Sprott CEO, Peter Grosskopf – Why Gold Only Gets to $2,000 by March 2021 (Transcript)

Sprott Inc.
  • TSX: SII
  • Shares Outstanding: 25M
  • Share price C$45 (03.06.2020)
  • Market Cap: C$1.1B

Interview with Peter Grosskopf, CEO of Sprott Inc.

Investing insights and a warning. The global economy is not OK and at some point the cracks can’t be plastered over. How do retail investors protect themselves? What should they be doing as cash goes negative?

We talk about digitising gold and the practicalities. Plus what is his call on physical gold price. What no screamingly alarmist headline! Sorry no. Grosskopf does not need headline grabbing statements to get noticed. He has carefully brought process and data to the way Sprott functions and is now at the helm of the ‘last man standing’ in the natural resources space. So when it comes to gold price, we’re listening to this guy and ignoring the sensationalists.

We Discuss:

  1. Background Story of Peter and His Involvement with Sprott
  2. Fixing a Problem: Focusing on the Different Needs of Investors
  3. Last Man Standing: Securing Revenue Streams
  4. Emotion, as Significant Influencer in Investments, Removed?
  5. Power to Move Sentiment and Markets: Sprott Investments, Always Calculated or Left to Chance?
  6. Investment Decision Making Ecosystem: Parallels with Retail Investors
  7. Digitization of Gold: How Will it Work, Who Will Have Access to it?
  8. Gold Price Predictions and Pragmatism
  9. Concerns for Present-Day Markets and Geopolitical Decisions to Come
  10. Hedging: Optionality for Investors
  11. Are Investors Prepared for What’s Coming in the Near Future?

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Peter, how are you doing, Sir?

Peter Grosskopf: I’m well, how are you?

Matthew Gordon: Not bad, not bad. You’re back in the office. I can tell. So, things are relaxing a little bit over there, are they?

Peter Grosskopf: They are. We have been an essential business, so we have been fortunate, and we also can operate virtually. So, for our staff, it’s a bit of a choice that they have. But the office is a safe place right now. There are not many people in it and it’s kind of fun to be back. And you know, there’s a few more tools here so I feel I can be pretty active in the office right now.

Matthew Gordon: Okay, fantastic. First of all, thanks so much for coming on the show. We had Rick on a few weeks ago and he was fantastic. It was a really interesting chat through his life and times as it were. I kind of want to do the same thing.

Peter Grosskopf: Thanks for having me. Those are hard shoes to fill.

Matthew Gordon: I know, right? But we’ll try. I think we can do it. I think we can do it. So what I want to talk about is a little bit about you, if I may. So, you have come from a banking background into investment. Can you kind of just, again, for people, I suspect this is a slightly newer audience for you here with a kind of European slant here, because Sprott is very well known in North America, a very big player kind of globally in natural resources. But can you talk to us about where you were, what you did and why you moved?

Peter Grosskopf: Well, I’m happy to share my story; I started as a commodity futures and options trader in 1987, and I trained with a couple of the large Canadian banks, and I was always covering the global Gold and metals and mining sector from a position of being a banker and being a service provider, if you can think of it that way. So, I grew up in the business knowing the CEOs and helping them to either raise money or complete transactions. And as part of that, I met Eric Sprott back in 1992 when he was one of the preeminent growth investors in the sector. And I came in and worked with him and helped him open a Vancouver office. I was in Vancouver covering the mining sector at the time. So, from that background of being, and then increasingly I became senior in the investment business; I founded my own dealer. The dealer sold to TD in 2000. I went back to run Sprott Securities, which became Cormark. And then Eric asked me to join him in 2010. So, I walked across the street to ‘learn the buy side’ and learn to become an investor and help Eric run his company.

Now, who would have known? I top-tip the market, I had become a believer in Gold as a hedge against the general financial system and also government actions protecting the financial system. So, I believed in Gold, but I came in at the wrong time and it was a work in process. Eric was a star manager. He had another star manager, John Embry, working with him who came from RBC. And it was a star management culture in the metals and mining management sector in general.

