Animal Spirits Podcast - Talk Your Book: Investing in Gold

Episode Date: September 25, 2020

On today's show we spoke with George Milling-Stanley, Chief Gold Strategist at SSGA about all things related to investing in Gold. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Riddholz wealth management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions, are subject to change based on market and other conditions and factors, and do not reflect the opinion of Riddholt's wealth management, state street wealth management, state street corporations, and its affiliates. This podcast is for informational purposes only and should not be relied upon for investment decisions.

Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. On today's show, we sat down with George Milling Stanley. He is the chief gold strategist at State Street Global Advisors. He is the most reasonable, pleasant, gold enthusiast that I've ever spoken to, not that I've spoken to so many, but wasn't that like a breath of fresh air? Yeah, because usually you get extremes when it comes to gold. Either on the one end, you say people who say it's completely useless, it's a yellow rock,

and you could take all the world's gold and melt it down and put it in a swing pool and they say it's worthless, or you get people who say the dollar is going to be worthless and you have to have all your money in gold. There are a few people who say, you know what, why don't you keep it as part of a diversified portfolio because it's a ultra-diversifying asset that. that marches to its own beat, and you use it as a diversifier and rebalance, and that's what he's saying. He was, yeah, a breath of fresh air for this topic. You know, there was one missed opportunity. He said that he's been investing in gold for 50 years, and I wish that we asked

him what it used to be like to buy gold prior to the advent of, say, ETFs. So in one of his research pieces, he noted that when GLD came on board as an ETF, it garnered $1 billion in three days for assets. So a huge appetite. Wow. And that was in 2004. So it's not like, it's not like, it's not like, it's not like the ETF marketplace was robust back then. I don't want to give it all the way for our interview, but one of the things I learned, I had no idea that gold was so liquid. He said basically besides the U.S. Treasury market, nothing trades more. And it's the end of day on the financial markets, even the U.S. stock market. Well, it is a liquid metal. It's not traded as much as gold. But I'm, hey, all right. So I, I had no idea that it was that liquid. So that that's. that's a benefit. You don't really hear said that off to about gold. I really, I love his approach. He was reasonable. One of the questions that you asked was like, do you need to be bearish in equities to be

bullish on gold? Because that's kind of the default, right? It's like, and I got into this. I told him that I have some beef with gold bugs and I laid out the reasons why. And I don't remember exactly what he said, but I thought that was a really good topic. Yep. So here's our conversation with George Milling Stanley, the chief gold strategist at State Street Global Advisors. We're here with George Milling Stanley, the chief gold strategist at SSGA. George, it is a pleasure to have you with us today. Thank you for inviting me. All right.

So, gold, it's a currency, it's a store of value, it's a hedge against inflation, a hedge against geopolitical risk. How is it possible that one thing can be all of these things? Which is fact and what's fiction? I would say that all of the above are factual and quite a few other things as well. it's astonishing just what functions this asset actually performs. All of the things you've mentioned, no question, although, of course, the relative importance of these will vary from time to time, from day to day or even from minute to minute on occasion. But to me, the main things that gold is,

you've mentioned some of them, but I mean, gold is a source of returns for a portfolio. There's no question about that. Since President Nixon created the free market in 1971, when he ended the automatic right of foreign governments to exchange their dollars for gold, he created the free market just 50 years ago. Since then, on a compound annual growth rate basis, gold has given you capital appreciation of 7 and 3 quarter percent a year. That's not too shabby for something that supposedly doesn't have a yield. Gold doesn't have a strong statistical relationship with anything else in a typical portfolio, so it's giving you a level of diversification. Few other assets can match. Gold is a very deep and liquid genuinely global market.

turning over between $150 and $200 billion a day. Now, I know that's dwarfed by treasuries, but then again, treasuries dwarf everything. But at $200 billion a day, it's comfortably above the S&P 500. It's above the Giltz market in the UK or Buns in Germany or something like that. And then finally, gold has a significant impact

on your portfolio. It's got thousands of years of a track record as offering some protection against the unexpected, whether your tail risk is in macroeconomic or geopolitical. So I think all of these things are functions that gold performs at various different times, not all at once. To your point, there's an old saying that you could say going back to the days of Jesus or even I've heard Shakespeare use that, if I'm using two analogies here, they say an ounce of gold could buy a nice men's suit in any of those times and it still can today. Why has it had such staying power?

