Gold’s Time To Shine | Joseph Cavatoni on Central Bank Bullion Purchases, Permitting Reform in U.S., and Global Investor Demand for Gold
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The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. Thank you. Let's close this f***ing door.

Today, we're going to be talking about gold. Gold is up 26% just this year. Over the past two years, it's up well over 70%. I want to know why it's going up. So today, I'm speaking to Joseph Cavitoni, Senior Market Strategist at the World Gold Council. Joseph, welcome to Monetary Matters.

Thanks, Jack. And it's great to be here with you. Joseph, ultimately what I want to know is why are people buying gold? There's more demand than supply over the past few years, evident by the price going up. But before we start to ask why are they buying gold, let's first start off and ask who are the buyers? Over the past few years, this bull market in gold, who have the buyers been in terms of geography, in terms of investor profile? Sure. This is a great way to think about this understanding of what's happening with gold. And you're right.

The gold market's been up substantially over the last few years, and actually on average, it returns about 8% against other assets. For example, it's in line with how equities perform over the last 30, 40, 50 years. But the best way to start thinking about what is driving gold and how it's performing is to start thinking about the simple use cases that we define every quarter for people in our gold demand trends report.

we talk about the four main use cases which include investment central banks buying as part of a reserve portfolio consumption in the form of jewelry mainly and then lastly a smaller component but still an important one technology and what's really been driving the force and the momentum of gold and the price trajectory of gold over the last two to three years

It's really been central banks as they are looking at their reserve portfolios and finding more of a pronounced position for gold in those portfolios. And then in addition to that, global investors. You specifically wanted me to talk about where and which countries. And that's where I think it's really vital for people to have an understanding of that investment landscape.

So we've been seeing U.S. investors and ETF flows as a good, simple, transparent example, not necessarily been that popular in the last three to five years. As a matter of fact, somewhat muted in terms of the flow levels, if not outflows.

But on a global scale, what we have been seeing in the physical markets and including ETFs, you've seen Asian and to a lesser extent European countries stepping in and buying vast amounts of gold as part of their portfolio diversification. So it really boils down to that.

monetary terms and conditions really supporting the case for gold and central banks diversifying their reserves, adding it to their portfolios and investors globally. Now, even as we speak today, more Western investors, including the U.S., putting gold into those portfolios.

And is that characteristic of it's a lot of central banks and it's a lot of Asian and European investors, non-American, is that different than the gold bull market of 2000 to 2014? And particularly in those later years where it was, wasn't it, a lot of American non-institutional investors getting involved? You're saying you're not really seeing that so far?

It's picking up as we speak. When you think about gold, you have to understand there are strategic drivers for the gold price. There are also tactical drivers for the gold price.

And in markets like the U.S., you've had a pretty compelling case for being long cash deposits, money market funds, also bonds of a certain duration. Those have been very appealing in a higher rate environment where you've been seeing their behavior historically perform well as we've moved into inflationary times. And then the Fed's attempt to manage that.

but what's shifting now is that those bonds are starting to act and behave a lot more like equities the correlation is very high with the equity market so when risk is taking place they're dropping like equities might

And also over time, we're starting to see the Fed take steps late last year to start reducing rates. And actually, that's still being the signal that we're getting from the Fed as we speak. They're looking for one to two more cuts during the course of this year. So you're seeing a Western move to gold, adding diversification to their portfolios, really trying to buy themselves protection. And that's at the heart of what's also driving Eastern investors.

As well as a central bank. So central banks are saying, I need a liquid asset that's going to perform that will actually give me the kinds of protections I need, whether it's homegrown inflation I'm concerned about in my own individual country, or if it's something along the lines of a weakening dollar or performance related issue with a dollar based asset.

they're looking for that safeguard in a portfolio. I think that's starting to transcend more globally. Now, it's ebbing and flowing with investors, but ultimately, the conversation is very, very ripe with many investors around the globe. What is different now about, let's see, over the past two years, what's different now than the

gold market of 2014 to 2020, 2022? Sure. I think that the gold market today has more people accessing more mechanisms to get gold exposure than ever before.

In those early days of '14, or even going back to the global financial crisis, or even back to when we first started tracking our gold demand trends, which is just about 40 years now, you can basically see that most people express their interest in physical gold, that safe haven asset, in the form of either jewelry or basically in the physical markets. But now you've got a wide range of different activities and ways that people can actually get exposure to things.

In addition to that, I think you've got a sophisticated market that's developed globally. Take China, for example. You've got investment markets onshore that are mature, sophisticated, and actually having signs of doing well and not doing well. And people are actually in that market alone looking at how do I diversify?

What do I need to add to my portfolio to give me some protection if the property market continues to suffer? If equities drop like they did in previous years, how do I handle these types of moments? What should I hold in my portfolio? And that's where gold fits right in.

It fits in in that risk moment, but it also staying as a strategic allocation sees the benefits longer term of economic expansion and growth in terms of economy. So people are realizing there's a place for it. And I think that it's a question of how quickly they're going to look to allocate. I'd even say to you that one of the things, Jack, that we've often talked about with clients and in terms of the U.S. investor in particular,

is the fact that we think that the allocation levels are probably around one and a half to two percent maximum. And we think that that's really low relative to what the benefits could be. And that's starting to resonate. You know, you have more consulting firms that are talking about investment consultants talking about adding allocations to gold, looking at real assets and the benefits of a diversified portfolio. And gold's right in the mix of all of that.

