What Goes UpThe price of gold tends to do well in times of elevated uncertainty about economies and financial systems—something the world has seen a lot of in the past few years. Yet each time the precious metal rallies above $2,000 an ounce, it quickly falls back below that threshold.
Why is that? Joe Cavatoni, strategist at the World Gold Council, joined the What Goes Up podcast to explain what drives the price of gold, what buyers need to know and why that magic number has served as a ceiling. One main reason, he says, is that when prices go that high, they tend to reduce the real-world demand for gold—including from buyers of jewelry in China and India.
“These are price-sensitive businesses and price-sensitive consumers,” Cavatoni says. “So when you start seeing those types of price levels develop, that’s when you see those types of consumers back away from buying—and investors aren’t ready to step back in in the long-term.”
Hello, and welcome to What Goes Up, a weekly markets podcast. My name is Mike Reagan. I'm a senior editor at Bloomberg, and.
I'm Bildana Hairik, across Acid reporter with Bloomberg.
And this week on the show, we're going to talk about one of the oldest and, let's be honest, most often misunderstood investments, gold. What exactly is it? Is it an inflation hedge, is it an interest rate hedge? Is it a risk asset or is it a risk off asset. We're going to get into it with an expert on that shiny yellow metal. But first I have to ask you had yet another luxurious, glorious vacation. Where'd you go?
We went to Italy? But this was my first vacation of this entire year. Oh yeah, so you can't say yet another that makes it sound like I'm like jet setting all the time.
Yeah, but you have you ever had a staycation? You were always like, yeah, doing COVID yeah, but otherwise you're like you're you're a globe trotter.
But if you're sitting around at home, you know, like then you get anxious and then you're like, what do I do with myself.
Yeah, that's that's how I end up in Italy. Well, I really enjoy a nice as the one does.
There was one day where wildfires broke out like all over where we were in Italy.
Yeah.
I've never seen that really, like very close up.
That's scary.
I know it was an experience. Anyway, we're keeping our guests waiting. Maybe he has thoughts about vacationing in Italy. Find it's Joe Cavatoni. He's a market strategist and head of America's at the World Gold Council. Joe, welcome to the show.
Thanks for having me.
Maybe you've been to Italy recently and me and you can be in the same group, the jet setting group.
Recently now not since COVID. I haven't been back since COVID, but I've been there many times.
See something about your last name made me think that.
Joe.
Yeah, my suggestion is to go to the first two weeks of December. Yeah December, no crowds, no holiday rush, no students.
Yeah, huh, good advice. He's got gold and vacation strategy.
We want to hear more about gold, so I'm hoping you can start out telling us about your role and actually telling us a bit more about World Gold Council.
Got it, okay, So my role is to help people understand what this asset is, how to consider analyzing it, getting the data that you need to understand it, and actually finding a place in your investment portfolio or in your consumption life, and feeling comfortable and confident that you've made the right decision. So we have data, insights and research, and as an organization we are made up of the world's largest mining members in gold. But this not profit organization, The World Goal Council spends its time working on market structure issues. Again adding to that market structure that insight, research and information that we provide people, but also looking at policies and market structure where we can actually help evolve the market in a way to make it easier to access, easier to understand, and most importantly trusted, because that's the thing that people need to understand the most about gold is what I've bought. I understand it, and I can trust that it's what I bought, and that's what we do well.
Joe.
You know, as I mentioned in the introduction, I feel like the narrative, the explanation of what's driving gold prices is kind of a moving target, So help us think about what drives the price of gold up or down. I mean sometimes you hear it as a risk off asset, and you obviously see it rally on days when the markets, the rest of the markets are in turmoil. For years, I heard it was an inflation heade interest rate. What are the main drivers of the price of gold.
It's where we usually start every one of the discussions we have, particularly with institutional investors, is in this very point we talk about gold in the context of strategic and tactical drivers as an asset. It's very unique because when you think about the strategic drivers of gold and how gold is consumed worldwide, it's consumed in the consumption way, which is through jewelry, small bars, and coins, maybe in technology like your iPhone, where it's a component that's in there, and those types of consumption behaviors are driven strategically through economic expansion. Simply put, you get wealthier, you feel comfortable about buying jewelry, or you buy more technology, and you actually see economic expansion putting money in pockets and people actually using that to invest in things, including gold.