I think that it's because of all of the different functions that it has. I think that there is always a reason to own some gold. One or other of the things that Michael listed, all the things that Michael listed, all the things that I've added on to Michael's list is going to be important at just about any time. I think there's no time when it's not a good idea to have some gold in your portfolio. I've never been a gold bug. I've never had more than 20% of my own money in gold. It doesn't qualify me for membership in that elite club, but I've never had less than 5% as a strategic allocation. And I try to rebalance that every quarter, being a good, disciplined investor, something I've learned to be over the last few years. I wish it had been longer.

think it has all of those different functions. It has utility as a commodity in the various industrial applications, mostly in electronics, that take up about 10% of each year's demand. It has utility as a commodity in jewelry, which is typically between 50 and 60% of demand. It's accepted as an investment by institutions and individuals. That's somewhere between 20 and 30% of demand every year. And finally, it's a central bank asset. Just about every central Bank in the world has some gold and the number of them in the emerging markets are still busily acquiring more because they're worried about the long-term outlook for the dollar. So that again takes up 10 to 15% of each year's demand.

All of those different things, I think, mean that gold is going to be in demand for one reason or another or maybe even several of the different reasons that we've listed here. So you spoke about gold being accepted. Why is gold accepted as opposed to something like, I don't know, palladium? I remember reading about this in Peter Bernstein's, the power of gold, the history of an obsession, how he goes back to the ancient times. But why do we think that it did take hold then and continues to now? I remember Peter's book very well. He had that odd story from Ruskin about a gentleman who was on a transatlantic voyage, I believe, and the ship ran into great difficulties. The gentleman snatched up his gold coins, leapt over the side of the ship and promptly sank to the bottom of the ocean.

And Ruskin's comment on this, and Peter Bernstein echoed this with what a damn fool the guy was for taking his goal with him. Now, if that guy had picked up his golf clubs, exactly the same thing would have happened, but nobody would have blamed the game of golf. They would have said the guy was crazy. It's beautiful. It has all of these different functions that it uses. It's malleable. It's ductile. It has a very high value to weight ratio.

We are long past the days when people in what is now called Sweden used to carry around large sheets of steel on their backs bound with leather because that was their medium of exchange. Gold is a much more efficient means of buying stuff developed into it are much more efficient means of buying stuff. And now, of course, it's got all those other functions as well as an asset rather than as a medium of exchange and nobody really using it for that. But it does have all those functions as an asset. It has those functions in industrial applications and as an investment for both individuals and governments. Because you don't have to carry around anymore, obviously that's not a big deal. is something like Bitcoin a viable alternative to gold as a store of value in your mind?

You're asking me to draw a comparison between something that has a 10-year track record, if I understand it correctly, and something that I just mentioned has thousands of years of a track record. See, now the gold bugs are going to let you in from putting down Bitcoin like this. The way that I think of it, I think of gold as an investment is one of the things that allows me to sleep at night because I have some in my portfolio. If I owned any Bitcoin, and full disclosure, I don't. But if I owned any Bitcoin, I would lie awake nights wondering whether the exchange I bought it on had been hacked and I'd lost it or whether my e-wallet had been penetrated and I'd

lost it. I would be worrying about it all the time, which is why I don't have it in my portfolio. I believe this is where the kids say, OK, Boomer. Probably. That's true. I'm 73 years old. I think I'm solidly in that dynamic. That's fair enough. I have no objection to people.

using it. I don't want to use it myself. And I don't see it in any sense as competition for the strategic place that gold has in my portfolio. So you spoke about gold being a central bank holding. It's useless for institutions, individuals, companies. There's flows into and out of. Where does the gold come from? Are you buying it from? Is it people's jewelry? Like, where is this coming from? Our gold ETF is just like any other ETF out in the market there. The manager doesn't have to buy the underlying. Basically, the people who decide whether their float needs to be enlarged, if there's not enough liquidity, are the authorized participants, the broker dealers who are making a market in these various ETFs. Typically, when they get an order from a client, they

pick up whatever they need on the floor of the New York Stock Exchange. There's no need to wake me up or the custodian in London or anybody else. It's only if the order is so big that there's not enough liquidity available at the price the client's willing to pay, that's when the AP buys gold makes it available to the trust at the vault in London. And once the particular bars have been chosen from the general pile backing the custodians trading, and they have been physically moved over to the part where our gold is stored, that's when a phone call goes to Depository Trust Corporation authorizing them to issue the shares. So the authorized participants buy the shares from the trust, but they don't pay in cash, they pay in gold.

