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142: Gold: To Buy or Not to Buy? That is the Question

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Buck: Welcome back to the show everyone today my guest on Wealth Formula Podcast is Ken Lewis. Ken has 25 years of leadership experience across a broad range of retail and technology organizations, many of which are in the Fortune 500. He currently serves as a chief executive officer of APMEX, the largest precious metals retailer in North America and under his direction APMEX through its new venture OneGold now provides customers with an online marketplace for precious metals. Ken, welcome to Wealth Formula Podcast.

Ken: Thanks for the time.

Buck: So let’s start a little bit about you. Your background is pretty varied with technology and and all that. How’d you end up getting in the gold business, were you a gold bug or was it just something else that led you in this direction?

Ken: You know back in the day I was actually at Home Depot. I was actually running part of their supply chain reporting up to the Board of Directors and had an opportunity they were looking to go public back in the day it was 2011. I don’t know if any of you know precious metals but back in 2011 was the gangbuster time and frankly up to that point was a pretty significant growth and in consumption of metals and so I joined the company with the idea of them going public to be honest with you. We’re lucky we didn’t do that because at the end the day the equities markets turned south in 2012 so we get Facebook go live, not a great time to go live and frankly there’s volatility in precious metals so I’m not so sure we would have been at the time the best public company, but I do believe what we’ve done over the last several years our stabiliz our earnings and who knows there could be a day in the future where APMEX couldn’t be a public company again.

Buck: Yeah makes sense. So let’s talk about just gold and in general right now. So you know in a world where there’s all sorts of things you can invest in and we talk about all sorts of stuff on this show, why gold?

Ken: I’ll tell you. I have to be careful not to get financial advice so what I’ll try to do is just give you some of my own personal opinions and now to ask others to do their own research. The way I think about gold is it’s a diversification strategy. When you’re looking at your portfolio, you’re looking at what you have your investments and you get to look at the mixture of all those investments, you don’t want all your eggs in one basket. If you look at how gold has performed it gets equities historically it’s a nice complement to it kind of like bonds and some other options. If you look at the long-term performance of gold and you take a long-term perspective you know I got stats here if you go back to 2000 about the only asset this outperformed gold over the last 18 years it’s real estate. So it’s one of those things it’s a nice balance to the portfolio, I would never recommend anybody carry more than five to ten percent of their portfolio in gold because you don’t want all your eggs in one basket again, but if you’re just looking for overall portfolio performance and probably more importantly some people look at wealth preservation and they want to be a little more conservative in their investments, Gold’s a nice compliment for that kind of portfolio.

Buck: Yeah you hear that all the time right, I mean the idea of gold as a way for capital preservation, a way to protect your assets. Certainly there is volatility within gold. Can you talk a little bit about why you think that that is a special place for gold?

Ken: It’s funny, I was sitting here, I have my team pull some numbers and I think this just paints the picture. Yes gold has volatility. You could look at, it’s had highs in the seventeen eighteen hundred range, it’s had lows in the last five to ten years and eleven to eleven hundred range, 1080 range, so there’s a little bit of volatility in there, but gold has done in the last 90 days exactly what you wanted to do. Here’s some stats: 90-day performance on gold is running about up 5.71%. You go to the S&P 500, it’s actually down 6.17% in the exact same timeframe. So you know silver, another product that people should consider investing in our opinions, up 6.89% in the last 90 days. So and then you look at the dollars relatively flat. So the point being is you know is gold and investment would I put all my eggs in one basket? Do I think it’s the next thing out there? I would never go on on record to say that. Do I think it’s a good compliment if you want to hedge to your other investments, I think it’s a perfect play.

Buck: I’ve always thought of gold as the anti dollar. Do you think there’s truth to that?

