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The Digger Quarterly

... for those who still cherish the gift of reading

The Biden era: big bets on big government


It’s only been a few months since President Biden moved into the White House, but there are already clear indications that the US is very likely going back to “business as usual”. The new administration’s appointments to key governmental posts, its economic and fiscal measures, and its foreign policy approach are all signaling a return to the very familiar, pre-Trump national pri- orities and goals that the country pursued for decades.


Many investors and ordinary citizens might find this outlook comforting, especially after the terrible year that was 2020. You couldn’t blame someone for hoping that this return to “normal politics” could usher in an era of stability and predictability. While we certainly share in these hopes, we also clearly see the risks and potential of the exact opposite scenario.


Returning to decades-old political playbooks and economic strategies is not unlike turning one’s own clock back and pretending the last four years never happened: that Donald Trump was never elected, that the covid crisis never destroyed the economy, that social unrest and violent riots never rocked the nation, and that the Capitol was never invaded. But it all happened, and the anger, the uncertainty and the sense of unfairness that fueled it all are still present. Unless they are directly dealt with, the risks of further tensions and internal turmoil remain high.

Covid response


There is no question that the situation that President Biden inherited is extremely dire and, in many ways, entirely unprecedented. Any President, of any party and political persuasion, would have undoubtedly had a very hard time navigating these waters; the recovery after the covid crisis would be a titanic challenge. Nevertheless, the extensive economic damage, to a very large extent, was the direct result of the lockdowns, the forced shutdowns and all the other restrictions on private businesses that President Biden unwaveringly supported throughout the pandemic. Whatever one might think about the necessity and the wisdom of these measures to combat the virus, their devastating impact on the nation’s economy is obvious, measurable, and extreme. Thus, it’s to be expected that doubling down on these policies will inevitably exacerbate and pro- long the damage.


Indeed, among the first covid-related measures of the new administration was an indefinite extension of the travel ban from European countries, Brazil and South Africa, a federal mask mandate, and the CDC’s empowerment to play a more active role in lockdown policies on a state level. In the first hours of his presidency, President Biden also rejoined the World Health Organization, which his predecessor withdrew from last July. Many of his appointees and cabinet picks have also been supportive of continued restrictions to business activities and harsher meas- ures, including some that called for a nationwide lockdown. The President himself has strongly criti- cized states that have adopted a more relaxed response to the pandemic, even just recently denouncing the move to drop mask-wearing mandates in Texas and Mississippi as "Neanderthal thinking”. In fact, despite the significant progress made on the vaccination front, Biden has urged all states to freeze their plans for reopening and even reinstitute restrictions, echoing the CDC Director’s fears of “impending doom” and a “fourth surge” of infections.


Meanwhile, public support for lockdowns and restric- tions limiting business and social activities has plum- meted even among Democrats, a record-high 41% of whom said they would be comfortable returning to their normal routine, according to a recent Morning Consult survey. Americans’ interest in covid-related news has also dropped to its lowest point since the pandemic began, according to a Pew Research poll published in late March: just 31% of adults are follow- ing the news closely.

“Going big”


The historic $1.9 trillion covid relief package passed in March was celebrated as an essential step to restarting the economy, and as a crucial part of the President’s “Build Back Better” agenda. However, it is not entirely clear how this package can effectively reactivate the economy given the very limited support it provides to actual businesses and job creators. The bill included a third round of stimulus checks - up to $1,400 - increases in unemployment benefits, $350 billion for state and local governments, and just $50 billion allocated to aiding small businesses.

It is also unclear how this bill will contribute to the pandemic response and to addressing the ongoing public health emergency. In fact, according to the Center for a Responsible Federal Budget, a bipartisan think-tank, “only about 1% of the entire package goes toward covid vaccines, and 5% is truly focused on public health needs surrounding the pandemic. Meanwhile, nearly half of the package will be spent on poorly targeted rebate checks and state and local government aid, including to households and governments that have experienced little or no financial loss during this crisis”. A recent analysis by the Congressional Budget Office also highlighted that "more than a third of the proposed funding - $700 billion - wouldn’t be spent until 2022 or later, undermining the administration’s claim that the mas- sive price tag is justified for urgent pandemic-related needs”.


