Alasdair Macleod on Gold's Rising Fortunes and the Looming Dollar Decline

Unlock the mystery behind the surging gold prices as I, Michael Gayed, sit down with the esteemed Alasdair Macleod. With his unparalleled experience spanning the financial spectrum, Alasdair sheds light on the intricate dance between currency value and gold—a beacon of stability in an unpredictable economic seascape. Our discourse journeys through the global lens, where gold is not merely a commodity but the bedrock of wealth, and we dissect the possibility that rising gold prices may signal a waning dollar instead of a gold rush.

Venture through a world where Bitcoin and gold clash in a battle for the title of true financial security. Alasdair, with his wisdom, guides us through the labyrinth of these two assets as hedges against counterparty risk, and unravels the tapestry of investing in gold, both in paper form and its tangible allure. We navigate the silver market's curious dynamics, touching upon manipulation, industrial demand, and the investment horizon in the mining sector, all set against the backdrop of escalating geopolitical tensions and interest rate hikes.

As we wrap up our conversation, Alasdair and I contemplate the implications of global economic currents on gold's gleaming ascent. We scrutinize the faltering US dollar, the influence of interest rates on the G7 economies, and the stark realities facing the European banking system. The episode culminates with a glimpse into the profound challenges of recapitalizing the European Central Bank, offering listeners a riveting panoramic view on the pressing issues shaping the world's financial future. Join us as we unravel these golden insights, equipping you with the foresight to traverse the tumultuous tides of our global economy.

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Transcript

Speaker 1: 0:08

My name is Michael Guyatt, publisher of the Lead Lag Report. I'm joined here by Alistair McLeod, who I've had the pleasure of speaking to on Spaces in the past. This should be a really good back and forth conversation. But, alistair, real quick for those who aren't familiar with your background, introduce yourself. Who are you, what have you done and how much do you love gold? I really want to know.

Speaker 2: 0:28

Well, I'm very old, I think, is the first thing. I first became a stockbroker in 1970, which was a long time ago and over those decades I've been a stockbroker, a fund manager, fund manager, a banker, a director of a bank, an economist, almost a jack-of-all-trades. But above all, in the 1970s I lived through the post-Bretton Woods decade and learned a lot about the difference between gold and currency and really I think that story is coming back and I'm very excited to really be involved, if you like, with educating people about this, which I do partly through my association with Gold Money, where I'm head of research, and also through my own Substack channel, which, I'm glad to say and I think you'll probably find the same thing, michael there's a great community of paid subscribers who interact with me, interact with each other, and it's just absolutely amazing. It's lovely to see it really is so. You sort of create a community with it and that, I think, is very, very satisfying All right.

Speaker 1: 1:50

So let's start off with the easy question why in the world is gold going so vertical? And I will preface this by saying for the last month and a half, I put out a post out saying you say watch Bitcoin, I say watch gold. And that was before it broke out. And I put out a post out saying you say watch Bitcoin, I say watch gold. And that was before it broke out. And I kept on saying repeatedly gold is sending a warning, sending a warning, sending a warning. I then started thinking maybe it's not about Japan, which we can touch on from the currency perspective, but maybe sending a warning about war, which may be a sending a warning about both. I want to hear your perspective. What caused this breakout and real divergence from everything?

Speaker 2: 2:25

Okay, I want to hear your perspective. What caused this breakout and real divergence from everything? Okay, well, the thing that's fascinating is that everybody's trying to search for a buyer. Who's the big buyer that's suddenly doing this? It's not that at all. We've got to go a little bit into price theory and I'll try and be very, very brief. But basically, if I'm going to sell something to you, then there are two elements to this. There is the medium of exchange, which is usually a currency, and there is the good or the service or whatever it is I'm trying to sell to you.

Speaker 2: 2:59

Now, the currency. We can agree on that value. We know that. What's that worth? So there's no argument over that. But we will probably try and negotiate a price for whatever it is being exchanged, the goods, services, whatever. So the way we describe that is that the value of the currency is objective, whereas the value of the good or the service being exchanged is subjective. So you've got you know, this bit is firm and it's that one that varies, the subjective one.

Speaker 2: 3:35

Now, when it comes to the difference between money and credit, in fact the objective value is in gold. It is gold because gold is money and all else is credit. It is the credit that varies. This is why the purchasing power of the dollar goes up and down, but mainly down, and we call it inflation. It's not actually inflation. We call it inflation. It's not actually inflation, it's just loss of value is the way to really understand it.

Speaker 2: 4:09

Now, what's been going on is you've got to think. You know there are two sort of pools of operators, if you like, in the currency. You've got the domestic users. You know the guys I've just described, you and me exchanging something for dollars, or you know, over in the UK it would be pounds, in Japan it would be whatever. And you've got the foreigners. Now the foreigners have got a completely different view of it. They've got a view of the value of the dollar as credit, if you like, as a form of credit, and gold they see as money. Internationally, it is money. We know that, weally, it is money. We know that. We know that it's stable. Now, fonds might not put it quite in that sort of category, but when it comes to selling something foreign, I mean it's probably going to be the currency, because that is the variable, that is a subjective thing, that is the thing which they is the subjective thing, that is the thing which they have a subjective view on. So what we have seen is not so much gold going up people buying gold, but what we have seen is the value of the dollar declining measured in gold, and it doesn't actually take very much in the sense of people buying gold and selling dollars in order to do it.

