Everyone’s watching stock prices. But the real signals is coming from the data no one’s talking about. From debt maturity walls to increasing margins for gold miners, this interview breaks down the overlooked indicators Adrian Day is watching now. Watch to see what you can do to stay ahead of the next financial shockwave.
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Transcript
Ben Nadelstein:
Welcome back to the Gold Exchange podcast. My name is Ben Nadelstein. I am joined by my good friend, the CEO, Chairman of Adrian Day Asset Management, the one and only Adrian Day. Adrian, welcome back to the show.
Adrian Day:
Well, thank you, Ben. It’s good to see you again. We saw each other, I think, in New Orleans last time, live.
Ben Nadelstein:
Okay. Absolutely. We were live. You got to see me in person. You could touch me, you could feel me. You could do all the great stuff. And now, Adrian, we are in 2025, and gold has had an incredible year. A lot of analysts were saying, there’s no way gold can have an incredible year. The Fed is keeping rates high. There’s going to be this higher for a longer stance. Really a lot of underestimating the power and the potential that gold could go on just such an incredible run, not only in 2024, but to start off Q1 2025. So let’s start with why did you think that gold could have this outperformance when so many other analysts didn’t see it that way?
Adrian Day:
Well, it was really quite straightforward to me, really quite simple. And that is that the drivers for gold, the people that were buying gold, were not buying gold because of the typical economic factors that drive people, particularly in North America, to buy gold. In North America, we want low and declining real interest rates, maybe even negative real interest rates. We want high inflation. We want a low dollar. We want a weak weakening economy. These are the things that dry people, the economic factors that typically drive people to gold. But what’s happening in the last two years, as everybody knows, but some people didn’t put the puzzle together. What’s happening for the last two years is the gold price has been driven primarily by central banks, as we all know. And then at different times, at the beginning of last year, and certainly now, China Chinese consumers, Chinese investors are buying gold. And these people are not concerned about US interest rates. That’s not what’s making them buy gold. Now, you’ve also got more recently, let’s say since the summer of last year, maybe, you’ve also had more people buying gold, individuals, wealthy families, institutions,wealthy families, particularly in Asia and the Middle East.
Also Europe started Was it last summer? And they are buying gold because of concern about the global fiscal situation, the huge debt in US. And of course, those concerns have only increased over time. We know that the US is going to have a funding crisis come the end of summer. Can I say that is one thing that’s not President Trump’s fault? That was happening anyway. Then the more recent, if we like, turmoil and uncertainty is driving people to gold. But it’s not interest rates.
Ben Nadelstein:
Adrian, a question about the Chinese market. A lot of people have pointed to stories where, for example, large insurance companies in China now may be able to allocate some of their funds into gold. Obviously, the Chinese consumer, they might be shying away from real estate because of the troubles in the real estate market in China, as well as the stock market in China. Again, maybe retail pushing into gold in China. So how big of a play do you think China’s economy will be going forward and in how they affect gold prices Or do you think there’s more sources of demand than just maybe the Chinese market?
Adrian Day:
There’s certainly more sources of demand than just China. But no, I think China has been and will continue to be very, very significant, particularly if you look at the Chinese demand over the last, let’s say, 18 months compared with the Chinese, and I’m talking not official demand, not government, we’re talking consumers, particularly if you look at the Chinese demand over the last 18 months, relatively to the Chinese demand over the previous 18 months or the 18 months before that. I mean, Chinese people are rightfully concerned about their economy, but they’re also particularly concerned about the Juan. Those Those concerns have only increased with the tariff conflict, because, of course, one way for China to resolve the tariff problem from its own point of view is to devalue the Juan. And so they’re concerned about the devaluation of their currency. As you say, they don’t want to buy real estate. They’re suspicious of the banks. They don’t want to just keep it in the banks, and they can’t buy crypto. So Gold is clearly the place for them to go. And I don’t see that. I may be wrong, but I don’t see that demand going away in the near future.
But But there are others. You mentioned the insurance company is allowed to buy gold. Another significant indicator we should look at is the premiums that you see on the Shanghai exchange over the comics. That’s clearly, and they’re not big enough to drive anyone to take money from China to Chicago yet, but there is a premium. And so all these things are helpful.
Ben Nadelstein:
Do you think there’s going to be a point where Western demand matches this Eastern demand? Because lots of foreign countries, like you’re saying, are looking at their own internal stock markets, looking at their own currencies. They’re worried about tariffs, they’re worried about devaluation. But a lot of people in the Western are in some ways complacent because they’ve generally had a pretty strong currency. They’ve had generally pretty low inflation. Gold is not really top of mind. If you look at, let’s say, a family office in the United States, they might not be allocating to gold. Do you think there’s going to be a structural change where Western demand matches the Eastern demand for gold, or do you think that’s going to actually go the other way around where Eastern demand says, Okay, that’s enough of gold. Our stock market has bounced back?