The consumer side of things.
Do you list that first, because that's the primary main driver in your opinion.
It is, But I'm going to come back around and talk about the big markets like China and India, where there's a bit of a mix because it is consumer, but there's also an element of savings there. And then secondly, you look at the investment side. So when market risk and uncertainty develops, higher levels of volatility, confusion around what's going to play out for the next period of time, whether it's one month, one year, whatever the case may be, long term, which is how we often make sure people understand. That's how you need to view gold. The market risk and uncertainty is benefited when gold is added to your portfolio because in that context, investors see the type of diversification benefit you get from gold in your portfolio helpful. So it correlates positively when equities, for example, S and P five hundred goes up, and it correlates negative when the SMP goes down. Simply put, So you've got those two strategic drivers. Adding to that, you've got a global asset, so it's not just something bought here in the US, but it's bought and sold in the US, Canada, Latin America, South America, all over the world, China and India two huge markets from a consumption perspective. And in addition to that, this asset is actually produced and supplied on a global scale as well. So you've got a global element, you've got a regional element, you've got a consumer behavior, you've got an investment behavior. And it's really kind of exciting because you really don't know that until you start really digging into the detail.
Now in the.
US market in particular, it can be a little frustrating because what you tend to find with people is they want to shout from a pit on a trading floor about the next thirty minutes of what's going to happen with gold and the futures, et cetera, et cetera. And that's the tactical things that you need to understand. That's the noise you need to tolerate when you look strategically at it. So there you've got opportunity cost and momentum the two driving factors there. Opportunity cost is like what we've been seeing for the last call it nine months, rates are moving. How should I be looking at most opportunistic moments. Let's use a pool of liquidity that I can get to, like gold, very liquid asset. We'll talk about that, and then when it comes to momentum, is something happening quick? Is something happening now? Those two factors move gold on the short term.
So Joe, can you talk a bit about what the price of gold has done this year? You mentioned monetary policy for instance, like how that impacts things or even you know we have the US credit downgrade news this week, how might something like that impact the price of gold.
So this year what we've seen are two things. Number one, the monetary policy, we'll bring that in now continuing to be a headwind, the opportunity cost, the rotation of assets, and a portfolio risk asset behavior, how people are dealing with their risk assets. That's a moment where we see headwinds for gold. People don't look to gold in those moments when movement and rates and movement in those risk assets is taking place. We often see it a headwind for gold because it's used as a liquidity source. And then once people have made their allocation, they come back around to gold and they put in their portfolio of that ballast of kind of holding three, five, ten percent of their portfolio. So the price behavior this year has seen a lot of that, but within the course of the year, we've also seen systemic events or moments, events that have kicked into place a banking crisis. For lack of a better way of putting it, you're a Silicon valley bank, your first republic, your credit sueze. Moments where there's a crisis and people say, hey, look, I need to make sure that I can preserve my asset, all my real assets need to go up. My safe haven asset, which is often how it's referred to, is where people go with gold. And so we've seen these moments and now over the course of the last three to six months, we've had a few, but not a lot. I think that I was expecting to potentially see Wednesday's announced cut by Fitch in the rate for the US the long term debt rating to potentially be a flight to quality for gold, but it hasn't been just yet. So what it has been is it's been something that's had a negative impact on the price, and ultimately what that means is we're going to start to see the price rebound when people move away from it being a liquidity source. So you see a gold price that right now because of the possibility of things that are happening in the monetary policy space. When are the rate hikes going to stop peak and we're going to start to see the other side of this when the fense managed to cool off the economy. Once that starts to develop, that monetary policy will loosen up the ability for goal to start to see itself run. Right now, what we're seeing is range bound pricing on the gold market. So you see us holding firm at about a eighteen fifty nineteen hundred, almost nineteen fifty level, but not breaking out. We had a moment earlier in the year around that banking crisis where we did break out. We're not really breaking out just yet, and it's simply because most institutional investors have not come back to the table. The range bound pricing behavior we're getting is being held up by mainly a lot of buying by central banks, which is a trend we've been seeing for a long time.