And what would you say causes gold bull markets and gold bear markets? Because a lot of the things you said, I think they're true now, but they also probably were true from 2014 to 2016 or 17 when the price of gold went down. So just is it kind of fashion? I mean, more buying and selling, things come in favor, go out of favor, or is it kind of too unpredictable that you can't really- No, no. We actually, I didn't mean to jump in there, but we actually think it's a lot easier for people to understand than they think.

And actually, that's one of the big myths that we like to debunk. I don't understand gold. It's really complicated. You want to know what? It's not. And actually, it's pretty simple when you start breaking it down into how it looks. Those cases I've given you in terms of use cases, all very crystal clear, very simple to understand. And you can judge the behavior of those

channels and those use cases simply by understanding the economic conditions of a market and which way you're going to see GDP growth, whether it's stagflation that we're looking at, what other the signals are that are going to move money around. Because at the end of the day, gold's a monetary model more than it is an institutional or I should say an industrial metal.

It's really driven by economies and economic savings and economic growth. And that's it. Economic expansion grows wealth and wealth creation and people actually save and spend. And actually in times of concern, market risk and uncertainty, people put money away and they actually hold on to it and say, I want to keep what I have.

And that's where gold is a unique asset. It's not like a currency that gets printed at the whim of a central bank. Grows at about a 2% rate on annual with mining supply coming online. So you're really talking about these big economic conditions that drive the force of gold. And I think back to your question,

That's been at play. That's why when we look back to 1971, when they started talking about removing gold standard, you can see that on average, it returns about 8%. And that's actually a bit of a big surprise for people when they go, didn't think that would be the case. They just remember the moves that are big and the emotional moves when things are selling and things are buying and momentum's driving it. Those tactical behaviors, you need to understand them. But at the heart of it, think strategically about growth of economies,

and actually feared market risk in economies. And that's what's really keeping gold very strong. And actually, it's holding its price quite firm right now. We might not have certainty around the economic outlook. We definitely know that risk and uncertainty is still very much top of mind and shocking portfolios regularly in terms of what it means for risk assets.

And how are you thinking about inflation? Because gold is often referred to as an inflation hedge. But somewhat paradoxically, when there was deflation in early 2020, gold soared. And then it didn't trade that well when there was inflation. But it's actually been trading phenomenally well as inflation has been high but coming down. So how do you think about that correlation? I think the simple way to understand what gold can do for you is like I mentioned a moment ago. This is not something that can get printed.

infinitely amounts. You basically have a mine supply that brings it online. So as a consequence of that's what you really are looking at in terms of a growth rate of the amount of gold in circulation.

So it has a tendency to perform well and preserve its asset value in a world where it's competing against other currencies or other goods and services that are actually getting more expensive as currencies get weaker. So that's why gold does well. Now, where it can not perform as well as other assets is when you're in a transitory period. And that was what we were experiencing over the last few years.

we were dealing with a unique set of inflationary conditions that were on brought by the you know by the introduction of country monetary you know regulatory environments dealing with covet and a unique kind of circumstance that no one could see coming predict coming and we were really trying to figure out what was really playing out in terms of the impact of that on the economy so during that transitory period opportunity costs and actually momentum for

probably looked more attractive for other assets. You could put your money in 6% deposits. That's a pretty easy trade. Now that actually tends to play against the performance of gold or the attractiveness of gold, because on average, people would say, that's just a quick and easy thing for me to do. And that's what they did. But now when you start moving out and you start seeing the stickier levels of inflation or the consequences of an inflationary environment post the

managing it from a monetary policy, you'll see that preservation of the asset quality of gold is going to be something that we want to be in people's portfolio. And that's where you're going to see it perform now. And ultimately this is the time that allocations continue to grow. And this is the time you should expect it to grow.

I'm really glad we started talking about at the beginning, central banks are big buyers of gold. Because to me, if I buy gold or my neighbor buys gold or your neighbor buys gold, it's at $3,400. If it goes to $3,800, we could sell it. We're kind of ephemeral, transitory investors, maybe. We like to think of ourselves as investors, but maybe we're a little more traders than we like to think. But central banks are really not traders. And there's probably gold in the Bank of England vaults that have been there for decades.

300 years. So that's me. I talked to a very respected macro thinker. He referred to central banks as diamond hands for gold. They're buying and they're probably not going to be selling anytime soon. So just talk to us about the scale of the purchases you've seen over the past few years from central banks. Is it

Is it exclusively physical? Is it stored in the Bank of England? Do they do any sort of non-physical gold buying? And then also you've got a fascinating report out at the World Gold Council. You interviewed over 70 central banks asking them about their intentions, about what they're going to do in the future. We talked about the past, but what's going to happen in the future?

Sure. And I'll start there. So we do an annual survey. This is our eighth year of doing it. We had 73 central banks that have contributed to our study. And I would ask anybody that's interested in this space to start there and have a good read of that report.

While it is a longer report, I think there's a lot of very, very salient information that's in there that people can understand. Again, back to that use case to say, is a central bank, like you say, be a buyer and a hold? Are they going to be a buyer and a seller? What's going to be motivating them? And actually, you can start getting that insight. What they're telling us in that report is,

is about 98% of them think that the central bank communities will continue to remain involved in gold, actively purchasing over the next five years. And about half of those central banks that we surveyed said that they're actively looking to increase their allocations themselves.