Adrian Day:
No. Interesting questions, because obviously with anything, with any asset, there is a limit to how much you want in your portfolio. For you and me, with gold, it might be the limit is 100%, but you look at… I’ll answer the first part of the question about Western in a second, because that’s the much more optimistic outlook. I mean, if you look at central banks, for example, central banks on average right now still have almost 60% of their foreign reserves in US dollar. I’m talking central banks outside of the US, 60%. So if that’s come down from 75% at the beginning of the century. I mean, this has been a long-term trend to diversify away from over-dependence on the dollar. It’s picked up in the last, say, two years in particular, but they still have 60% in one currency that is arguably Well, it’s certainly not as solid as Fortnax. And so central banks are wanting to diversify. And if you look at many of the banks in Asia, outside of China, many of them They still only have three or four % of their assets in gold. I tie those two together, of course, because when you sell the dollar in your foreign…
You’re a central bank, right? So you’re not going to speculate in Ajax or Disla Silver or something. So when you’re a central bank and you sell your dollar, what do you buy? Well, if you have a Swiss central bank or someone crazy like that, you buy Google and NVIDIA. But for most central banks, they want long term stable assets. The Euro was something that they thought they would be buying 20 years ago, but that hasn’t worked out the way they want. And so you look at central banks, there’s a little bit of a Euro, a little bit of a British pound, little bit of the Australian dollar. But basically, if you’re not in the US dollar, you’re not going to put huge amounts into other currencies. But gold is it, basically, for the central banks. So when you sell the dollar in central bank reserves, for most central banks, most of that goes into gold. So I don’t think that’s going to change. It might slow… The rate of growth might slow down, but I don’t think that’s going to change for several years, frankly. And nothing in the macro, nothing in the political environment is making central banks say, Oh, let’s stop selling dollars.
We want to be in the dollar. You There’s certainly a possibility that, let’s say, Chinese consumers will change. That will change when they feel comfortable about their own currency and their own economy. And that can certainly happen. But I don’t see it eminently, but that can certainly change. Now, when that changes, what will happen is there’ll be a pickup in jewelry demand because we’ve seen a huge decline in jewelry demand. Not huge, sorry. We’ve seen a decline in jewelry demand as they buy physical for protection. But we will certainly see a decline in gold buying overall if Chinese consumers typically become comfortable with their own economy and currency. But the Western investor is interesting. As you know, the best way to look at it from my point of view is ETFs. If you look at a JLD, which is obviously the largest, they’ve had inflows in the last month. They’ve had net inflows this year. Fairly significant. Still way below where we were Two years ago, three years ago, I just looked it up, $4. 4 billion of net inflows in the last three years. $4. 4 billion of net inflows in the last three years.
Outflows, outflows in the last three It’s astonishing. And that’s not even going back to 2011, 2012. You go back to 2011, 2012, I don’t know what the number is, frankly, but they’ve lost… The GLD was significantly larger in terms of its share count since then. So I think what’s fair to say is that even though Western investors and… Sorry, let’s talk North American, because Europeans have started getting back into their ETFs in reasonable, I won’t say aggressive, but at a reasonable pace since last summer. But if you look at the North American investors, there’s certainly been a meaningful pickup in demand for physical gold over the last six and nine months. There’s no question about that, but it is still much lower than it was even three years ago, which is crazy. You mentioned family offices, for example. A study from… I’m almost sure it was Goldman Sachs, but I could be wrong. I’m almost sure it was Goldman. It came out just last week on family office allocations. Just under 1% was allocated to gold. So that is reasonable, but it’s far lower than the average that family offices have had and US institutions have had over a 50-year period.
Numbers vary, because we don’t have such good numbers. But the average for US investors is probably around 2% in physical. You may have better numbers than that if you go back over 40, 50 years. So they’re just family Bank offices are just under 1% right now. If you look, Bank of America did a study, admittedly last year, but their study showed that 78% of all investors say they have between zero and less than 1%, less than 1% invested in gold. I wish they’d ask a question, How many of you had zero? Because they just asked brackets, and the brackets were under 1%, one to five. Under 1%, 78% said they had under 1% in gold. I’m willing to bet that most of those people had zero, but they didn’t ask a question. But anyway, people meaningfully, meaningfully underinvested. And what’s really interesting to me is if you look at these numbers, they barely budged in the last two years. Wouldn’t you think, even if they were underinvested, wouldn’t you think it would have picked up a little bit? So for the Bank of America study that I mentioned, the number four last year was identical to the number from three and five years ago.