Speaker 2: 5:27

All you need to see is foreigners no longer accumulating dollars. So why are they not accumulating dollars? Well, I mean, it's quite simple. The dollar is in a debt trap. You can see that the US government is going to have huge difficulties funding itself at anything like current interest rates, and anyone with a half an ounce of brain can see that if you get a restriction in terms of buyers for credit, then the interest rate is going to go up, and that's what's going to happen. Currently, markets are sort of hoping they'll go down, but dismiss that that's not going to happen, are sort of hoping they'll go down, but dismiss that that's not going to happen. So the foreigners are only going to consider buying dollars if the return, the compensation for what they expect to be a loss of purchasing power, is sufficient to encourage them to do so.

Speaker 2: 6:19

But here we have a snag If you're going to drive up interest rates in order to fund US treasury debt, then that's going to tank the whole economy. You don't need to be again terribly prescient to see that the whole of the banking system can't stand a higher interest rate because it is over leveraged for it and the whole of the private sector, a lot of which is over leveraged, like you know, the commercial real estate sector, the private equity business and all sorts of zombie companies who have been happily borrowing cheap credit, you know, at 0% interest rates and, you know, without really being productive. I mean, you know it's going to be a mess. So, okay, I'm a foreigner sitting here looking at this mess and thinking do I want to buy dollars? No, I don't. I'm not necessarily rushing out and buying gold, but some people on the margin are, and the best example of this is the People's Bank of China. I mean, we all think that the People's Bank of China is buying gold. No, they're selling dollars. The fact that they're selling dollars for gold is immaterial. The main point is they are selling dollars and it's not just them. So you don't necessarily need to see very much buying of gold to see the apparent price shoot up as it has done. I mean we gain what? $300, $400 or something in just a matter of a couple of months.

Speaker 2: 7:54

It's not gold going up, it's the dollar going down and it's taking every other currency with it. I mean I've taken to calling the dollar the king rat of currencies. It is the number one currency in this dollar reserve system. So the dollar goes down, everything else goes down, and this is why you've got this extraordinary situation of the dollar's trade weighted rising, this extraordinary situation of the dollar's trade weighted rising. You've got dollar bond yields rising. I mean you just look at the chart on the 10-year yield. I mean that's going very, very sharply upwards and at the same time, you've got gold appearing to rise.

Speaker 2: 8:40

Well, the only way you can understand all those things happening at the same time is it's not gold rising, it's the dollar going down, and that is a process which I think has only just started, because the system, the establishment, hasn't got the wherewithal to turn the sentiment around in favor of the dollar compared with real money. They haven't got, um, if you like, the firepower to get people to understand that. You know. Well, you know, just just stay with us, stay with with the dollar, you'll be all right. You can, at least you can use it. You can't use. You know gold is just something you store, it's all they. So you can see that this is a situation which perhaps people who really do understand gold have been expecting for decades. It's now, I think, upon us and that is what we're seeing. So there is not one big buyer in there. What it is is the foreign sentiment is now going very much against the dollar, for very, very good reasons.

Speaker 1: 9:42

What would be better for gold? Very good reasons. What would be better for gold? The continuation of the duration bear market or a credit bear market? Now I distinguish between the two because if you have credit spreads widen, if you have default risk finally getting priced in to corporate bonds, default risk rises and I would think that creates even more of a flight to safety dynamic for gold.

Speaker 2: 10:08

Yeah, but it's a sort of I mean the two things are connected, obviously, but it's a slightly different flight to safety. Because when the credit spread increases, basically you get out of risky credit into what the regulator says is safety, which is basically US T-bills, and there's been a lot of money going into US T-bills or credit going into US T-bills. But when it comes to the broader situation, I mean a lot of economists don't really understand today that the dollar is actually credit. It is not money. We describe it as money but it is not money. The money is actually gold. So I think when you get the credit spreads widening, I mean that's a sign that things aren't going terribly well in the basic economy, but that does impact on the overall value of credit. So you can see that it will also tend to drive the value of the currency down relative to real money, which of course is gold. So the two things are sort of linked, but it's a slightly different emphasis.

Speaker 1: 11:28

I keep on seeing these charts that show that gold price in yen is at an all-time high and gold price in a lot of currencies except for the dollar is at an all-time high. Since we're talking about foreign demand, is there any real increase in foreign demand coming from Japan because of the concerns around the yen's depreciation?

Speaker 2: 11:52

Well, foreign demand for what I mean there is, you know, the king. Let's just think in terms of credit and currencies. For the moment moment, the king rat of currencies, as I described the dollar, basically means that when the dollar starts going down against gold, then other currencies are likely to go down even more. The Japanese situation is a particularly difficult position which the Bank of Japan has got itself into. It's been doing QE since the year 2000. It's been suppressing interest rates at the negative level for some considerable time. It's just gone back to the zero level. It's desperate not to see rates rise. Apart from anything else, there's something like 60% of JGBs are on his balance sheet and rising interest rates undermine the value of those JGBs. So and we've already seen that, you know they've risen to, I think, as we speak, a massive 0.88%, which rather tells me it's got a lot further to go.