So you're talking about a majority of these institutions that are basically coming to us and saying, hey, look, we want to keep our cards close to our chest, but we're going to let you know that gold is going to play a key role in how we manage our reserve portfolios. Now, by its very nature, a reserve portfolio is not something that you

punt the fringes with or take kind of speculative views on assets very specific and very explicit definitions of what would fall into that and key components which the central banks are signaling are why they're going to gold certainty around the liquidity that they can achieve and that's actually probably one of the most important things that you can get for that report

They need to know when I sell something, it's going to hold its value and it's going to be certain. Now, the best liquidity they can get for the large bar format, which is the kind of environment that they trade in, physical gold, large bar format, the kind of stuff you'd see in the Italian job or a James Bond movie.

That sitting in London at the Bank of England, which is the central pool for wholesale liquidity for the gold market today, that's where they're going to likely leave it and make the most value out of it when it comes to selling it or ultimately getting the best pricing for it on a wholesale basis. Or maybe even putting it into a financing or a lending program where they can actually get some yield on it by lending it into the ecosystem. All very much a very big central point of what's going on with it.

But increasingly so, what we're seeing is that central banks are also talking about bringing it home for home use and ultimately having that certainty and safeguard that the asset's sitting with them in their home and they basically have the storage facility to take care of it. So it's a physical market. It's a large wholesale market. It's a market that's global. And again, the signals that were being told from the report that we've seen

The majority of these central banks are saying their dependency on the dollar and to a lesser extent on the euro as reserve assets, dollar-based assets as well, it's going to decline over the next five years. What steps into that role? Gold steps into that role.

You've got a pie chart showing that 19% of central bank reserves are in gold. Maybe that's if you weighted them equally. I don't know. Maybe China, India had a higher or lower percentage. I don't know. But that's just what you showed. I think you showed that a majority indicated that they thought that that

allocation of gold would go from 19% to 20% to 25%. Do you have a sense of where that was going to be coming from? Are they going to be selling their dollar reserves, selling their euro reserves, other assets? And also when I say seller, I mean net seller. So the new inflows maybe go less into those and more into gold, but it doesn't have to mean that they sell there. I think you've nailed it. It's going to be a diversification away from dollar assets,

as well as dollars themselves, and to a lesser extent, the euro or any kind of dependency on euro assets. So that's where the new purchasing for gold will come from. And actually, what's very interesting is that that statistic that you've cited around the overall average level, that includes emerging markets, central banks, it includes developed markets,

developed country central banks. So for example, the US has about 75% of its reserves in gold, but some of the smaller countries, some of the more emerging market countries could have as little as 4 to 5%. And we think that that gap will close. So we ultimately see the emerging market central banks playing a key role in the drive for the consumption of gold in their diversified portfolios. Again, coming at the expense of less interest in continuing to add dollar-based assets.

but ultimately looking at gold as that diversifier and taking those levels from where they may be today there's lots of capacity to do so whether it's through selling dollar assets or actually through new reserves coming on board and deploying them that way but at the end of the day again this is a that we should probably put this into context for people there's a 14-year trend that we've been seeing with central banks being net buyers

And over the last three years and so far into 2025, we've had either record setting or near record setting flows of gold. And we're talking about a thousand tons on annual that they're consuming, a thousand tons or more. And that's about 25%.

of the overall demand, 20 to 25% of the overall demand on an annual basis. It's a material level of gold that they've got going. Now, first quarter and so far what we've been seeing in the second quarter of 2025, slightly off that pace, but still very much in the ballpark of two

250 tons for the first quarter, and again, keeping pace. So we're looking again at another year where you're going to see vast amounts of money moving into the central bank reserves, moving into the gold market and actually taking up more demand. Thank you. So we've covered central banks. Now let's talk the investment community, institutions and retail investors. What has their level of involvement been over the past two years across the globe?

So let's start with the high level country breakdown, because I think that's important. And I'll talk about it in the context of regions. I think the regional interest from the Western markets has been

to hold and not necessarily to increase their overall exposure to gold as a component of their portfolio. And we talked a little bit a moment ago about the fact that risk assets were quite appealing during the moments of transitory inflation. So risk assets, equities in particular, still very much on the front foot with investors and actually very much on the mind of investors to kind of allocate there. But on the eastern investor,

Asia, China, Japan, India, etc. That's where we've seen a substantial amount of gold purchasing. Now that's both in the physical market but also in financial markets. Just in 2024, China, India, and Japan had record flows in the markets for exchange-traded funds. Each of those

countries has its own onshore domestic exchange traded fund environment. And again, record flows. Now, if you take China as another example, there you have flows that are in the physical side as well. So you see a strong affinity for the gold market in these markets and the investment landscape is growing quite rapidly. Now, what's important is that historically,

Asian markets have been predominantly the driver for jewelry demand. Some of that is consumer behavior. Some of that has been the capacity to save that way. And we've seen the jewelry market, obviously, with prices that we've been seeing drop off somewhat and actually showing negative trends in terms of the demand profile.

Not a big surprise. That's usually what happens when you see a jewelry market in a high price environment. The jewelry market needs to slowly find ways to come back online and people need to get more comfortable that they can spend, find smaller amounts, smaller jewelry components that they can actually make use of. So what I think is happening is you've got this growth of people understanding that gold still plays a role in our portfolio, but they're using the financial markets instead.