Unless Bruce Willis comes in and steals it. All of those heist movies are very, very interesting. If you actually look into the history, first of all, people tossing gold bars around like they're nerd-ball. I've picked up enough gold bars in my life to know that I can pick up two comfortably and do curls with them. They're only about 25 pounds. I usually do 35 at the gym, but they're an awkward shape, not like a good dumbbell.

But if you look into the history, seriously now, the hermetically sealed chain of custody that is represented by the London Good Delivery System, with vaults in London, in New York, in Singapore, and Dubai, various other places, still called the London Good Delivery System. No one has ever stolen gold successfully from any of those vaults. The only time gold has ever been at risk is when it's in transit between those vaults. And typically it's been the thefts have come, the big heists in reality have come from, from vaults at Heathrow Airport, at JFK, various other airports, rather than from one of those vaults, and certainly not from the Federal Reserve.

So as of this taping, gold is up 25% call it on the year. Obviously, we don't know for sure what the answer is, but if you had to guess, what's the biggest reason for that is that real interest rates have just been falling and people are worried about inflation? What are your thoughts there? I think it's several different things, and I'm sorry to have to do this to you, Ben, but it's always several different things that tend to move gold. Gold was already well on the move before we heard anything about coronavirus or anything like that.

Gold broke out of a trading range that had capped the price at $1,350 an ounce for six straight years. Between 2013 and 2019, every time the price poked its head above 1,350, speculators played whackamol, sold it short, and knocked it back into the trading range. But gold was building ahead of steam for the last three years or so of that six-year trading range. finally broke out last summer and moved up. And so gold was already $250 above where it had peaked for the previous six years at $1,600 announced in February because of all kinds of growing concerns on the part of investors. 12 months ago in the heady days of the pre-COVID 19 era, I was talking to investors and advisors. And everybody was really pleased that US equities had gone up for 11 straight years, but the more sober-minded were prepared to acknowledge that perhaps

this wasn't going to go on forever, and that maybe we would see a downturn at some point. I think COVID has only accelerated that we've seen a downturn. We may well see another downward leg. Another thing people were delighted to learn 12 months ago that we just completed the first decade in the history of the U.S. that didn't feature a recession, but again, the more sober-minded recognize we've not entirely abolished the economic cycle. Well, we're now firmly in recession and it's only going to get worse. So the concern, now that we have COVID-19, with all its impact on the economy, is how deep is the recession going to be and how much longer is it going to go on for?

And we are continuing to fail to reopen our economy. It could go on for quite a long time. And then the final piece of the macroeconomic concerns, if you like, 12 months ago people were concerned that this country was $23 trillion in debt, and that debt was going up a trillion dollars a year. we're given what the Fed and Treasury have had to do, pumping $2.5 trillion into the economy in March and April. We're already $25 trillion plus in debt, and it's going to go up by a lot more than a trillion dollars this year. Those are the kind of things that are going to worry investors a lot more, especially if, as it looks, Congress is not going to get its act together to do anything much to try to bail out the economy, at least before the election, which means probably the

onus is on Fed and Treasury to do more than just what they've done. And they've already done. on a lot. That is a potent cocktail. And then also you have the fact that obviously the dollar weakening has certainly been a tailwind for gold. And I think one of the interesting things about gold is that, to your point, it can be a chameleon. And it's hard to know at any given time what's going to move the price of gold, whether that be real demand from the buyers that are using gold or investors. So what is a bigger driver of price? And maybe it's impossible to really quantify this. But is it more user demand or demand for jewelry? Like how does investor demand? and hedgers and speculators move the price?