Ken: You know it’s funny, when we look at why has gold gone up, why is it up over the last 90 days, some of it can be directly pointed to the dollar losing some of its luster. The dollar is not quite as strong as it was, I just quoted some numbers it’s a relatively flat in this time frame but when you combine that you talk about the government closing down for the last 20-some odd days, you talk about the economies of China and Germany being on the downside, it’s a safe haven investment. It’s the kind of investment you want to get into when you think the economic times might not be as strong in the future as they are today.

Buck: So let me ask you some questions that I think are very basic. But why is gold valuable? What is the intrinsic value of of gold? I mean because understand and I let’s just take for example and I’m you know something like Bitcoin right, and Bitcoin is something that honestly actually feel has a lot of commonalities with gold, but you’d take Bitcoin and a lot of the critics say, well what is Bitcoin, it’s just code, it’s software, it doesn’t really do anything. Gold, I mean it’s hard to argue that the value that it has is just because it’s pretty and you can put it around your neck, right? So what is that what is the value of gold? Isn’t there inherently something that is beyond jewelry?

Ken: You know all you have to do is go look at the mining stocks and look at the availability of gold, you know there’s there’s some that are predicting that you know over the next 20 years the gold supply is going to become even more rare and I think that’s one of the intrinsic values of gold is its rarity and the fact that it also costs a substantial amount to mine. If gold price has become too low the mines will stop, the mines won’t operate. That helps to protect this value to a certain degree as well. I know some people have talked about Bitcoin in areas like that and how in some ways there’s similarities to gold. The one major difference is there’s no underlying value to Bitcoin. It’s a guess. Where on gold and this is actually a very important premise for our OneGold product is we want you to know it’s a lot like Bitcoin in the way it operates, in terms of a blockchain, in terms of it having a front-end that’s very much like a coinbase, but what’s critical to this is there’s always physical product backing your investment. You can take that physically to your home, we can ship it to you if you so choose, that way you know that you’re not just investing in something that could go gone tomorrow, it’s gonna always be there, you’re gonna always have value. And look, what product has been around for thousands of years, unlike gold. I mean it’s been bartered for for you know many many centuries, it’s out there, it’s available, its intrinsic, it’s a hard asset. In many ways like real estate and other things that you think of it terms of a hard asset.

Buck:  Yeah and it’s not that I disagree with you in this, I think it’s just something that it is something of a I think thought-provoking because I think fundamentally, I think one of the things that you said which is that it’s been around for thousands of years and it’s been money for thousands of years. I think that, personally that’s what gives it its intrinsic value. Now if Bitcoin was around for a thousand years I don’t think that there would be a whole lot of difference in that regard but that’s kind of what I was getting at. The other thing I was thinking general is, I always like to think and tell me what your thoughts in this, I always think of gold: gold is money. And we think of gold going up and down in value, but in reality you could look at it as gold is staying stable and the dollar is going up and down.

Ken: That’s an interesting point. You know I was reading an article I think something like 40 some-odd gold is at its highest level in certain currencies all-time in the most recent month. Because if you start to normalize out for currency value fluctuations, it actually is doing very very well in certain parts of the world. I mean just look at Europe, gold has performed very very well for those that invested in their currencies, local currencies. And so I do agree with you to a certain degree it’s kind of the currencies are something you have to always deal with, where gold is, you know the big thing about gold is if you think about is there’s protections out there right? It’s being used for multiple purposes. It’s not just like a Bitcoin or something like out there that who’s to say why is priced at what it is. Gold has people shorting the market long in the market taking a common position it’s being used in scrap that’s being used in manufacturing it has purposes in jewelry it’s a product that’s going to be around forever, it’s never going to go away, it’s just a matter of what value is it gonna have when you think about its future. So why would gold ever drop below a certain dollar value? I have a hard time imagining it ever going below around $1,100, 1,050 because there’s just too many purposes for it and the overall scheme of things.

Buck: So you’re saying that the valuation of gold is beyond just that it’s gold

Ken: Absolutely.