Now, in the Western markets, again, physical markets have been moderate, but not necessarily showing signs of people really plowing in. What we've seen, though, is recently in the last, I'd say, six months, Western investors realizing that the economic conditions and the monetary policy supporting that are going to start favoring

Things like gold, they're going to start showing the environment for less appeal on the rate side. There's going to be less interest on bonds and more interest on diversifiers that will actually work in shocks to the market and holding value over a deflationary time. So I think right now you've seen, again, the eastern markets, the eastern investor driving a lot of the demand over the last few years.

but increasingly so we're starting to see more institutional or institutionally oriented retail coming online.

And lastly, what I'll tell you is that the bar and coin market, which is really truly feet on the street kind of retail, it's been a little bit muted both in Europe and in the U.S. And again, I think that's more of a sentiment where people are looking to hold on to something as more of a fear factor. And actually that kind of I need to have this in case the worst case plays out. With a Republican administration in the U.S., it tends to be less of that mentality.

But again, retail organized through registered investment advisors or big platforms like your wire houses in the US, there we're seeing allocations to gold at a portfolio level.

What about high finance institutional investors? Like Harvard and Yale and all these giant institutions. I think Harvard has over 30%, maybe over 40% in private equity. To me, that seems like a lot. What are the Harvards and Yales of the world? What is their allocation to gold, if anything? I think that those institutions, and actually, I think it would probably be best to talk about it in the context of an appetite for risk right now.

And whether it's Harvard or Yale or their endowments or whether it's a high net worth individual, I think what basically people are understanding is, yes, there are definitely appealing assets, particularly higher yielding assets that have higher risk profile. Remember, that's the nature of you earn on the basis of the risk you assume, right? So if there's something very, very rich in terms of an earnings profile, whether it's private equity or private debt,

then it comes with that commensurate risk that comes with it. And actually, you don't get that risk of default with gold. You don't get that risk of operational failure with gold. It basically pays on the basis of its monetary value in the ecosystem and growth expectations or concerns around growth.

So right now, when you think about those risk assets, the conversations we're having with the organizations like the Harvard's and like the Yale's of the world is to simply say, know what kind of risk you have in your portfolio. And you'd be remiss not to understand it by adding an allocation of gold or at least seeing what the impact could be. Our data suggests that at two and a half, five, seven and a half and 10%, depending on the type of portfolio that you're running, the risk adjusted return on capital

can be improved whether it's moderately or significantly as adding gold in

smooths out the return profile and actually gives you that protection when risk assets sell off. And we've had, how many moments have we had where we had these mini moments of a market sell-off or some sort of a drawdown? We've had bank failures that have come and gone. We had a yen carry trade that unwound on a Sunday night. We come in Monday morning. If you don't think your portfolio, your US-based 401k isn't linked to global assets, you've got to rethink that.

And actually you see these things happen where markets drop 10, 15%. And if you need liquidity in that moment, that's where gold steps in and plays that role for you. And if you want to smooth that out, that's where gold steps in. And I think people are realizing that right now, the debt burden that the US is running, the bond market challenges that are taking place, the correlation similarities between risk assets, all of those factors are weighing in and putting gold right at the top of the list of a real asset.

or alternative asset allocation and adding it to your portfolio is worth taking a look. And I guess, you know, let's say Harvard's allocation to private equity and private debt is 40%. What I would speculate is that, you know, it's probably not going to go to 80%. Whereas if their allocation to gold is 1% or 2%, like it could go to 3% or 4%. In other words, there's room to run.

There's definitely room. Look, the way we want to make sure people understand gold is take the time to understand what it could do for your portfolio. And I think you're speaking to Harvard, and I don't want to single out any particular one investor, but Harvard's been in the media talking about selling certain aspects of its private portfolios.

And actually, it's in those moments where you want to make sure that you understand what that looks like. And if that's going to be a challenge for you, or you're going to actually want to make sure you have the liquidity, maybe they could look at that risk that they have, and maybe they could adjust that number on the basis of having a liquid asset like gold as a component of the portfolio.

The key thing for us is diversification and the right kind of diversification is what people need to understand. And that's where gold really shines. If it's a drawdown, I think in the last 14 official drawdowns that we kind of track in terms of our data stats, you'll see that gold's held its price

for 13 of the 14 different instances in the six months following that drawdown moment, it's outperformed risk assets substantially. And what about the institutional trading community? I guess I'm asking about macro hedge funds and that kind of world. I know from having a macroeconomically focused podcast that a lot of people are aware of gold and the fact that it often tends to go up or at least not go down when

various other things in your portfolio go down. So I know that leveraged traders who are aware of correlations, hedge funds are aware of that. Have you seen any chatter in either direction from just those kind of folks? Yeah. I think what's really interesting is that investors need to understand that the two most liquid commodity markets in the world are

are oil and gold. So you're gonna attract all the right kind of market participants to the gold market, for example, market makers, traders, speculators, hedge funds, and all the rest of it. It's what's actually really exciting about the gold market because it adds significant amounts to the $180 billion of liquidity that we see on a daily basis. This is the kind of thing that you want in a market.

liquidity, depth of liquidity, and actual variety of use cases that keep these people very interested in trying to make the call on whether they should be long or short on the short term. But that's the key. Most of that trading activity is going to ebb and flow the price of gold. And fundamentally, what's going to drive it is really the conditions of economic growth or slowdown. And that's what people need to make sure they focus on.

you're going to have moments where we get pushed up to 3,500 and then we come back and everybody's going to say, is that right? Is that fair? Is that reasonable? And the answer is absolutely, because people are going to push this thing and they're going to speculate and it's going to come back. And now we're floating at around 3,300, 3,400. And these are reasonable levels, but we're seeing support because at the end of the day, the fundamentals driving the market for us are the economic expansion or risk and uncertainty that comes along with the strategic drivers.

