If you’re printing too much currency to bail out the monetary system, it’s obviously going to directly influence inflation in one form or another. David Mitchell talks to LUXUO about uncorrelated investments and safe stores of value during a global crisis.
As the world began entering a global trade and economic lockdown, IMF Managing Director Kristalina Georgieva announced ahead of the World Bank virtual summit that, “We anticipate the worst economic fallout since the Great Depression.”
Indeed, exports create jobs and boost economic growth. Rapid advances in transportation, logistics and communications have resulted in greater interconnectedness among markets around the world; the consequences of this globalisation are now fully understood as the producing economies and consuming economies entered national lockdowns. Built on a cycle of unending consumption and parma-debt growth, the modern capitalist system was never designed to come to an almost complete stop.
Every global economy since the GFC of 2007 – 2009 has fed voraciously off the same ‘Kool-Aid’ of easy and cheap money. Global policy makers from China, USA, UK and Europe have led the charge in kicking the proverbial ‘can down the road’, effectively compounding and twisting the final and painful economic resolution by many multiples. – David Mitchell, Auctus Metal Portfolio.
Gold and precious metals are among the safest investment assets during a global crisis
David J Mitchell has always had a thirst for knowledge and a tireless work ethic committed to research and thinking out of the box. David started off as a computer programmer but was offered the opportunity to join the trading desk at Rothschild’s in London in the mid 80’s and was thoroughly captivated. Having spent over 20 years with a number of investment banks including Swiss Bank, HSBC and NationsBank who took over Bank of America, David has worked all over the globe and achieved success initially as a chief dealer and then later as the head of the proprietary risk trading desks.
David left the investment banks in late 2006 and started his own company investing and managing his own family funds as well as those of several clients. David had tremendous investment and trading success in the run up to and during the Global Financial Crisis (2008 to 2010) whilst building out his client’s portfolios.
Following ever-increasing demand for his financial market reports and research on the global macroeconomic landscape from clients, David returned to Singapore in 2014 and founded Indigo Precious Metals Group (IPM Group). David’s in-depth analysis dictated his very strong views on the direction of the global economy, and it became very obvious that precious metals would become critically important and in extremely high demand within the banking system moving forwards.
You are a veteran of the finance industry. When did you first notice the investment potential in precious metals, and what led you to start Indigo Precious Metals?
I started as an investment banker and trader in the mid 80’s when my passion for research and long term cycles led me to start researching and ultimately investing into precious metals from early 2004 and onward while still working for the banks as a senior trader. This was borne from my deep research on the global macroeconomic picture but in particular my alarm at what Alan Greenspan (then Chair of the Federal Reserve of the United States) was doing with the incredible expansion in ‘money stock’ numbers via M1, M2 and in particular M3 (M3 is no longer reported officially). He announced that he was readily fighting inflation while at the same time rapidly debasing the USD.
I left the banks in late 2006 as I was particularly focused on when a greater economic collapse was going to hit the global economy. I wanted to set up my own investment company and trade across asset classes in anticipation of this downturn, which as we now know morphed into the Global Financial Crisis (GFC). From the investment growth success I had during the 2007 to 2010 crisis and my research on the long-term cycles and policy decisions taken during that crisis; I knew that they had simply deferred the final resolution to the underlying cancer of our global monetary system.
Netflix’s Casa de Papel or Money Heist (in international territories) shot to popular acclaim on a Robin Hood plotline of underdogs undermining a broken financial system by breaking into a central bank and printing 300 billion Euros
Every global economy since the GFC of 2007 – 2009 has fed voraciously off the same ‘cool aid’ of easy and cheap money. Global policy makers from China, USA, UK and Europe have led the charge in kicking the proverbial ‘can down the road’, effectively compounding and twisting the final and painful economic resolution by many multiples.
I returned back to Singapore in 2014 with the intention of preparing my clients as well as my own family assets, by building a group of companies within the precious metals industry, knowing that precious metal bullion would be used as future capital and so much higher price valuations were coming. More importantly, we were about to enter the next major cycle, the final resolution and mother-of-all-crisis which is the ‘global debt crisis’ that we now find ourselves in.