So, for me, the first thing I had to do was try and systemise that to become an investment pedigree that could be followed by younger managers and provide some succession, and that took the best part of 10-years to do really. It wasn’t easy, and we had to hire lots of other experienced managers in the sector, including Rick Rule with his geologic mindset and experience base. And we also invented and rolled out new products, which became very important to us, like the bullion management product. So, it took a long time to build a platform that was capable of attracting funding, and making a bigger play in precious metals, like we think is still the opportunity today.

Matthew Gordon: So, I’m interested in that. I’m interested in the bedrock, the foundation of what you were trying to build. What was the actual problem you were trying to fix? You said, ‘I had to systemise it,’ right? Why did you have to systemise it? What was wrong with the star manager process? I guess it wasn’t a star manager process, the environment in which they existed?

Matthew Gordon: No disrespect to Eric. Eric is probably the single most impressive investor in our sector altogether. But to try and follow him is impossible because it’s the mind of a trading savant in the sector. And what we needed to take was the best parts of that process and put some risk management around it, put some institutional-style asset management around it and still trying to inherit its best parts. So that was what it was a core. Also, his performance is volatile, more volatile than the average investor because he only focuses on the end point. And if it’s your own money, you can do that. And if you have private clients you can do that. But for institutions and retail clients, a different style is needed. So, the volatility of investing in the sector, the timing challenges, investing in the sector; we needed some different products. So that’s where the bullion product came in. That’s where the lending product came in. Products that, that investors could get some of the upside but also protect their downside in the sector.

Matthew Gordon: So that’s really interesting as well because you’re saying basically, different people have different investment models, right? They have different strategies, different needs. So, your institutional guys need some degree of liquidity to this and a kind of constant growth. I suppose these, as you say, big violent swings, which is the mindset of an entrepreneur; you don’t mind going through some tough times, right? So how did you go about doing this? So, you have gone to the market and said, well, we will make money by bringing in investments and creating products for those people. So again, talk me through that because I think it’s fascinating how you build a company.

Matthew Gordon: Well, we had two great tools right from the start; and the first well, the most important was the brand, and being number one in the sector had a lot of advantages in terms of attracting talent and people. So that was always there. The second thing, and it was part of my coming to the firm, was that we had a lending business, a resource lending business, and that was a business that I knew could be grown to handle institutional and more conservative clients and used as an entree to the sector. And for my own capital, I know the challenges of timing and the nice thing about a lending business, you don’t have to worry about timing. You can go in at any time and earn, and the process was easy to identify. It was easy to sell that it was value added. Investors could not do that for themselves. So that was one core of the growth and that that business is still growing today.

And then there was this bullion management business that Eric and James Fox had seeded, and was a US listed trust that held the bullion. It had one huge advantage over the GLD, and that was that it was a physical trust that held 100% underlying metal and also was taxable on a capital gains account in most circumstances. So, we knew it had advantages. We knew we could grow it. And James and I in the early days, we did a lot of these offerings through Morgan Stanley and RBC. But recently that business is on fire. I mean, a lot of investors want bullion. A lot of them recognise the benefits of our trusts. John Ciampaglia and the other team that run that business have computers working for them now and the computers create and redeem units when required. And that has been an all star this year when investors have gravitated towards bullion itself more than the miners.

Matthew Gordon: Okay. So, what you’re doing as an organisation is what I think you’d probably recommend that retail or family officers do; which is kind of build a portfolio approach to their investing. That’s effectively what you’re doing as a business.

Peter Grosskopf: It is. We can, we can be anything from an advisor and consultant to people looking at the sector, to handling a very specific product for a very specific need. So, we cover the whole gamut and we can advise investors on how to enter and what their expectations should be when they enter. And of course, the most difficult bet is public equities because they’re so volatile, and you know, we have tools and teams and a process and a deep way of looking for catalysts in that sector now that I think we can comfort those who are investing that we have got a plan, and that the plan is to take advantage of the leverage inherent in the equities. And right now, it probably looks like just about the best opportunity out there.

Matthew Gordon: And you as a business; you have also got different revenue streams to kind of see you through the tough times and the good. Like obviously at the moment it feels like a case of last man standing because you –

Peter Grosskopf: It is.