If I heard you correctly, Michael, I think you suggested that investor demand was not real. There's nothing unreal about investor demand at all. Jewelry is typically the mainstay of gold consumption between 50 and 60% every year in a normal year. Now, obviously, with lockdowns around the globe, jewelry got hammered in the first half of this year. Consumption fell 50%. And yet overall consumption stayed very, very similar because investment demand more than doubled. nothing unreal about that at all. The best analogy that I can think of as far as best explanation, as far as price drivers is concerned, let's just take the last 20 years, okay? Back in 2001,

the price of gold was $250 an ounce. It went up for the next decade, about $100 a year on average, so that by the fall of 2010, the price had gone from 250 to 1,250. The principal driver during that whole decade was astonishing increase in economic activity throughout the emerging world, that prosperity leading to significant, substantial, sustained purchases of gold jewelry for a whole decade. It was then at that point at the end of 2010, the beginning of 2011. The speculators realized they'd been asleep at the wheel. They'd missed the first decade and the first thousand dollars of a bull market in gold. They kicked themselves, but they figured it still had some momentum, so they piled in, and they took this market that's gone up

$100 a year for a decade. They drove it up in just nine months. They drove it up $500. So speculative activity took over from the genuine buying of gold jewelry for the next two or three years. By the time they'd driven the price up to 1,920 in August of 2011, and then they took profits and drove it all the way back to 1,250 again by the spring of 20. 2013. And then for the next six years, we've talked about this period of range trading for the

next six years, gold oscillated narrowly around that 1,250 area. Now we're obviously a lot higher than that. And again, I think the principal driver has been safe haven buying with economies around the world looking really rather shaky, with failure to reopen in this country. Europe's running into some problems. China seems to be doing a pretty good job. I think when they do get any outbreaks of the virus, they tend to be relatively localized and sort of fairly easy to contain. But Europe and the U.S. are still having a problem, so we still have major economic problems. And of course, people are worried about signs of weakness. And that's another big issue. Plus, those areas of concern I mentioned to you earlier on. So those, I think, are the major

drivers now. It's a very dynamic picture, Michael. Aside from the hedging aspect, let's say you're trying to set expectations for this as a piece of overall portfolio. So with bonds, you can take the starting yield and have a pretty good idea what your returns are going to be over the long term. Stocks is a little harder to guess accurately, but you could take your starting dividend yield and adds some earnings growth and maybe some changes in valuations. How do you think investors should look at the expectations for what their gold can give them for a return basis over the long term? I think that they should not just look at returns. I think they should look at risk-adjusted returns, which is the thing that really moves any portfolio. Gold has been demonstrated

to improve the sharp ratio of a portfolio, provided that the allocation is relatively small. You can still get a significant and very beneficial improvement in the sharp ratio. You can reduce your risk. You can also increase your returns. I think that looking at long term, because that is where gold as a strategic asset tends to perform best, I mentioned returns of capital appreciation of 7.3% a year on average over the last 50 years. I know those returns were lumpy, but nevertheless, they kind of smooth out over time, if you like.

Those are actually pretty useful returns when you think about it. And over the last 20 years, given what gold has done especially recently, it's outperformed the S&P 500, for example. And it's done that with very little correlation between the price of gold and other things that you'd find in a typical portfolio. That's how the reduction in risk comes about because you've got something that moves to the beat of a different drummer, just about any other asset you'd find in the typical portfolio. You could play games with the start and end date of gold and stocks. I feel like more than anything. So for example, George, I'm sure you've heard this before in 1980. The Dow and Gold were both 800. We know what's happened since. But then you could also say, okay, wise guy, look at the last 20 years. Gold's done better than stocks,

which I think most people would be surprised to learn. Maybe the takeaway is that they do well in a portfolio for all the reason that you just mentioned is that they tend to zig when the other zags, not every day, not every week, obviously, but over long periods of time, there seems to be no real strong correlation there. Let me ask you about this. This just popped to my head. I thought this was kind of interesting. One of the drivers of gold over the last, whatever, six months year, it can't be inflation. There isn't any. At least there's no stated inflation as far as I'm concerned. However, then you invert that and you say, well, no, no, no, it's not inflation that's driving gold. It's low real interest rates.

How can both things potentially be true that high inflation is good for gold and low-wheel rates are good for gold? What is interesting is, and this all goes back to a book called The Golden Constant by a professor of Roy Jastrum, who's no longer with us, unfortunately, but he was a professor at University of California at Berkeley. His book on silver was called The Restless Metal. His book on gold is the Golden Constant. I kind of like that.