Many conservatives and moderate Democrats have criticized the bill as politically opportunistic and wasteful, and as an indirect bailout of struggling Blue states that have mismanaged their budgets for years. On the other side of this argument stands the rest of Mr. Biden’s own party, that believes the bill did not go far enough and that sporadic relief checks are not sufficient. 50 Democratic U.S. representa- tives and 11 members of the U.S. Senate signed letters urging the administration to provide regular stimulus checks until the crisis is over, with Minnesota Rep. Ilhan Omar calling on the government to send out $2,000 to every citizen per month.


Still, the spending spree of the new administration has only just begun. Consistent with his promise to “go big” on stimulus efforts, just weeks after the nearly $2 trillion package was passed, President Biden unveiled his plans for further fiscal support: a $2.25 trillion infrastructure and green energy bill, which includes record spending on combating cli- mate change and supports his administration’s ambitious targets to achieve carbon-free power generation by 2035 and net-zero emissions by 2050. This is to be followed by yet another massive spend- ing package, expected to cost a further $2 trillion, this one set to focus on education and childcare, including universal Pre-K and free community col- lege. All this will be partially funded by drastic tax increases on corporations and on Americans earn- ing more than $400,000, which together would rep- resent the largest tax hike in generations.

It will also be funded by further borrowing, of course - just for reference, the US national debt is already on track to hit $28 trillion this year. President Biden, confronted with concerns over the budget deficit that hit an all-time high of $1.05 trillion in the first five months of this budget year, interestingly countered that “every major economist thinks we should be investing in deficit spending in order to generate economic growth”.

Social justice and identity politics


In the first few months of the Biden presidency, there has been a veritable tsunami of proposals, executive orders and special provisions hidden within larger, and often irrelevant, spending packages. They clearly show the new administration’s determination in prioritizing “social justice”, “equity” and “fairness”, as those values are defined and demanded by the Party’s most extreme leftist faction. In purely economic, measurable, and objective terms, such policies, more often than not, involve mechanisms of aggressive wealth redistribution or unevenly applied legal protections. And politically, their common denominator is divisive, fractionalizing rhetoric that contradicts the message of unity and national healing that Joe Biden ran on.


On the gender politics front, the new administration has taken a number of steps that appear to be aligned with the wider leftist trend of pulling the focus away from traditional women’s rights issues and towards various LGBTQ or racial justice goals. For instance, on International Women’s Day, President Biden issued an Executive Order establishing the “Gender Policy Council”, a revamped version of what used to be known as the “Council on Women and Girls” that was established under the Obama administration. The new Council’s purpose is to ensure that “every issue is approached with gender equity in mind”. As its co-chair highlighted, the GPC will “aggressively protect” the rights of those who “experience multiple forms of discrimination, includ- ing people of color and lesbian, gay, bisexual, transgender, and queer people”. This policy pivot towards minority protections was also reflected in the President’s earlier executive order against gender discrimination which critics argued opened the door to transgender athletes competing in women’s sports.

The Biden administration has also taken practical steps towards tackling climate change and “environmental injustice”, by creating a new Presidential Envoy position, a new office in the Justice Depart- ment, a “National Climate Task Force” and yet another Special Council. Among the policy priorities, apart from directly relevant goals like cutting emis- sions, we also find things like the creation of “well-paying union jobs”, housing subsidies, and a pledge that 40% of the clean energy federal investment will be allocated to disadvantaged communi- ties, all echoing calls to fight “environmental racism”. On the highly controversial issue of racial justice, President Biden has continued to push for legislative progress and policy solutions. Apart from the bar- rage of executive orders meant to dismantle “sys- temic racism” that he signed upon entering the Oval Office, he and his appointees have also taken steps to tackle problems like “racial equity in transporta- tion”, which would involve diverting federal funds and grants to “equity programs” and expanding the DOT’s authorities and mandate.

Geopolitics: US leads the re-globalization push


As soon as President Biden moved to the White House, a near-complete reversal of the nation’s for- eign policy stance and goals took place, starting with the new President rejoining almost every inter- national organization, pact, and agreement that Donald Trump had withdrawn from. Far from this U-turn being a merely symbolic one, the new leader- ship has already demonstrated in a very real and practical way that it intends to revive the Truman Doctrine. As evidenced by his rhetoric and policy priorities, President Biden has embraced a world- view reminiscent of the Cold War: one that sees a global, existential struggle between allied democratic nations and dangerous authoritarian regimes, that not only justifies, but necessitates, American interventionism.