Matthew Gordon: Right.

Peter Grosskopf: That’s the other thing; so when we were investing in the business and making acquisitions right at the bottom of a market, a lot of others were leaving and that was for two reasons: first of all, there was a bear market in precious metals, and secondly, asset management had completely changed. Sector funds were you know, totally being shunned by investors and brokers. If you wanted a view on a sector, you simply bought an index, you bought an ETF, you didn’t come into a fund. So, a lot of the world’s largest precious metal funds just shut down and we were able to sweep in, and in some cases pick up talent or another case as by an undervalued franchise. And there is a bit of a last man standing exercise to it and that we just stuck with it and we knew that at some point there was the high degree of likelihood that Gold would shine when the credit bubble kind of started to burst, which is what’s happened this year.

Matthew Gordon: That’s a great thing about cycles – you’ll always eventually be right?

Peter Grosskopf: Well, you have got to make it through the bottom. You have got to have the money to invest at the bottom.

Matthew Gordon: But that what I’m getting at with, that’s why I wanted to understand how you have gone about building the business. Because if you think about what you have done: you have protected yourself by finding different revenue streams which are going to see through the different cycles for different commodities, et cetera. And I think that’s what I’m saying.

Peter Grosskopf: Yes, lending in the bullion funds paid our dividend while we waited for the sector to reignite. It was as simple as that. And those 2 businesses are stable. They powered our dividend. At one point we were paying over a 5% dividend. So, what we started to realise is that most of our shareholders were holding us as a precious metal proxy, and almost as they would a royalty company, as opposed to being royalties of ounces produced in the ground, out of the ground. We were royalties in ounces held in storage. And a similar margin quite frankly, and similar small staff. So, levels of profitability were getting better even while the Gold market was low.

Matthew Gordon: Okay. That makes total sense to me, but it has been brought about by the way that you have re-engineered the business away from star manager status, where you are taking the best bits, like are you kind of almost in a way ‘AI-ing’ company by taking the best bits and removing… what would you say you did remove? Did you remove the emotion from the decision-making?

Peter Grosskopf: Individual decision-making processes that were based more on gut instinct, and in the 1990s or 2000s, when some of these managers were absolutely killing it; returns were astronomical, and astronomical compared to the benchmarks. Those systems were based on personal information that was gained.  I’m not talking about insider information, but personal relationships they gained from CEOs and that’s the way the business was transacted. Nowadays, computers, as we all know, run much faster than humans. The information, once a drill hole is out, is known by everybody and everybody can model that information. So, we needed a system that could react to that as opposed to gut instinct. And that’s what it was.

But let me just run through a list of names in terms of the collaborative DNA that we put together: so there was Eric, there was John Embry, there was Charles Oliver, there was Paul Stephens, there’s Whitney George, there’s Rick Rule, there’s Neil Adshad. I mean the list of investors that we had to combine to get that, that system, you know, as good as we could, was a long line. It took a long time.

Matthew Gordon: Yes, it’s fascinating. There is a lot of knowledge, a lot of power in there, but you have got to engage it, you have got to control it in a way you can control the good bits. I mean, do you think there’s a, with the advent of technology and the fact that this data comes out quicker and it’s more understood throughout the market quicker and disseminates through the market quicker, that it’s kind of removed the playing to the crowd component of decision making of investing? Is the hype around individuals, is that part of what you wanted to remove?

Peter Grosskopf: Well, originally yes, but of course you need to know how the crowd’s going to react as well. So, it’s not got out of it entirely. You still need, I think, human beings to analyse – okay, is that drill data going to disappoint? Is that production data going to disappoint, or is this now onto another phase where it could get better? And I think it’s a combination of the system, risk management and individuals that add the necessary ingredients.

Matthew Gordon: But it’s the last man standing? Don’t you feel that you can move sentiment? I get that the fundamentals need to be there, but sentiment needs to follow very swiftly behind. People need to get behind the Sprott decision, or the Sprott investment. And you do place a lot of bets and people do use that as an investment strategy.