Speaker 2: 13:02

And you know, what the Bank of Japan has also been doing is trying to protect the currency as part of its process of suppressing the reality of where it is. And this basically means that the Bank of Japan has to sell dollars, sell US treasuries, in order to buy yen to support the currency. And this, of course, is. You know this is going to fail. I mean, I think there's no doubt about it.

Speaker 2: 13:28

But in the short term, it is creating a problem for the American government, because the American government relies on two large foreign funders and the two largest foreign funders are Japan and China. And Michael, we've seen Janet Yellen go over to meet the bank manager. You know who is the Chinese government, incidentally, not the Fed. So she's been able to see the bank manager twice in a year and has sent teams of treasury officials over from time to time as well, over from time to time as well. And you know, I assume that all this stuff about you know, going over to tell the Chinese, you know, not to subsidize their industry and create unemployment in America is just cover for the reality of the situation. If it's not, then it's even worse than I'm saying. I mean, it's just unbelievable.

Speaker 1: 15:02

Yeah. So I think the question for a lot of people that are not as entrenched as you are when it comes to the gold market is how do you even consider valuing gold? No dividend yield. There's no way to really know what it should be worth. Now I'll take it from the perspective of emotion and sentiment. The prior peak for gold was when you had the equivalent of the Bitcoin maxis in gold bug sentiment. Gold bugs are so overconfident, so beating up their chest as QE3 was taking place, that hyperinflation would come, and then you started this kind of sideways bear market up until now with the breakout. So I look at more from the stream centric perspective, no different than Bitcoin in the centric extreme. I don't see that here. I don't see that here because it's still early and I think a lot of people are still in love with Bitcoin as the digital gold alternative. But how do you think about sentiment potentially getting more extreme? And how do you think about how one should even consider valuing gold to begin with?

Speaker 2: 15:58

Okay, well, the first thing is I made the point that gold is the objective value in transactions. It therefore doesn't have the value. The value is in what you're buying or selling, and what we're talking about here is buying and selling currencies, credit, for real money. So gold doesn't have a value in that sense, because it is objective. All the value is in what it's being exchanged for. I think that's a very important point which people must try and understand. I can understand why people have difficulty, because we're so used to talking about the gold price. We're so used to talking about the silver price, another form of money, but abandoned an awful long time ago as money and certainly not in the reserves of central banks, so far as we're aware anyway. So if you're talking about value, really just think in terms of what gold buys, not buying gold. It's what gold buys and the value is always in the other side of the transaction. So that's the point I would make.

Speaker 2: 17:16

You're mentioning Bitcoin. I mean this is an interesting one. On the one hand, I feel that Bitcoin has done us a huge, huge service by educating quite a lot of people to the, if you like, the problems of the expansion of credit and the way it undermines the value of that credit. But, having said that, it is, I think, no more than a speculative item. I mean the idea that it will ever really operate widely as a medium of exchange. I mean you can forget it. If people choose to buy and sell things for Bitcoin, then good luck to them. I mean, they're perfectly free to do it and I would not stand in the way of their desire to do it. But we're talking about a short 8 billion people on this planet. Now, when I look at the people who are really sort of keen on Bitcoin and sort of think that it's the future of money, you're probably talking about no more than I don't know. The future of money. You're probably talking about no more than I don't know. Three, four, five, six, maybe 10 million, if that I mean. So it's a very small portion of the total.

Speaker 2: 18:36

And the other thing which is very important to appreciate is the role of gold is to anchor the value of credit. If you try to do that with Bitcoin, which has a hard stop on it, the problem that you have is it wouldn't be a stable background for valuing credit. It's an unstable background and therefore it is completely unsuitable as money, because money's role is not to circulate as such, because if you go back to medieval times, then the days of stagecoaches and all the rest of it, then silver, dollars and gold whatever would be exchanged for goods. But we've gone on from that. We don't use these things for exchanging goods and services. From that. We don't use these things for exchanging goods and services. But what we do need is we do need something to anchor the value of what we do use, which is credit credit in the form of bank notes, credit in the form of bank deposits, whatever it might be.

Speaker 2: 19:36

So I think this is the important point. People who are pushing the Bitcoin story, good luck to them. They have made a lot of paper money. I just hope they get out actually before credit itself really does decline. But that's all. It is that the only objective, if you like, medium of exchange against which everything else really is measured at the end of the day, is gold. It's legally so and it's accepted as such across international boundaries.

Speaker 1: 20:16

On that medium of exchange. I don't know if you saw that from Tavi Costa, but he put out a chart that looked at the 3x levered QZTF and then overlaid Bitcoin over it and it was like a one for one relationship. It's basically just a 3x levered, at least behaviorally 3x. Now I do think that the one thing gold and Bitcoin have in common is that they are both counterparty hedges. Yeah, I think from that perspective, it'll be interesting, if you end up having a sustained banking crisis at some point in the future, to see how they react.