There’s been no pickup among general investors in gold. It’s astonishing. Now, the big question is, of course, will that change? I think it will change. It’s beginning to change, as we talked about the influence into the GLD. It’s beginning to change a little bit because of people’s concern about the fiscal situation in the US and the uncertainty and the volatility in the markets. Because gold is the one asset, when you think about it, gold is the one asset over the last five years that has been stable Bitcoin hasn’t, the stock market hasn’t, bonds haven’t. It’s the most stable asset we’ve had. In these volatile times, people might say, I think I want a bit of stability in my portfolio. That’s one thing. But I think beyond that, what’s really going to get US investors, as we said right at the beginning of this, what’s really going to get North American, and particularly US investors, turning to gold is when the dollar goes down, inflation moves up, real interest rates go down, and particularly when the stock market goes down on a consistent basis. I don’t mean collapses or crashes or anything, but it stops going up.
Let’s say the stock market stops going up. Because for most investors, if you’re investing in the S&P, and every month, your S&P, the value of your account goes up, you don’t really look at other things.
Ben Nadelstein:
So, Adrian, I hear you think if US investors see the value of the dollar going down against other currencies, they see real rates, which is the rates versus inflation, real rates fall, you see inflation rise, that this could potentially push more United States or US-based investors towards looking into other assets, especially if the stock market itself isn’t pushing these outperformance and pushing these outperforming returns. In a way, isn’t this exactly what the current administration is publicly saying they’re hoping to do? They’re not under our employment or anything like that. But if they were, they really couldn’t be saying anything more in line than what we just discussed, because publicly, they said they want the dollar’s value to go down against other currencies. It’s too high. They want the Powell and the central banks to lower interest rates. They say they don’t care about the stock market. Wall Street’s done too well while the real economy hasn’t done well enough. So in a way, isn’t this a perfect storm or a perfect setup in terms of what you would want to see in the United States for more gold ownership?
Adrian Day:
Absolutely. But I think at the moment, people simply don’t believe what they’re saying. Frankly, I think they should listen, and foreign investors should listen. When the US government says, We want a lower dollar, and we don’t really care whether you invest in this country or not, they should really listen to that. They should really listen. But again, I think people have been so conditioned, really since 2009, if you think of it, I would say for most of the investing or for a good portion of the investing public, 2009 is the entirety of their experience. If the lesson that you learned is stocks always go up, and when there’s a pullback, you buy the pullback because they’ll go up pretty soon after that. That’s been a lesson of the last 15 years. Is Am I math correct? Yeah, 16 years. That’s been the lesson. I think whatever President Trump, I was going to say tweets on social, but that’s true social, but that’s using the wrong. You don’t tweet on true social, do you? I guess you don’t tweet on X anymore. I don’t know. But whatever President Trump says on Truth Social, people just aren’t listening.
I think they’ll start to listen when their stocks go down. The environment that you talked about is not only what the administration has said they want, or in the case of the stock market, don’t really care. I don’t think they want the stock market to go down. They’ve made it clear that they don’t care or it’s not that top priority. I think that’s true. I think the administration, the Fed, they might watch if the stock market crashes 30 or 40% in a week. If we have an 87 or a 2008, they might watch. But if it’s just a slow decline, I don’t think it’s something that they care about. But it’s not only what they’re saying, But other than the stock market, you look at what’s happening right now. I mean, if you look since last June, the CPI and the PCE, what everybody thinks of as inflation, I think you and I as We know that’s not actually inflation. That’s the reflection of inflation. But if you look at the CPI and the PCE and all the other indicators of inflation since last, really, the beginning of last summer, the trend is up, not dramatically up, but the trend has been up.
You have months of the good, you have months of the bad, but the trend has been up. We look at a two or three, we look at a three-year graph and we We see this huge spike in inflation, and then we see this collapse. And we say, oh, my gosh, isn’t the Fed doing a wonderful job? They bought inflation down and under control. Well, I would say, first of all, as I say, it’s trending up over the last really 10 months now, not just Sigrid, the last 10 months. Number two, the rate of inflation today, as the CPI and the PCI, are higher today than they were pre-COVID. So our image, our perception is totally distorted by the huge rise you saw during COVID, followed by the huge decline. But you take that out of the equation, and we’re higher than we were pre-COVID. And then, of course, also, we’re still significantly above the Fed’s own totally arbitrary, totally ridiculous target, 2% target. To me, 2% inflation year in and year out is not stable prices. But anyway, that’s a different… Anyway, we’re seeing inflation moving up. They’re going to have to lower interest rates at some point.
I personally think that we know during Powell in particular, and maybe other people on the Fed are reluctant to cut rates because they know inflation is not yet under control. They know that. Powell in this last conference was, I thought, remarkably, I guess he didn’t have much else to talk about, but be honest. I mean, he was quite honest about the fact that inflation was not yet under control. So he’s reluctant to cut rates. Personally, I think having President Trump keep yelling at him to cut rates. What did he call him the other day? Was it a fool?
