Why HNWIs Should Consider Gold, With Stephen Flood

There are many compelling reasons High Net Worth Investors might include gold in their portfolio, including portfolio diversification, tangibility, and a hedge against inflation. Precious metals, gold in particular, can be safe havens when other assets are struggling. And in recent years, gold has been a growth asset class with good profit potential.

Stephen Flood is the CEO of GoldCore, an international gold broker located in Dublin, Ireland. Since 2003, GoldCore allows investors to buy gold and silver for direct delivery or for secure storage in a numerous high security vaults around the world.

Click the play button above to listen to our conversation.

Episode Highlights

  • Gold as a store of value and as an alternative asset class that investors should consider.
  • Bull case for precious metals, both short and long term.
  • How gold performs in both inflation and deflation depending on the factors driving it.
  • Gold as a portfolio diversifier due to its negative correlation with other asset classes. 
  • Diversifying into gold to address the risks in the stock and bond markets today.
  • Cryptocurrency and gold as comparable or competitive assets.

Industry Spotlight: GoldCore

Founded in Dublin in 2003, GoldCore have been serving Investors in over 130 countries around the world. GoldCore allow investors to buy gold and silver for direct delivery or for secure storage in a numerous high security vaults around the world.

Learn More About GoldCore

About The Alternative Investment Podcast

The Alternative Investment Podcast covers new trends in the alternate investment landscape. Hosts Jimmy Atkinson and Andy Hagans discuss diversification opportunities in the alts universe, including direct investments, DSTs, opportunity zones, private equity and more.

Show Transcript

Jimmy: Welcome to The Alternative Investment Podcast. I’m your host, Jimmy Atkinson.

Andy: And I’m your co-host, Andy Hagans.

Jimmy: And on today’s episode, we’re talking all about gold. Our guest today is Stephen Flood, CEO and director of GoldCore, a provider of precious metal products and services. Stephen joins us today from Dublin, Ireland. Stephen, thanks for joining us, and welcome to the show.

Stephen: Thank you so much, guys. It’s great to be here.

Jimmy: Absolutely, Stephen, happy to have you on and happy to talk about gold today as a store of value and as an alternative asset class that investors should consider. So, sitting where we are now in 2022, Stephen, we’re recording this episode early February 2022, what’s the bull case for precious metals, short and long term?

Stephen: Short term, I think you need to be careful when you invest in anything on the short term. You need to do your analysis, be very, very careful. You need to look at your cost of ownership, your trading costs and whatnot because you’re going to hold it short term, and sell it short term, and flip it. So, they’re very important aspects.

Currently, the themes of the market are that gold is looking a little bit cheap. It hasn’t risen in value as much as other assets. In the near term, in the last six months or so, it’s kind of gone sideways but hasn’t broken out to where it’s kind of making headlines. But unlike other assets in the stock market, the broader stock market, they’ve really appreciated quite a lot in the last year or so. So, it’s kind of holding steady. And there’s a good few specks building up in it, in the futures market in particular, but short term, I don’t think there’s a huge compelling argument for it.

Long term though, the case is very, very strong, and that’s really where owning physical gold as opposed to what you might call a proxy gold, which is an ETF or a future, or an option or something like that, which gives you an exposure. But when you own the physical, you’re actually outside of the financial system, which is quite important when you look at gold because you’re buying it because of what it is not, as opposed to what it is. It has no cash flows. It’s not connected to the economic system. It doesn’t require a rent or a yield or dividend for it to be valued based on future cash flows, like a lot of other investments would be.

So, gold actually sits there, it’s inert, and it sits on the shelf, and it’s really, really rare. You can put all the gold in the world into a 22-meter cube or a 72-feet cube. So, it’s really, really rare, and it sits there as a form of money. And the idea is that in the long term, it sits as a foundational asset to your broader portfolio, which would be more focused towards actual investments, productive investments. The idea is that if a black swan does materialize, that is a statistical anomaly that is unexpected by definition, your gold should appreciate in value substantially as people go from risk-on, that is equities and the like, to risk-off, such as safe-haven assets, and gold appreciates, and it takes the sting out of that correction. That actually is where it really does its magic.