Speaker 2: 20:50

You know your description of it being a hedge is an investment approach. I think it is important to understand that there are gold-related things which act as very, very effective investment hedges or just investments, however you like to describe it, but gold itself is money, which, of course, is not an investment. It is cash, if you like. It is the highest form of cash that is known to man. So I think that's the distinction. I mean, if you want to invest in something, you could go and buy an ETF, or you could buy a leveraged ETF, or you could buy a gold mine. I mean, I think that's a different story but nonetheless a very exciting story. I think there's a huge, huge business to be done in mining. I mean it's so out of fashion, it's a dirty nasty business which is sort of anti-environmental. I mean it consumes an awful lot of fossil fuel energy. I mean you've got lots and lots of reasons not to buy it, but actually, when everything else is going down, because what I've described is a situation which is going to rise, lead to rising interest rates, which is going to make the thing worse for everybody the only escape from this, really, if it's into sound money, which is gold, is also into mines and remember the geopolitics of the situation is that China and Russia do have a plan B.

Speaker 2: 22:26

Their plan B, if you like, is signaled to us by the accumulation of physical gold, which they both have in far larger quantities than just their central bank reserves.

Speaker 2: 22:39

They can go into that, they can secure their currencies and there's a very good argument for them to do so and they will secure their currencies to stop their currencies from collapsing with ours.

Speaker 2: 22:50

But the whole point is that they lead a consortium, if you like, of Shanghai Cooperation Organization, brics, brics Plus and lots of other countries who want to join into this. We're looking at over 60% of the world's population rapidly industrializing and the prospects that that gives the world is actually to rescue us from our follies, from what we're doing to our own currencies, what we're doing to our own economies, which basically is destroying them. So this is a very interesting, it's a very troubling time. These are very troubling times for us, but they're very interesting and I think you know, rather like a phoenix rising from the ashes, there is, if you like, that plan B. I think it's just sad that our political class are just trying to destroy the exit, sad that our political class are just trying to destroy the exit, which is really what the Ukraine is about, and I guess also the Middle East too.

Speaker 1: 23:49

So I want to touch on the mining play, because one of my more engaged posts links to an Investor Place article titled something along the lines of gold mining stocks are stupid cheap, so a lot of people seem to be on that train as well. But okay, so if gold is money, what is silver? Because everyone always references silver to gold relationship and they say silver is poor man's gold. Right, so let's talk about silver, because I am with you, I think silver is going to play catch up. I don't know if it's going to be tomorrow or in a year, right, but there's going to be some closing of the gap. But let's start with the role of silver here.

Speaker 2: 24:27

Yeah, I mean basically, when gold is running, silver runs twice as fast. I mean, there, am I saying gold is running? What I should be saying is when credit's going down, measuring that credit in silver is twice as effective. Measuring that credit in silver is twice as effective. It is absolutely crazy that we have a gold-silver ratio running at around about 84, 85 times.

Speaker 1: 24:54

I mean, this is just completely nonsensical. And what is that?

Speaker 2: 24:57

historically. Give us some context, no-transcript. And at the moment we're 84. Interestingly, the Emperor Diocletian in the year of 230 or whatever, when he issued his edict of maximum prices. The gold-silver ratio then was 12.

Speaker 2: 25:31

You could say that there's a relative bear market which has a very, very long history, is that when we see the gold price rising what we call the gold price rising then silver rises generally at about twice the pace. I mean you call it twice as volatile. It's not quite twice as volatile, because when gold is doing nothing it has tended to decline, and I think part of the reason for this, michael, is that the Chinese have been the big consumers of silver for industrial purposes and have been for a long time importers, and I think that they have suppressed the price very effectively. But this is changing now, and the big change is that India is now making a big effort to increase its production of photovoltaic cells. I think this is partly to, if you'd like, deflect criticism about its coal consumption. But the effect of this is that the Indian government are subsidizing photovoltaic cell production, and it's worth bearing in mind that one of the large Indian corporations called Reliance Industries is building an enormous production facility which is 20 gigawatts, which is absolutely enormous. Now, the first phase of this, which is 5 gigawatts, which is absolutely enormous. Now, the first phase of this, which is 5 gigawatts, came online in March.

Speaker 2: 27:10

Now, interestingly, you will have noticed that there have been some very substantial deliveries of silver out of COMEX, withstanding for delivery of Comex, you know, withstanding for delivery. Now I believe, and you know, I'm sort of told by sources that they also, you know, informed sources that Reliance Industries have had the problem of getting the silver for the first phase of their photovoltaic cell production. So they've gone to Comex and they have taken up a large part of the sum, over 12,000 tons of silver, that's been delivered this year so far from COMEX. So this is something which is going to continue. So I think what it means is that the Chinese are actually losing control over the price of silver for industrial purposes and that, I think, does have major implications for how silver is going to go from here, and I suspect that the price could actually accelerate substantially.