Yeah, Joe, you know, it's interesting when I look at a long term chart of the price of gold, that two thousand dollars an ounce level is really interesting, you know, it peaked a little bit above it for a hot minute in twenty twenty, again in twenty twenty two, and I think again this year. And you know, looking at that chart, the technical analysts would call it, I guess a triple top, you know, suggesting that two thousand level is kind of the ceiling for gold. And I wonder how you think about that. How important are the technicals like that for the price of gold. Does the fact that it keeps testing that two thousand dollars level signal anything that maybe it'll eventually break out above it?
You know?
How important are these technicals and especially that round number of two thousand and ounce.
I think they're important and they're not to be ignored. And I think that where it comes into the context with which we're speaking to our investors and central banks and sovereign wealth funds and talk to them about it is really to help them understand their entry point into the gold market now that two thousand point and those technicals they start to impact some of this other area of demand for gold I mentioned consumers, so jewelry in China and India. These are price sensitive businesses and price sensitive consumers. So when you start seeing those types of price levels developed. That's when you see those types of consumers back away from buying. Now, if they're backing away at a two twenty and seventy five, I think is where we hit. They start backing away, and our investors aren't ready to step back in. The long term investors aren't ready to step back in. That's why you're seeing us peek out and kind of hold off. So what we need to see next is some sort of understanding by the investment community that the policies that the FED are dealing with are leading to a clearer outcome, a clearer roadmap, and then you're going to see our expectations. You'll see these investors come back to the table and gold will again have that slow, steady rise in its price point. Now you see these spikes when it comes into play around moments events. Again, earlier in the year we hit that over two thousand level, and it was again around that banking crisis. You start seeing those peaks. So it's important, but it's not the only factor to take into consideration.
I'm interested in the idea of gold as a haven asset. So let's say we do have some of these instances that you were talking about that we've had this year. Why go for gold as the haven asset versus something like treasuries.
I think what you start to see are two factors that are pretty significant in terms of performance. It's a limited source asset.
So over long term performance.
You'll see that gold will act appreciate, okay, And ultimately what you find with the asset is, second, it's very liquid. The asset trades about one hundred and fifty billion dollars a day. So what I'd say is those factors really weigh in and actually make people feel comfortable and confident. And they are not linked to anything like a credit rating or a dollar currency or whatever the case may be that could have another level of impact on the overall price performance and trading activity of an asset. So you're really looking at a unique asset that stands by itself and ultimately, with these unique drivers for consumption, will continue to push the price higher over time. And that's why I think people feel comfortable and confident putting it as a component, not the only component. Again, a component and a portfolio.
You know, Joe, I'm curious about the supply side when it comes to gold. You know, the world gold Council, as you mentioned, represents a lot of the gold miners of the world. And you know, the supply chain story was such a big story with almost everything there for a few years, shortage of workers, shortage of industrial equipment, higher interest rates, everything sort of combining to cause some major supply chain issues, you know, a whole variety of products. Did that hit the mining the gold mining sector at all, And how does that supply side sort of affect the price or is it more you know, the miners are reacting to the price rather than you know, affecting the price, if you know what I mean.
Yeah, it's a great question. And I'd say that no industry, at least from what I could see, was immune to what we experienced in the early days of COVID.
As a matter of.
Fact, the piece that impacted the gold market the most was transportation movement of assets around the globe. We are a physical asset, and when planes were grounded or space on planes was limited, or people were uncomfortable touching things for lack of a better way of dealing with it. We literally saw, for example, in the US comec's futures prices going out of think with what the underlying gold price was doing simply because they were trading at a premium, simply because it could not be matched with the gold that needed to be flown into New York, put into the vaults and actually collapse at premium. So we saw it there probably the most where you have an inability for assets to move around the globe. Now, mind sits refiners. They weren't in any way only impacted. They were all impacted. Mind sits refiners. They were all impacted in terms of the same way other corporations were impacted. Send employees home, you know, figure out how to reopen, deal with the PPP issues. All of those things came into play and they slowly came back online. What I think was also very challenging for us was when you've got gold sitting in a vault, how do you get in? How can you do your inspections? And every one of these organizations was scrambling to make it all work efficiently. Now, more than the constraints on the market, the safe haven nature of gold basically saw the benefits, and that's where the price moved. When people were concerned about risk, concerned about what's going to happen with their portfolio, they moved into gold, and that drove the price more than the limited amount of supply. When the mining companies were able to get open, the refiners were able to get open, they came back online. Transportation came on slowly and they came back online. So it had an impact like everywhere else. But we also saw that price appreciation was a consequence of people having that fear and that need for a safe haven asset.