In his first foreign policy address, President Biden made it clear to US allies and foes that “America is back”. Indeed, barely three months into his presi- dency, Biden had already carried out an air strike in Syria and unveiled a raft of new sanctions against Russia. He also called Russian President Vladimir Putin a “killer” and took official and public positions on domestic affairs and internal political develop- ments of other nations, like Turkey and Poland. On China, his stance has also hardened substantially: from the vague policy framework of cooperation and diplomacy he presented on the campaign trial, the President now appears to have embraced a much more hawkish approach. Sanctions, tariffs, joint mili- tary exercises in disputed territories, an increasingly fiery rhetoric, have all dialed up the tensions between the two superpowers. And yet, despite the bold, pub- lic vows to defend America's global leadership against the rise of China, the domestic policy choices outlined here don't seem to be very well aligned with the pro- jected determination and resolute foreign policy stance. The new administration appears to be primar- ily concerned with social justice issues, identity poli- tics and redistributive policies that are unlikely to improve the competitiveness of the American econ- omy, especially vis-à-vis its Chinese rival.

Implications for investors


The unprecedented stimulus wave, the reassuring promises of further support and the media’s treat- ment of the new President have all certainly helped create a climate of optimism and boosted investor confidence, at least for some. Hopes of a swift recovery have also been lifted and there’s an aggres- sively risk-on attitude gripping equity markets. Fundamentals and relevant news, no matter how dire and alarming, don’t seem to be enough to temper the rise of asset prices. And while there are still solid and fairly-valued companies to be found, some corners of the markets are looking dangerously over-stretched with valuations that simply make no sense.


Given all the risks and uncertainties outlined above, it can easily be argued that this overall exuberance and this general confidence that the “worst is already behind us” might be quite naive. In fact, all these areas of concern we discussed here are so closely intertwined and the internal economic and sociopolitical situation in the US is so fragile, that even if one of the adverse scenarios materializes, it could easily snowball and trigger a larger, much more serious crisis.


Overall, our outlook at Global Gold is best summed up as “hope for the best, prepare for the worst”. While mainstream traders and speculators might be entirely content focusing solely on hope and wishful thinking, we are already seeing quite a lot of con- servative investors turning to physical precious metals and actively preparing for choppier waters ahead, a trend we expect to continue as the year goes on.



 

“More money than sense”: How monetary and fiscal profligacy fueled the"alternative"investments bubble


Over the last year, and especially over the last few months, financial markets appear to have decoupled from the real economy. Despite the extensive, severe, and structural damage caused by the covid crisis, the gravity-defying stock rally has raged on.


With bonds offering no real return, investors flocked to stocks, and according to a recent report from BofA, more money has flowed into equities in just five months than in the last 12 years combined. As a result, valuations have skyrocketed, and even totally worthless companies are trading at 52-week highs. In this pressure cooker environment, it is no wonder that a growing number of investors looked else- where for opportunities, leaving behind stocks, conventional markets, and sometimes common sense as well.

“Nothing left to buy”


The phenomenon of ultra-loose monetary policies boosting asset price inflation is certainly nothing new. It’s been increasingly obvious since the last recession, as QE and low interest rates have been the primary fuel of the record-breaking bull market in the US. Now, however, this trend has been supercharged by the covid crisis response that saw extreme monetary interventions combined with unprecedented fiscal support. Also, unlike what we saw during past crises, the tsunami of fresh stimulus cash did not remain contained within the banking system or the corporate world. Direct cash injections like universal stimulus checks or extra unemployment benefits, as well as measures like rent freezes and debt repayment deferments, made sure that the interventions would reach the real economy and provide a cash boost to the average household. This, coupled with a decisive acceleration in the rise of amateur trading, a trend we covered in previous issues of the Digger, quickly translated into higher levels of speculation by smaller retail traders and led to extreme cases like the GameStop saga and the WallStreetBets controversy.


All these developments played an impor- tant part in pushing stock valuations to extreme and often nonsensical levels. In doing so, they have also made one thing clear: there is simply too much cash in the system and nothing attractive left to buy with it, at least not in conventional financial markets anyway. It is thus not surprising that this need to put idle cash to work would inevitably lead investors and speculators to explore new possibilities and experiment with different investment vehicles in their hunt for yield.


This hunt set off a surge of interest in new kinds of alternative investments that soon captured and expanded this new class of amateur investors, many of them young, inexperienced, and often financially illiterate. With the help of mainstream media coverage, celebrity endorsements, easy- to-use trading apps and social media hype, this quickly turned into a perfect storm: a new investing mania that resulted in shocking amounts of money being poured into new, exotic, and often totally ludicrous, speculative vehicles.


