Welcome to Fear and Greed Sunday feature, oh Michael Thompson. This week's Sunday feature is an interview with Sally Old published back in April of this year. Now. At the time, Sally was chief investment Officer at JB Weir, which is the wealth management business owned by NAB. I've chosen this interview today for three reasons. Number one, this week Sally was announced as National Australia Banks new Chief Economist, succeeding veteran economist Alan Osto, who's retiring after more than three decades in the role. The second reason is that this interview is probably the best explanation I've heard of the value of gold and what is the value of bitcoin? That basically the fundamentals of the two assets. The third reason is that it's actually quite remarkable because we spoke to Sally back in April, because at the time gold and bitcoin were both booming, both setting records, which is perhaps a little bit odd considering they would typically be considered at opposite ends of the risk spectrum. You're fast forward now to the end of the year and it's happening again. There's a few differences. Obviously, inflation is coming down. Donald Trump has been elected, but bitcoin is booming once again, passing the one hundred thousand US dollar milestone. Gold is now much higher than it was even back in April when it was setting records. This is a fascinating conversation between Sean Aylmer and Sally Auld. I hope you enjoy it.

Welcome to Fear and Greed Sunday feature, oh Michael Thompson. This week's Sunday feature is an interview with Sally Old published back in April of this year. Now. At the time, Sally was chief investment Officer at JB Weir, which is the wealth management business owned by NAB. I've chosen this interview today for three reasons. Number one, this week Sally was announced as National Australia Banks new Chief Economist, succeeding veteran economist Alan Osto, who's retiring after more than three decades in the role. The second reason is that this interview is probably the best explanation I've heard of the value of gold and what is the value of bitcoin? That basically the fundamentals of the two assets. The third reason is that it's actually quite remarkable because we spoke to Sally back in April, because at the time gold and bitcoin were both booming, both setting records, which is perhaps a little bit odd considering they would typically be considered at opposite ends of the risk spectrum. You're fast forward now to the end of the year and it's happening again. There's a few differences. Obviously, inflation is coming down. Donald Trump has been elected, but bitcoin is booming once again, passing the one hundred thousand US dollar milestone. Gold is now much higher than it was even back in April when it was setting records. This is a fascinating conversation between Sean Aylmer and Sally Auld. I hope you enjoy it.

Welcome to the Fearing Greek Business Interview. I'm Sean Aylmer. Both gold and bitcoin have surged recently. In fact, both have hit new records. It's a little unusual because many would consider gold and cryptocurrency to be kind of at the opposite ends of the risk spectrum. So why are they rallying simultaneously and how should investors think about them both. Remember this is general information only, and you should always seek professional advice before making your own investment decisions. All is the chief investment officer at JB Were Sally. Welcome to Fear and Greed.

Welcome to the Fearing Greek Business Interview. I'm Sean Aylmer. Both gold and bitcoin have surged recently. In fact, both have hit new records. It's a little unusual because many would consider gold and cryptocurrency to be kind of at the opposite ends of the risk spectrum. So why are they rallying simultaneously and how should investors think about them both. Remember this is general information only, and you should always seek professional advice before making your own investment decisions. All is the chief investment officer at JB Were Sally. Welcome to Fear and Greed.

Thank you, Sean.

Thank you, Sean.

Let's have a look at the fundamentals of the two asset classes. First, what's behind the rise in the price of gold and what does gold trade off? What are the fundamentals of gold?

Let's have a look at the fundamentals of the two asset classes. First, what's behind the rise in the price of gold and what does gold trade off? What are the fundamentals of gold?

So think of the short term, there are probably a couple of drivers of the gold price. One is often, I guess, fear around rising inflation. So gold is often viewed by many investors as quite an effective hedge against inflation. And so I guess we're in an environment where we have had, at least in the US, a couple of inflation numbers that have come in on the stronger side of expectations. And when you look at short term inflation expectations in the market in the US, they look like they've risen over the last couple of months. So perhaps that's behind some of the lift in the gold price. Another thing that we often associate stronger gold prices with is just maybe a little bit of just worry about geopolitical concerns or broader uncertainty about the geopolitical environment. You know, investors like to own gold. They see it as a bit of a safe haven in a world that you know, might appear a bit fractious like it is at the moment. And so I guess with the ongoing war between Israel and Palestine, and then obviously the lingering conflict between Russia and Ukraine, you know, perhaps that's behind some of the bid to gold. But I think there's also an interesting structural story, which you know, we've talked a bit about in our work at Jbweir, which is that we have seen you know, very much so pre financial crisis, but also just recently in the last couple of years, and underlying bid to gold by central banks, and one of the biggest participants in that dynamic when you look at the at the data, has been actually the People's Bank of China. So China has been quite a noticeable accumulator of gold in recent years. So I think short term drivers are pretty constructive for the gold price, but longer term, we think there's a bit of a structural bid to gold which has helped get higher over the medium term as well.