And he looked at the relationship between gold and inflation back to the 14th century in Great Britain and back to the 18th century in this country. And that work has been updated by the World Gold Council and get an update, a reissue of that book, which had fallen out of print, with an update to the year 2010 if memory serves. And basically, his argument was gold's not a good predictor of inflation, and I completely agree. I don't think it predicts anything. But I think that gold has demonstrated over time that it can preserve purchasing power. I think that's a very, very important thing to do. If that makes it a hedge against inflation, then that's great. But the odd thing was there were several periods of deflation, especially during that UK history back to the 14th century,

and what Jastrum found was that during periods of deflation, gold loses value less rapidly than most other assets. So it's good in times of inflation because it preserves your purchasing power. It's good in times of deflation as well, because it loses value less rapidly than other things. The only thing gold doesn't really like on this sphere is disinflation, i.e. a gradual decrease in the rate of inflation. That's what we saw from 1980 to the year 2000 was a 20-year period of disinflation sparked by Paul Volcker, trying to get rid of the inflation that dogged us all in the 1970s. And that was something gold didn't like. We still hadn't seen any inflation in the last 20 years, and gold has gone from $250 an ounce to $1,900 an ounce. That's really not about.

had performance. So it's obviously there's a lot more to gold than just inflation. A lot of people in this country tend to think that gold only moves when there's inflation. I think the last 20 years gives the lie to that. Yeah, right. We talked in the past about how people assume almost strictly because of the 1970s that gold must just be an inflation hedge and because it rose so much once Nixon defaulted. And obviously, that's not always the case. Why do you think that gold is such an emotional asset? Because Michael and I often talk about it's one of those assets that if it's going up in price and you're on the sideline missing out, that's one of the assets that you're going to hear about from your friends or it's going to be in the headlines. You're going to hear

for people who don't pay much attention to the markets when it's up. Why aren't I in this? I'm kicking myself. Why is it such a fun thing for people to talk about and speculate it? There's no oil bugs, for example. If the price of oil is skyrocketing, nobody thinks, oh, man, why don't I own oil? Right. But nobody ever calls people who invest in dollar assets, dollar bugs. But nevertheless, exactly the same kind of motivation moves them. If the dollar is going up in value, people kick themselves for not having done it. But people like to be mean to gold. I think one of the reasons is that it's relatively come into its own. Since the advent of gold ETFs, it's only 15, 16 years ago. I think up until then, gold was very much a niche investment.

It was something that people who felt that they knew it might own it. And most people ignored it because they didn't believe they understood it. But I think what the introduction of gold ETFs did was essentially take a lot of the friction out of owning gold. It removed a lot of things that people had perceived as barriers and democratized gold investment, if you like. So the vast bulk of investors have only really been thinking about gold, if at all, for the last 16 years at most. They just missed it completely before then. So I think it is still something relatively new. I think it's becoming mainstream, but it's taking a while to do that. It took a while for real estate to be taken seriously as an investment. And then Timberland came along. And again,

Again, it took a long time before people started to believe that that was a good investment. And it'll take some time for a lot of people to get on the gold train. But it will happen. Eventually, I think we're becoming more mainstream all the time. That to me is a really interesting development of less than 20 years now. So you said about people being mean to gold bugs. And I would put myself in that camp and there's a good reason for it. I have no problem with gold as an asset class.

I can see the benefits 100% in terms of how it fits into an overall portfolio. You don't have to convince me there. I'm on board. The thing that drives me nuts, and I think a lot of people, is that for whatever reason, gold is used as the weapon by financial predators to the financially illiterate. In other words, it's used to scare them. And so I think those people give people like you, and I want to say people like you, those give the gold bugs, in my opinion, a bad name.

Interesting. I think a lot of those people who used to do that kind of boiler room stuff with gold, I haven't been hearing about that much recently. I think they've actually moved on to the cryptocurrencies. So that's my right past to what you're saying there. But no, there's no question that there's more emotion attached to gold than there is to most other. It's hard to get excited about small cap growth stocks, let's face it, whereas there is a definite visceral appeal to handling gold coins, for example.