Ben Nadelstein:
A major loser.
Adrian Day:
Yeah, major loser. But he called him a fool or an idiot, Too late Powell. There might be something in that. But Toolate Powell, I think he said he was a fool. Then he went on to say, Other than that, I like him, which Anyway, I think President Trump keep pushing into cut rates, probably only made them resist because they don’t want to be seen as just doing what the President tells them to do. But by the end of the year, I think they’re going to have to cut rates. Perhaps even more significant than that, although it doesn’t hit the general public in the same way, is I think we’re going to see QE again. There’s very little doubt in my mind about that. I mean, QT is basically over right now. They’ve gone from $35 billion a month in roll off to $25 billion this year, just in the last couple of months, from $25, and then last month, they went down to $5 billion. $5 billion a month when you’ve got a $7 trillion dollar balance sheet is a rounding error, it’s peanuts. Although I’d like $5 billion a month. But anyway, that is a rounding error.
And so they’ve essentially finish with QT. And the Fed is going to start, they already are, as you saw in the last couple of altruism, they’re going to start by buying treasuries, particularly long term treasuries, because frankly, there’s no one else that wants to buy them right now. We’re going to see that by the end of the summer before we get to this funding crisis I talked about.
Ben Nadelstein:
Why do you think that there’s been such talk and such turmoil around these long-term treasuries? Do you think they’re afraid and saying, Hey, if we outwardly tell people that we don’t care about them buying treasuries, or even worse, we will actually penalize people who would like to own US treasuries? Why do you think there is such talk around the treasury market? And does it seem like they want the Fed to be the only people who buy treasuries? Explain to me what you see there.
Adrian Day:
Now, that’s a really interesting It’s a different question. I mean, we know that the erst while largest buyers of treasuries are no longer in the market. I mean, Russia, obviously, has long gone, but China is now a seller. I’m I’m not suggesting they’re the ones dumping treasuries. That’s maybe a different topic. But even put that aside, we know from the official numbers, they’re no longer… They’ve stopped being buyers, and they are sellers. I mean, they went from being very aggressive buyers to still buying, but not in ratio, not in the same proportion to this growth of their economy, to now they’re actually, for the last couple of years, they’ve net sellers, outright sellers. Japan, which is friendly to the US, they’ve turned into net sellers. Not dramatic, but as their interest rates have moved up into positive territory, a quarter of a %, what do you do? So the interest rate differential still favors the US, but it favors the US less than it did before. And so Japanese institutions, when they look at the turmoil in the US and the decline in US dollar, that carry trade is not a one-way street anymore. So Japanese are reducing their exposure to US treasuries, not as a political statement, but just as they roll over, as they mature, they’re putting the money back in.
They’re putting the money into Japanese bonds. The US regional banks, they’ve stopped buying so many long treasuries after that whole mark-to-market and mark-to-maturity fiasco that we had a couple of years ago, so they’ve stopped. So who is their left? Those are the biggest buyers of US treasuries other than the US government itself, whether it’s the Social Security Administration or the Fed or whatever. But it’s other than the US government, not a lot of people are buying US long-term bonds now. I mean, certainly ordinary everyday investors aren’t. I mean, would you take less than 5% on your money and hold it with the US government for 30 years? I wouldn’t. I know I wouldn’t. So you’ve got people who must have long long duration like pension funds and insurance companies. They’re buying, but they’re not buying in increasing numbers. And so there is a real concern about who’s going to buy the long bonds. And that’s why Janet Yeoh win. Disastrously, am I, Marind, she was a disastrous Fed chairman, and she was a disastrous Fed Treasury Secretary. She just did all the funding had the very short end, which was just the easiest way to do it.
I frankly think it was, and I’ll use the word deliberately, criminally and irresponsible of the Treasury Secretary’s under Obama not to issue longer term, more longer-duration bonds. And particularly, they could have issued 50 and 100-year bonds when interest rates in US was zero, low about. So Italy, remember, issued 50-year bonds at less than 8%. Argentina, of all places, and I love Argentina. Argentina issued 50-year US dollar denominated bonds at less than 8%. So if Argentina, with all due respect to those nice people, if Argentina could issue 50 year bonds at 8%, what would the US have had to pay? 4%, 3%? Wouldn’t that look like a bargain right now? But they didn’t. They kept on doing it at three-month bills because they were a quart of upset. So I use the word deliberately, criminally irresponsible. Where we are now, and again, this is not… When Jenny Yellen on the Friday evening before Trump was sworn into office on the Monday, back in January, said, The Treasury is going to run out of cash on Tuesday. Buy, have fun. I mean, that’s outrageous in my mind. She didn’t say buy, have fun. That was my addition.