Peter Grosskopf: We do. We’re incredibly active. We look at probably you know, five different investment opportunities per day that are new. For a smaller investment situation, we might be able to move markets, but certainly not anything that’s bigger-cap. We recently took over the Tocqueville Gold business in the US, and John Hathaway is now also one of the contributing investors to that methodology. And even with him and his large US Gold fund, we still focus on mid-cap companies, and when we’re holding a stake, it might be five or 10%, it’s not really enough on its own to move markets. You know, it’s a good sign I guess, of endorsement for the companies. But the market is pretty broad.

Matthew Gordon: Let me talk to you about that because I interview a lot of companies and I’ve lost count of the amount of CEOs who tell me, and of course, Eric Sprott or Sprott Inc or investors, but you guys have big bets and then you have, not big bets, big investments, sorry, where you are kind of doubling down on an investment because you truly believe in it and it, and it does, you know, the company needs that cash and it’s able to do things without cash, which is great. But there are a lot of companies where you’re placing USD$1M, USD$2M, even USD$5M, that in itself is not enough to, you know, get the company to where it needs to be. But the fact that your name is there seems to resonate in the marketplace and it’s something that the CEOs latch on to. I mean, do you, please take this the right way? Do you place casual bets? Do you think, well, it’s mining. Sometimes you have got to get lucky and sometimes it’s based on pure data. So, are there investments that you make, which you think, well actually, I’m not sure, but it’s probably worth a couple million bucks on this one?

Peter Grosskopf: it’s a very good question; but I can tell you, absolutely not is the answer. We, as part of this system and as part of attracting our own clients to whatever best suited their own risk objectives, we have earlier stage funds. Neil Adshead runs an exploration partnership for us. Rick Rule’s business is based on earlier stage companies – that attracts a certain kind of investor. But to make those bets, due diligence is done. I mean, Neil’s a PhD in the sector and would never make a casual bet. He would always look at the drill data, he would always think it’s a world class project potentially in order to accept the risk-reward. So, for us, those small bets, when you see us making them, that’s about seeding. That’s about seeding investments for the future. And talk about the Sprott system: it’s something that we think is an essential service, it is to know what’s going on from the earliest stages of the drill play right to as it goes into production. What we don’t do, generally speaking is focused on big caps. We leave big caps to our indexes and we do have indices that hold big cap stocks. But once it’s in big cap format, it’s very hard to make a difference. And you know, we’d have to have a very specific thesis to go overweight, a big cap.

Matthew Gordon: Okay. So, tell me a little bit about the investment decision making committee ecosystem that you have. Is it down to individuals or do you sit down on a Monday morning and go, guys, let’s talk about what’s happening this week?

Peter Grosskopf: Well, there’s always an individual PM that has a fiduciary duty to make the tie-breaking decisions. Some funds run by way of investment committee where there’s a vote, an official vote, and some funds are unofficial, and they have a group of PMs sitting around a table and having that Monday morning meeting. But in all cases, it’s a teamwork-based approach.

Matthew Gordon: Okay. And I know we have been a little bit focused on the capital market stuff, but that’s kind of, I guess where the magic happens, right? So, and you have got your ETFs and you have got your bullion and so forth. You have got lots of products out there, which retail investors, family officers can go and latch onto, but the bit which they, I guess, enjoy is going and making these bets themselves on certain companies. So, I’m trying to sort of draw the parallels between the decision making that you go through; you’re telling me that you are heavily informed, you have done a lot of diligence, a lot of homework, and the way that retail go about it, in which there’s a little bit more emotion to the decision-making and less homework. I mean, do you think that retail investors are equipped to make decisions on capital markets?

Peter Grosskopf: Not always. There are retail investors that are simply great traders. I know that one of my doctors at my local medical facility is an awesome trader of precious metal junior equities, but it’s because he’s a chartist and he’s extremely good at that; at reading charts and he does very well. So, everybody’s got their own skillset. I think throwing darts, or in particular listening to brokerage recommendations that are based on commission. You know, when a deal is coming, and you’re being pitched to buy a deal because there’s a big commission. I think those are dangerous events because you shouldn’t be throwing darts. You should have some knowledge. You should be betting on either the charts or you should be betting on management or you should be knowledgeable enough as some investors are to read the drill results or the production results.