It also could be sort of political in nature. When you think about the deficit and things like that, those very much have a political bent to it. I don't know. I mean, I've seen Democrats and Republicans build up deficits since I moved to this country 30 years ago. I'm not so sure that there's necessarily a political angle as far as that's concerned. But no, people do get emotional about it. I'm afraid we just have to accept that. The people who have always been believers who now believe that with gold at $1,900 an ounce, they're fully vindicated. There are still people. people out there who think that the gold price is being artificially suppressed by some strange cabal that clearly isn't doing a very good job, given that in the last 20 years, we've gone from $250 to $1,900. Anybody running a cabal to depress the gold price should be fired forthwith, right? So like many other commodities, gold booms and it busts. And so you could easily make the case that this is why it is a perfect piece for a long-term,

strategic asset allocation. When it booms a rebalance, when a bus to rebounds, it's a diversifier. Totally get that. But there's also people that say that because it does boom and busts that you could just use a simple trend following strategy to buy when it's going up, to avoid when it's going down. What do you say to that? There are many, many different ways of investing in gold my way. And it's also been the way that I've tended to forecast. I've been a forecaster of things all my life. And there are two ways of forecast. You change your forecast every 30 minutes, or you stick to one forecast for 30 years. I tend to prefer the latter approach. It involves a lot less effort and a lot less writing and stuff like that. I think that there is always a good reason to own gold

because even in those periods of the last 50 years or so that I've owned it, when it was not providing me return, it was generally mitigating the risk that was in my portfolio. And I think that because it was reducing the overall risk in the portfolio, it was allowing me to push further out on the risk spectrum with my equities and possibly even to the junky area of bonds as well, because it was already reducing the risk. I think even when it wasn't giving me returns, it was reducing my risk. When it was giving me returns, then maybe it was giving me a little less on the risk side. But to me, there is always a reason to have a strategic allocation because it makes sense. You mentioned earlier the notion of it's easy to cherry pick. I completely agree with you the cherry picking periods. That's why I have only two benchmarks, if you like, from which I base all research. One is the opening of the free market in 1971. I think before that gold and money were inextricably linked. And that has not been the case since then. So I think that that is a perfectly defensible period to take. And gold's gone from $42 an ounce to $19. In that 50 years, not a bad performance. And the other

one, I think, is the advent of gold ETFs in November 2004. I think that that was another major, major development in the history of gold as an investment. So all the research that I do, anything that my team publishes is to one or other of those time periods, essentially. So the research that I've done shows that the correlation of gold to the stock market of the long term is effectively zero, depending on the period you're looking at. You don't necessarily have to be bearish on stocks to be bullish on gold. These two asset classes can go up at the same time in different scenarios, correct? Absolutely.

I mean, the conventional wisdom, and this used to be true, I think, when I first started out in the early 1970s, that we used to expect a more or less inverse correlation between gold and the U.S. equity market. If equities were strong, gold was likely to be weak and vice versa. I think that things changed in 2008. I hate to be the one that says this time it's different, because as John Templeton told us a long time ago, those are the four most expensive words in the English language. but this time I think it is different. We've had a 12-year period now in which when equities have

been going up, gold has gone up, down, or sideways. It's done all three at different points in that 12-year period. But every time equities have turned down, then gold, sometimes after a brief downturn at the beginning, gold has recovered very rapidly and gone on to set new highs. So instead of an inverse correlation, we have an asymmetrical relationship. And think about it, that's good. When stocks are going up, you don't care. what your hedge against potential weakness in stocks is doing, you'd rather it wasn't inversely correlated, but you want to be able to rely on that inverse correlation when stocks are going down. And that is essentially what gold has demonstrated for the past 12 years.

Two things. One, since November 2004, we're recording this on September 21st. Since November 24, gold is up 313%. The S&P 500 total return, 284. So how about that? Gold, like I said, is outperform stocks since the ETF. came on the market? I think that's a testament to what the ETF essentially did. It unlocked gold as an investable asset for a whole universe of investors who had not perceived it as such before them. Took the friction out of it, as I said earlier. I think that that's been really important. And especially in times like the present, when the stock market is doing pretty well, but people don't really trust it because one of the things COVID-19 has highlighted is that extraordinary

disconnect between the stock market and the underlying economy, which many people think the stock market is kind of supposed to reflect the underlying economy. Since they started to recover after the downturn in March, stocks have been on a tear. The economy remains in tatter. So there's clearly a huge disconnect there. And I think that that speaks to gold credit right now. So during the GFC, gold outperformed after and it bottomed five months before the stock market did. However, let's not forget that it fell almost 30% piqued at trough during a period of catastrophe in the stock market. Yep, you're absolutely right. But let's not forget that it actually finished the year higher than it had opened the year. Not an awful lot, but it actually was