They’re really in a difficult position now because nobody wants the long bonds. When I say no one, that’s obviously hyperbole, but there’s just not strong demand for long and bonds. But of course, if you just continue doing it at the short-end, the stuff that was issued for one and two years and three years, it was issued at half a %, one %, two %. That’s all rolling over, and you’re having to pay five % to roll it over.
Ben Nadelstein:
Yeah, the debt maturity wall is very interesting. We’ve been looking at it for real estate and commercial real estate as well. People who took short term debt, and now they’re seeing a five handle or sometimes a seven handle, depending on what type of debt they have to take out. So do you think that’s another reason why the Fed might have to say, Hey, we got to push rates down? Or do you think because they’re so data dependent, that they’ll We have to wait and say, Well, we know that it’s going to be a problem in the future, but until we actually see the blood in the streets, well, we can’t turn. Do you think that data dependency is an issue?
Adrian Day:
Two excellent points. I think the reason the Fed will lower rates is not because of a stock market, certainly not because of a stock market, probably not because of the economy, but exactly for what you’re saying, both at the government level and federal government level, and among many, many corporations, particularly the real estate loans, because real estate, of course, real estate loans will also roll over onto the banks, which they’re really concerned with. They’re concerned about the banks. They’re not concerned about Main Street so much. They’re certainly not concerned about the stock market. But yeah, just as a side, one of the things I look at in my money management program when I’m looking at stocks, how is it a company with debt, a company with debt, and there are companies where you expect to have debt, like capital-intensive industries, whether it’s real estate or mining, you expect those companies to have debt. I want to see how have they managed their debt maturities. You look at a company like Freeport, for example, which has always been very proactive and very good at extending their debt maturities further out. You look at a company in in a lending business like Aries Capital.
They’ve been remarkably nimble at buying back their shorter term debt, buying back their high cost debt, and rolling it over into longer-term maturities. A lot of real estate companies have done that as well. But as you say, there’s just far too many that have short term debt. And if you look at corporations in America, generally, 2026 is the big is the big funding wall. Now, again, as you said, if you borrowed money five years ago and you’re a AA company or a double, let’s say a AA company, I don’t know how many AA companies are left anymore. But let’s say a single A or a double A company, and you borrowed money five years ago at maybe 6 or seven %, and now if you roll it over, you would have to pay 8 or 9%, that’s meaningful. And if you’re If you’re a less than investment credit, or if you’re a B company or something, you probably paid, I don’t know, 7, 8 %, but now you’d have to pay 9, 10 %. That’s meaningful. And 2026 is when the big war comes. It doesn’t for the private sector. It doesn’t really come this year.
But of course, you always get… There’s always someone that has a problem earlier. It doesn’t all happen at once, obviously. You hit, just going to the second part of your question, absolutely. The Fed for many, many years now, really ever since Bernanke, they’ve been focused on the data, and increasingly so under Jerome Powell. I mean, to me, frankly, well, let me start by saying I rarely have anything good to say about the Fed or any Fed chairman. I almost began to have sympathy for Powell at his press conference last week for a lot of reasons. I mean, they are in a very difficult situation. As he said, employment is picking up as the economy declines and inflation is picking up and stubborn. They are facing this dichotomy that is only going to get worse. I did have a little bit of sympathy, and I thought he did a good job trying to say how we balance those two considerations. But one thing I thought was frankly quite pathetic is this insistence on waiting until you see the big data. My goodness, he had questions on this. We know how many ships are leaving Shanghai for of the US.
We know how long it takes them to get there. We know what the inventories in the US are. We’ve heard from multiple, multiple CEOs, not just tearing their hair out, but laying off people and cutting CapEx expenditure, just earlier in this week, Wyn, the hotel, Wyn said they were suspending all of their CapEx projects, including a renovation of their tower suites. It was about to begin. They’re just suspending them all. We know this. This is real data. You don’t have to wait. You don’t have to wait until June, until you get May’s, the end of June, until you get Mays data. You don’t have to wait for that. It’s going to be too late by then. So I definitely criticize of that As I say, under Powell, it’s become much more data dependent. Data, by its nature, is backwards looking, right? If you listen to 50 conference calls and every single CEO is saying the same thing, I would say that you are justified in still reacting, but in reacting to that.
Ben Nadelstein:
What do you see the dangers between a reactive Fed versus a proactive Fed? Obviously, if there’s a proactive Fed, there’s different dangers than if there’s a reactive Fed.