Matthew Gordon: Yes. I think that’s true. You have got to understand what your own strategy is, right? We said at the beginning, everyone’s got a different strategy, and stick to it and be able to make that call. Because we get into discussions with individual retail investors and I don’t say anything, but you kind of walk away going, you’re not really here to make money, are you? You’re here, you’re here to be right. Which is not necessarily the same as making money.

Peter Grosskopf: Yes. It’s tough. I mean, it is not an easy sector. It’s a sector that’s humbling and where even the best investors in this sector probably make more mistakes than they get things right. But they know how to trade those that they get right in a way that that more than makes up for all the losses. So, the most experienced and successful investors in this sector, I say, do two things extremely well: number one, when others are selling, they are buying, and when others are buying, they are selling. And number two, they know how to keep their winners. And it’s usually the 80/20 rule: 20% of your investments will make 80% of your return and the rest will probably detract from that return.

Matthew Gordon: I think that’s right. It is tough. It is tough. You’re right. It’s very tough. You have got to make some calls on your investments, you need to know when to get out. And sometimes getting out of the loss is the best decision that you’ll make on that particular investment. But look, we could talk on and on about retail investment strategy, but I want to talk about something which I think you’re a little bit excited about, which is the digitalisation of Gold. Why don’t you tell us about that? Because that that feels like something new that people don’t know too much about but makes a lot of sense. So, what’s your take on it?

Peter Grosskopf: Well, I’m an ardent believer that this is going to make a big difference to the sector, and it’s been slow to take root, but the technologies are there and they’re available. And what we’re talking about is the digitisation of the Gold ledger. The Gold ledger is a record of every bar that’s in storage, and it forms the vast majority of the net worth of the Gold business. If you think about the Gold business, it’s about $8Tn . There’s a certain percentage that’s held by central banks. There’s a certain percentage that is held in jewellery, and then there’s a certain percentage that’s available in above-ground bullion storage. And that number is in the trillions. So, we’re talking about a huge market. I mean, talk about Gold versus Bitcoin – Gold absolutely swamps Bitcoin. Bitcoin is like a flea on the back of an elephant comparative to Gold.

So, the digitisation of that Gold that is above surface is absolutely required for Gold to enter the modern age. And by modern age, what I mean is to lower the trading spreads, to allow Gold to be moved in a reliable, quick, safe fashion between investment accounts for an individual, and to allow Gold to be spent in small increments as a payment system as well, which it’s never been able to do before. So, when you look at those goals, those are all entirely possible now with technologies that are already working and on the table. So why isn’t it taking off like Bitcoin? Well, it’s because there are existing players in Gold that are making too much money keeping the system the way it is. And we’re talking about the LBMA and its members. We’re talking about the big traders in Gold. We’re talking about even the World Gold Council and the GLD itself, which is a phenomenal moneymaking ETF. And most of all, we’re talking about the spreads in the business to the retail customer, which are extremely punitive; whether it’s coins or whether it’s even buying small bars on storage. Who would invest in an asset that’s supposed to be liquid if you’re being charged 5% or 7% to go in and out of it? I mean, it’s never, it’s never going to take hold.

So, what digital Gold does is whether it’s on the blockchain, which I think is by far the most exciting and secure way of building the Gold Ledger digitally, or whether it’s simply an electronic form. If you have a certificate of deposit that has now been verified and put into an electronic contract, those can both be sent in seconds. They can be traded in seconds. They can be traded with very low margins. Theoretically it’s all based on the claim that you have to the physical Gold. And it would not work in our view unless an individual having such an electronic certificate could go to the point of origin where it’s being held and claim their Gold physically. That has to be the case. So once again, it’s brought standing up for what we believe in, which is you need physical Gold ownership to properly store that value outside of the financial system.