So we like the fact that the global trading markets involved, we know that the market's deep enough to satisfy their appetite for speculating long and short. And you can see in the data that we produce indications of where people are. So our weekly markets monitor comes out every Monday morning.

actually signals what the sentiment is. The skew is on the options market, the exchange traded futures markets. It kind of gives you an indication. Are people expecting things to go up or are they expecting things to slow down? So there's a lot of insight that you can add to your use cases and understanding what's driving gold and those fundamentals of what's driving gold and kind of give you a little bit of a flavor to maybe give you a better opportunity to pick a moment when you want to buy and maybe when you want to sell in terms of part of your allocation. So it can signal a lot of different things for you.

And how is this tariff environment shaped gold flows, both just in terms of the overall uncertainty, but also in terms of literal front running, which I believe you saw in the first quarter of this year, where people were just scrambling to get as much gold and I believe other metals out of the Bank of England and out of Europe into New York and America before the tariffs went in place? I would...

Caution to say it wasn't front running. So everything that was taking place in the market was basically doing so it was being done in a transparent and legal market. Front running the tariffs, not front running the other investors, to be clear. Yeah, that's correct.

So getting ahead of the tariffs. And in the context of the tariffs, like every asset, we didn't know, the markets didn't know what consequences were going to play out for an asset that has the potential. And in this case, I'm talking about the futures contracts that are listed in the U.S. on the Comex exchange, the CME futures contract.

If you price a contract today and the announced potential for tariffs to change the cost of a physical asset moving in to settle against that futures contract may come into play, then, and that happens after the date of a tariff being implemented, you need to start factoring that in. And you also need to make sure that if you factored that in, and if you need to deliver gold, you need to physically have it on shore here.

So, most people historically have leveled out with hedging levels much lower than what we saw coming in. So, physical gold was coming in not only from England or the Bank of England or the UK or the London market, but it was coming also from Switzerland and from Canada. Major hubs where you're actually seeing gold refined and actually sent to either trading venues in the US or

or in the UK. And in this instance, many people were saying, hey, look, I don't know how long the tariff discussion is going to last. I don't know what the repercussions could potentially be for gold as a consequence of that. So I want to make sure that if I do need this gold to physically settle into these contracts, which is a condition of those contracts, I better have it here now. And that's why we saw the stocks of gold in CME vaults, the vaults where they're holding it,

rise to levels we'd never seen before. And even the vaults that are in close proximity that might not be sanctioned officially by the CME or approved by the CME, but close by so that they could make their way into the CME vaults if needed. So lots of gold came into the U.S. Now we see post-COVID

A lot of discussions by the administration on where things are going to land, exempt the blitz being published, etc. And the majority of gold, with the exception of a few small parts of the market, are exempt from from tariffs. And so that flow of gold is now making its way back to other trading hubs. But I think what's important is that it's a big market. It has a physical condition in these particular contracts.

And you know what's really the most important thing about all of this? It was a lot of news. It was a lot of noise. It was a lot of people writing about it. The market worked efficiently. The futures contract traded at a premium to reflect the cost of getting gold from overseas into the U.S. Pricing was in line and all operational settlements and so forth

worked efficiently. So highly liquid market did exactly what it was supposed to do, reflect a slight premium for location risk that comes along with gold on behind a contract. So I was pretty excited to be honest with you to watch the whole thing develop because it was really a good confirmation for people that if you're wondering about gold versus maybe other commodities, this one's a market that you can trust.

I mean, definitely an exciting time to beat gold. And yeah, we've covered, Joe, on this program, how even though gold, it's monetary and maybe it should be treated as a capital flow, not a goods flow, the GDP calculation treats it as a goods flow. So you had all those net

imports into the United States really were a drag on GDP. So maybe, you know, GP and Q1, maybe not as bad as as the official number. So let's now move on to supply. What are the miners thinking that the gold royalty companies thinking, you know, both of whom are members of the World Gold Council?

How are they thinking about this? I mean, I'm really probably pleased, but what is the supply picture going online? You know, what's happening to all in sustaining costs, what's going on at CapEx, as well as guidance and outlook for future production? Sure. I think that let's start with the production aspect.

right now and then ultimately the outlook. Now, obviously, in a market like we've been seeing when we've been seeing record flows from a demand perspective, we're also seeing the record flows in terms of mine production, which has been not a big surprise considering these high prices is when you can really prime the pump and turn on the capacity to produce. And that's actually growing at about a 2% on annual basis in terms of the overall mine production. Now, mining happens all over the world, Canada,

South Africa, China, etc. But basically what we're seeing, Australia is another big market for mining production. We're seeing the mining companies do really well to get their production online and their production into place. But with that, they're also subject to these inflationary costs in some of the post-COVID world.

impacting their production. So the cost of energy, the cost of fuel, the challenges around staffing, just getting permits over the line. In the US in particular, we had a Democratic administration that was unfavorable about

permitting new mine sites to open, etc. So a lot of factors that were in play that were kind of taking not only the gold price, which has been very beneficial for not only the miners and the refiners and the streamers, but also just gold in general. But you have to factor in some of these other characteristics when you start thinking about how the mining companies have done.