Gold was officially reclassified as the “money of last resort” by the world’s major sovereign central banks in 2019.
How big of an exposure should one have in their portfolio for gold? Is now a good time to invest in Gold?
There’s an outright war against your savings on a global scale. Gold is the only currency that’s not paper and not being continually printed beyond the realms of one’s imagination. Gold is trusted globally by central banks and the fact that these same central banks have not only re-classified it as a ‘Tier-one’ asset class on their balance sheets (as of 2019) but importantly hold it as a critical part of their reserves. Central banks have been on a net buying spree of gold every year since 2010, and continue to be net buyers on a regular basis. This really does give you a clear indication as to both the present and future value of gold.
Fine-tuning exposure of your overall portfolio is of paramount importance. Most financial advisors will stipulate that a 5 to 10% holding is sufficient, unfortunately this advice is wildly inaccurate when presented with analysis of the current macroeconomic conditions. In a normal balanced macro environment then perhaps yes, 5 to 10% is suitable, but in these unprecedented times, precious metal holdings must represent a considerably higher percentage of a client’s portfolio. This is why macro analysis considerations are so important when investing into any particular asset class.
The macro fundamentals and historical analysis are clearly lending support to my confidence at this time, that gold and precious metals, including silver and platinum are going substantially higher in price from here.
Why should one purchase physical gold as opposed to buying gold-related ETFs?
I have serious issues with both gold & silver related ETFs. In the early days of my experience in investing in precious metals, around 2005, I actually bought into the Gold SPDR ETF. Upon doing further and more detailed due diligence and research into its prospectus, I was totally taken aback by the fact that the custodians and sub-custodians, whose role it is to be the holders of the physical gold to back the very ETF in question, had no requirement to ever check or even be subject to requests for audits of the actual physical gold held by them. The underlying risk was just enormous, especially given the common practice of re-hypothecation, whereby the banks and brokers then use the gold collateral for their own purposes. I immediately withdrew my investment. These structures are only designed as short term trading vehicles. ETFs are definitely not a cyclical wealth preservation asset with zero third party liabilities – which physical gold, silver and platinum are. What also disturbed me was that ETFs fall into the category of a taxable item, whereas in most cases, hard physical precious metals are in fact tax-free.
As we have entered a truly historical and global insolvency crisis event, I cannot emphasize enough how important it is for there to be absolutely no claims to your personal assets, no liabilities and no third-party-risk. The ownership of real bullion capital, held solely under your own family name is just essential and ETFs simply pale in comparison.
Buying physical bullion investment bars does not have to be an expensive exercise at all. Our expertise at Gold Bullion Australia and Auctus Metal Portfolios lies in helping to source for our clients the cheapest investment precious metal products, suitable to their needs and safe in the knowledge that as time goes by, premiums over the spot price will once again rise due to a surge in global demand and a lack of worldwide supply.
Confidence: both backed by market fundamentals and one driven on pure psychology with no fundamentals have been responsible for the absurd swings of the Dow Jones Industrial Average as the US went into a lockdown.
What makes The GBA Group different from the other gold dealers and more importantly, banks that offer physical gold as investments?
We offer a number of solutions to our clients that banks do not approach and produce unbiased and in-depth research into which specific precious metals to hold in your portfolio basket. Clients of The GBA Group have a number of options, the easiest of which is to open an account with us online or they may wish to open an Auctus managed and vaulted account under their own family name at Le Freeport, Singapore, which then ensures sole title and fully segregated ownership of the bullion.
We encourage all of our clients to utilise and take full advantage of our long-standing experience and to ask for advice on what their metal portfolios should look like and which products to purchase in order to generate maximum returns from the point of entry. We specifically launched Auctus Metal Portfolios to complement The GBA Group, using proprietary algorithms with over 55 variables (live data feeds) to correctly re-balance our clients’ physical precious metal holdings at specific intervals throughout the year. This has historically ensured an ‘alpha return’ that has significantly outperformed the benchmark for gold. Auctus Metal Portfolios offer a high growth and diversified metals investment strategy that delivered a 54% net return to clients in 2019 and as of the beginning of June 2020 are up nearly 700% since 1 January 2016, over 95% since 1 January 2019 and 25% since the start of 2020. These performances are based on zero exposure to collateralization, paper trading or any leverage whatsoever, as our clients keep physical metals in their own fully segregated vaults at Le Freeport.