Speaker 2: 28:15

It's rather, I look at it as a sort of orphan metal in a way, because so much of its production is as a byproduct of copper, zinc, lead, all the other base metals, as it were, and it's the thing which they just sort of frog out, send it to China to be refined as Dory. It gets refined as Dory, you don't see it again, nobody misses it. And of course none of this goes through the market. So the reason that the paper markets have sort of rather controlled valuations has been that the real stuff just doesn't go through the market. It just refers to the price. So markets in that sense are rather broken.

Speaker 1: 29:34

Yeah, there's a lot of things you can argue are broken, not just post-COVID but in general. There's always an argument around. There's this massive short squeeze that's coming in silver. As the in quotes, manipulation at some point gets unwound. Maybe that's the acceleration. I'm just curious about your thoughts on these narratives around manipulation in the silver market. You mentioned it when it comes to China, but it's sort of more purposeful shorting to keep the price lower.

Speaker 2: 29:56

Well, yeah, this is. I mean, I've felt for a long time. I think about 10 years ago I spoke at a conference in New York where there were a lot of silver miners and silver exploration companies with stands and I went around and asked them all about the process of them selling their output. The story I got from all of them was very, very similar. Basically, someone from, say, glencore, would come along and validate the Dore at the mine site, against which they would be offered credit by a major bank my guess is JP Morgan working with Glencore or with Trafagura and it would then be shipped off for refining, and refining silver is a dirty job. So guess where it's done? It's done in China, and China is also the major consumer of silver and China consumes considerably more silver than she mines. So you can see that that bit made sense. And I sort of then put a sort of broking hat on and sort of thought well, okay, you've got this sort of triangular relationship, you've got Glencore, you've got JP Morgan or similar. I mean, I have no evidence that it was actually them, but I think there's a certain amount of guesswork pointing in their direction. And you have got the consumer, which is the Chinese government and obviously it is of interest to the Chinese government to keep the price of silver as low as possible and to this extent they can work with, let's say, the other department of JP Morgan, not the banking department, but the dealing department in the paper market, and then it really becomes a fairly simple matter to deal in and out in such a way that you keep the price down. And I suspect that this is actually what has been happening for a lot of the time. And this is why and I've had this confirmed from mining sources or industrial sources that, yes, the price has been controlled by China, so that sort of rather fitted in, and I think this Indian thing is actually a game changer and I think there's good reason to believe that that control which China has exercised is now being lost and it could have quite an impact.

Speaker 2: 32:41

I mean, it's very odd that the silver price never really rose, whereas other vital electronic metals, such as lithium, shot up by huge quantities. So yeah, I think it's silver's turn on an industrial front. And then of course you've got the monetary side coming in, the poor man's gold if you like. So this could move, and it's a very tight market too. They say that there's been sort of a net balance. If you look at the Silver Institute's analysis, there's been a net balance every year which they allocate to investment, but I reckon a lot of that is actually stockpiling by China. I don't think there's that much liquidity available, if you like, in the silver market.

Speaker 1: 33:34

So actually playing on it, because that actually leads exactly to where I wanted to go, which is could you have a situation like we saw? I think it was last year or the year before where was it? Nickel? Yeah, that enormous run they had to cancel trades, yeah, and that did happen overnight. Or could you have a run in gold and or silver, like what happened with cocoa? Now, I know that's weather related, right, but just one of these like real runaway, stupid moves, yeah.

Speaker 2: 33:58

Well, I mean that's not a bad point to make, because I mean the case in nickel. Just to remind everybody, this is about two years ago. There was an industrial user of nickel in China who saw the price rising, who knew that the price shouldn't be rising, there's plenty of supply, and all the rest of it. So what he did was into a technical rise. He sold nickel contracts. This is on the LME, the London Metal Exchange. The problem was that when it came to delivering against those contracts, he didn't have nickel in deliverable form. He had nickel but not in deliverable form. The result was there was an absolute panic crisis. In effect, the LME declared force majeure and canceled out all the trades on a day when and the price theoretically shot up to the moon, and the legal ramifications of that are still going through the courts.

Speaker 2: 35:01

But this is a slightly different thing, I think. Nonetheless, you could end up with the same situation. It's not that the silver will be an undeliverable form deliverable form but I think it's quite likely that it's not going to be there and that will be enough to really to squeeze out quite a few of the bullion banks, and not just silver but also gold. I mean, this is the other thing, with the sharp rises in the value of gold, with these banks who reckon that gold is just silver, it's just something. You know it's not money anymore, it's something which you know you can manipulate. Or you know you can go and work with Charlie to bang the price overnight so that the hedge funds get screwed. You know there will come a point where that just doesn't work because the bullion banks themselves don't have the capacity to do it, and I actually think that part of the problem with gold is that that is where we are now.

Speaker 2: 36:04

This is a situation which the bullion banks cannot handle. They cannot suppress it. Already short of dollars, they cannot go more short because they see that the liquidity in the market doesn't give them an exit. And not only that, but I mean they're so confused about what's going on they don't understand that actually what's happening is the dollar's going down. They're still thinking that the dollar is, if you like, the objective value in any deal that they do on the LME or on Cobex. This is something that they're basically being cut out of, trying to close their own positions, and this is going to lead in a disaster for one or more or quite a few bullion banks in my view. I think it is becoming inevitable.