The collectibles boom


Although collectibles have been entirely legitimate areas of alternative investing for a very long time, they always tended to attract a very specific kind of investor. Of course, these tiny markets had their fair share of speculation, but usually serious collectors had a long-term, buy-and-hold view and they were deeply knowledgeable, often specialized in their own niche, be it luxury watches, classic cars, fine wine or rare books. The dynamics of this corner of the market were radically transformed in recent months. Newcomers to this space have turned col- lectibles into a hyper speculative, fast moving and highly volatile market, almost reminiscent of the crypto bubble of 2016.


Demand for collectible sneakers truly exploded last year, turning sports shoes into a bona fide asset class. Until recently, the secondary market for vin- tage or limited-edition sneakers was a negligible niche, part of a pop subculture and it was largely populated by “investors” under 20 and fueled by rappers and social media influencers. The pandemic quickly changed this landscape, however, and brought mainstream attention to the sneakers mar- ket. This was in part driven by the huge discounts that panicked manufacturers and resellers offered, facing sudden shop closures and expecting their sales to fall off a cliff. As mainstream demand picked up, online marketplaces saw an unprecedented boom. Prices skyrocketed, while automated algorithms and bots were deployed by speculators to snap up lim- ited edition shoes as soon as they were released.


Before long, the “investment case” for sneakers was being taken seriously and reported by the likes of Bloomberg and Forbes. StockX, the largest authen- tication and resale platform, adopted Wall Street jar- gon, replacing “buy” and “sell” with “bid” and “ask”, while it also created a hypothetical index fund of 500 sneakers that actually outperformed the S&P 500. GOAT, a StockX competitor, offered storage services to investors for their precious kicks. According to a recent report by Cowen, the North American resale market currently stands at $2 billion, increasing by 20% YoY, while the global sneakers market, largely a duopoly controlled by Nike and Adidas, is worth over $75 billion.

Luxury handbags also saw a dramatic increase in demand. Even before this recent frenzy, certain brands have been known to charge outrageous prices and make their customers wait in line for some of their iconic designs. While such items were already seen as rare and hard to come by, luxury brands fur- ther amplified their perceived scarcity by releasing limited editions of their most expensive bags, turning them into reliable cash cows. These could sell for anything between $100K and $400K, while a few of them were even priced in the millions. It was in these peculiar market dynamics of blatant and undisguised supply manipulation that the new wave of retail demand found another outlet. Fractional investment platforms cropped up, offering small amateur “inves- tors” the opportunity to buy and trade shares of handbags that they could never afford to fully own. Trading apps like Rally introduced the concept of “handbag equity”. They filed with the SEC to securitize rare bags and launched “Initial Product Offerings”, allowing ordinary people to enter the space of so- called “investment handbags”. Quite predictably, this also gave rise to speculation and quickly resulted in even more extreme valuations. Still, many largely unsophisticated buyers keep pouring money into this illiquid and highly volatile market, purchasing shares of assets they have no control over.


Among the most surprising additions to the new alternative investments mania was trading cards. The same sports cards that many of us might remember from our childhood made a comeback during the covid lockdowns, or as the president of Panini Amer- ica, one of the biggest card producers, succinctly put it: “it has been absolutely insane”. Only this time, it is adults who are fueling the demand, and self-described investors at that. New trading platforms emerged and demand surged, with auctions pushing prices to incomprehensible highs. A LeBron James card recently fetched over $1.5 million at auction, while in March, a Kobe Bryant rookie card sold for nearly $1.7 million.

And it’s not just basketball or baseball cards that have taken off. There’s even a boom in Pokémon cards, many of them trading for $10-20K, while it’s not uncommon to find “rare” cards trading for $80- 100K. Prices can even top $200k, like the Pikachu Illustrator card, which sold for $233,000. In February, eBay reported a 142% surge in domestic sales for 2020, “selling more than four million more sports, collectible card games and non-sport trading cards in 2020 than in the year before”. Meanwhile, “investment consulting” businesses have also cropped up in this niche, advising clients on managing and expanding their card collections.


The NFT mania


While all this may sound juvenile at best and dangerously harebrained at worst, it is at least still within the bounds of the fathomable. Over the last few months though, this frenzy escalated to a whole new level with the arrival of NFTs on the mainstream investment scene.