What about on the demand side, who are the biggest buyers of gold? I think you mentioned consumers already. I'm also interested in the central bank aspect, like how who which central banks and how much demand is coming from the central bank side as well.
So far and away, the two largest markets for consumption of gold tend to be China and India, and that tends to be consumers that are retail oriented, mainly jewelry, but also small bars and coins, so a real consumer type market. It's grown out of a history and tradition of the affinity for gold, where people may not have had bank accounts, they may not have had access to the securities markets, and ultimately this was a mechanism for having something precious in terms of what they were looking to own but also saving their money. So those are the two markets that i'd say stand out prominently and continually, and they've developed and evolved over the last twenty years in a very fantastic way to even bring financial markets and financial assets to those markets as well. So you're seeing that more in China, but it's starting to appen in India. On the central banking side, what we've been seeing for let's call it thirteen years, is emerging market central banks diversifying their reserve currency portfolios and adding gold. What they're doing is they're moving into the asset for the concerns around inflation, concerns around need for liquidity, looking at how they diversify their foreign currency exposures to the dollar and the Euro. We just recently published our annual survey where we have over fifty five central banks that respond to us, and most have indicated that they're looking over the next five years to lower their reliance on the dollar and the euro, not just the dollar, the euro as well, and actually looking at gold and looking to increase the overall allocations that they're making there. Again, these are emerging market central banks mainly, and they're spread out across the globe. It's been a really interesting trend.
One thing that's really interesting about gold as an investment is there are a variety ways to purchase it. You know, you can buy the GLD ETF. Many of our listeners, I'm sure are professionals who perhaps dabble in the futures market, that's the other way. But then there's this whole other world of gold coins that's gotten a lot of scrutiny lately. I'm I'm sure you know what I'm talking about quote unquote gold IRA companies. Washington Post out a story recently saying over the past decade, more than thirty customers in twenty states have sued a dozen gold IRA companies. Federal regulators have sued four companies, two in the past year alone, claiming investors were systematically charged as much as triple the coin's value. You know, if you're not a sophisticated investor working at a hedge fund, trading futures, or even dabbling in the ETF space, what do you need to know about buying gold in some of these schemes? You know, what's sort of the the alarm bells that go off, And furthermore, you know, I get the sense that it's hard to regulate these type of operations.
And that's only a regulated asset.
It's really they're not selling a regulated outset. So how are you thinking about these type of operations and what the listeners need to know about them.
My dad's always telling me to buy gold bars.
Buy just the big bars. Yeah, yeah, he goes big.
That's a great point. I should take him on holiday to Italy for saying that. Let me unpack this a little bit, because I think there's a couple of things that are embedded in this question that people really need to have an appreciation for. So I want everybody to have a visual We often talk about the swimming pools, right, like the swimming pools and all the gold in the world gets stacked up around that whole thing. But think about what you've seen in photographs or maybe even in the real world when you visit them like the FED or you go on a tour the vault and there are large bars, the very large four hundred ounce large bar format was what we refer to. That large bar format is probably one of the largest markets.
For gold worldwide.
Okay, so everyone wants to just go to coins and little bars, and they're talking about those little tiny ones that are about the size of a of a simcard or maybe a little bit bigger than that. I want everybody to remember that the largest component that they need to be understanding is that when we buy gold for GLD for example, that's the kind of gold that we're transacting in. That is a wholesale large bar market. There are lots of institutional traders that are doing the work in that market. There's big banks like JP Morgan, HSBCICBC that are facilitating that through their role in.
The London market.
And those markets are open for large institutions to buy. So when we hear about pensions buying like in Texas or in Alaska and other places, these organizations are buying those types of large bars.
That's a huge element of the gold market.
So when we say nineteen hundred and fifty dollars an ounce, it's referring to one of those gold bars sitting in a warehouse at the LME or somewhere like that.