Speaker 1: 36:57

There's a few questions in the YouTube live chat I want to go through. So, william, asking please any comment on industrial use for platinum Platinum, I think, is also underrated as a potential bull run.

Speaker 2: 37:08

Yeah Well, I should have maybe sort of followed platinum, because it's sort of meant to be a precious metal, but quite honestly, I don't follow platinum at all. Or palladium, um, it's not something I don't think, something I should really comment on. I mean, you know I'd be out of my depth and I'd be trying to make it up, so I'm gonna pass on that one I'm sorry to be no.

Speaker 1: 37:30

no, at least you're not like everybody else that says you know it's a good question, but you know what a better question is? It's like that's the old media trick deflect the question. Johnny here saying apologies for being late. Have we discussed new metal sanctions on Russia? Let's talk about that on the sanctions side.

Speaker 2: 37:47

Well, I don't think I've ever seen sanctions actually work against anyone. So you know, I mean the sanctions, I mean they backfired on Europe very, very badly when they came in, and I mean I remember sanctions against South Africa, and what it did was it spurred an enormous amount of innovation amongst the white South African community to get round oil embargoes and everything else, and they did very, very well. It's just incredible, and I think that's what we've done with Russia. We've really helped them innovate, if you like, in a sense, innovate their markets, diversify their markets, and it's accelerated also the bond between Russia and China, which is something which I think is, if you like, from a geopolitical point of view, not desired by our deep states, if you like. So it's backfired.

Speaker 2: 38:52

I mean, would the political class be stupid enough to try and do this? You know, to a greater extent, I think they're actually going in a different direction. What we see is they're trying to work out how they can steal the some $300 billion of foreign reserves which they've frozen, the possession, you know, the property of Russia, and it is, in effect, it's a default. I think that it's going to be another big, big mistake, I mean, in the wake of those sanctions and when they shut down SWIFT and, in effect, took away Russia's property, putin made the point absolutely clear to all the attendees of the St Petersburg Economic Forum, which was in the June following that confiscation, that if you hold dollars and hold euros, you don't own them. If they don't like you, they'll take them away. So don't own them, have gold instead and make sure you possess the gold. If you've got it in their vault, get it out quick.

Speaker 2: 40:04

Now, ever since then, of course, people have been saying well, this was one of the consequences of financial sanctions. It sort of basically made the dollar and euro less desirable to the neutral world, the global south, if you like. And now they're talking about actually taking those funds, that credit, and redeploying it in the support of Ukraine or Israel or whatever, and that is just going to open that wound again. I mean, it's just going to make the dollar in particular, and also the euro, I think, even less light. So, going back to the story as to why the gold price has shot up, I mean so you know the story as to why the gold price has shot up. I mean, basically, these are conditions that are likely to lead to a lower valuation for credit measured in real money. It's going to do nobody any good at all if they go down that route. But of course you know the numpties in the political class just don't understand it.

Speaker 1: 41:17

You know, so good luck to them. All right, so let's get into the mining sector. No recommendations here, but I want to think more in terms of how you develop a process to identify strong companies in the gold mining, in the silver mining area of the marketplace. You've got a lot of considerations. You've got geopolitical risk in terms of where the mines are located. You've got management efficiency, things like that. When you think about a process of identifying the most undervalued miners out there, what is it? How should people go about?

Speaker 2: 41:51

it extremely difficult. I mean, the starting point in this, michael, as I'm sure you're aware, is that the brokers have basically slimmed down or eliminated their coverage of the mining sector. So what this means is that the sector is actually not properly valued as a whole and individual mines are not receiving the valuation they deserve good or bad and we have lost most of us have lost the ability to actually evaluate a mine. Apart from anything else, it does require quite a lot of skill and I think from an investor's point of view, it requires a good knowledge of the management on a national basis perhaps. So if you're looking at, say, gold or silver mines in North America, you will be looking principally at those businesses in Canada, the US and Mexico and you probably wouldn't look much further because the management there is a sort of circle of guys, if you like, who know what they're doing. You've got to know who they are, you've got to know what they're thinking. You've got to be able to know who to follow. I think the other thing you can do is that there are some long-term pros who've been following the sector and really do know the ins and outs, and these are guys who have been making money buying and selling mines, even though the sector has been horribly out of fashion. Follow them. That's the other thing I would say. I think the other thing is educate yourself. Get onto sites like yours, michael, where you can get this information. Just absorb it and absorb it and absorb it, and don't necessarily rush in and deal, but just learn. I mean, you've got to be a sponge, the brain's got to be a sponge. Get all this information in there and then you can start taking decisions. Obviously, it's something that takes time.

Speaker 2: 43:54

I think that the market is going to switch very, very quickly. What we're going to see is we're going to see people coming out of the fancy-valued sectors, like the fangs and all the rest of it. Those are going to collapse. They're bubbles and portfolios are going to be reallocated towards mining and there's going to be nobody really to provide the information necessary for this weight of credit which will be overhanging it. So I think the best thing to do, first step, is go for the good names. Just look at the fundamentals of large, diversified, good mining operations and those are the guys you can buy safely and sleep at night. And if there's a pause, let's say in the collapse of credit and the mining sector has a little bit of a comeback, then you're going to sleep at night, you're not going to worry about it.