An NFT, short for "non-fungible token”, is a digital certificate stored on a blockchain which identifies the owner of the token and guarantees that a spe- cific digital asset is unique. The underlying asset can be any digital file, like a photo, a video, an audio or a text file, and the NFT that’s attached to it is a cross between an ownership title and a certificate of authenticity. However, the important thing to under- stand in order to fully appreciate the folly of this trend, is that the NFT does not confer any kind of exclusivity rights. All intellectual and creative rights stay with the creator of the file, while copies of the underlying digital asset can be easily and freely reproduced and accessed by the public, without any permission required or any royalties paid to the owner of the NFT.


Now, nonsensical as this “value proposition” might seem, it hasn’t stopped NFTs from becoming the next big thing in alternative investments. Digital art was the main asset type that prevailed, with design- ers, painters, photographers and singers all rushing to ride this trend. Online NFT stores, trading plat- forms and even NFT funds provided the infrastruc- ture for this phenomenon to grow into an actual mar- ket, while extensive media coverage fueled mainstream demand for the digital tokens. Before long, NFTs were selling for hundreds of thou- sands of dollars, as celebrities, famous crypto investors and even traditional auction houses started entering the race. In March, a digital artist known as “Beeple” made history: an NFT of his work sold for a record $69 million at an auction held by Christie’s, making it the third most valuable artwork ever sold by a living artist, placing Beeple right behind Jeff Koons and David Hockney.


Given the publicity and the stupendous sums involved, it is no surprise that NFTs were used as wrappers for all kinds of “assets”, beyond digital art. A video clip of basketball star LeBron James dunking a basketball sold for $208K. A virtual plot of land in a video game sold for $1.5 million. Jack Dorsey, co-founder of Twitter, sold his first tweet as an NFT for nearly $3 million. One might think this is where this madness reached its peak, but if you spotted the pattern from the other manifestations of the new alternative investments frenzy, you might guess what happened next.


Fractionalized NFTs entered the fray, with online platforms allowing collectors to buy and trade shares of a full NFT. This predictable development helped this trend cross over entirely to the realm of the surreal: You can now buy a fractional ownership title of a digital certificate that confers no actual property rights over an intangible asset of no discernible value.

Inflation by any other name


The sheer absurdity of the alternative investment boom might seem bewildering to a mature and rational investor. To history buffs, it is probably rem- iniscent of the late stages of the Dutch tulip mania or perhaps more closely akin to John Law’s Mississippi bubble. Overall, it’s tempting to simply laugh it off and dismiss it as yet another confirmation of the old proverb that “a fool and his money are soon parted”. However, embedded in this farcical spectacle is a clear and important signal that no serious investor can afford to ignore.


When there’s too much cash artificially pumped into the system, real assets get more expensive and tra- ditional investments soon become unaffordable. There comes a point where small, amateur investors realize they can’t compete with institutional players and they stand no chance in conventional markets. So, they cre- ate their own. They invent new asset classes and new investment vehicles, and they use their own extra cash, generated by fiscal and monetary excesses, to inflate prices. At this stage, it really doesn't matter whether we’re dealing with rotting tulip bulbs, ownership titles to non-existent gold or worthless digital tokens. It always ends the same way: in tears.


"You can now buy a fractional ownership title of a digital certificate

that confers no actual property rights over an intangible asset of no

discernible value."


Unfortunately, these bubbles carry significant risks even for those who don’t participate in them. This ongoing frenzy can be read as a sure sign of danger ahead for the wider economy and for conventional financial markets. It blatantly disproves the claims of politicians and central bankers about the side effects of their aggressive printing and spending operations. Their solemn assurances that inflation fears are alarmist nonsense and that their policies are entirely sustainable certainly seem a lot less credible now that the bubble they created got so big, it actually broke out of stock markets and expanded to new, mostly made-up asset classes. At Global Gold, we have long warned investors of "growing imbalances and moral hazards" as a direct result of "cheap money" and these are the kind of excesses and distortions we have in mind.

For too long, we’ve been hearing absurd arguments and obvious excuses for limitless spending. Long-standing political goals have been disguised as new economic theories and basic, self-evident concepts like supply and demand have been discredited using pseudoscientific tricks and populist rhetoric. And yet, denying the nature of reality doesn’t actually change it and actions still have consequences. So, next time someone tells you that “deficits don’t matter” and that “inflation is dead”, show them a $600K NFT of an animated Pop-Tart space cat.