Buck: Yeah, okay fair enough. I mean I think that’s one of the challenges that I’ve certainly had with the valuation of gold in the past. Now, would you advocate for, well not even advocate because I don’t I know you don’t to give a financial advice. Tell me about the relative merits of either owning physical gold, and this may get to know a little bit about your company. Versus owning you know just some some shares of GLD in the New York Stock Exchange.

Ken: Yeah it’s funny I think you mentioned to me earlier your background was a doctor and what we find is that a lot of high net worth individuals like to have some assets under their hands, in their homes. They’d like to know that their assets are going to be there long term. You can debate as value but we can’t debate as your physical control over it and we have a lot of high net worth customers who believe in owning gold and putting it either in a safety deposit box in their home, we also offer storage for them and they look at it as a way to pass on wealth to future generations, they look it as a way to take a hedge against the overall financial systems and the markets out there and and how much can they trust those systems. It’s a lot like real estate right where you have that ownership no one can take it away from you, you’re not as relied upon the banking systems the government and regulatory issues, you kind of have if you will stand alone set up of a position like holding cash right in your home, it’s good to have some diversity there. So that’s what we see a lot of individuals who want to own physical, they want to have some kind of separation if you will from the overall broader financial system. Where GLD on the other hand, you’re really buying into the broader ecosystem. What you’re doing is trying to find an easy way to take the position in gold, because having physical gold shipped to your home, there’s a premium you’re paying over spot, you got to have insurance, you got to figure out where to put it, you’re worried you might get stolen. So some people it’s not for them they want to position gold, they just don’t want to have it physically. And so GLD is absolutely an option, it’s something that frankly it’s the largest position of gold out there, it’s really easy for people they can go to their brokerage account, they can go out and take a position. The issues which yield be in my opinion are a few. First and foremost I like having something with an intrinsic value backing it at all times. No one knows for sure whether GLD has a hundred percent of the gold backing what it shows out in the marketplace first and foremost. Secondly it’s under lock and key control by the banking system, the very banking system that we sometimes don’t trust, so you have to be concerned about that. And then finally the fee structures, you pay an annual fee. That annual fee can run 40 plus basis points, you gotta pay for brokerage fees so there are some cost involved. The beauty of it though is instant liquidity, you can get in, you can get out, in and get out whenever you like.

Buck: That’s some taxation benefits in that.

Ken: You know it’s funny, taxation wise, honestly I believe, I’m going to be careful not to give tax advice, but the treatment of it is I want to say I think GLD is treated like it’s a capital gain, but a physical metal is actually treated like it’s a hobby or a collectible. So they have different tax treatments. One is self-reported, meaning if you own physical you self-report your tax gains. Some people find that attractive. GLD obviously is going to come through your brokerage account. Now what we tried to do and I mean this gets into a product I want to talk about, we just launched OneGold where what we did was we took all the benefits of crypto, the blockchain technology, the ease of use from your phone right you’re on the laptop, the ability to connect your bank account to your portfolio so you can move money back and forth very seamlessly or pay with credit card or pay with Bitcoin matter of fact, but ability to get in and out of metal just like GLD in and out of metal at all times, but more importantly you always know the metal’s there, and if you ever want to have physical shipped to your home because you want to take the position home you can convert to physical in a matter of few keystrokes.

Buck: So there are other companies out there who do somewhat similar things, say I know for example I personally have used a company called BullionVault and I know there are a handful others, how are you guys different? What are you doing that’s different?