That's right, it's the four hundred ounce reference to the ounce that's primarily that level. Everything else starts to derive its price off the back of that. A kilo bar is about the size of an iPhone, and actually, when you think about a kilo bar, that's what's backing a lot of the contracts at the CMEME. That's what people may be buying and putting in a safe or in a safe deposit box. And those are very common too, and they are a huge market as well. But smaller bars tends to lead to the more higher level of risk for fraud because they're easier access, they're easier to manipulate. And then you get smaller bars in that and then you get into the world of coins. Now, often what we hear about in the US market are fraudulent activities taking place, and most of it is around sales practices. And this is the disappointing thing and why we are focusing on it in terms of an initiative that we have and I'll talk to that in a moment, but the sales practice that talks to confusion in the investment market around the numismatic value of a coin, something that's highly collectible, and then a premium to that ounce price you're talking about because of the scarcity of a coin issuance and then just coin price. So once people start getting confused by that, and they get pressured from high sales pressured environments, people working the phones heavily and pushing hard. They move quickly to sell you something at the wrong price. And often that's what we're dealing with. Most of the time. The value of the underlying coin isn't a problem. It's usually that moment of sale. You're catching me at a weak moment, or you're telling me it's too good to be true, and I fall for it, okay. And that's why we have our process around responsible gold investment principles and our practices that we have on our website to tell people, Look, if you're going to do what you're going to do, which is by retail, please go and check out these principles that we have. Ask the right questions. If it says it's too good to be true, it's probably too good to be true. And that's why we are pushing that initiative in India, China, Germany, the US and working with reputable firms to say, how can we take these principles that we have, How can you work with us to self certify against these types of principles so we can get that message out to people because we are dealing in a world of gold, and it's not regulated in the US markets, and these sales firms aren't subject to licensing to sell these coins. But what we are subject to is trying to get to people to understand. Look, best practices can be achieved. You don't have to buy in a haste, and you don't have to buy in an urgent moment. And the CFTC will come down on people and they will use their ability to find people and reprimand people, and they'll do that, but they have to hear of the cases, they have to go out and investigate, and it's a moment that's too late in the process. So we encourage people to slow it down, understand what you're trying to achieve, ask the right questions, and that's what we would say to people.
Now.
Part of why the ETF has been such a success, but remember it's only about two to three percent of the global gold market in terms of all the ETF worldwide assets, is that it democratized and it put an unregulated asset into a regulated environment. So you can feel good if you're going to buy an ETF, but you can buy physical Just slow it down and understand what you're doing own an ETF and you're getting price performance and it's regulated and you shift feel good about what you own there, or use futures and it's regulated again, another rapper that's regulated by CFTC.
Yeah, So I was looking at the GLD the management cost of it. I think it is forty basis points something like that, sort of high for an ETF. But I guess for you know, gold, there's a whole lot more going on. You have to store it ensured and all that. So you know, is that ETF probably you know, for your average investor, do you think that's the most efficient, sort of cost effective way to get exposure to gold?
The way we approach it with our clients and when asked and by the way, the World Wal Council is the sponsor for GLD, but we're happy to talk to them about all the different mechanisms to own gold and actually all different ETFs as well. What people need to understand is how large is my position going to be, what's my period for wanting to hold it? How often do I think I might need to rebalance it? And then look at each one of these instruments. So GLD is a forty bases point product. But it is the most liquid ETF worldwide that's physically backed by gold, and it is the largest asset worldwide physically backed by gold by far. But there are other alternatives that are less expensive from a management fee perspective. But you need to understand is the asset liquid, is it going to perform and track the gold price like I wanted to? And what's that management fee? So what is my total cost of ownership calculation I'd use with every other ETF if I'm looking at it, like the cost of commissions, the cost of impact of trading, the management fee, and the drag. And then this case is tracking costs as opposed to ERIC because of the fees that go along with understanding, you know, vaulting and custody and things along those lines. But you know, look, gld is a perfectly acceptable instrument. Still about a fifty to fifty split between institutional and retail platforms that are owning it. But you've got GLDM, You've got IAU, SGOL, bar AAAU, you know a bunch of different assets that are out there. That's the US alone, about eighty five instruments worldwide.
Wow, eighty five instruments world right.
I also was looking at gold. I noticed it had outflows the last two three months or so. So I'm curious when you do see investors actually putting money towards something like GLD, like, what do the circumstances have to look like? And how did it hold up when we saw inflation? When you know, because we do talk about gold as an inflation hedge, did it hold up as an inflation hedge the last couple of years?