 

Hybrid Banking: the crypto (R)evolution


The wave of digitalization has transformed the banking industry over the last decade and the wide adoption of online banking tools, investment management platforms and mobile apps meant that many clients soon came to expect this level of convenience and control. In fact, it became the main selling point of many digital-only “neobanks”, that offered a seamless banking experience and user-friendly interfaces.


However, once the pandemic hit and the first lockdowns were enforced, digital banking services went from an attractive competitive advantage to an absolute necessity, not just for the commercial sector, but also for private banks, investment management firms, and most other financial service providers.

The digitization drive sped up and scaled up, with companies launching new online services and platforms that had been in the works for years in just a few months, in order to compete. And then, only a few months into 2020, another gap in their service offering soon became apparent: Crypto.

The Bitcoin effect


Demand for crypto custody services has been on the rise ever since the last boom in this space in 2016. However, until last year, it was largely accommodated by much smaller companies and startups, native to the crypto sector. Many early adopters knew how to securely store their crypto holdings and were comfortable doing so themselves, while the majority of the newcomers either held smaller posi- tions, or simply didn’t realize how crucial the need for proper storage was. A couple of security breaches in major exchanges helped drive that point home, and demand for custody providers did gradually pick up. But this was nothing compared to the boom that began in 2020 and still rages on.


Bitcoin soared over 300% last year, already doubling in the first few weeks of 2021, and taking the overall value of the market to roughly $1.1 trillion. This dramatic surge naturally reignited investor interest and accelerated institutional adoption that had been on the rise in recent years already. It also caught the eye of the big banks too. Citigroup, Standard Chartered, and Morgan Stanley Wealth Management all came out with bullish reports on the outlook of the digital currency. But a growing number of banks also realized that the Bitcoin price explosion would quickly translate into a surge in demand for custody services too. Bank of New York Mellon and Deutsche Bank were among the latest to officially join the crypto race, offering crypto custody to asset managers, family offices, corporate clients and digital funds.

Regulatory green lights


Switzerland and Singapore have been the clear frontrunners when it comes to regulatory foresight and support for the crypto sector. This helps explain why they have become hubs of innovation and attracted massive new investment capital from the start of last crypto boom. Legal reforms and amendments, such as the Swiss “Blockchain Act”, helped boost confidence and further legitimatized the new asset class, while traditional banks were also quick to experiment with and adopt digital currencies and blockchain applications.


In January, an important development in that direction also came out of the US. The Office of the Comptroller of the Currency (OCC) issued a ruling permitting US banks to use public blockchain net- works and that was seen as an encouraging signal by many major financial institutions working on launching crypto-related services. Regulatory decisions like these also send an important message to larger private investors, as well as corporate and institutional players, indicating that the crypto sector has matured and the “Wild West” days are behind us.

BFI custody services


Given the developments of the last few years, our sister company under the BFI Capital Group, BFI Infinity, are now confident that this space can be accessed in way that is secure, reliable and offers real value to their clients. There were certainly growing pains initially, and waiting a bit was valuable to do, but all the relevant tools and the technological infrastructure have evolved and reached a point where BFI feels comfortable entering this arena.


We are thus very happy to announce that BFI Infinity will start offering mandates to clients who are interested in integrating crypto allocations into their overall wealth management portfolio. While we are very optimistic about the potential of this asset class, we are also acutely aware of the fact that it still relatively new and that it requires specialized and focused attention. This is why, as they integrate these services, they will continue to cooperate closely with expert and experienced partners on such mandates.


 

The Practical Buyer's Guide: Bullion Bars or Coins?


In the flurry of purchase orders we’ve taken here at Global Gold in the first quarter of 2021, I found a recurring question that kept coming up with cli- ents before they purchased.


Perhaps what was most interesting about the question is that we were getting it from not only new clients that were purchasing with us for the first time, but I found many of our existing clients looking for the same help.


The Question: should I buy bars or coins? There are countless articles you can find on the internet if you search the subject. But what I started to find missing from all of those articles, and what I clearly found many of our clients liked in my responses, was what would a “regular Joe Blow” think, and why?


“Joe Blow” is the hypothetical name for the average person – you don’t hear it much anymore, so maybe I’m dating myself a bit. But how better to advise someone than through your own experiences? I own metals stored with Global Gold as well, amongst other places. What would I do?