positive on the year because that was one of the years in which dual red demand in the emerging markets was driving the price up. So that still left over a decade, an average increase of $100 a year from $250 to $1,250. That's pretty good. Sure, you will get occasions when equities take a sudden dive. People are faced with sudden and unexpected liquidity needs, especially if people have bought equities on margin, for example, and are facing calls for additional margin as the value of their equity holdings goes down. What we saw in March of this year, those people who were savvy enough to own some gold were able to sell some or all of their holdings meet the margin calls rather than having to part

with their equities at depressed prices. And typically when gold has performed the way that people wanted it to, the reason they bought it, then they'll buy it back pretty quickly. That's a pattern that we saw in March of this year. We saw it back in 2008, the GFC. We saw it back in the recession of 2002. Black Monday in 1987, the equities dropping suddenly and dramatically, gold going down. Equity is then spending months or even years to recover their equilibrium, gold being very much on a V-shaped trajectory and bouncing back very quickly. Gold followed that historical pattern in March. Equities broke the mold in March.

They rebounded exactly as fast as gold did with the S&P going on to set new highs, just as gold has gone on to set new highs, which is why I'm suspicious of the speed of that recovery in equities and why I'm afraid we might yet be in for another downward leg. So I realize that this is like asking a barber if you need a haircut, which I haven't had the pleasure of doing in probably 15 years or so. But, George, where do you think the price of gold is heading? What's the basis for your thoughts on where you think the price is headed? I'm looking very much at what is happening around the world that is likely, in my view,

to have a significant influence. I'm not trying to pick the one single price driver that's going to be key over the next six to 18 months, three to five years, whatever period you want to take. But what I'm looking at is that we saw in the first half of this year, as I say, gold jewelry demand was hammered, fell by 50%. What we're seeing is that in some of the larger gold consumer, China in particular, but throughout the emerging markets, they were first into the crisis, first into significant lockdown, and they were much more strict about it than most parts of this country. And they seem to be doing better at

reopening their economies than we are. As I said, any outbreaks tend to be localized and easily contained. If that becomes general across all of the emerging world, we could see a significant rebound in gold jewelry demand in the second half, if that's accompanied as I expect it to be by continued failure in reopening in this country, people reopening too early and having to close down again, whether it's businesses, corporations, colleges, whatever it may be. We don't seem to be doing a particularly good job in this country. That means that there's not going to be any drop-off in the investment demand, the safe haven buying, and the strategic allocation type buying that we're seeing at the same time as that safe haven buying. If those two things happen, we could see the

price back above 2000 very, very quickly. We've already seen a fresh all-time high set in August of 2007. We could see the price somewhere in a range between 2000 and 2200, is my guess, going into 2021. And there are already plenty of people saying 3,000 is a target for next year. I don't have to say what my target is for next year. State Street does not demand that off me, thank goodness, and I'm grateful. But I'm looking at quite possibly getting back into that 2000 to 2,200 range in the remaining part of this year. We could see even higher prices in 2021. The longer we continue to fail to reopen, and the more successful, the emerging markets are. So does that mean I can't pencil you in for a $1 million Bitcoin price target as well?

I think that would be a fair assumption. Okay. You've given me two things to think about that I never thought about. I never have have looked at the break-even for gold before. So I'm going to look into that now that you got it on my radar. And I did not realize that gold actually traded hands more often than the US stock market did in a daily basis. Those are the two things I learned today. It's not that far behind the Japanese government bond market, comfortably ahead of guilts in the UK, any other government bond market you care to think about. George, you're a gentleman and a scholar. Listen, guys, it's been a real pleasure. I look forward to seeing how this turns out. And as I say, sorry about

that gap in the middle, but I think we managed to cover fairly successfully. This is excellent. Thank you very much for coming on. We really appreciate it. Thank you. I really appreciate it, guys. Thanks for the opportunity. Thanks again to George. That was absolutely awesome. Just a really pleasant conversation, and we really enjoyed it. Thanks again to State Street Global Advisors. Thank you for listening, Animal Spiritspod at gmail.com, and we will see you next time. You know,