If a market correction occurs, and every 50 years, you can get a 50%-plus correction in the broader market. So, we arguably are due one, especially with the market at such elevated levels at the moment. So, if there is such a correction coming, you will see gold will take the sting out of that for you, but it will also calm you down as an investor. You’re not all in in the market, and that means that your neighbor might be all in and he’s looking at a 50% drop, and maybe even he’s fearing going to zero, as an investor, because everything, because he’s looking at a total wipeout, margin calls and everything else. But if he has gold sitting on the shelf in Zurich, Switzerland, he knows it’s not ever going to go to zero. And so that is the fundamental reason to own gold. It’s a diversification but also a psychological benefit.

Andy: Well, I think that was really well put, and I’m actually thankful that you contextualized the precious metals asset class in that context of a greater portfolio, and you were mentioning the psychological benefits for the investor because I think there’s a misconception out there. The investors in gold are like all in, 100% of their portfolio in gold or something like that. But it sounds like you view it more as a good hedge or a good slice of a larger portfolio.

Stephen: Yeah, absolutely. There’s an old Wall Street adage that says, “Put 10% of your money into gold and hope it does not work.” So, if that 10% is going up, the factors that are pushing it up are pushing the other 90% down. So, that’s really its function. It’s actually a drag on your portfolio in its best case. And it’s something that is universally exchangeable, and that’s why governments and central banks around the world hold it. And that’s why investment professionals like fund managers, they never understand why you’d want to have something that is sitting there and it has no function, no purpose. It just gathers dust and it costs money because they don’t understand the nature of insurance and financial insurance.

I’d go one step further. Another really key thing to think about is, when you have that gold, you’re outside the system, but what you have gained is financial sovereignty, so independent, personal financial sovereignty. You’re not all-in on the system, and if the system gets hacked, you look at what’s happening in Europe these days and the potential for warfare there, and cyber warfare, you’re not all in, and you have that backup backdrop, you know, that backup plan.

Andy: Yeah, absolutely there’s a lot of upsides. It’s not necessarily just the upside of precious metals, it’s the upside when you need it, or when you want it, right. And the idea of this asset class that will zig when the stock market is zagging, which really, that’s one of the things Jimmy and I cheerlead about alternative investments, in general, is just getting something that’s uncorrelated, or hopefully even negatively correlated to the markets, to improve that overall portfolio risk-return profile.

I wanted to ask though, a lot of gold investors, they seem to…or maybe I should say, a lot of gold companies, like companies that sell gold bullion, are very much using inflation-centered thought or thesis in how they market the product. And I think that in the past 12-18 months, at least in the United States, we’ve just seen our currency incredibly debased, huge amount of debt issued, I would argue irresponsible spending, and we’ve also seen inflation spike. So, we recently had a CPI print of 7%.

But I’ve tried to warn listeners that I do think that inflation is likely to sustain at this higher level for another 12, 24, or 36 months, that short to medium term, but I also see a pretty significant probability for deflation in the longer term. And I always cite three factors. The first factor that I call the good factor is productivity and technological advancement points towards deflation. And then two other factors, really high debt levels, at least in the United States, and then also very low birth rates that are trending lower in the United States, trending lower and lower as well as globally.

So, I guess I have two questions for you. Number one, do you think that deflation is a possibility in that longer term for the major currencies, or do you think inflation is just much more likely? And then secondly, if we did see deflation, how do you think precious metals would perform in that kind of environment?

Stephen: Well, it’s a great question. And I’m going to say gold can do well in both inflation and deflation depending on the nature of the factors that are driving it. So, if you have kind of gentle inflation, sub-2%, 3%, 4%, gold doesn’t really react too much. But if you have inflation due to money printing, which is exactly what we have today, and then you have the consumer suddenly waking up to the fact that their savings are being spent and diluted, their pensions are being diluted, and their purchasing power of the money that they’re earning after-tax is being diluted, and the cost, because the cost of living is going up, and that’s what you’re seeing today, you’re kind of having people suddenly looking, staring at the data around them, and they are coming to the conclusion that they need to tighten their belts and work a little harder in order to stay above treading water financially.