So think of the short term, there are probably a couple of drivers of the gold price. One is often, I guess, fear around rising inflation. So gold is often viewed by many investors as quite an effective hedge against inflation. And so I guess we're in an environment where we have had, at least in the US, a couple of inflation numbers that have come in on the stronger side of expectations. And when you look at short term inflation expectations in the market in the US, they look like they've risen over the last couple of months. So perhaps that's behind some of the lift in the gold price. Another thing that we often associate stronger gold prices with is just maybe a little bit of just worry about geopolitical concerns or broader uncertainty about the geopolitical environment. You know, investors like to own gold. They see it as a bit of a safe haven in a world that you know, might appear a bit fractious like it is at the moment. And so I guess with the ongoing war between Israel and Palestine, and then obviously the lingering conflict between Russia and Ukraine, you know, perhaps that's behind some of the bid to gold. But I think there's also an interesting structural story, which you know, we've talked a bit about in our work at Jbweir, which is that we have seen you know, very much so pre financial crisis, but also just recently in the last couple of years, and underlying bid to gold by central banks, and one of the biggest participants in that dynamic when you look at the at the data, has been actually the People's Bank of China. So China has been quite a noticeable accumulator of gold in recent years. So I think short term drivers are pretty constructive for the gold price, but longer term, we think there's a bit of a structural bid to gold which has helped get higher over the medium term as well.

Going even broader than that. I had a schoolmate's father used to when he learned I was becoming an economist, always asked me, Sean, what's the intrinsic value of gold? Which I never had a good answer for. But is it a scarcity thing? Why is gold held in such esteem? Is it because ever since Breton Woods it has become kind of literally the gold standard, it's kind of the absolute backup currency.

Going even broader than that. I had a schoolmate's father used to when he learned I was becoming an economist, always asked me, Sean, what's the intrinsic value of gold? Which I never had a good answer for. But is it a scarcity thing? Why is gold held in such esteem? Is it because ever since Breton Woods it has become kind of literally the gold standard, it's kind of the absolute backup currency.

Yeah, I think that's exactly right. So I think fundamentally, you know, it's a true reserve asset. And it's interesting because one of the reasons we think central banks or some central banks have been increased buyers of gold is just to you know, I guess reflect on what happened in early twenty twenty two when Russia invaded Ukraine, both the US and European authorities said, well, now that you've done that, we're going to freeze the FX reserves that you guys have, which are denominated in US dollars and in euro and prevented Russia from accessing those. And I guess many other central banks in particular parts of the world might have observed that dynamic take place and say, well, you know, perhaps we don't want to have to ever be as vulnerable or in the same position, and so maybe it makes sense to perhaps transfer some of our affects reserves out of US dollars, out of euro and into gold, in the sense that if it's sitting there in gold, no one can actually take that away from you. So it is a true reserve asset, and I think that's in large part what gives it its intrinsic value. But also, you know, and quite importantly is also what distinguishes it from some of the cryptocurrencies as well.

Yeah, I think that's exactly right. So I think fundamentally, you know, it's a true reserve asset. And it's interesting because one of the reasons we think central banks or some central banks have been increased buyers of gold is just to you know, I guess reflect on what happened in early twenty twenty two when Russia invaded Ukraine, both the US and European authorities said, well, now that you've done that, we're going to freeze the FX reserves that you guys have, which are denominated in US dollars and in euro and prevented Russia from accessing those. And I guess many other central banks in particular parts of the world might have observed that dynamic take place and say, well, you know, perhaps we don't want to have to ever be as vulnerable or in the same position, and so maybe it makes sense to perhaps transfer some of our affects reserves out of US dollars, out of euro and into gold, in the sense that if it's sitting there in gold, no one can actually take that away from you. So it is a true reserve asset, and I think that's in large part what gives it its intrinsic value. But also, you know, and quite importantly is also what distinguishes it from some of the cryptocurrencies as well.

So we'll get on to kryptos in a moment. The long term outlook for gold, then if we have demand from central banks, I get the inflation expectations, though we've had a few prints recently which have been above expectations, but generally inflation is trending lower. So shouldn't that kind of take some of the steam out of the goal price? Yeah?