Adrian Day:
Yeah, of course. I mean, the obvious problem with being reactive, and not just reactive, but waiting for these big headline reports reports which are always three, four weeks late. So by the time you see that report, things probably have got even worse. What’s the danger in being too reactive? I mean, to be honest with you, I think, or too proactive, rather. To be honest with you, again, I think if you’re listening to all, we hope for Fed people, they’ve got, what is it, 100 or 200 PhD economists in the atlas building. I hope some of them are actually sitting down listening to be conference calls. They be. But I would say when you’ve got 50 CEOs in a week telling you the same thing, you’re still being reactive. You’re not really being proactive, you’re being reactive. I mean, the Fed could have just done a quarter % to say, We’re paying attention to what’s happening. And if things turn out not to be as bad as we thought, we might even increase it back again. I think that would have been a hell Everything’s a help at the margin, right? You look at, I mentioned Wyn, but this is hypothetical because I don’t quite know how.
But if Wyn says, We’re postponing this $750 million contract that we had, where we’re suspending this operation. So all the contractors, you’re not getting the job. All of their subcontractors, it might be half of their business, a quarter of their business, a 10th of their business, but you’re not getting the job. And the guy says to himself, Oh, my gosh, I just lost another job as well. I’m not getting this one. I’m still going to pay on the line of credit to my bank? Well, just to cut the interest rate. And he’s saying, Do I lay off people? Gosh, these people have been with me for 10 years. Do I lay them off or not? Just to get a lower rate on your… Because all these lines of credit are variable rates. Just to get a lower monthly payment might make him say, I’ll hang on to my people a little longer. So all these things have an impact. Even a small interest rate cut has some marginal impact, but it also sends a message.
Ben Nadelstein:
Hold on for hope because, hey, we understand that there’s issues in the economy and that high rates are exacerbating those issues, actually not helping those issues.
Adrian Day:
Right. Nobody Nobody wants to wait until, oh, my gosh, it’s Friday and I can’t meet payroll, or it’s Friday and I can’t pay the bank. Everybody wants to pay ahead of that. But if you have some hope, you’ll hang on longer.
Ben Nadelstein:
Adrian, as we come towards the end of our interview, I want to talk about gold miners. So early in the discussion, we talked about how few US investors own gold as part of their portfolio, often less than 1%, maybe most It’s 0% own gold. So what is the argument for gold miners in this environment where gold, even at all time highs, even with an incredible performance, is seeing such lackluster allocation in portfolios? What is the argument for gold miners, which are even further out on the spectrum than just gold itself?
Adrian Day:
Sure. Well, let me just say, first of all, I’d always said, and I’ll say it again, if someone has no exposure to gold or just 1%, I think you always start with the physical. I would still buy the physical here as a defensive insurance measure. But you’re right. I mean, everything we said about US attitudes towards gold, we could multiply by the gold stocks. And whereas there’s been a little, a tiny little shift in the last month or six weeks, a tiny shift in the inflows into the gold miners, We’re seeing it in the fund, the fund that I manage, the Europe Pacific Gold Fund for Peter Shipp. We’re seeing a little bit of inflows. You look at the GDX, for example, the GDX The GDX has had, over the last month, has had some days of inflows, some days of outflows. But the net is still outflows. I’ll just give you the numbers. In the last four weeks, 750 billion has flowed out to the GDX. This year to date, over 3 billion has flowed out of the GDX. Now, I start wondering if I should, as a friend said to me yesterday, if I should become a zero salesman, because I don’t get it.
You’ve got gold, well, gold at all time record highs. You’ve got the margins expanding because as gold is going up, costs, certainly in the last six months, have been rising at a much slower pace than the rise of gold. And in the last month, of course, the oil prices come down, the Commodity currencies have been very weak. Commodity currencies like the Australian dollar, Canadian dollar, the currencies of the countries where the mines are located is the second largest cost input for operating a mine, because that’s where all your Your local costs are your people, your housing, your food, everything. Energy is number one, commodity currencies are number two. Costs this quarter might actually have come down. In the first quarter, most of the companies that have reported had costs well under control. For some of them, they have come down. The margins have been expanding tremendously. We’ve now had five back-to-back quarters for the gold mining space where the margins have expanded and the cash flows, therefore, have improved. For five quarters in a row. But gold sector of the New York or the S&P, rather, the S&P gold sector, not the stocks in the 500, but the S&P does a whole industry classification.
It’s been the sector, the industry, with the most rapid growth in cash flow over the last year. So record highs, record cash flows, still low valuations. A couple of examples, you look at Barrick, second largest gold mining company, and their price to net asset value is in its lowest 10%, lowest decile in this entire history. Now, normally, when gold prices up, you get margin expansion, multiple expansion. You saw that in 2011, you saw that in 2009, you see 2007, you see the multiples expand. But they’re in their lowest decile in their 40-year history. Look at Agnego Ego, which arguably, well, I’m not going to say it’s overvalued, but it’s not of a rock. It’s not a super cheap company. It’s the best mining company in my mind. It’s the Blue Ribbon best in class. But anyway, if you look at, say, price to cash flow for them, that price to cash flow is in the lowest 25%, the lowest quartile of their entire 40-year history. I’m going on, but just to sell. You’ve got gold You’ve got record highs. You’ve got multiple. You’ve got some record cash flows for most companies. You’ve got strong balance sheets.