Number one attracts the gold price and it's tracked the gold price for almost this next fall twenty twenty four to be twenty years. So yes, it performs and tracks the gold price, no questions asked. So operationally efficient. What's interesting about the dynamic with GLD first asset to market in the US, second asset to market in the world. The first was in Australia. So when that happens in the world of ETFs, what happened in the past with ETFs is that you cornered the market on being that capital markets instrument over ninety five percent, if not ninety nine percent of the related instruments in the derivative market, option trading and so forth is really written only on GLD. So what you end up with our institutions that are buying and selling in the asset itself and the institutions that are trading in those options markets, so they're feeding on that total overall liquidity and overall size of the fund. But that leads to a layer of AUM that will basically be speculating and trading. So you'll see that gold will have a higher level of volatility in its flows than any other instrument in the market. So to your question, how did it hold up in inflation, what we saw with the asset was actually flows that we're actually trading in that range probably about ten percent of the overall AUM, and then a hold on the part of most of the investors. And that's what we continue to hear today is most of the conversations are about when do I go back in, not should I keep holding my asset? So the asset flows out from the US have stopped slowed and people are on hold, waiting to see when there's the next move in Again. At that top end where you have that AUM that's linked to trading options and the like that's been volatile, that's when people are trying to time the market pick the spot to sell, to buy, to cover the shorts, et cetera.
You know, Joe the Don and I over the years have talked to a lot of cryptocurrency officionados will all the digital goal, digital gold, and that is always the the sales pitch I which the listeners could see Joe's face reacting to that, but that you know, that's among the many sales pitches that come and go for bitcoin and other cryptos is digital gold, you know, a safe way to store your money, blah blah blah, Yeah, inflation edge. I'm guessing you and your colleagues haven't lost a lot of sleep over that, or have you? How do you you know? Does does crypto really compete with gold for all the same investment cases that people are attracted to gold for.
I'm going to start by saying, the evolution of technology is amazing. The ability to have better, faster, more comprehensive access to database management, transparency around pricing really cool stuff. Now, as it relates to bitcoin and gold, we've done a lot of work to try and make sure everybody understands that these are two different assets. They behave differently, they actually correlate differently, and bitcoin correlates more like a tech stock, not the kind of tech stocks that are running as of late, either, but tech stocks in general, because, like I said, a lot of people see the same thing I see, which is the technology is really amazing. Now, how will it evolve over time in the form of a currency. I don't know, but I know that the big challenge that they're facing in the category today is that they tend to want to be a hammer looking for a nail. You say inflation, I can hedge inflation. They don't hedge inflation. When you look at the performance, you say I need safe haven asseid, they say, I'm safe haven acid. Then guess what they aren't. You say, I want to, you know, use it for payments to buy a diet coke down at the seven to eleven.
They go, yeah, you can do that too.
They want to be everything and everything for everyone without really kind of nailing down exactly what they are, which makes it really challenging for people to analyze the asset the same way you can analyze gold and say, look, central banks are buying for the following reasons. Jewelry sales are down in China because people are locked down under COVID so that's going to kind of keep us price range bound. Right now, you can use these assets and the data that we have and the information to kind of understand, analyze and make a sensible investment in gold and look at it and get exactly what you expect out of a portfolio performance from it. But in the case of bitcoin, and it is pure speculation and look have at it. And where we've gotten to with our dialogue with clients today, guess what we say to them, Sure, you want to buy that risk asset. You might want to consider a gold allocation to offset the risk that comes with it. So buy them both, because that's over there with your equities and your bonds and your private equity and your risk and over here is a safe haven asset. And it's wrong to say it's a digital version of gold, because gold's used in technology. It's used in medical applications, which is a small component of the big markets that we talk about, but it's a growing component. But it's also used like you know, it's in your iPhone, And it's hard to kind of pinpoint exactly what bitcoin is doing. But look, I'm not saying it's not a good asset. It's not a right asset. I'm just simply saying it's a wrong comparison to say gold is in the digital form in that case. And just two other quick points on this, because I know I'm banging on a little bit on.
I thought I thought you'd have some thoughts on this je.
