In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by Michael Arries. Michael is an experienced advisor in the field of precious metals, having traded gold and silver for almost 25 years. In 2010, he embarked on his professional career with McAlvany Precious Metals, a family-owned business with a 50-year legacy in the industry. Renowned for their unwavering integrity, time-tested strategy, and personalized service, McAlvany represents the pinnacle of excellence among precious metals firms.
In this episode, you will learn:
- Everything you should know about silver and gold, including how they are differentiated.
- The various factors affecting the prices of gold and silver, including currency devaluation, geopolitical tensions, and market uncertainties.
- The various methods of buying and selling precious metals, focusing on physical ownership of coins and bars, along with storage options in secure depositories.
- How precious metals are compared to other assets, like real estate.
- And more!
Resources:
Call Michael: (970) 459-4611 | mcalvany.com/michael | Bautis Financial: 8 Hillside Ave, Suite LL1 Montclair, New Jersey 07042 (862) 205-5000 | Schedule an Introductory Call
Disclosure: The transcript below has been edited for clarity and content. It is not a direct transcription of the full episode, which can be listened to above.
Welcome back to The Agent of Wealth, this is your host Marc Bautis. Today, I’m joined by a special guest, Michael Arries.
Michael Arries is an experienced advisor in the field of precious metals, having traded gold and silver for almost 25 years. In 2010, he embarked on his professional career with McAlvany Precious Metals, a family-owned business with a 50-year legacy in the industry, where he currently manages 1,500 clients. Renowned for their unwavering integrity, time-tested strategy, and personalized service, McAlvany represents the pinnacle of excellence among precious metals firms.
Michael, welcome to the show.
Thank you, Marc. I appreciate you having me here.
Before we dive in, can you explain what precious metals are – and the types of precious metals – for someone who may not be familiar?
What Are Precious Metals?
Gold and silver are the main types of precious metals. They’re an ideal alternative asset to have for protecting wealth. We can look at platinum and palladium as precious metals as well, but only to a small degree. I would say that gold and silver are the monetary metals.
They’re your inflation hedge, and they’re really the door of wealth that’s been around as long as human history – going all the way back to Genesis in the Bible. There’s always been gold, though it’s been limited in supply.
Gold has been used as money and whatever nation or currency has ever come and gone throughout history, Roman Empire, Ottoman Empire, whatever, we go back to gold and then until we find something else, we trust gold is that store of wealth that is always there. So even in today’s technological age, it’s still there.
I think before an investor considers an alternative asset class – like precious metals – they always want to ask that question of “why?” You mentioned inflation and longevity… What other benefits does investing in precious metals offer? What sets them apart from other asset classes?
We want to define gold as money. Money has to be a store of value. It has to maintain its purchasing power over time. The dollar doesn’t do that. If you have a dollar bill in your wallet, you might say, oh, I’ve got money in my wallet, but it’s not money. It’s a currency. A currency you can trade for goods and services, but a currency, the faster you spend it, the better. If you want to have savings, if you want to put money away from the future, money, gold is that form of money where it can maintain its purchasing power over the long term. So if you need it to store that wealth for a long time or you just need to store any wealth for a long time, gold maintains that. So yeah, that’s part of the inflation hedge aspect as well.
But gold is a tangible form of money that has intrinsic value in and of itself, and that’s one of the big things too. You can use the fancy term and say it doesn’t have counterparty risk a piece of gold. It takes a lot of time and energy and oil and manpower to get that out of the and make it into something. And so all of that value is built into it. You can’t just go grow it on a tree. You can’t just go grab it out in a field. It takes a lot of work to get it. So either you pay a lot of currency to obtain that gold or you have to go dig it out of the ground yourself. So there’s a a lot of value built into an ounce of gold, and when you have it in your hand, that’s it. You have that value. You’re not depending on someone else to keep a promise in order for some investment or some form of currency to have value.
You mentioned you can either have it or you have to dig it out of the ground, and if we look at the price of gold over time, it’s up. It’s increased. Why does the price of gold go up? Is it just the law of supply and demand? If you compare it to, let’s say a company, a company might be generating cashflow or they’re earning profits, how does that correlate to gold and why the price of gold goes up?