So, I think once that happens, then what you see is changing consumer patterns and people go to ground. And if the crises get worse, they really go to ground, and they don’t go on holidays. They don’t buy that car. They’ll just delay it. They’d just say, “I’m not doing it.” And then sometimes those companies that employ them, then start to let employees go, and then you have the possibility of a depression. And then in depression, you can have deflation because the demand side of the economy is absolutely gutted. And it’s because of the damage done by the money printing.

And we have been printing money at an unbelievable rate, and we have a cohort of politicians who are now, when you see it, like Build Back Better and right across the world, we’ll do whatever it takes, these are people who are protected. They’re multimillionaires. They have huge, huge supports in their own lives. And they are quite happy to start the printing press and debase the currency in order to keep themselves in power. And this is not some kind of childish view of the world. This is actually what’s happening, and it’s really, really dangerous.

So, I think you’re seeing inflation right now because the money is in the savings from post-pandemic are washing through the economy. You have supply-side problems as well, keeping up, and then I think the wages are not keeping up with the cost of living. And I think you could have a consumer in Q2, Q3, Q4 who goes to ground, and then you could be in real trouble because printing more money actually makes it worse. And they can’t raise interest rates with the amount of debt that we have. I mean, the debt load globally has now gone to I think 340% of GDP. At the last financial crisis, it was around 280%. That’s a real relative increase between those two moments in time.

So, we’re massively indebted. Our interest rate sensitivity is gone through the roof. All asset classes are now positively correlated to interest rates and the printing of money. There is very, very little diversification, free lunches to have out there. So, between [inaudible 00:10:39] bonds, equities, property, you’re going to be impacted by inflation, and I think it’s quite dangerous. So inflation first, deflation later in the worst-case scenario. The only way out of this is to raise interest rates and to take the pain. I don’t think that there’s a political appetite at all for that, especially with the midterms coming up, you won’t see people, the politicians, actually explaining that to the people because that means paying for the people.

Andy: Yeah, I absolutely believe and agree with everything you said that the Federal Reserve is locked in, right? And I know the market is pricing in. I believe it’s four interest rate hikes this year, and I think that’s about all they could do because if we start seeing interest rates where they were in like the 1980s, or even the early 1990s, suddenly the debt becomes simply unaffordable. The math just doesn’t work.

So, it’s odd to me. In a way, it seems like the market isn’t pricing in enough fear or uncertainty. It’s almost like they’re pricing in that the central banks have more power than the power that they actually do have. And especially considering, as you said, there’s just not going to be any appetite for pain, right? There’s no…amongst voters or politicians who are up for reelection every two to four years, I just don’t see that happening. So, do you think there’s a potential that inflation will get worse going into later on this year and into next year?

Jimmy: Yeah, I mean, like a 7% inflation devalues your money in half in just 10 years. It annihilates your buying power by 50% at 7% a year. I mean, that’s just enormous. Can you imagine most of the cash component of people’s savings, which is significant, being halved in value in just that short time? It’s horrendous. I mean, what does that do to the baby boomers to their spending habits? Can you imagine being a 50, 60, 70-year-old and suddenly your savings get cut? You don’t go on that cruise.

So, yeah, no, I think there’s an awful lot of pain there, and it’s being carried out by probably the worst group of central bankers we’ve ever seen. Really, I mean, I think they don’t even get a grade at all. These people are so in cahoots, I mean, like, Powell, I heard recently., do you know how much he’s worth, his net worth personally?

Stephen: No, I don’t.

Jimmy: It’s $100 million. I mean, like, how on earth could someone like that make a call that could depress the value of the broader stock market because in the long term that’s what’s needed? His entire circle of his network are all looking at him going, “Well, why would you do that?” So I mean, I just don’t see that they have the capacity, capability, or morality to do what’s needed. And I’m really, really worried. I also worry about the States, the U.S. itself, and its ability to weather whatever storm comes, whether it’s on its own terms, or it’s just because of the markets itself, these things should be managed on their own terms. So, do a Volcker and increase rates aggressively, and become very unpopular as a result, but save the market.