So we'll get on to kryptos in a moment. The long term outlook for gold, then if we have demand from central banks, I get the inflation expectations, though we've had a few prints recently which have been above expectations, but generally inflation is trending lower. So shouldn't that kind of take some of the steam out of the goal price? Yeah?

It should. I mean, I think you're exactly right. And the other thing that we observe with gold is that it has in the past been very highly correlated with movements in real interest rates. So typically when real interest rates rise, the gold price goes down. And that's largely just a bit of an opportunity cost story. So you know, if you can put your money in the bank and earn good interests on it, then you know the option of perhaps just holding gold isn't as attractive because you forego, you know, a lot of that interest income, and that opportunity cost is obviously a lot higher as interest rates are rising. And conversely, when real rates come down, often the gold price rallies, and so you know that that had been a pretty tight relationship, you know, for the better part of a decade at least, but it's broken down a little bit. But notwithstanding that, you know, if we look back over a sort of three or six month period, real rates are still you know, a good fifty basis points off their peaks, and so that might be providing a little bit of support to the gold price. Just this notion that you know, the Fed look like they're finished raising rates. We can maybe debate when they're going to start rate cuts and how quickly those rate cuts will come. But I think most investors are sort of broadly comfortable with this view that the peak and rates is in for the cycle, and so therefore it means, you know, the opportunity cost of holding gold in the future is not going to be as high.

It should. I mean, I think you're exactly right. And the other thing that we observe with gold is that it has in the past been very highly correlated with movements in real interest rates. So typically when real interest rates rise, the gold price goes down. And that's largely just a bit of an opportunity cost story. So you know, if you can put your money in the bank and earn good interests on it, then you know the option of perhaps just holding gold isn't as attractive because you forego, you know, a lot of that interest income, and that opportunity cost is obviously a lot higher as interest rates are rising. And conversely, when real rates come down, often the gold price rallies, and so you know that that had been a pretty tight relationship, you know, for the better part of a decade at least, but it's broken down a little bit. But notwithstanding that, you know, if we look back over a sort of three or six month period, real rates are still you know, a good fifty basis points off their peaks, and so that might be providing a little bit of support to the gold price. Just this notion that you know, the Fed look like they're finished raising rates. We can maybe debate when they're going to start rate cuts and how quickly those rate cuts will come. But I think most investors are sort of broadly comfortable with this view that the peak and rates is in for the cycle, and so therefore it means, you know, the opportunity cost of holding gold in the future is not going to be as high.

So I'm going to put you on the spot here, then, Sally, does gold go higher at this point?

So I'm going to put you on the spot here, then, Sally, does gold go higher at this point?

Well, it's had a pretty good run, and so I would be reluctant to sort of say it's going to go a whole lot higher, And we wouldn't be at jab we're you know, recommending to our clients that they introduce gold into their portfolios at these levels in the gold price. So I think we feel like the risks look a little bit asymmetric, and particularly I think, you know, if we saw central banks come out and you know, if we saw Power speaks later this week, and if we saw him say, look, you know, let's just remember everyone, we're pretty serious about getting back to the inflation target. Two percent is the number, and we're not going to sort of tolerate protracted deviations from that. You know, that might provide some of the reassurance that the market is looking for in a world where you know, US growth still seems to be pretty strong, commodity prices are rising again, inflation expectations a little bit, and so maybe the rise in the gold price reflects some anxiety that, you know, this sort of residual fear that people might have that central banks aren't going to be true to the mandate might actually realize.

Well, it's had a pretty good run, and so I would be reluctant to sort of say it's going to go a whole lot higher, And we wouldn't be at jab we're you know, recommending to our clients that they introduce gold into their portfolios at these levels in the gold price. So I think we feel like the risks look a little bit asymmetric, and particularly I think, you know, if we saw central banks come out and you know, if we saw Power speaks later this week, and if we saw him say, look, you know, let's just remember everyone, we're pretty serious about getting back to the inflation target. Two percent is the number, and we're not going to sort of tolerate protracted deviations from that. You know, that might provide some of the reassurance that the market is looking for in a world where you know, US growth still seems to be pretty strong, commodity prices are rising again, inflation expectations a little bit, and so maybe the rise in the gold price reflects some anxiety that, you know, this sort of residual fear that people might have that central banks aren't going to be true to the mandate might actually realize.

Stay with me, Sally, we'll be back in a minute. I'm speaking to Sally Old, chief investment officer at JB wir. Okay, let's switch to bitcoin. The introduction of ets involving cryptocurrencies, particularly bitcoin, has been the driver in the price of cryptos, particularly bitcoin. How far does that go and are there other factors that play here.