Speaker 2: 44:51

The problem is that if you go for the really fancy stuff, the really you know, the hundred baggers as they say you know. Or ten fancy stuff, the really you know the hundred baggers as they say you know. Or 10 baggers I mean, you know you're going to come unstuck at least nine times out of 10 and possibly even 50 times out of I don't know 51. So this is you know. I think in the early stages I would opt for something safe. Play the speculative stuff later, because what will drive the speculative stuff isn't necessarily that you know a prospect is good, but it's just that people think it's good and they're putting money into it. And if you can sort of get that sentiment, then you know you could probably do pretty well.

Speaker 2: 45:35

And the other thing I would recommend is would recommend is all this mythology about 10 baggers and all the rest of it, don't go for that. Look, a prophet is a prophet. A mind can always fail. A mind can suddenly find that it hasn't got the grades. Whatever, a mind can be nationalized. There are all these sort of risks which you've got to consider. So I think the sector has huge prospects, enormous prospects. I can see the weight of money coming into it and all the rest of it, but I think that's the way.

Speaker 1: 46:10

I'd play it so tilt larger, tilt, more diversified, because a lot of people like the junior gold miners right, the junior gold miners there's this appeal Talk about the 10-meggers. You always hear that, really, on the junior gold mining side.

Speaker 2: 46:22

Yeah, I mean that's later on. Look, there are exceptions to this. I mean there are some. You know, if you know someone who actually understands the sector and has a track record of getting it right and gives you a tip, go with it. I mean, for goodness sake, don't ignore it. But other than that, I think in the initial stages I can see the big money going for the new mines, the barracks and so on. I can see the big money doing that and you've got to be in with that and probably slightly ahead of it, and I think if you go in now you will be ahead of it. So that, I think, is probably a very, very sensible play.

Speaker 1: 47:07

Another question from YouTube Live from Johnny has the recent rally in gold prices been enough to raise the profit margins of miners, enough to see a strong sector rally? Now I think this is actually good, because it leads into a question of how oil plays with this, because, from my own studies, the issue with gold mining stocks is that gold can rise, but if oil prices rise faster, well then that becomes a problem from a margin perspective, and that's why some of these stocks really don't tend to participate as much. Yeah, no, that's absolutely right.

Speaker 2: 48:16

And there is another problem, and that's why some of these stocks really don't tend to participate as much. Yeah, no, that's absolutely right. And there is another problem, and that is that a mine manager actually has a responsibility which is totally different from of which is oil, the other of which is his miners and all the rest of it. Now he will try and protect himself because he's running a business which has got to continue and has got a time horizon for whatever. So what he's likely to do is to, when he sees higher prices, he's likely to go for the lower grades, and that, of course, will impact on the profitability of the mine. So bear that in mind, that a properly managed mine will manage its grades depending on the price. So that's going to take it down somewhat, it down somewhat.

Speaker 1: 49:18

How long do you think the curve momentum can last? I think a lot of people are looking at gold in particular and saying you know what, it's probably due for a pullback. But the thing is, yeah and I know that's more of like a technical question you can argue. People always draw squiggles and say here's your targets and all that stuff. But just given how surprising the move has been, do you think there could be a pullback to get back in shorter term, or does this just keep running away?

Speaker 2: 49:45

I think everybody's praying for it, don't they? Yeah, exactly, probably won't happen. Well, I've explained why. I mean, michael, it's not gold going up, it's the dollar going down. If you think there's going to be a decent pullback, then there's going to be some sort of confidence returning to the dollar. That's what it'll be is that there is a growing realization that interest rates are not going to fall, they are going to continue to rise and as they continue to rise, the mess which America and most of the other G7s have got themselves into, with high debt to GDPs, large and ballooning budget deficits. That is a process which is continuing and the realization of it is only just starting. So, on that basis, the value of credit is going to. It's got very limited scope for any recovery, if you like, in terms of sentiment, but it's got a very definite direction and that is that the value of credit is going to fall and continue to fall, and fall very substantially. It's not gold going up.

Speaker 2: 51:03

So I think, on that basis because domestically I mean, if I was an American I'd be looking at it and I'd be saying that gold is going up because the dollar, for me, is my objective medium of exchange but actually I've got it the wrong way around. There will come a point where I realize that it's actually the dollar going down, not gold going up. When that happens, the dollar is dead. I can tell you it's at it. So we're a long way from that, and this is why people are thinking in terms of um, you know, perhaps there might be a pullback in gold and then we can maybe get it. Don't bet on it. Don't bet on it yeah, it's.

Speaker 1: 51:51

It sounds like the only thing that could really break this is austerity on a government spending level, and good luck with that, especially given both Biden and Trump's respective ways of thinking about how they spend and where they spend right. We haven't talked about Europe at all in this. I'm curious if there's anything interesting when it comes to Europe and demand for gold. It looks like they may lower rates before everybody else. Maybe right?