Our experience in investment banking and trading financial markets allows us to provide comprehensive investment advice to our clients on physical precious metal portfolio diversification and product selection. We are fully geared to providing true advice and in-depth education to our clients, making absolutely sure that they understand the full macroeconomic cycle. This helps to determine when to invest or water down exposures and which of the individual precious metals offers the best investment sense at that time.
Our service is therefore highly tailored to individual customers, family trusts and institutional investors rather than simply blanket selling across large banking platforms without due care.
Set at Changi airport, among the safest area in the Republic of Singapore, Le Freeport is heralding a new era in wealth protection and creation.
What is your opinion on gold-backed cryptocurrencies such as
Singapore-based DIGIX (DGX) which have been performing well on
Blockchain technology is a very exciting record-keeping technology, the whole concept behind it is to record and register the owners (and past-owners) of particular assets across a peer-to-peer distributed ledger technology base, making it easier to comprehend that ownership is stored in a public database with multiple fail-safes written into the structure.
DIGIX is basically offering partial ownership of a larger bar “wrapped in blockchain” which is what we describe as an unallocated holding of metal. We are also doing this through gram savings and Kg savings.
As a savings scheme, DIGIX and our own GBA Group and Auctus Metal Portfolio offerings work well, however the main difference between us, is that our companies offer extensive advice on precisely what your basket of metals should look like and the weightings of each metal therein. Saving is an essential ingredient to a strong economy, which can finance higher levels of future investment and boost productivity over the longer term. If you save in the government’s currency that is set to be devastatingly debased, whilst they only pay you sub-standard interest rates, then saving in ‘real money’, i.e. physical bullion is the natural choice as it will preserve its value. As mentioned, gold was officially reclassified as the “money of last resort” by the world’s major sovereign central banks in 2019.
Prominent market analysts have shared in their projections that Covid-19 will hurt the demand and consequently, price for gold. What are your thoughts on this?
I would sincerely doubt the credentials or perhaps intentions of such ‘prominent analysts’, as this would suggest that their underlying understanding of what gold is, is wrong. Gold’s investment properties do not lie in industrial demand but as the ‘money of last resort’ and the globe’s pre-eminent crisis hedge.
We are in the grip of a severe deflationary collapse that was widely predicted ahead of time. This has been an ongoing development and has been picking-up speed since the major cycle turn of December 2015. Hard data actually points to the major cycle turns between 2002 and 2003 when the data started to signal a long-term deflationary trend direction. The global debt crisis and Covid-19 policy reactions are now being met with an extraordinary increase in fiscal and monetary expansion, which is tantamount to effecting a global currency debasement.
The ongoing debates and economic thought processes led by the macroeconomic fund management community fall into three distinct categories:
On the one side we have the devastating deflationary argument where collapsing money velocity feeds on itself in debt deflation; destroying pretty much all asset class valuations. This view is fully corroborated by the global bond markets. On the other side of the argument, governments and central banks stand resolute in exploding money supply numbers in the fight against debt deflation and the insolvency crisis; in the vain attempt to create long-term inflation, hoping that it will deteriorate the effects of the global debt crisis. As an example, the USA growth rate of “independently restored” M3 money supply (USA Fed no longer reports M3) is reportedly running at an annualised rate of over 80 per cent since mid-March 2020 and this number is simply gigantic. Thirdly and more in line with where my analysis is taking me is that there will be a stagflationary outcome. That is, a contradictory economic situation driven by very low economic growth, high unemployment and price deflation in classic asset classes. This will manifest itself with economic stagnation accompanied by rising prices (i.e. inflation) in food, water, energy and other vitally important assets off the back of continued monetary debasement.
All three of the possible scenarios detailed above are price positive and extremely bullish for precious metals.
Federal Reserve Building, Washington DC, USA
How will the extraordinary quantitative easing measures taken by the US Federal Reserve this year impact the price and demand for gold in the next 5 to 10 years?