Good question Marc. I think there’s a paradigm where supply and demand comes into play, but more so with the price of gold going up, I really think it has to do with devaluation of our currency. So when our dollar gets printed out of thin air by the Federal Reserve to the tune of tens of trillions of dollars, there’s more currency out there. Prices go up. We see the price of goods of everything go up. You would think that you could print money and just make everyone rich, but it doesn’t work that way. When something is scarce, it is valuable. When something is abundant, it’s not valuable. So the more we make our currency abundant, the less valuable it becomes, and everything else that is scarce requires more of that currency to buy it. So gold is scarce, it’s limited in supply. If we print a ton of money, it goes up in dollar terms because it takes more of that currency to buy it. So you can almost look at it as gold has stayed still, gold has stayed flat, gold has stayed the same and the dollar has gone down, and so the price of gold going up is just a reflection of the dollar actually going down that much in purchasing power.
How Gold and Silver Differ
We’re talking a lot about gold and silver. What’s the difference between the two in terms of an investment purpose? One thing I’ve heard is that silver’s used in different things and there’s more utility and silver versus gold, which doesn’t have that much. I mean, it’s obviously popular for jewelry, but why would one consider one versus the other or should some look at both?
We do want to have both. They fulfill a lot of the same purposes, but they also have very different pros and cons and advantages. And part of what we do at Alvey, precious metals is have a good strategy for how much gold and how much silver to own over time and change that when appropriate for different reasons. So the main thing is gold is a store of value. For the most part. It is just hoarded and held by central banks, held by people or used in jewelry and just used as a form of wealth. Very little of it is used for industrial purposes, even though it’s one of the best conductors of electricity. It’s just so expensive. You don’t don’t see that used as much. Silver. On the other hand, it is a precious metal like gold where it’s limited in supply, it’s valuable. People hoard it as money, but that’s probably only half of the use.
And the other half is industrial use where it is used in electronics and various other applications. And the interesting thing with silver is there is no substitute for it, mark. You can’t say, well, silver’s getting too expensive. We’re going to use this other metal instead in our cell phones and our TVs and our computers. For now, until silver comes down, there’s no substitute. So silver is used in electronics, in solar panels, in electric vehicles, in so many applications, and that’s all used up, that’s all consumed, and it makes the supply of silver less and less and less. So gold is hoarded as wealth, silver is as well, but it’s also being consumed. And when we look at the disparity between the two, there’s a lot of gold out there and it’s all still there. All the gold we’ve mined throughout human history, gold from h ancient Egypt till now is still out there in some form or fashion.
A lot of the silver, most of the silver we’ve mined has been used up to the point that it’s not recoverable in all these electronics and various places to where at these prices it’s not recoverable. If prices go much, much higher to make it worthwhile, we might be able to go and get some of that silver back. But for right now, there’s very little silver out there, very little to go around, and that adds to the dynamic of it where it’s more volatile, it has bigger swings in price up and down. There’s just a lot less of it to go around. And when we can benefit from that to the upside, I think that’s what’s coming next for precious metals. Is gold going up, silver going up even more and outperforming gold for time?
Are they still mining silver or is it kind of trying to reuse some of the silver? And I guess same question for gold too. Is there a lot of gold mining that’s still going on as well?
There’s still gold mining going on, but we’re finding less and less in the ground every year. There hasn’t been any major gold discoveries for a couple of decades. It used to be that there would be a major tens of millions of ounce gold discovery like once per decade and smaller ones multiple times per decade. And recently we haven’t been getting that, haven’t been finding any more big discoveries. So we’re pulling less and less out of the ground and silver especially, we’re pulling less and less out of the ground the last 10 years, so it’s becoming more and more scarce. We’re having to recycle what we can and what we can get our hands on. But the more that investor demand piles into coins and bars and starts hoarding that, then really again, the less there’s going to be to go around the supply and demand dynamics. Right now, the small amount of supply that there is versus the amount of demand and the amount of potential demand that’s coming from currency devaluation, I think could drive the price up multiple times for precious metals, double the triple for gold and maybe five times per silver pretty easily in the coming years.
The Macroeconomic Factors That Influence The Price of Precious Metals
You talked a little bit about inflation and currency devaluation. What are some of the other macroeconomic factors that go into price movements of gold and silver? Do interest rates or geopolitical tensions come into play?
All of those things are drivers…
Chaos and uncertainty in the world can be a big driver. When we don’t know where the markets are heading, gold and silver become safe haven assets. They go up when other markets go down or if there’s greater conflict in the Middle East or war somewhere else around the world and there’s uncertainty and there’s supply shortages and oh man, we don’t know how this is going to work out or how bad the world’s going to get. That chaos factor drives people to gold and silver as a safe haven asset because again, it’s always there. It always has value. It’s real money. It’s not tied to someone else or some company hopefully performing well.