Stay with me, Sally, we'll be back in a minute. I'm speaking to Sally Old, chief investment officer at JB wir. Okay, let's switch to bitcoin. The introduction of ets involving cryptocurrencies, particularly bitcoin, has been the driver in the price of cryptos, particularly bitcoin. How far does that go and are there other factors that play here.

That's a great question, because unlike gold, which has been around a really long time, you know, we've seen how it behaves through economic cycles, we don't really can't really say the same. But bitcoin, it hasn't been around that long, and it's been pretty volatile. So had big rally in twenty twenty one, big collapse twenty two, and then another big rally in twenty three twenty four. So it's got a very short history, and so it's not clear what the fundamental drivers of bitcoin are. But I certainly think the introduction of these ETF products, which have allowed investors much easier and much more conventional access to bitcoin, have probably contributed to the rise in the price of bitcoin. There's also talk of, you know, what people call a bitcoin harving event, which is an event that doesn't happen very often, but when it does happen, what it means is that the rate of production of bitcoin declines. And so maybe there's a sense out there that you know, that this is a sort of thing that's in scarce supply, and so that can can maybe add to the price support for bitcoin. And I think also, you know, we're in a world at the moment where financial conditions have loosened, rates of fall and equities have risen, credit spreads have narrowed, and easier financial conditions I think probably also helped with, you know, supporting the prices of some of those more specuative assets such as bitcoin.

That's a great question, because unlike gold, which has been around a really long time, you know, we've seen how it behaves through economic cycles, we don't really can't really say the same. But bitcoin, it hasn't been around that long, and it's been pretty volatile. So had big rally in twenty twenty one, big collapse twenty two, and then another big rally in twenty three twenty four. So it's got a very short history, and so it's not clear what the fundamental drivers of bitcoin are. But I certainly think the introduction of these ETF products, which have allowed investors much easier and much more conventional access to bitcoin, have probably contributed to the rise in the price of bitcoin. There's also talk of, you know, what people call a bitcoin harving event, which is an event that doesn't happen very often, but when it does happen, what it means is that the rate of production of bitcoin declines. And so maybe there's a sense out there that you know, that this is a sort of thing that's in scarce supply, and so that can can maybe add to the price support for bitcoin. And I think also, you know, we're in a world at the moment where financial conditions have loosened, rates of fall and equities have risen, credit spreads have narrowed, and easier financial conditions I think probably also helped with, you know, supporting the prices of some of those more specuative assets such as bitcoin.

We talked about the intrinsic value of God, I'm going to ask you about the intrinsic value of bitcoin. Is there one or is it too early to tell to answer that question?

We talked about the intrinsic value of God, I'm going to ask you about the intrinsic value of bitcoin. Is there one or is it too early to tell to answer that question?

I think, I mean, I don't know the answer to that, and at the moment, I think my answer is, you know, no, I don't know what the intrinsic value of bitcoin is. You know, we're used to in the world of sort of investment strategy being able to model the fair value of most financial instruments, you know, based on fundamental drivers, you know, whether they're macroeconomic drivers or other market variables, and so you know, it's not clear what actually drives bitcoin. You can see some correlation between changes in real yields and what bitcoin is doing. What we do know is that's pretty highly correlated to ups and downs in the Nasdaq, So it tends to behave you know, a bit more like a growth asset or a risk asset in a portfolio, and that it does seem to rise when equity markets are rising and it seems to fall when equity markets are falling. But in terms of pinning down what that intrinsic value is, I don't have a good answer for that.

I think, I mean, I don't know the answer to that, and at the moment, I think my answer is, you know, no, I don't know what the intrinsic value of bitcoin is. You know, we're used to in the world of sort of investment strategy being able to model the fair value of most financial instruments, you know, based on fundamental drivers, you know, whether they're macroeconomic drivers or other market variables, and so you know, it's not clear what actually drives bitcoin. You can see some correlation between changes in real yields and what bitcoin is doing. What we do know is that's pretty highly correlated to ups and downs in the Nasdaq, So it tends to behave you know, a bit more like a growth asset or a risk asset in a portfolio, and that it does seem to rise when equity markets are rising and it seems to fall when equity markets are falling. But in terms of pinning down what that intrinsic value is, I don't have a good answer for that.

Okay, So let's bring this back to my final question, which is about when you're investing, how do you think of these two asset classes just parking the valuation, which you can never do when you're investing. You know, you mentioned before the goal's quite pricey to start putting into your portfolio. But let's sort of what I really want Sally Feud to answer is how should investors think about gold as an asset class and how should they think about cryptocurrency slash bitcoin as an outset class in their portfolios.