So, I don’t see that this particular group of people doing that. And I do think what you see is inflation increasing, and then a consumer backlash, then the market will rise itself over time, but not without an awful lot of difficulty. It’s possible that they’ll raise rates very slowly and burn off that debt and grow the economy faster than the debt is growing. That is the very, very best case. But I’m not sure it can happen because also globally, there’s a huge amount of debt. In China, there’s a huge amount of debt. So these things, we’re all connected. If you look around, wherever you’re listening to this podcast, if you look around your office, your car, almost everything there has been bought and purchased through 50 different countries. Supply chains are highly integrated now. So, you can’t just look at this on a national level. It’s a global phenomenon and decisions are made nationally.

So, it’s a different world. And I’m not sure how it works out, but I do think there’s an everything bubble. I absolutely do. If you’re going to be making investments in productive investments, you need to have something like gold in your portfolio, maybe anywhere from 10%, I think is an absolute no-brainer, and maybe even a little bit higher, if you want short term, just to kind of get you through.

Andy: Yeah, that is so interesting, the way you view the central bankers and the Federal Reserve, and I tend to agree completely. Actually, the metaphor I would use is, “They are steering the Titanic in between two icebergs.” And one iceberg is they’re going to raise interest rates to tame inflation but send the economy into a pretty significant recession, where the other iceberg is avoid the recession but then we might have sustained runaway inflation. And so, if you’re President Biden, or if you’re the chairman of the Federal Reserve, which of those choices do you prefer? I don’t want either of those options. So, staring down that barrel, it’s like, yeah, some precious metals, maybe a little crypto, just some hedges seem very wise. Absolutely.

And I wanted to discuss crypto, at least briefly because I think a lot of what you said about the financial system and about owning an investment that is outside of the traditional financial system, that is part of the appeal of precious metals. And I think that’s also part of the appeal of cryptocurrencies. And I would say younger investors are very into crypto, but lately, I’ve met quite a few older investors who are also into crypto. So, it seems like there’s quite a bit of overlap between folks who are interested in putting money in crypto, as well as precious metals. So, I wanted to ask, do you see these two things as in competition? Are they alternatives to each other? Or are they potentially complementary? Are they both asset classes that an investor should consider owning?

Stephen: Well, great question. I’m a big believer in blockchain. I think blockchain technology will change the world in every way you could possibly think of. It’s fundamentally a game-changer like we’ve never seen. It’s a one in a thousand-year technology, not even in a hundred-year, thousand-year technology. And I think we’ve haven’t even scratched the surface, as to what it’s going to do, how it’s going to change every aspect of our lives.

Bitcoin itself, though, I look at, as being a very interesting thought experiment, in terms of how blockchain can be used for a currency, decentralized, immutable ledger, there’s wonderful things about it. I think it’s been absolutely hijacked by speculators who have bid it up, and the market is opaque and very difficult to understand exactly what’s driving it. I think it lost sight of its original foundational principles, which is, as a currency that is decentralized and free of the banking system and the regulated system, power to the people and all that, which is great and noble, but now it’s actually in the hands of speculators.

Ever since the futures contract for Bitcoin was launched, I think it lost its battle completely. It was just going to be a pump-and-dump operation repeatedly. It’ll never be a currency used in Main Street to buy a pizza or take a taxi or anything like that. And I don’t buy at all this…you hear these guys talking about it and they’re like, “Oh, there’s only 21 million coins.” Well, there’s 11,000 cryptocurrencies, and I could launch one today if I wanted that could do everything Bitcoin does. It’s a question of adoption. And it’s not being used as a currency. It’s being used as a buy-and-hold trade and it’s classic end-cycle investment where people buy things out of emotion and not fact.

So, I do think, as an investor, and this is something really interesting, I actually own Bitcoin and I own Ethereum, and I own a few other ones. And what I did was, I said to myself, “You know what, I’m going to buy $1,000 worth, or $100,” whatever it was, and I put it in there so I didn’t get distracted. So, if it goes to a bazillion dollars of value, I won’t feel like I was completely out of the market. And if it goes to zero, I won’t really care. But it emotionally separates me from the market wondering what if, if I was missing out, and all that kind of stuff, which has drags on people. So, I’ve compartmentalized it in myself. And I think that that’s exactly what you should do. So, put a bit of money into it as a plaything, but don’t buy into it in any big way.