It must be made clear that this is not just the Fed leading this charge, this is the same policy that central banks all around the world are enacting. I know gold is trading at all time highs in over 73 global sovereign currencies, but in USD terms we are still about 12% away from breaking the historical highs. Considering the macroeconomic landscape and the obvious sovereign policy reactions that are coming down the pike, it is shocking that precious metals remain so undervalued. Then again, as a rule of thumb, 80% of the price move happens in the last 20% of the time frame, making the coiled spring in metals something that is going to be quite sensational to say the least.
If you’re printing too much currency to bail out the monetary system, it’s obviously going to directly influence inflation in one form or another. We have already seen this with asset price inflation over the last ten years. Inflation did not feed into the CPI (consumer price index) but went into various asset classes instead. This was supported by falling MV (money velocity) as excess funds always need to go somewhere.
Moving forward, as debt monetisation is initiated through government support of MMT (Modern Monetary Theory) along with record savings ratios being reported, it is only a matter of time before the capitulation in the MV turns around, pushing inflation directly into the CPI numbers.
Both debt monetisation and monetary debasements lead to higher prices in precious metals.
People gather on the sub-treasury building steps across from the New York Stock Exchange in New York on “Black Thursday,” in this Oct. 24, 1929 file photo. Thousands of investors lost their savings in the worst stock market crash in Wall Street history on Oct. 29, 1929, after a five-day frenzy of heavy trading.Global stock markets extended their shakeout into a second day Tuesday, Jan 22, 2008 plunging amid fears that a possible U.S. recession will cause a worldwide economic slowdown. The dramatic declines in Asia and Europe were expected to spread to Wall Street, where stock index futures were already down sharply hours before the trading day began. (AP Photo)
Besides gold, could you tell me more about the other precious metals that are worth investing in?
We take the investment prognosis into precious metals one step further, so not only examine the ‘crisis hedge’ qualities of gold, but more importantly weigh up and study supply-demand curves, pricing ratios, industrial usage curves, cost of production, ore grade degradation, mining infrastructure, above ground stock piles, cycle analysis, macroeconomic fundamentals and the list goes on.
The situation in South Africa has deteriorated into a complete fiasco at this stage, with the country’s main provider of the energy supply grid collapsing due to infrastructure deterioration. This has opened up a considerable investment opportunity given growing industrial demand and new usage applications for platinum. A fundamental supply-demand, structural deficit picture is growing, so we are seeing some very exciting opportunities developing for investors in the platinum group metals.
Our objective is to recognise and advise our clients on when to get in and when to re-balance out of any particular metal into the next great trade – on an ongoing basis. Platinum alongside silver, with its own structural supply curve issues, both have a truly wonderful investment thesis building. We feel strongly that platinum and silver will both outperform gold from this point onwards in terms of percentage performances over the next cycle into the year 2024.
We are constantly looking for the next great investment trade within precious metals and our early clients from 2016 have achieved returns of 1,200% in rhodium, over 700% in palladium and very high returns across their diversified metal portfolios, including in rare earths.
We are facing another Great Depression, how should investors secure themselves today to prepare for the bumpy years ahead ?
Without any question, we have one of the largest deflationary waves in modern history underway, which has been driven by the global debt and insolvency crisis, the collapse of money velocity, interest rates are heading to zero along the long dated curve, global PMI surveys are below contractionary levels, Europe is in the midst of an all-out battle with the ECB on expansion of its debt-buying program via Quantitative Easing, and the list just goes on and on. So yes, it all looks extremely deflationary at this juncture.
The Fed, ECB and BOE have made it very public that they believe a deflationary spiral is the greater risk here and have implicitly stated that inflation will very much be part of the cure for the debt crisis. It is expected that they will therefore move heaven and earth to engender inflation, which they are ultimately preparing us all for, with outright debt monetisation.
In a nutshell this means that great volatility is on its way in the markets and price action, with false dawns upon false dawns alongside a painful monetary debasement. Our advice is to reduce your debt and hold liquidity in the form of bullion capital and currency. Be light on your feet and do not marry yourself to any big capital investment expenditure unless you are guaranteed an income flow to support such investments. This is going to be a very long and drawn-out crisis I’m afraid.
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