It just is what it is. So that chaos and uncertainty we’re seeing in the world, and especially with the way it is in the Middle East right now, you’ve got such a powder keg there. It could be just one rocket hitting the wrong ship in the Red Sea and everything goes crazy and starts a much greater conflict. The geopolitical tension drives it up. And then with the Federal Reserve, usually when interest rates are low, gold is more in demand as they raise interest rates. There’s less demand for gold theoretically because it doesn’t produce anything and you can earn interest elsewhere. But I think what we’re seeing at this point is there are much greater factors between inflation and geopolitical uncertainty that even if the Fed keeps raising rates, I think that’s going to be a drag on other markets and money is going to move into gold and silver for safety and for liquidity.
Yeah, I could see that when you’re at Albany working with an investor, and I know obviously every investor is different, but is the strategy a lot of times or do you see most investors who determine what percentage of their portfolio to put into precious metals and that’s what they go with and that’s what they stay with? Or is it more the allocation to it more actively managed dependent upon some of those macroeconomic things that we just discussed?
I’m glad you bring up that point. That’s one of the differentiating factors with McVay, precious metals is our strategic outlook on the metals, changing our portfolio mix over time and helping our clients take advantage of that. So when we talked about silver being more volatile, it does have times where it outperforms gold to the upside, and if they’re both coming down, it will underperform and fall further to the downside than gold will, and that creates this disparity in relationship that we can take advantage of on either side. We can trade one metal for more ounces of the other metal. If silver outperforms, we’ll trade some silver, extra free gold, and if gold outperforms, we’ll trade our gold back into silver and get extra silver. So part of our strategy is yes, first and foremost, how much do you want to put into precious metals of your portfolio?
So there’ll be a certain amount that folks will do. It may be 10, 20, 30%. Some folks, they don’t trust the dollar, they don’t trust the government. They want to have a good portion of their wealth in something real and tangible, but whatever someone lands on, they’ve got this amount where they don’t have to worry about it. They can sleep well at night. It doesn’t go away, go to zero. And then within that precious metals portfolio that they have, that’s part of their greater portfolio. Then we’ll adjust the mix over time. Sometimes right now we’ll be heavier silver, maybe even 60 or 70% in silver so that we can take advantage of what looks to be silver’s, outperformance coming next in the cycle and then trade some of that for gold. When we hit the right inflection point and we see the cycle over time and where it’s hit certain high and low points, we’ll let our clients know, Hey, let’s trade part of our silver back into gold.
You’re going to get this many free ounces of gold because silver has outperformed to such and such extent, and then we might be heavier gold and lighter silver for a time. So yeah, we’ll have the foundation and we’ll adjust it back and forth whenever we can gain free ounces and then ultimately maybe scale back on our metals if they peak out and hit the end of this bull market that they’re in. And there’s other ratios we can look at like the Dow to gold ratio and see when it’s at an extreme low or at an extreme high, and whether we should be buying gold or selling gold.
What are the different ways to buy gold and silver? Can someone actually buy an actual gold bar or silver bar and store it, and you can also probably buy some kind of security that tracks the price of gold. What other ways can you buy it?
So mainly what we do at McVay is physical precious metals, mark, because we want to own it. We want to have full control over it. Part of the insurance aspect, the wealth preservation aspect of it is owning the gold, not owning a security that is tied to the price of gold, where again, there’s counterparty risk, but just owning the gold. So we will deal in physical coins and bars and either ship them to folks or store them at a depository or people can buy them through an IRA. You can do a precious metals IRA, they’re stored at a depository in that case when it’s part of a retirement account, but it’s still physical metals that you own. There’s still coins and bars that are part of that retirement account that you own. So yeah, actual metals. Some people take delivery and keep ’em at home. They want to know they can get their hands on that form of wealth. Other folks will store it at a depository if they’re not comfortable doing that, but it’ll be held in trust in their name. It’s not used for anything else. They’re just paying a storage fee to have it kept there. So it’s full physical ownership of that gold and silver.
Do you see people also that want the exposure to gold or silver, but also would want maybe a cashflow? Are there ways to invest in a company where they can get exposure to gold, but also maybe a dividend or some kind of cash payment?