Okay, So let's bring this back to my final question, which is about when you're investing, how do you think of these two asset classes just parking the valuation, which you can never do when you're investing. You know, you mentioned before the goal's quite pricey to start putting into your portfolio. But let's sort of what I really want Sally Feud to answer is how should investors think about gold as an asset class and how should they think about cryptocurrency slash bitcoin as an outset class in their portfolios.

Sure, so, for gold, we think of that as a genuine diversifier to a multi asset portfolio, and it's one which has approven ability over many cycles to hedge draw downs and equity markets. So when equities for gold tends to rally and so you get that nice offsetting effect in your portfolio. So we really like gold and the role that it can play, and some of the work that we've done at JAB weird tells us that regardless of what time period you look at over the last forty or fifty years, basically our analysis is that at any point in time, you should probably hold somewhere between five and ten percent of your portfolio in gold. So we really like that, and we've been advocates of having gold in portfolios for the last couple of years. I think bitcoin is a more difficult proposition. One thing to remember about bitcoin is that it is a very volatile asset, So it runs depending on what measure you use, whether you look at it in US dollars or Aussie dollars, it runs anywhere from four to five times the level of realized volatility relative to gold, So it's highly volatile. Now people might say, well, it does move a lot, so that offsets the volatility, but I think you have to acknowledge that if you add it to the portfolio, you don't want to add anywhere near as much as you would be adding for gold, just simply because it's more volatile, as we talked about before, really highly correlated with the Nasdaq, for example. So I think what that would do was make you question the diversification benefits it brings to the portfolio. And then I think the other thing we've got to talk about is the ESG aspect of bitcoin, and people often think about this in terms of the energy consumption that's required to do all the mining behind the discovering of bitcoin. But I think it's also important to look at what the chair of the SEC said about bitcoin when they approved those ETS products, which is basically, it's volatile expeculative and it's used effectively for criminal purposes, for terrorism, for money laundering, for trafficking, sanctions evasion, And I think, you know, for investors who really care about the ESG aspect of their portfolio, that's a really important thing to remember because you know, in most investors processes, when they look at ESG, bitcoin would probably fall at the first hurdle.

Sure, so, for gold, we think of that as a genuine diversifier to a multi asset portfolio, and it's one which has approven ability over many cycles to hedge draw downs and equity markets. So when equities for gold tends to rally and so you get that nice offsetting effect in your portfolio. So we really like gold and the role that it can play, and some of the work that we've done at JAB weird tells us that regardless of what time period you look at over the last forty or fifty years, basically our analysis is that at any point in time, you should probably hold somewhere between five and ten percent of your portfolio in gold. So we really like that, and we've been advocates of having gold in portfolios for the last couple of years. I think bitcoin is a more difficult proposition. One thing to remember about bitcoin is that it is a very volatile asset, So it runs depending on what measure you use, whether you look at it in US dollars or Aussie dollars, it runs anywhere from four to five times the level of realized volatility relative to gold, So it's highly volatile. Now people might say, well, it does move a lot, so that offsets the volatility, but I think you have to acknowledge that if you add it to the portfolio, you don't want to add anywhere near as much as you would be adding for gold, just simply because it's more volatile, as we talked about before, really highly correlated with the Nasdaq, for example. So I think what that would do was make you question the diversification benefits it brings to the portfolio. And then I think the other thing we've got to talk about is the ESG aspect of bitcoin, and people often think about this in terms of the energy consumption that's required to do all the mining behind the discovering of bitcoin. But I think it's also important to look at what the chair of the SEC said about bitcoin when they approved those ETS products, which is basically, it's volatile expeculative and it's used effectively for criminal purposes, for terrorism, for money laundering, for trafficking, sanctions evasion, And I think, you know, for investors who really care about the ESG aspect of their portfolio, that's a really important thing to remember because you know, in most investors processes, when they look at ESG, bitcoin would probably fall at the first hurdle.

Sally, thank you for talking to Fear and Greed A pleasure, Sean. That was Sally Old, chief investment officer at JB Weir. This is the Fear and Greed Business Interview. Remember this is general information only, and you should seek professional advice before making investment decisions. Join us every morning for the full episode of Fear and Greed Daily business news for people who make their own decisions. I'm Sean Almer. Enjoy your day.

Sally, thank you for talking to Fear and Greed A pleasure, Sean. That was Sally Old, chief investment officer at JB Weir. This is the Fear and Greed Business Interview. Remember this is general information only, and you should seek professional advice before making investment decisions. Join us every morning for the full episode of Fear and Greed Daily business news for people who make their own decisions. I'm Sean Almer. Enjoy your day.