but i think overall the all-in sustainable cost has increased because of those factors but still we're looking at mining companies that are putting out record production now mining makes up about i'd say 75 80 85 percent of how much supply comes into this system on an annual basis the residual comes in the form of recycling so when markets and prices go higher

That's usually when we start to see a larger percentage of recycling coming back into the market, meaning people take their gold and they say, I'm just going to sell it in for money. And it goes back into the ecosystem to be recast into something else. A lot of that comes in the form of jewelry. But what we've actually seen is probably lower levels than we would have expected, but

from the recycling side, which to us tells us that the fabricators and those that are in that space might still feel and give us a signal that there's more room on the upside before they start putting gold into the system for recycling. That could shift over the course of this year as we've kind of

hit a market where we tapped out at $3,500 and actually we're kind of flatlining a bit while we're trying to assess the economic conditions that are going to develop. So we'll see what the second quarter numbers look like for the mix between mining and recycling. But right now we've seen miners and mining at that 2% level and actually a very strong performance from many of those companies.

And what's your outlook or the general outlook on future production as well as the degree to which mining companies are reinvesting aggressively in expanding mines?

A lot of consolidation has happened in this space. And I think that many of the companies are looking at their projects and understanding the current political landscape, not only here in the US, but on a global scale. And I think that's probably the key thing to watch. We don't want to predict what mining companies are going to do, and we can't predict the price nor their behavior. But I think what's key right now is that the landscape is kind of shifting a little bit more favorably towards

Minerals, critical minerals, mine production, processing in the fabrication side of things. So I think it's interesting to see that we still have that expectation that mine growth based on existing projects is out to about 2% on an annual basis.

But I'm excited to see how things develop over the next six to 12 months in terms of the speed with which permitting comes online. Again, the US administration is fixated on it. And I think that's actually starting to weave its way into more of a global mindset. I think Canada as well are looking at what should we do? How should we be thinking about critical minerals? And even though gold isn't a critical mineral, it's definitely a strategic mineral. And it is right in the mix of all the different things that are being mined at different mine sites.

Yeah. Tell us about the Trump administration's policy towards permitting. How significant is that going to be in getting gold mines? Are there a lot of gold mines that it's about to get online, but they just can't get the permit? Or is there a different constraint? Well, in the US, the average term to get a permit is some really ridiculous number of 26 to 29 years. When you hear that number, you almost think to yourself, it's not even possible that that could be the case.

And it's wrong. Actually, it's really the wrong way to think about what we need and how production should be handled. And actually, I think the mindset of the administration today is one that's actually understanding the significance of critical minerals, but also strategic assets like gold.

So the administration has actually put a few different things in place, in particular, an executive order calling out the fact that they want critical minerals to be a priority. And in that order, they've exactly specifically called out gold in addition. So they understand that there's a significance to what's

going on at a mine site and what's going on in the world of production. And for us, we think it's appropriate. We think it's actually right to step back and say, look, there's a really large community of large scale gold miners are members. They're subject to conditions around standards and best practices.

practices, and they do an amazing job of that. And actually, it's really interesting and exciting to see the use of modern technologies, the contribution back to their communities around them. This is not coal mining from the 70s. This is actually a sophisticated process

They're contributing quite a bit to the economies, not only here in the U.S., but also on a global scale and actually doing things the right way. And actually, it's exciting to see that the administration recognizes that. And again, global governments are starting to recognize that as well. And hopefully we get to see the benefits of that with policy shifts around the globe.

And even if gold was not the focus at all, and let's say copper was the focus, copper is the focus, a lot of gold is found with copper, right? So it's totally gold effects as well. Yeah, 100%. I just recently had the opportunity to be a part of a trip where we were going to a silver mine. And actually in that mine, they're pulling silver, they're pulling gold, they're pulling copper. Mines are interesting. And actually you don't have one hole in the ground with one thing that comes out of it. It's actually a diverse...

universe of things that could come out of the ground. It's a question of whether or not the mining company has the capacity to process it all, and hopefully they can. And then actually when you start hearing about a mine site that gets a permit, maybe it's for gold, but antimony is a consequence of that as well. So things that are on the critical minerals list might be in that mine site with gold as well. Now I'm not a geologist, but I can tell you right now that there's a lot of smarter people looking at all of this.

And whether gold is or isn't on the critical minerals list, I can tell you it's on the mind of the administration and also many of the legislators here in the U.S. to understand how it fits into the economy, how it fits into savings, and how it ultimately fits into the jobs that basically go to work here in each and every one of the nation states.

Joe, talk to me about the digitization of gold. I know that's a phrase you wanted to talk about. And I asked you, well, what is the digitization goal? You said, I'm going to surprise you. So surprise me. So here's the interesting thing about digitizing the gold market. There have been a lot of attempts for people to tokenize or give easier access to the use of digital tokens to the gold market.

And actually, we don't think that's a bad thing, but we don't necessarily see that solving any of the challenges to make the gold market better. So I just got done talking with you for almost 50 minutes about the fact that we're hitting record demand. People aren't having a hard time getting gold. What's actually interesting for us is that we want to expand out the use cases that are actually taking place with gold.