Ken: Yeah a couple things. First and foremost the user experience, I want to be careful not to be negative on the competition or the competitive landscape, all I would say is I would challenge our users to use the interface, it’s super simple, you don’t have to be an expert, you don’t have to be an expert in gold, it’s just that straightforward, just like the cryptos. I think the crypto is if you ask me, they made it very easy to take a position, you get in and out of crypto, Coinbase is do we model our software interface, after super simple. We’re like Gold Money or BullionVault or some of these other products, they’ve gotten overly complicated, they’ve gotten very difficult to use for the average person. You run your patience, you don’t want to have to learn so much, you just want to be able to execute get in and out and move on. I think that’s one major difference. The other thing I think is the difference is that we’re using the blockchain. We’re using a technology that has proven security for consumers, it’s a permission-based blockchain, it’s not open source. Why is that important? Because you can get an independent verification at all times of your holdings right there online using a different piece of software, unlike the BullionVault and some others you’re trusting that they had audits done they give you a bar numbers, I’m not saying the Gold’s not there, but it’s definitely a little bit less tight than the product we’re trying to launch tomorrow.

Buck: So talk a little bit about this. So basically are you creating like some tags that are bar coded and then those go on the blockchain. How does it work exactly because certainly there are other mechanisms out there in the blockchain world used to identify these types of things and works of art etc, can you talk a little bit about how that works?

Ken: Yes it’s actually such a beautiful process. So what we do is one goal takes a physical position in gold, the products actually at the Royal Canadian Mint up in Canada. And so when we take our physical position, they actually then update the blockchain to reflect our ownership interest, all right? With consumers then go in and buy, they’re given a private key, a blockchain identifier, of who they are. They’re then assigned ownership interest of my position. So I can’t sell gold to any consumer that I don’t already own the gold to start with. So I take a position and I then assign ownership interest to all these different clients. Right now we have over 800 people who’ve signed up for the program in only eight weeks, we think we’re on a great trajectory here, it’s a concept where you have a private key if you will that you’re able to always identify and go actually out to an independent third-party website put in that private key and check your balances. So it’s very straightforward for you to verify it’s always there unlike some of the other programs out there that are crypto based, you don’t know if the assets actually physically there or not, where we actually had the Royal Canadian Mint standing on the whole process.

Buck: So when you try to sell, when you’re buying from this, who are you buying from peers or how does that work? Because typically obviously one of the things if you’re using the crypto analogy, it’s typically a peer-to-peer type of thing and then you might have a platform and there’s small exchange fees etc but ultimately it’s a peer-to-peer play.

Ken: Yeah in this case you’re always dealing with the house, so you’re not actually doing peer-to-peer because, a couple reasons, in the crypto space peer-to-peer trading we are all concerned about regulatory issues there. The SEC has gone on record to say that they’re concerned about it, we didn’t want to play in that sandbox and potentially open ourselves up for regulatory issues, that’s the last thing we want. So you’re always dealing with the house, but here’s what’s important, very transparent. The spot price in the market sets your price plus a 15 basis point fee, that’s what you pay. When you go to sell, it’s also you got basically you have a 30 basis points spread between high and low very transparent, very low fee structure I would actually argue for any product in the marketplace it’s fee structures actually as low as anything you’re going to find and how we’re able to do that is we’re taking a pool position. We’re not actually fabricating product for your order, you’re taking fractional ownership of gold so we keep our costs very low. We’re even looking at, and I think this is something of interest potentially for your listeners, we’re even looking at potentially launching a yield product. A product where you can actually be paid to own gold down the road. How would we do that? I’ve got gold sitting in my vault right now that I have to borrow against with the banks and I pay the bank an interest rate for that. What if I can design a model where it’s segregated standalOneGold that where the consumers own the metal and I pay them the interest rather than paying the banks interest another possibility down the road that this platform enables due to his design.

Buck: Yeah I noticed that in your bio that was actually one of the next things I was going to ask you about is creating passive income on the gold you owned, is that kind of what you’re referencing and if so when does that happen? What do yields look like, do you have any idea about all that?