But the digital technology that we're using in the gold market, like we're on a journey as we speak. The LBMA and the World Gold Council are on a journey piloting technologies to better track and trace the underlying goal that's in the market. Our it's known as our Gold Bar Integuity Program, and it's really cool what we're doing. We're we're I mean, it's going to take a long time to have this happen, but we're working with organizations that can track and trace every bar. We're working with organizations who can actually look at the value or or i should say the quality, the purity, and the traceability of all the gold all the way back to the mind sights. I mean, that's amazing, and that's coming off the similar types of technologies. This digital edge of technology is helping us in all the gold market. So to just simply say it's another it's a digital version of gold. It isn't. It's a it's a cryptocurrency that has valuations based off of different factors. What we're dealing with is a real world asset that at some point in time will be successfully tokenized, which it hasn't been today. And last, but not least, I'd simply say, hey, everything in that space is traceable and trade and and and the anonymity that they claim you can get is the questionable.
Yeah. Joe Cavatoni, strategist at the World Gold Council. Joe, I gotta admit when vill Donna said she'd book you, I was picturing a guy with like mister t gold chains all over, like a ring on every finger. He's just a normal guy. But I uh, very fascinating conversation, Joe. We really appreciate it. We can't let you go just yet.
Though.
We got a tradition here where it's time for the craziest things we've seen in markets this week. Well, Donna, why don't you get a start?
Okay, I was going to go with this, but I figured you were gonna yell at me because it's not markets related.
It's that I've never yelled at you all the.
Time, especially when we're not recording. There's that guy in Japan who spent fourteen thousand dollars on a costume to make himself look like a dog. Did you see it?
Yes?
Yes, there's videos everywhere. And when I saw the video without reading the captions, I thought it was a real dog.
He thought it was real, a real dog.
Yes, I mean it looks like a real dog.
And does he walk around on all fours? Yes?
Yeah, and he like paused at the four fourteen thousand. But it's not markets related.
So well, that's that's pretty good though. It's like, well, there's the bears in the zoo in China that yeah, too convinced.
I'm convinced because it wrinkled in the back on his legs. Yeah, but I was going to go with Actually, something also related to the ETF space, which is that we've had a ton of filings from issuers for ether futures ETFs.
Yeah, like seven or something.
Six issuers, seven different applications so far, and it was just in May that actually a bunch of them had to withdraw those same applications. So something has changed, Something is giving people the idea that and actually Joe the reason I wanted to go with this is because you spend time at black Rock, right, so maybe you have thoughts about what's going on with the ETF landscape.
Well, I you hit the nail on the head in terms of where I was going to go with my idea for the week. I did look at that collie and it was kind of disturbing because I was actually I was actually slightly chat lagged, and I was looking at it in you know, the wee hours of the morning, and I'm like, what the world is that? And I was like, you confuse over whether it was real or not. But I had I had a couple of reads into it. I realized it was a fourteen thousand dollars bizarre moment. I'm gonna go I'm going to go back in time to when I was at Merrill Inch and I was a junior analyst on hedge funds and there was a particular headsphind manager that I was like one of the guys in the corner of the room and we were talking this manager and he insisted on saying, I'm going to cap out my fund at a billion dollars, and a billion dollars is going to be all I want to manage and I don't want any more. And it's not because I can't run my strategy or my trades with more than a billion dollars. I worry about what people who are facilitating my trades around me, basically looking at people like Merrill ech and brokers and saying, hey, you guys are running around telling everybody what I'm doing. And the moment my trade becomes well known everybody just follows my lead, they collapsed the opportunity for me. And so my idea of like, what's really warping me over the last weeks, would say maybe even months, is that moment of people chasing the trade with no analysis.
And I actually think.
That when I look at an organization that, over the course of twenty four months has a one hundred and eighty degree turn in their attitude and their behavior and the resulting filing and the resulting market behavior at least to a twenty six percent return, it makes me think I'm actually happy I'm sitting at the World Gold Council so I can go to the tell these people you might need to look at gold in that portfolio if you're chasing a twenty six percent return on the back of a filing with no real change in what's going on in the world other than the potential for some lawsuits and cases to kind of come to light and maybe some rulings to come down the line. I don't think anybody has a smoking gun or a silver bullet or whatever. The expression I should be using is that I don't think they do. Will they get approval any of these organizations, I don't know. But does it really merit a twenty six percent return in an asset simply because of a filing you mean.
For a bitcoin or a spot bitcoiny TF, for an ether future CT. We've had so many of these filings. Yeah.