The XAU is actually cash positive on the balance sheet, which is an aggregate, which is staggering for a capital-intensive business. Now, some of that includes royalty companies. But even if you look at the big mining companies, they’ve all got solid balance sheets right now, and most of them are cash positive. You’ve got low valuation for the stocks. You’ve certainly got low prices. I mean, for most of these stocks, they’re still trading at the lower prices today than they were back in 2023. I mean, this is crazy. Now, of course, price is not as important as value, but you’ve got low values, low prices. What is it going to take to make people want to allocate money to gold? I mean, I think, again, what it’s going to take is when the S&P stops going up month after month.
Ben Nadelstein:
Adrian, as we come to the end of the interview, I want to ask you a series of rapid fire questions so you can answer these as quickly as you’d like. So first is, is the 60/40 portfolio dead? Is that idea just completely gone?
Adrian Day:
Dead. Caput. Maybe it’ll be resurrected at some point, but dead for now.
Ben Nadelstein:
Next question for you. Do you think the Fed is going to have negative real interest rates in 2025?
Adrian Day:
No. Oh, negative real rates? Yes.
Ben Nadelstein:
And negative nominal, you think no?
Adrian Day:
No.
Ben Nadelstein:
For 2025, do you think the S&P will end lower than it started?
Adrian Day:
Yes. Well, lower than it is now. Yeah, lower than it started. Okay.
Ben Nadelstein:
Next one for you. Do you think gold will make a new all-time high every single month of 2025?
Adrian Day:
I’ll answer that by saying, to me, that’s irrelevant. I think six months from now, 12 months from now, 24 months from now, it’ll be higher. Will there be a dip in? This is not a rapid fire answer, sorry. Will there be a dip, a correction in the meantime? I’ve been surprised that there hasn’t been a meaningful pullback over the last year. I’ve really been surprised. It does only reinforce the arguments I’ve been making about who’s buying and why they’re buying and why that buying will continue. So at some point, we’re going to get a pause and a pullback, and we’re all going to sit around saying, of course, we knew there’d be a pullback. There has to be a pullback. But will it come this month, next month, a month after I had no clue? So in answer to your question, I’m probably going to say, well, I don’t know. That could well be. I wouldn’t be surprised if we had a new high every month. But certainly before the year, it will be new highs, yeah.
Ben Nadelstein:
Next one for you. Who do you think is going to outperform for 2025? Do you think there’s a chance that the junior miners actually outperform the senior producers, or do you think the senior producers take it?
Adrian Day:
I guess it depends on the definition of junior. If you’re looking at intermediaries like Vortuna, B2, Integro, could well, US. If you’re talking about real juniors and expiration companies, not yet. Their time will come, but not yet.
Ben Nadelstein:
Okay, next one for you. What’s an underrated asset class? Anything more people should be looking at? Obviously, we’ve talked about gold and gold miners, but outside of gold and gold miners, who do you think is underrated right now?
Adrian Day:
Well, I think some of the other commodities, certainly. Copper stocks are still cheap, uranium stocks are still cheap. There’s some global stock markets that are undervalued, but in each case, they have their own particular risks. So the British stock market, I think, is quite undervalued and has been for a while, the dividend paying, particularly the exporters, the Hong Kong stock market is very undervalued. But of course, they have a huge risk because they’re linked to China right now. As a As opposed to previously when China collapsed, it turned to Hong Kong. They don’t do that anymore. But yeah, to me, in my money management business, I have to say, other than gold, silver, and silver, of course, but I guess you included that when we talked about gold. Other than gold, silver, and some of the other commodities, particularly copper, uranium, I’m not seeing any major asset class or sector that I think is just very undervalued at reasonable risk. It’s all very bottom-up, stock-specific. And there’s a lot of good margins out there. You don’t want me to talk about specific stocks, do you? I will. But I mean, there’s plenty of really good specific stocks, both in the US and overseas.
But in terms of asset class, it’s not a lot.
Ben Nadelstein:
Next one for you. You did touch on silver here. What do you think the thesis for silver is going to be in 2025? Do you think it goes the industrial route where people say, Hey, if we head into a recession, we’re going to use less silver? Or do you think that monetary component it shines, where people say, Hey, gold’s expensive. It’s hit an all-time high. It can’t afford as much. Maybe I’ll dip in as silver.
