As precious metals and commodity markets are continuing their downward slump, Andrew Schectman, President of bullion dealer Miles Franklin was kind enough to share a few comments.
Andrew buys and sells bullion to individual investors on a day-to-day basis.
You’d expect that in a bear market for gold, business at a company that sells gold and silver coins would drop off. Surprisingly, Andrew reports that’s not the case.
Andrew reveals what is occurring in the gold bullion market today. If you own bullion in physical form, or through shares of a bullion trust, such as the Sprott Physical Gold Trust, you should find his comments informative.
Describing participant behavior in the physical bullion market, Andrew noted that, “We used to get 200 phone calls a day and now we only get 30 to 50, but we’re doing equal or greater volumes in terms of business. The order sizes now are much greater. Today’s precious metals investors are more sophisticated perhaps, and the smaller investors, the people who were buying it a few years ago when it was really getting noticed, have fallen by the wayside.”
Speaking towards the buying motivations of high-net worth individuals, Andrew added that, “The big money is afraid even if they’re unable to articulate what’s frightening them… There’s such a counterintuitive feel to what’s happening… [and] the sophisticated investor understands that precious metals have real value.”
Here are his full interview comments with Sprott Global Resource Investment’s Tekoa Da Silva:
Tekoa Da Silva: Andrew, was there anything that surprised you about the history of gold and silver as you began learning about them earlier in your career?
Andrew Schectman: When I started in this industry Tekoa, I was just a kid. I was 19 years old. I didn’t have much of a concept of value and one of the first things my dad said to me when we started the company, and the only rule he ever levied upon me over the last 25 years was, “You will buy some form of gold or silver every two weeks, every time we get paid, period. If you miss a two-week pay period, I will fire you.”
Now I’m the president of the company and own 51% percent so he can’t fire me, but suffice it to say I’ve honored my commitment and have purchased something—whether it be one ounce of silver or ten ounces of gold every two weeks for the last 24 years, because to me, it’s wealth. It’s money, regardless of the appreciation or fall in value in dollar terms, that doesn’t bother me.
Gold and silver represent wealth and have been wealth for 6,000 years. If you go back to the time of pharaohs, kings, queens, emperors, you name it—they all owned gold as a symbol of immutable wealth. It has been wealth through the ages and it will be wealth in the year 3,000 when I think the dollars we have in our wallets will be hanging in a frame at the Smithsonian.
So what I’ve learned over the years is not to look at gold and silver as investments. They can perform admirably in dollar terms, and for a long time they did (over the last 10-plus years), give or take the last two. But to me that wasn’t and isn’t why I own them. I own them as money.
TD: Andrew, we’ve seen gold and silver get absolutely clobbered in dollar terms over the last few months, and that’s in the context of a three to three and a half- year down trend. A lot of people talk about a disconnect between the paper and physical market.
What are you seeing on the ground in terms of buyers in your space and the supply you’re delivering to them?
AS: Well, I’m glad you asked that question because it has been a central theme for me since 2007. Ironically, there is a minimal disconnect right now. The physical supply is extraordinarily good, which is the crazy thing about all of this. The premiums are low right now.
What’s also interesting is that we used to get 200 phone calls a day and now we only get 30 to 50, but we’re doing equal or greater volumes in terms of business. The order sizes now are much greater. Today’s precious metals investors are more sophisticated perhaps, and the smaller investors, the people who were buying it a few years ago when it was really getting noticed, have fallen by the wayside.
I also think personally that the prices are being managed. They’re being held down with leverage on paper and used to misdirect the public into looking the wrong direction. I think equity markets are being supported while commodity markets are being crushed, with the physical supply being gobbled up. Right now the supply is fairly decent. But I will tell you there have been major challenges in getting product time and time again since 2007.
The mint earlier this year rationed products, but if I had to guess, I would say that big money is holding down the paper price with leverage. I think they’re slowly gobbling up the physical and they will paper cover or sell their treasuries to cover their short positions. They will be out of all paper after they’ve accumulated the world’s metals on the cheap.
The problem is that you’re beginning to see a huge demand for buying because of this low price. In 2008, with $9.00 silver, every company in America had 12-week delivery delays and was selling Silver Eagles at $18.00 each because they couldn’t get any of them. We will see that again.
We will be unable to source product, Tekoa, because you really only have five mints. You have the US mint, the Canadian mint, the South African, the Austrian and the Australian mints. When those five primary mints run out of supply, as they have repeatedly since 2008, there’s nobody selling any product.
We do $200 million a year in business, of which less than 1% is in buy-backs. No one sells us anything, and that’s what defines a gold bull market. The financial problems in the world continue to fester and get worse, and that reinforces people’s mentality for getting out of the dollar and buying gold to begin with.