So right now at the wholesale market, using gold as collateral, I talked a little bit about central banks doing that, where they lend it out and it gets used in that capacity. That means that the gold physically needs to move. We see a world where we can actually digitize gold and actually think about it in the context of saying maintain its importance and its significance of being physically held and secure where it is.

but actually dematerializing it in a way so that there are more use cases within investment, more use cases by central banks or at the wholesale level, and really kind of getting more granular on those use cases. The use of gold is collateral. The use of gold when it comes to moving monies quicker and faster, the actual need for us to actually make payments in the form of gold. There are people who are attempting to get all that done right now, but they're riding existing rails of payment systems or they're using

You know, simple things that are actually not necessarily changing the market. So we're changing the market through the introduction of a standard gold unit, which we've got a patent being worked on here in the U.S. And we're also looking at using the technology to track and trace gold through the Gold Bar Integrity Program that we have going with the LVMA. These are all the components that are coming together to track and trace all the gold stocks that are in the world.

dematerializing it in a way that there are more use cases at the wholesale level, at the institutional level, and eventually at the retail level, and then basically rolling this out on a global scale so that you can't sit back and say, I can buy my token here or I can buy that token there, but they don't talk to each other and you don't really know any more about whether or not you're getting a good price or a bad price. If you think about what just played out over the course of the weekend and you think about trading 24/7,

You had cryptocurrencies that were selling off on a Saturday night at nine o'clock on the back of an announcement for U.S. bombing in Iran. And now

Is that the right price? Should you trust that price? Or do we need to kind of think about what should be playing out on a Saturday night when it comes to gold, for example? Is it right for us to say, let's talk about gold trading 24 hours a day, 24-7 or 24-5? How should we be thinking about that before we just turn on a new token to say you can trade it anytime you want?

And actually, that amplifies risks that we want to make sure we can basically tackle down, which is making sure that you can trust your pricing and trust the level of exposure that you can get. And that's the key thing for us is like really trusting, tracking, tracing and understanding the market. So really opening up those use cases at the wholesale market more than anything. And then ultimately digitizing can be done by anybody in the future once we've got that thing figured out.

And so you want a 24-7 gold that can be traded in a digital manner. You said you're focusing on the wholesale. What's the technology there? Is it on the blockchain? Is it on the banking rails? And then also, so you said you, as in the World Gold Counselor, are focusing on the wholesale solution, and then you'll let other people do the non-wholesale retail version, or you're trying to do everything, or you're partnering with someone? Tell us more details.

So we basically have a consortium of different people that we're working with, which includes many of the clearing banks or the institutional firms that aren't necessarily London bullion market clearing banks, but also large financial institutions that are trading. We're also working with refiners and we're also working with the mining companies. All of this being done with the London Bullion Market Association as well to simply make sure that we bring the right people from the industry. When I say we,

I mean, that community of people that's working on this project to kind of really bring digitization to life.

And really what we're talking about is setting the market better than it is today. You know, I just talked about how it's a very liquid and a trusted market. We want to make it even better. And that's really the focus for us is really bringing that that market of wholesale banks and others that are trading it, giving them more tools in their war chest to kind of come out and use gold more readily available. And then over time, with that standard gold unit, really kind of getting us to a world where we can say that's the unit to watch.

24 hours a day, five days a week. And when the time is right and the ecosystem can support it 24/7. Remember, we don't want to introduce something that's not going to work and you actually will have problems with it or you'll get the wrong experience with it. So we want to really make sure that we roll it out in a controlled fashion. That standard gold unit will be a key component to the whole project.

And are you looking to have it be on units as small as per ounce or is this the type of thing that you'd have to have a $100 billion as a central bank type thing? I think the aspiration is to get it down as little as we possibly can in terms of a unitized component. But I think obviously, even though you can really decimalize it down as far as you'd like, it ultimately can be expanded out into covering whatever the nomination or size that you would want.

Joe, what is your view and the World Gold Council's view on Bitcoin? Do you view it as digital gold? We don't think it's digital gold. We actually think a lot of the technology and a lot of the aspects of Bitcoin are fascinating. And actually, when we talk to investors, what we help them understand is the very distinct difference between a risk asset and actually the asset like gold that's a safe haven.

So even though we do have price appreciation, again, on average, 8%, when you think about the role we play in moments of risk and diversification characteristics, we are a risk mitigating asset. And actually, what's interesting about Bitcoin, and it's shifting a bit, but still today, it's a risk asset.

And actually, that asset, when we talk to people, is one where we say, OK, you've got equities, you've got bonds and you've got Bitcoin. Let's talk about what a gold allocation looks like against those risk assets. So it's got limited capacity. They refer to mining it, which is radically different to the mining we do when we talk about mining in the gold market.

But at the end of the day, at the characteristics of returns, diversification benefits, correlations and risk adjusted returns, you'll find that it looks more like a tech stock than it does a safe haven asset like gold. That it does. What do you think, as evidenced by the gold is up on the news of the

the US, Iran and Bitcoin is down. I mean, the facts are what they are in terms of trading. Joe, what do you make of viewing the corporate companies, stocks, activity with Bitcoin of, "Oh, my company, I'm going to buy Bitcoin. Oh, actually, I'm just going to borrow billions of dollars to buy Bitcoin." Do you think that's a little nuts?

I think investors need to do their homework before they make an investment in anything that's trying to tell you they're a company, but their strategy has an investment at the heart of it. And I'd say to you that we're nothing like that when we talk about the gold market, whether you buy it in physical form or whether you buy it in a financial instrument.

The likelihood is at the heart of what we're talking about is we're talking about gold as an investment versus trying to tell you that we're one thing while we're not the other. So at the end of the day, I'd say to you that risky assets are risky assets and people should just do their homework.