Yeah, man, the prices move.
This goes back to this point we were just talking to. The prices move pretty substantially just on a filing.
Yeah, especially, I mean when you can just buy bitcoin, you know, like a gold ETF. Okay, I don't want to have to have a gold vault in my house. I kind of see the selling point more of the ETF wrapper for that. But well, it's interesting, Joe, So it's an interesting way to think of it. Let me give you my my craziest thing. I'm going to the London real estate market, the very hot real estate market these days. I own a lot of hostile Oh, I'm sure you do. I'm sure you do. The New York Times has a story the headline's great. A stairway to nowhere sells for blank in London. I'm not going to give you the dollar figure, obviously, because it's time for our game show. The price is precise. So let me tell you about this. It's a four story stairwell, metal stairwell with like this translucent glass or plastic wrapper around it. It was the stairwell, the exterior stairwell for story office building that was converted to residential. Now, in the conversion process, they cut off the access to the stairwell, so the developer of the project ended up owning the stairwell just by itself, just stair A stairway to nowhere?
Can you like wheel it around stories?
No, it can't be detached, and it's not it can't be entered from the actual building. But someone bought it, so why well, I'll tell you.
Let me.
It's a guy who co founded a firm called help Bank, which is a company that supports budding entrepreneurs. He bought it. Now The guy quoted in the Time story is his chief marketing officer, which I think gives you a hint at why they bought it. Here we are talking about it. It was any times, I will say the crazy part is not necessarily the price of the thing. I actually think the price that he bought it for is personally, I think is reach. You may think it's crazy. I just think it's crazy that they sold a stairway to nowhere. And this guy says, well, you know he backs startups and entrepreneurs. He said, I'm thinking I'm going to put a desk on each landing for a budding entrepreneur.
But is it open? Is it like outdoors?
No, it's it's enclosed. It's enclosed. I don't know if there's power or heat or anything like that. I my guess is not. But maybe they could wire that up our bathroom.
And he said the fourth Floyd, do I have to go through three other?
You got to pass three other future billionaire? Startup?
Isn't in a nice location the London neighborhood of Twickenham. I don't know much about that part of London. It sounds sounds very nice, Southwest London. It's home to England's National Rugby Stadium.
That's where twicking in the stadium is.
Yeah, yeah, so, and they're saying he might apply, you know whatever the London equivalent of zoning is wherever they call it that over there, to allow them to put beds in there and make it residential.
So how big is this thing?
It's not that big. Now you would have like a single bed on the landing of a stairwell or in a desk you could turn into an airbnb. Yeah, I have.
A price in mind, me too, and I think you could also kind of use it on the out and the exterior for advertising.
No they're talking about that. Yep, that was another thing to imagine they're going to talk to But it's yeah, that kind of cloudy.
How can you have a bed?
I guess you'd get some curtains, But price is precise. What's your bid filled on at nineteen pounds nineteen thousand pounds? Remember prices right, rules are in effect.
I'm going to say it was a lot more expensive than that. And the reason I think it's a lot more expensive than that is I think that they marketing person has probably gotten in and overpaid for it. And I'm going to say, a million sterling, a million shurty, Oh, a million sterling.
It can't be that high because Mike thinks it's reasonable.
I did think it was reasonably priced. Twenty five thousand pounds, wow, thirty two thousand dollars. It's only about twelve ounces of gold, right, No, fifteen ounces of gold.
Not a lot. See, who would have thought I was way off the value?
But I do think it was underpriced. I think they got a deal. I don't know if i'd go as a million sterling. Yeah, very good anyway. Joe Caviatoni of the World Gold Council. Really fascinating conversation, Joe, and it's great to hear sort of a level headed explanation of the gold market for those who sort of already in the weeds of it. And we really appreciate your time.
Thank you for your time as well.
What goes up. We'll be back next week. Until then, you can find us on the Bloomberg Terminal website and app, or wherever you get your podcasts. We'd love it if you took the time to rate and review the show so more listeners can find us. You can find us on Twitter, follow me at Waldona Hirich. Mike Reagan is at Reaganonymous. You can also follow Bloomberg Podcasts at podcasts. What Goes Up is produced by Stacy Wong and our head of podcast is Stage Bauman. Thanks for listening, We'll see you next week.