Ken: Yeah we’re looking to hopefully launch the product in the first quarter, something like I’m describing and there’s a couple approaches we could take with this so I can’t get into too much detail on how its final form’s going to be. But when you go out and this is public knowledge you can look at companies who do metal leasing for example where they at least things in their vault bought metal in their vaults and they go out the banks and do a metal lease where they’re borrowing is that metal those mentally straits can run from one and a half to two and a half percent depending up on your size your credit ratings and other things. So that gives you what the potential is if you wanted to pass every dollar of that back to the consumers, that deal could be very significant. Well of course it’s going to probably be somewhere in the middle, I would predict, but the most important thing is I think it’s very important is that that metal has to be standalone segregated and always under lock and key for the customers. It can’t be code utilized in your vault where there’s no clarity, it can’t be where the banks wonder who has ownership interest in the metal or inn the vault, it’s going to be very, very clear very transparent at all times for it to work. But that’s an example of passive income that we think is a possibility for consumers with a product like this that we don’t know that concept really doesn’t exist using blockchain technology, using companies like the Royal Canadian Mint and Sprott and using of course you know our size and scale to bring to market.

Buck: What about the best building of collateralized debt, that’s the other thought is that we were seeing this more and more actually in the Bitcoin space where bitcoin is similar late to gold again there’s not a whole lot you’re gonna do with it’s storage value that there are now companies out there which you know you can effectively park your Bitcoin or in this case it would be gold and maybe borrow 70% LTV against that and then use that for other assets.

Ken: Yeah we’re actually evaluating, you may have heard of the government and another company out there where the result where they were being sued by the government about whether or not their product need to be regulated or not. We wanted that to work through the course of actions because we didn’t want to open ourselves up to needing to be a regulated entity. That has resolved itself in regards to the ability to provide if you will borrowing against assets, so it’s something we’re going to look at. The process to do that is relatively straightforward, you get that lending license in certain states and other things like that but we’re doing our research we think it’s a possibility, we’re asking our customers is that something they want and we’re getting mixed reviews, we think there’s a couple of other things we’re hoping to bring to market maybe a little bit sooner than that but I absolutely think there’s no reason why we can’t provide an opportunity for consumers to borrow against their gold holdings especially when those gold holdings are under lock and key, right? Because that’s the beauty of it if I have it in my possession meaning is that the Royal Canadian Mint I can verify it’s there, then my risk of loaning you money against that it’s pretty minimal because I can always like the collateral’s there I can always take it back. So we can offer some very aggressive rates for borrowing I would think once we’re able to pursue this.

Buck: Well not to mention you’d have the ability since it’s custody to simply do if for some reason you can liquidate, I mean presumably you wouldn’t lend at more than 70% LTV, 30 percent drop and gold like you said maybe it’s not that likely but you’d be able to liquidate pretty quickly so I would think that would be pretty attractive. So because part of the issue is to me is the liquidity and being able to borrow against it. Let me play devil’s advocate a little bit more about gold because we’ve been having this discussion a little bit on Wealth Formula as of late anyway and so assuming gold is you know effectively enough inflationary hedge, it’s something that is a good way to maintain wealth or preserve wealth, why not just own real estate, after all you know real estate is also a hedge against inflation, it actually cash flows, you cash flow and you can use some moderate leverage to create even more cash flow and of course you know certainly there are tax advantages associated with real estate whereas physical gold, some of the taxation there is actually pretty pretty onerous. So how do you answer that?

Ken: Yeah it’s a great question and I think it the answer to me for me would be that you don’t put all your eggs in one basket. I think real estate’s a solid play, matter of fact when I look at the last 18 years the only asset that’s outperforming gold in the last 18 years is real estate. If you had invested $100 back in 2000 real estate would be around 700 bucks Gold’s at 433, the SP is at 240 bucks. So yeah I buy into real estate. I do think real estate’s not for everyone. I know I’ve looked at it as an option now real estate for my own personal use, my home things like that I’m good with. But the minute you start buying land or you buy rental properties, there’s work that comes with that as well, you got to be prepared to deal with that, that’s not for everybody, but I’m not going to say the real estate is not about a valid option, I think it is. I think the question is, you want to be all in one thing or all in another or have some mixture of the two.