And thus, my “practical” guide on whether to buy bars or coins was born. This is basically a variation of emails I sent to clients earlier this year. Before I dive in, I’m going to focus on gold here, keeping in mind this could apply to silver as well. But I just don’t want to jump around too much, keeping to the key points. These are just some practical things to consider, and then I’ll conclude with my own personal recommendation, the “what would Scott do” part!


Price


I’ve always been a value shopper in every- thing I do, so I want the most “bang for my buck”. The premiums above spot you pay on coins will always be higher on a per ounce basis than what it is on a bar. Why? There’s more detail and effort that goes into creating a coin than a bar. The 1oz gold American Eagle is beautiful in its detail for a reason.


But a 1oz gold American Eagle right now, if you are lucky, is running about 9% over spot at the moment. If you are doing the math, that’s near $160/oz. On the other hand, we currently can get a 100g gold bar for $30/bar over the spot price from one of our providers; that clocks out at over $9/oz over spot. Big difference! Why not a 1oz Valcambi bar: $30/oz over spot, so if we are looking at $1750/oz spot, we can get the 1oz bar for $1780.

Plans and Goals


Global Gold clients buy their metals know- ing they will store them outside of their home country already, so what does it matter then if they buy bars or coins? Well, I always ask what the long-term goals are, if a person even knows what they are. If you want to buy and hold, with no inten- tion to sell, then bars, and even larger bars, are the best. But if you think you could take delivery, coins are going to be easier to resell at your local metals shop. Or it will allow you to store in a few different locations. Maybe you want to keep some at home, then somewhere else to diversify.


Or, for those that really worry about the collapse of the fiat current system, what would you rather buy a loaf of bread with: a bar or a coin? I think you get the drift.

Mobility and Liquidity


I had a client call me once asking me what he could do: he had a 500gr gold bar physically on his person, and no one would buy it from him. You won’t have this problem with coins, or even smaller bars, like a 1oz bar, or even the 100gr that looks like a matchbox.


Having smaller formats in any case is easier to handle than larger. I know more than one person that likes to travel with a coin or two on them at all times for an emergency. Or they like giving coins as gifts to family. And, if your intention is to sell at some point, a 1kg bar will fetch you roughly $56,000 at the moment, whereas coins, even if selling in a tube of 10, will get you over $17,000. Always good to leave yourself some good liquidity options.

Sentimentality


Those of you who know me well, know that I’ve more than once said how “pretty” a coin is. Look at the detail, how it shines in the light, how people recognize right away that you are holding something of value when you bring it out. I believe coins just carry a more sentimental value because of how they look.


I remember the first time I gifted my son a 1ozt American Eagle gold coin. He handled it with such care and amazement. Then, I showed him a 100g bar of gold, and you could tell amongst his basic instincts that the coin was just worth more to him. Naturally, that changed a bit once I told him the value of the bar vs. the coin, but I think the view is pretty clear through the eyes of a child.

Storage


It’s obvious that the more you buy in ounces of gold, silver, etc, the more space it’s going to take up. But if you consider a single, 1kg gold bar, about the size of your cell phone vs. 32, 1ozt gold coins (a 1kg gold bar is 32+ ounces), which do you think will take up more space?


I’m thinking mainly about the individual investor here that might want to store metals at home. If you are investing a large sum, or perhaps if you are an institution buying gold, then it makes more sense, spacewise, to have larger bars than coins. But even for the individual investor, it’s easier to store a 1kg gold bar in your safe at home, next to your passports, docu- ments, etc, than more than 30 coins.

So, What Would You Do?


Here’s what I do: I own a mix. With coins, I look for whatever the lowest premiums are. I’m still a US person, and I’m a Swiss, but it doesn’t mean I buy only Eagles and Vreneli’s. The lowest premium coins we currently can get is a “who’s who” of the coins I own: Kangaroos, Maple Leafs, Philharmonics, Britannias and Queens Beasts. It’s the same for silver: Kanga- roos, Philharmonics, and the Britannias.


For bars, I love the 1ozt and 100g for gold. With silver, I’ve purchased 250g and 500g bars in the past, but in storage, I like the 1kg bars. Otherwise, when it comes to silver, I’m mainly into the coins.


The statement “different strokes for different folks” applies of course. While you may agree with me some, or not at all, the point is that it's still important to have precious metals as part of your investment portfolio. I think we can all agree that is the most practical advice of all.


 

BFI Bullion Digger 2021 Q2
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