So when those five mints run out of product, that’s it. The disconnect you speak of is presently connected, but I believe it will be greatly disconnected at some point in the future. I don’t know when but at some point it will be.
TD: Andrew, do you hear a similar viewpoint being expressed by the higher net worth investors you deal with on a regular basis?
AS: Yeah, I do. It used to be uncommon to get more than a couple seven-figure orders a year and now they happen on a regular basis. The big money is afraid even if they’re unable to articulate what’s frightening them.
There’s such a counterintuitive feel to what’s happening. Malcontent, the trouble in the air — the things that should make us concerned –are growing. I’m not trying to sensationalize anything. There are bail-ins and bailouts, fraud and Ponzi schemes, high frequency trading, war, Ebola—all of these things that are bad and scary should make gold prices go higher but they haven’t.
But the sophisticated investor understands that precious metals have real value. Rick Rule, as an example, has probably been the most successful when resource stocks were at their most depressed value, and when things seemed as bleak as possible for the industry. That’s exactly when there’s real opportunity. I think big money understands that, this time, the dollar doesn’t hold the allure it once did, and I think people are looking for alternatives and buying stores of value.
TD: Andrew, if I can play devil’s advocate here for a minute—what are some of the pitfalls, risks, or just common mistakes people can make in buying the physical metals?
AS: The biggest mistake you can make in buying precious metals is being penny wise and pound foolish. It’s buying based on trying to squeeze the most out of your dollar. In this industry, more than just about any other I’ve ever been involved with, you get what you pay for.
Buy quality from quality people and you will never have anything to worry about. What I mean is that if I had the choice to buy a 100-ounce silver bar or 100 1-ounce Silver Eagles, the difference in cost may be $200 bucks. But I think you are far better off spending $200 more by buying the one-ounce pieces.
Also, don’t buy numismatics unless you can buy them at very close to the bullion price. So the bottom line is this: Consider buying anything from the five major mints, US, South African, Australian, Austrian or Canadian. So that’s the Eagle, Buffalo, Maple Leaf, Krugerrand, Philharmonic, and Kangaroo coins.
If you buy anything from those five major mints in one-ounce form, you should be fine, and make sure you buy those products from a reputable company. Don’t buy a big bar just to save a few dollars. In the end, you won’t be happy. As an example, a kilo bar of gold right now bids $6 per ounce below spot from any bullion company in America. They won’t even pay you melt value because nobody wants them whereas for a 1-ounce Gold Eagle, I will pay you $35 over the spot price of gold.
So you’ll find demand for the quality products when you sell them and it’s just worth it. Being penny wise and pound foolish — that’s the biggest pitfall.
TD: As a final question on the macro picture Andy—when you look at the state of the world led by the US in terms of debt and fiat currency—where do you think this is all headed? Do you see any historical correlations?
AS: The correlation I see right now would be back to the Weimar Republic or to hyper-inflated countries because, even though we haven’t seen the money velocity increase, the hyperinflationary fears that everyone talks about I think ultimately will come true.
The amount of debt we have is extraordinary. A trillion seconds ago was 31,688 years ago. You have $17 trillion in debt, over $150 trillion in unfunded liabilities, and a Federal Reserve that’s backed into a corner with no way out but to print and to inflate.
I think that at some point, something will trigger the money velocity and it will become a hot potato. There’s so much money sloshing around and so much of it will come back home as the world continues to usurp the dollar in trade agreements.
For instance, look at the Petrodollar, Tekoa. If all of a sudden Saudi Arabia strikes a deal with China and Russia and accepts euro, yuan and ruble for oil, or worse yet, if Saudi Arabia falls apart with what’s happening in the Middle East and gets into the wrong hands, and if the dollar is no longer used for oil, very quickly people will understand why they need the safety of gold.
The façade that we’ve all lived under, that we would experience nothing but prosperity and that it was our “birthright” to live better than our parents did, could very quickly come crumbling down under a mountain of un-payable debt, in an economy that has lost its manufacturing base and most of its high paying jobs. We have a culture that has been bred to take on debt, mortgage a house and take on student loans. God forbid interest rates start to rise.
So I think we’re skating on the razor’s edge and when it does fall apart, people quickly recognize the need to protect themselves financially. I think that this is a time to do that.
Unfortunately there’s really not a lot you can draw on in terms of historical precedent. We’re in uncharted waters, Tekoa. I not only own gold and silver as a financial life raft, but I think it’s also becoming more obvious that you have to be proactive or you’ll be in trouble.
TD: Andrew Schectman, President and Co-Founder of Miles Franklin, thanks for sharing your comments with us.
AS: My pleasure Tekoa. Thank you very much for having me.
Courtesy: Tekoa Da Silva via Sprott Group
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