not because gold hasn't performed well; it's because they're in the business of mining, not in the business of trading gold. When you invest in stocks, you have to be looking at the company just like any other company. But in terms of the metals, gold is still the asset that will retain most of its value.
Mike Norman: So you're saying people should or are gravitating more towards the physical bullion.
Miguel Perez-Santalla: Yes, but as time goes on, people are starting to realize that the high premiums and costs that they're paying to holding physically is not advantageous for them. And that's why, for instance, BullionVault.com supplies precious metals stored in secured locations at the lowest cost where the general public can actually buy at close to wholesale level.
Mike Norman: So you get the advantage of having the exposure of having the physical gold. And a company like yours keeps the cost of holding that relatively low, reasonably priced.
Miguel Perez-Santalla: Yes, our cost is actually lower than the ETFs. The most popular at this time is ETFs. And that's also because of the network that brokers have. So they always sell what's the path of least resistance, which is the ETF. But for the individual and self-directed investor, they find places like BullionVault most often.
Mike Norman: Let's talk a little about the policy outlook right now. We're facing the "fiscal cliff." We hear it everywhere. I get the feeling that some of that is being discounted into the markets right now. What do you think is going to happen if we do go over the fiscal cliff?
Miguel Perez-Santalla: It's going to be a lot like the time where we got our rating knocked down. So we're going to see some major investments...
Mike Norman: Well, we had like a one-day sell-off, and then everything went right back up.
Miguel Perez-Santalla: Exactly, that's what's going to happen. I think the fiscal cliff is a threat, but it will be managed. And the confidence level in the United States still remains high. No matter what, when you look at the global landscape, the United States still remains one of the most stable economies in the world.
Europe right now is in a very serious troublesome situation, where Spain and Greece are on the brink of disaster. And that's why the Euro and that economy is more of a threat to the US economy than the US economy itself.
Mike Norman: So would you say that the potential for more social disorder in Europe is another reason for people to hold precious metals?
Miguel Perez-Santalla: Yes, I would.
Mike Norman: And we're seeing that now, as you mentioned, rising up again in Greece and in Spain, where we went through a relatively calm period for the last several months.
Miguel Perez-Santalla: And one of the beauties of our product is that people from all over the world can buy because we're Internet-based. And so they're able to hold metal outside in a safe location where they don't fear confiscation or anything of that matter.
Mike Norman: Excellent. Miguel, always great to have you on the show.
Miguel Perez-Santalla: Same here. Thank you.
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