Buck: Before we go we’ve only really talked about gold. What are your thoughts and so many other precious metals I know there’s been some concerns around silver lately, make me wanna address some of what’s going on there.

Ken: You know silver is an interesting product right, it has far more industrial use than gold but it’s also more readily available, so it doesn’t have scarcity angle to it. But when you go back and you look at the data, I think in 2011 silver hit 48 dollars an ounce all right. Silver’s trading right now around $16 an ounce right now. Yeah right about 15.50 announce right now 15.60 an ounce so you look at that and you go gosh if it could trade a 48 and it’s a 16 you know what kind of upside does it have and could it potentially see a nice return for those looking for an opportunity, but again I think it’s industrial uses, it’s been nice, it’s been that’s been helpful, I think there are some questions about as companies technologies of all you, know Cadillac converters for example was a commonplace you’d see certain metals being used, now you’re going to other other battery technology that may not have quite the used, then you get solar out there that’s using certain metals, so I think it’s something definitely to research . Platinum by the way it’s another product that is is really kind of come down in the last last 12 to 18 months, seems to have some nice upside to it. Palladium I think is trading at all-time highs right now, or very close to it which is which is very impressive, there’s a product that’s very scarce by the way why is trading so high. I’d probably stay away from that right now as an investment just because it’s trading so high. But if you go back and look at historical figures, platinum, silver they seem to have more upside potentially than gold, potentially, but gold is gonna be around the Gold’s the product. When you go to market watch and look at the front page they show you a gold stream to show you what oil is doing, it’s the product that has the majority the dollars tied up into it.

Buck: So OneGold is live now, I presume.

Ken: It is and it’s super simple, I think your anyone who’s used the crypto will recognize the the experience. We don’t ask you for your blood type when you set up an account like some of these exchanges have done and there will be new products coming to the market to come into OneGold here in the future. We have a gold product and a silver product live right now. One thing that’s really nice about the OneGold product that some of your listeners may find interesting is we have a continuity program. So you can go in and you can set up a buy where you say I want to buy twenty five dollars in gold and I want to buy that every two weeks for the rest of the year. You can set that up right there in OneGold and it will execute the transaction of whatever the spot is at the time. The other thing that’s really nice right now that the blockchain provider as well as are seeing that waived their fees so basically right now you can buy metal at spot, literally at spot right now. So if you go to our exchange you’d see you can take a position in gold or silver and you’re going to be at spot. Our long-term fees are going to be about 30 basis points per year, so when you start doing the comparison against ETFs I think you’re gonna find they compare very nicely.

Buck: How long is that promotional?

Ken: Hopefully till the end of the first four right now, we’re going to commit to the end of the first quarters where we’re at. And we’ve seen a lot of people pricing shouldn’t be the reason why you dive in, my fee structure shouldn’t be the reason why you dive in the middle but it should help to alleviate some of those concerns for sure.

Buck: And again is the website onegold.com?

Ken: It is. And very user friendly, like I said very simple very straightforward, you also may have some listeners probably I guarantee you customers of ours apmex.com where I think we’re the 45th largest internet retailer in the US, we do over a billion dollars a year in physical metal and we’re still advocates for physical, we just think some people they want to own GLD and if you want to own GLD why would you not give OneGold a shot, but if you won’t own physical and you want to have physical in your home Apmex has been around for 19 years, we’re the dominant player, I think no one’s even half our size in the US marketplace, we’re known for customer service and got a great reputation out there which is what makes OneGold different too, you buy these cryptos, who are you doing with? Are you dealing for a company that has a balance sheet that actually is a size, a company that’s made money never lost money in their lifetimes, a company that has 225 employees, more than likely a lot of the startups out there are just that and you don’t know if they’re gonna be around tomorrow.

Buck: Ken again thanks for being on Wealth Formula Podcast today. We’re going to put all that information in the show notes.

Ken: All right thank you buddy.

Buck: Thank you. We’ll be right back.