That’s generally not our main focus when it comes to precious metals. So I have seen companies and programs out there where you can loan out your metals and it can be used in industry and they’ll pay a percentage back, and it’s usually a small percentage, like two or 3%. But the way I look at it, we’re not looking at return or earning interest on our metals. I think it will be a growth asset because it has a lot of catch up to do to the amount of money we’ve printed. I don’t think it’s near its fair value yet. So I think it will go up in price and it will look like a growth asset, but the main reason to buy it is insurance for your money, or even just to have real money and not a devaluing currency as part of your savings. So it’s mainly just to have something real and something that’s going to maintain its value.
Other things can earn you interest or earn you cashflow. What’s interesting is if you have real estate, well that earns you cashflow and people appreciate that and like that. But precious metals are such a good compliment because it’s a tangible asset like real estate, but it’s liquid and portable. So get your cashflow from something like real estate. That’s great. With precious metals, you can sell it any day of the week for cash immediately. Can’t always do that with real estate, and you can put it in your pocket and run away with it if you had to go somewhere else and you can’t take your rental property with you. So there’s really a complimentary aspect to it.
You bring up a good point about liquidity. What’s the process for selling precious metals?
There is always a market for it. There are lots of dealers and coin shops that buy and sell precious metal. So for our company, we buy and sell. We make a market, you can ship stuff back to us insured and we can always buy it back. So you’re always able to liquidate that gold coin or silver coin, but any number of dealers or coin shops you find in your area, you can always take it. It’s just a matter of what price you get. Sometimes we pay a better price moving more product and a small coin shop might not pay as much. Someone’s always welcome to check with me on price and see what we can do, but there’s always a market for it, and there’s always someone that’ll buy it. You can always find a local coin shop, send it to us, send it to some other dealer.
It’s just a matter of getting that gold bar in the hands of someone that’ll buy it back. There is always someone that will buy it at the current market price, and it’s easy to get rid of and get cash for. I think the other thing that’s interesting too is that it really is tradable as is. It’s a form of money. It has intrinsic value. So people come to me and they’ll ask, well, what’s the best coin or whatever to barter with? They think maybe the grid might go down, the dollar might go away. I think that’s a little extreme. I don’t know if we’ll get there. It’s possible, but not probable. But people still want to know, can I spend my goal? Can I do something with it? Or if there’s nothing else, what’s the best one to use? Well, and you can, I mean, even in this day and age with our modern technology and with everything working, I’ve still traded precious metals for goods and services. I’ve traded gold coins and partial payment for a truck I bought, and I’ve traded silver bars for a house inspection service that I had done. I talked to the guy and he was into precious metals as well, and he let me give him silver instead of cash for his service. So it is still usable and tradable as money for someone that knows what it is and finds it valuable.
What do you see the popularity of digital currencies like Bitcoin, which may be unfairly but has been called digital gold? How do you see that impacting or what do you see going forward for gold?
Cryptocurrencies vs. Precious Metals
I still see gold going up despite Bitcoin. I’ve seen very brief periods of time in the last number of years where it seems like money has gone from gold to Bitcoin, but I don’t think Bitcoin has affected gold.
Gold has gone from $200 to $2,000 an ounce in the last 20 years. Even in the last few years has doubled in price and is now breaking out currently above previous highs and starting a new run to just brand new territory. So I think there’s a place for both. I don’t know that I would call Bitcoin digital gold. Gold is gold, and it has its role. It has its place, it’s tangible. You don’t want to not have it. You don’t want to replace it with something else. Nothing does what gold does, but I’m not necessarily going to say only one or the other. If someone wants to buy Bitcoin, I think there’s a place for that as being a digital currency or trading it for profit or speculating in it. You just have to be very careful. It has had a lot more volatility than gold and silver has it had a 60% crash from its peak. So it’s something you have to understand and be trading properly or holding for the right reasons, but it’s still something to have for its particular uses, but not as a replacement for gold necessarily.
Makes sense. Well, we’re just about out of time. Michael, I want to thank you for joining me for an episode of The Agent of Wealth Podcast. I appreciate you sharing your expertise in precious metals, and all of the information you shared on the topic today. Before we go, how best can listeners contact you, if they have any questions?
Thank you so much for having me, Marc. It’s been great. Folks are welcome to call or text me directly at (970) 459-4611. I love helping folks navigate the precious metals market.
Great, we’ll link to that in the resources section of the show notes. Thanks again, Michael. And thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.