Speaker 1: 52:18

We'll see, yeah right, We'll see right. But just kind of riff on that, because I think Europe's obviously a big driver also of global growth, global debt and then demand for safety.

Speaker 2: 52:32

Yeah, yes, it had this ridiculous thing Bailey, our head of the Bank of England, was saying that he thought he could start lowering interest rates in the not too distant future. He's obviously been badly advised by his own economists and market men about what the hell's going on. I mean if, um, you know, you've got powell saying, uh, you know, we can't lower interest rates, um, for the foreseeable future which is pretty much what he's saying, which basically means never, um, and you've got various other people still sort of saying the old story that, uh, we can reduce interest rates, I mean what? All that will happen is that the sterling and the euro because the euro is saying exactly the same thing they will decline relative to the dollar. And if the dollar is declining relative to gold, then the gold price which is how we look at it, and wrongly, admittedly will be rising considerably more in those currencies than it is in the dollar.

Speaker 2: 53:39

You know, I think there are problems with the Eurozone in particular, because the banking system there is very fragile. It really is A lot of. It hasn't recovered from the last crisis, which they call the Great Financial Crisis. I refuse to call it that. I call it the Lehman Crisis, because the Great crisis I think is still ahead of us. I think that we've got major GSIBs. These are global, systemically important banks, on asset to equity ratios well in excess of 20 times. What that means is that it takes very little in the way of losses to wipe these banks out. And if you look at the ECB and the system, the euro system, which includes all the national central banks, most of those are in negative equity as well. In other words, if they were private sector businesses, the board would be put in jail for running a bus business. But okay, it's a government entity, so they'll save that. But you can see that, rather like the Bank of Japan, with this situation, we expect our central banks to backstop a banking system which, with rising interest rates, will get into extremely great difficulties, and those central banks themselves are already insolvent.

Speaker 2: 55:13

And where this goes with the euro system, I mean it's easy enough to recapitalize a central bank. I mean you can do that. Um, I won't explain how to do it because it's just, you know, it's just too detailed, but it's. It's easy to do. But in the case of the euro system, all the individual national central banks would have to contribute to their capital key and recapitalize themselves at the same time. And that would involve in most cases, if not all, legislation. And that means going to the politicians. Now imagine you're in Germany, a politician in Germany, and you're presented with this bill to permit the Bundesbank raise, say, two trillion euros or something, a trillion for itself and a trillion for its capital key, the ECB. It turns around and you say well, hold on a minute. The Bundesbank is owed, through the Target 2 system, over a trillion euros. Why can't they take that? And you can see that. And then the courts get involved and it's not going to happen.

Speaker 2: 56:25

I think that these rising interest rates on the king rat, the dollar, will have a worse effect on the euro and the whole of the euro system, and not only that, but because of that it could collapse the entire euro system. It will, if you like, find out all the faults in its construction and its inability to evolve itself to deal with a crisis like this. To evolve itself to deal with a crisis like this. This is an extra problem, I think, compared with the problem of the King Rat currency.

Speaker 2: 57:04

I mean the King Rat currency, enormous problems, and you know, I can't see how its slide down can be stopped no-transcript, and it probably means going back to the old Deutsche Mark and a group of currencies around that, which is something that we talked about in the last European financial crisis, which was in 2012, 2011-12. So I mean it could be back to that, a sort of Hanseatic League of currencies, as it were, and then the slightly more volatile Mediterranean currencies in a separate basket, all trying to go fish. I suppose I mean the answer is they all go back onto a gold standard. They have to in order to survive. That's what's going to happen.

Speaker 1: 58:21

A great reset is going to be very shiny, I think is the way to say it Alison for those who want to track more of your thoughts, more of your work. Where would you point them to?

Speaker 2: 58:31

Well, I hope this is a lovely screening thing. Alistarmacloudsubstackcom that's the best place to go. Really. I would encourage you to sign up as a subscriber. You can be free or pay. You will get the best information if you pay, or the best information I can give if you pay and it's not a lot, you know, it's sort of a couple of Starbucks coffees a month.

Speaker 1: 59:25

I think something like that. That's probably the way to look at it, which, given the momentous changes we now face, it is extremely important to that the message gets out and that my subscribers can actually control the risk a lot better for it.

Speaker 2: 59:32

It's all about risk management. It's all about risk. Yeah, absolutely Absolutely. And how about you? I mean, you've very kindly sort of led this off, but you have your own Substack too.

Speaker 1: 59:40

Michael, don't you? Yeah, no, I appreciate it. It's leelagraportsubstackcom. I will promote this video this coming Sunday, but everybody, please make sure you follow Alistair, who has always been very kind and warm in our communications and certainly, as you know, wildly intelligent and, honestly, the accent just makes you sound smarter. I'm in New York, so I don't sound very smart with my New York accent. Everybody, please make sure you follow Alistair and I'll see you next time. Thank you, alistair, appreciate it.

Speaker 2: 1:00:08

Thank you very much for putting this together. I think it's been great fun and, hopefully, very informative. Thank you very much, michael. Thank you.