Adrian Day:
I think Balata, and the interesting thing is that typically, gold has… Typically, silver has continued to trade as a monetary metal. It obviously hasn’t done as well as gold, well, this year or just the last month in particular. And that’s probably some concern about recession. But the broad track, the broad direction of travel for the last several years, even as silver has become a more industrial metal, has remained in line with gold. It’s trading as a commodity. And if you look at the most of the industrial uses for silver, they are probably less likely to decline as much as other industrial uses. I didn’t explain that well. But if we have a recession, yes, we’re going to see lower demand for solar panels, for example. But I don’t think given the incentives that people give, the tax incentives, given some of it is large scale solar farms where you can link up with the grid and get rebates and so on, I don’t think that demand is going to slow as much as we might expect in a recession.
Ben Nadelstein:
Next one for you. Do you think the blockchain, the AI, the technology theme that’s been happening in the last year, do you think that’s going to fizzle and people are going to look back towards real assets like gold and silver, or do you think actually that theme is going to continue, but gold and silver are going to be swept up in that theme as well?
Adrian Day:
No, I would say for full long.
Ben Nadelstein:
Yeah. Next one for you, Adrian. What is a question I should be asking all future guests of the Gold Exchange podcast?
Adrian Day:
Oh, I wish you’d ask me that question before I came on. Well, I think one good question to always ask, we should always ask ourselves this question is, what is the big risk that I’m not really seeing? What is the big risk that I haven’t put enough weight on? Obviously, by its nature, it’s difficult to answer a question about what’s the risk you’re not seeing because you’re not seeing it. But what is the thing that could change? Right now, honestly, I’ll answer that. It’s really very, very difficult to see something that is going to change what’s happening to gold, with one exception. I mean, even if President Trump tomorrow wrote on Truth Social, Hey, guys, just kidding. Just kidding about everything. Don’t worry about a thing. We love the dollar We love the stock market. We like stability. No terrorist for anyone. Just kidding. We’re not going to go back to where we were before it started. So a strong dollar, a strong global economy, low interest rates, low inflation, and balanced budgets everywhere in Japan and the US, but we’re not going to get there. That’s not likely. The biggest factor, I would think, the biggest risk would be a, which I wouldn’t rule out, although it’s not my base case, but a very, very deep global recession, which by its nature means people simply don’t have the money to buy.
In 2008, there were people saying, I want to buy real estate, I want to buy gold, but I don’t have any money to do it. That’s the scenario we could see. Now, it won’t be as deep as it otherwise would be because central banks, of course, continue to have the money. So they can continue to buy, but other people maybe not.
Ben Nadelstein:
Adrian, with all your years of experience in asset management- Don’t remind me. What’s something that you can tell some other investors, or younger investors, or newer investors? What’s something you’ve changed your mind about? What’s something you feel like you’ve learned or gleaned in terms of wisdom over the years?
Adrian Day:
Well, I hope I’ve learned an awful lot, some of it very, very specific. I think I think a couple of things. You’ve got to balance patience with paying attention to things that are changing. And that’s a difficult balancing act. I think some of the biggest mistakes I see people make might seem as though they’re opposite mistakes One mistake is just being too eager to always trade. And some of the best investors that you can think of, like Buffett, famously, like John Templeton, but they didn’t have a Bloomberg machine on their desk staring at prices all day one. And I think that’s one of the mistakes that we make is we look at prices and we react to little changes in prices too quickly. On the other hand, you get people who buy things, and after 10 years, they frankly forgot why they bought it. They forgot who told it. They don’t even know what the company does anymore. But because it’s down, they won’t sell it. I mean, I can’t tell you how many times I’ve heard people say, Well, I’ll sell it when I get back to break even. I said, To invest your investment goal to break even?
Those two things might seem opposite. Assets, but they’re really not. One of the things I do is an app portfolio is on a continuum. I classify assets that I buy, specific assets into core assets, and then at the other extreme, what I expect to be short term trades. I think what’s important is that you don’t change your mind. If you bought, let’s say, Franco, Nevada, as well established, great company, large, well diversified, great balance sheet. This is my core exposure to the gold space. Well, don’t dump it because something happened at Covri Panama. Because you know that that company, which is a great company, will bounce back. Conversely, if you bought something for a short term trade because they’ve got a drill program, well, don’t hold on to it because the drill results weren’t quite as good as you thought they’d be and the stocks down 50 %. I mean, stick with your… Have a plan and don’t be rigid and obstinate, but have a plan and stick with it, is the advice I would give.
Ben Nadelstein:
Adrian, it’s been so fun speaking with you. Where can people find more Adrian and more of your work?
Adrian Day:
Well, I don’t know if anyone wants more Adrian, but it’s adreenday. Com. And on that, we’ve got interviews and videos and so on.
Ben Nadelstein:
Thank you so much.
Adrian Day:
I really enjoyed it. I can’t believe an hour’s gone.
Ben Nadelstein:
I know. We could spend here all day, and maybe the viewers will tell us that we need to.
Adrian Day:
Okay. Thank you.
Ben Nadelstein:
All right. Thanks so much.