That's why the SEC has disclosure requirements for companies and people should read prospectuses. I know that's hard for everybody to hear and it's not really the best reading unless you're suffering from a severe case of insomnia and you want to put yourself to sleep. But if you want to focus in on anything, focus in on risk disclosures and risk factors in the prospectus because ultimately that should give you some very insightful views on what a company is really up to or what it's not up to.

And look, if you want to take the risk, take the risk, but just know what you're owning. And actually, we'd argue if you're going to make an investment of that nature, talk to us about how you can offset it with some allocation of the gold.

And Joe, one of the things when I'm having insomnia that I read every now and then is about gold miners, but specifically about gold royalty and gold streaming companies. Just what are you seeing there? Because I think a lot of gold royalty companies, especially the smaller ones, they have projects that they've owned for a long time, but they haven't come online. They would very much like to see these projects come online. And maybe this

new administration's tone could be quite good for them, as well as just their business model and what they're saying and thinking these days. Sure. I think, look, they stand to make a lot from the buoyant prices of commodities, in particular gold. And I think that the streaming companies are faced with probably less of the conditions of the fuel, the energy, the factors that I talked to that might be causing the overall all unsustainable costs to go up.

But again, they're also still faced with the fact that getting a project online takes a bit of time and ultimately they want to get it into production. But I think the model's a really interesting one and I think that people should look at

gold as an investment. But if they're looking at the derivative of that, which is basically looking at mining companies where they might be more comfortable picking stocks, then they could look at both miners and streaming companies. And there's a lot of really good choices there for them to understand. But in that case, they're looking at not only the price of a commodity or a precious metal or gold,

But they're also looking at the company's management and their style of running the financials that go along with that company to get their production online. And so what about production globally? We talked about the US into a less extreme Canada. Is there a lot of permitting in other countries? I mean, there's one example, I guess, in Latin America of countries turning off mines. But overall, what's the attitude towards mining?

I think the attitude towards mining is favorable for large-scale mining. Actually, what's important for us to highlight, and actually a body of work that we've been taking on more so at the council, is focusing on an area of vulnerability for the market, and that is the area of artisanal and small-scale gold mining.

Now that's a growing market. And depending on whose stats you want to look to, whether the World Bank was telling us it was 2% of production 30 years ago, and it's now 20% of production. The numbers are very, very hard to judge. The numbers are very, very opaque in terms of what we can get our hands on. But we do know that artisanal and small-scale gold mining is a growing market, particularly when you hit prices like we're hitting. So this has gone beyond the fact that

A local community might be scratching at the hillside to try and make a living off the back of doing some illegal mining, where they might be using mercury, having a little less concern around the environmental impact of that, or maybe even putting all people in a community to work to try and extract as much as they can out of the ground. What's happening is the wrong type of people are stepping in and mechanizing this type of mining.

actually gangs drug dealers these types of elements where they're funding war they're funding bad behaviors they're actually using that desire to make a living and turning it into something pretty pretty awful and actually we've got a body of work we're doing on a global scale and i'm part of that working here in the us to kind of get the attention and raise the awareness

in Washington about the fact that we see this and we know this, and we intend to try and find solutions that can actually tackle this problem down. You know, we commissioned a report that talks about the gold market and how 24 different ideas could actually be used to kind of tackle down the problem. The Honorable Dominic Robb wrote that report for us, and we've been giving that to people saying, hey, be educated on the space. We're willing to help. We've got our resources to help.

but we also have ideas that we're working with on a global scale to really think about how we can not only use what the governments currently do, which is really curtail this type of behavior through law enforcement and military actions, but to say, hey, we have some other ideas around how economically you might be able to shift the tide away from a bad component in the market and give it to taxpaying people, the governments that are actually on the ground. So we're trying to get this tackled down. We think that this might be

one of the biggest issues that the gold market could face in the next five years. And we're intent on trying to do our best to raise awareness, get a political signal from the right governments to say, hey, look, this is a challenge that needs to be tackled down. Joe, earlier you said that one myth you like to dispel is that gold is complex. What do you find is another myth that you think is important to dispel about gold that people really misunderstand? Yeah.

It only works in the down markets. People think they've been only in that safe haven nature. We know that everybody knows when markets are crashing, I know I can trust my gold. What they need to understand is that the heart of what's growing gold is economic conditions and wealth creation, growth of GDP. And that's really what drives its overall performance, which is why demand continues to outpace supply production.

And actually, interestingly enough, those use cases, even though you say, oh, I know demand is going to be down because no one's buying jewelry right now. But you got to look at the other use cases and understand on a global scale, even though the U.S. investor might not be buying, a China investor might be. So you need to really make sure you have a clear picture and understand that over the long term, 1971, today, you can look at the numbers on average. Again, I've repeated this many times through the podcast here. It's about an 8% return.

Now that comes with up markets, down markets, and this current market we're in over 25%, it's going to be factored in over the long-term earnings, and you're going to find that gold performs well over the long haul. And that's why we try to encourage people to think strategically and keep and hold an allocation.

Joe, thanks so much for coming on. I really appreciate it. People can find you on Twitter at jcavatoni underscore WGC. We will link in the description the World Gold Council's report on the central bank buying some fascinating charts of really important information and a

extensive research went into that. Thank you everyone for listening. A reminder, you can find Monetary Matters not just on YouTube, but on Apple Podcasts and Spotify. And please subscribe to the Monetary Matters Network channel as also leave a rating and review. It really helps the show. Until next time. Thank you. Just close the door.