Jimmy: Yeah, that’s great, Stephen. I agree with you. In fact, I’ve done the same thing. I’ve done something very similar, put a very small amount in just so I feel like I didn’t miss out. But if it does go to zero, it doesn’t ruin me, right? So, I think that’s smart to do. It’s a good piece of advice for our listeners if they’re considering it, I think. Back to gold now, just to kind of wrap things up today, Stephen. You’ve mentioned that the gold market is underserved in the United States. What is GoldCore doing to address this problem, and how do the wealthy buy gold?

Stephen: Well, as I say, we’ve been in business for 18 years. We have $300 million in assets under management, and we are solely dedicated towards the provision of precious metals and logistics relating to. So, what that means is, a typical client will come to us and they’ll put that 10% in gold or silver. And we’ll put a trade through and they’ll buy the cheapest possible product we can get from an LBMA-approved refiner. So, that’s really important. That’s an industry regulator that stands over the quality of the product that’s produced by refiners who are certified and audited. So, we only trade LBMA-approved refiner metal, and we put that in shelves, and we segregate and allocate it. So, you’re not in a pool per se. With our storage product, you go on a shelf, and you can have your bar sitting there in a receptacle with an account number, and that gathers dust until you say otherwise.

And it’s important, but what we also do is, in GoldCore website, you have your P&L, you have your assets, your serial numbers, where necessary, but we also give you access to the vault itself independently of GoldCore. So, you can log into the vault in Zurich, and you can actually inspect their records under your account number and see your bars and serial numbers fully stored 24/7, so you know that what we’ve provided you is actually there. And none of this metal is on our balance sheet. None of that metal is on the storage company’s balance sheet. It’s on your balance sheet and we’re just a custodian. It’s akin to having your car and parking it in our garage. So, it’s still your asset. We don’t get to drive it. We have it parked there, safe and sound, and it’s called bailment.

So, in the U.S. though, what you have is quite a lot of very sophisticated marketing operations. And they tend to say, “Hey, you need gold,” and they’re right, you do. But they then try to cross-sell you into other products and versions of gold, which tend to have very high premiums because the person on the phone is paid a commission to get as much money out of you as possible, whereas everybody at GoldCore, none of us are paid commissions. We’re all client-centric, client solution-focused. So, they get paid a bonus when the company does well, and that’s how we operate. And if we don’t think it’s a fit for the customer, we will not take that customer on. We have no problem saying that, and even talking them off out of a big trade if we don’t think it’s appropriate.

And as a result, we have a rating of 4.8, 4.9 out of 5 since 2012, with thousands of reviews, everyone legitimate. So, we know what we’re about. We’re experts in it. What we’ve done is we’ve put together a number of different tips for anybody looking to get into the metals industry. And we really want more people to get in. And we think it could be a three-fold increase in the number of people buying metals. But we put all these points into a document and we have it on a special website in honor of our coming to America.

We have an office in California now, as you said, and it’s a website called goldintheusa.com. So, it’s based on the famous song “Born in the USA” dot-com, and we’ve got goldintheusa.com. You go on there, you download that guide. There’s no cheesy marketing. It’s just really, really good, honest advice for you to take on board, and then decide who you want to deal with. And if you come to us, we’ll look after you, but definitely, I think people need to buy gold.

Jimmy: Well, you’re making the boss, Bruce Springsteen, proud with that URL. That’s goldintheusa.com. Not “Born in the USA,” but goldintheusa.com, that’s terrific. Stephen, it’s been a pleasure speaking with you today and getting your insights. I really appreciate you coming on the show. For our listeners out there today, we will have show notes on the Alt DB website, where we discuss all of the resources that have been presented today on today’s show. You can find those show notes at altdb.com/podcast. And you’ll find links to everything we discussed on today’s show, including we’ll be sure to link to goldintheusa.com. Stephen, it’s been a pleasure speaking with you today. Thank you so much for joining us.

Stephen: It was great. Thank you so much. I really enjoyed the chat.