Matthew Gordon: So that, I mean obviously you’re talking about Gold here, but blockchain in itself has had a difficult ride in anything other than security, because people need to know how to harness that. Governments need to know how to control it. Banks need to know how to manage that process, because it effectively, it sends information in a way which is hard for people. It’s encrypted, heavily encrypted. It’s hard for people to break that down. So, I think until you get the big players who you mentioned… how do they make their piece from this? How do people understand how they monetise it? It’s going to be very difficult to get the kind of ground swell of support that it needs, isn’t it? I mean, do you see this? It’s been happening slowly, but it’s been happening slowly in lots of sectors. So, is this going to get over the line commercially?

Peter Grosskopf: I think it is. I think it is going to get over the line because I think it’s too compelling for, for instance, the LBMA not to digitise what they already describe as lemon good delivery Gold. So, it also ties in with ESG and proper provenance on the Gold. Once the Gold is produced, it should be able to be traced, and if it’s properly produced and ethically produced, it should be able to be traced onto a digital certificate. So, the LBMA and its members have too much to gain by not endorsing this at some point. They just want to figure out how they’re going to make the most money from it, which is within their rights. And, and so we do think it’s going to happen.

In terms of the regulation, which is what you were touching on there, it’s pretty simple for Gold. Gold needs to go onto the electronic rail and off of the electronic rail in a regulated fashion. It’s light regulation, but it’s still, it’s a know your client requirement primarily. So, you’re not going to be able to create digital Gold and send it around the internet to criminals and then have them take it out in some fashion, in some country where it can’t be noticed that it’s being taken out. Perhaps in the interim it can be sent through the, you know, the hypermarkets, the unregulated internet, but going in and coming out, it’s regulated. So, for Gold, it’s pretty simple.

And the existing regulated entities that handle Gold will be handling digital Gold. There’s not going to be, you know, black market dealers in digital Gold. So that, I think is fairly straight forward and it has already been established.

Matthew Gordon: It has, I guess what I’m trying to get to is, you know, how quickly does this get to the point where,  retail, family officers, you know, people outside of the institutional bubble can access a product like that but understand it first of all and then access a product like that?

Peter Grosskopf: Yes, so I think that the information and the technology is there to be understood. It’s working. So, small commercial, we have a website that we JV with APMEX, which is the world’s largest Gold coin online dealer. And that website is called One Gold and you can go on One Gold and then you can buy physical, digital Gold within one and a half seconds.

Matthew Gordon: Fantastic. We will put a link to that.

Peter Grosskopf: It is a very acceptable spread, like an institutional-like spread. And it will be stored for you. So, there are certain websites that are up and running that have the capability of handling it already. The question is, when does it get to be the volumes that the Gold market is known for? The Gold market is an incredibly liquid market. $140Bn a day of trading, $90Bn a day, $70Bn to $90Bn a day of settlements. You need some big organisations going digital in order for it to really take off.

Matthew Gordon: Okay. I guess this is one of those, let’s watch this space, see how that grows, see what the sentiment for that is. Just staying on Gold, because it’s your thing, I read something recently: where you were talking about your view on the price of Gold. You talked about USD$1,800 in March of 2021 as being realistic. I see a lot of ads and headlines; people saying USD$3,000 Gold, USD$5,000 Gold, USD$10,000 Gold. These are sensationalists, and I think if you look back over time, they are no more than that. You know, the last five years, people calling those big numbers, but things don’t happen. Why are you so pragmatic about where Gold’s going to go?

Peter Grosskopf: Well, because it’s a huge market and it takes a lot of volume to move it and it takes a lot of believers to move the price even a hundred dollars. There are people that of course take profits on the way up and use it as a trading tool. And look, I’m a huge believer in Gold, and if you take a look at the financial system and what’s happening with the financial system now, you actually don’t need to go too far. In fact, you need to be wilfully blind not to see that governments have created debt which will never be repaid in a conventional way. There will be financial repression, sovereign bonds will become certificates of confiscation, and if you want to park cash, so to speak, you’re not going to be parking it and fee currencies or sovereign bonds and making money. You’re going to be parking it in those instruments and losing money every year guaranteed.

So, in that kind of an environment, there’s a lot of adoption that needs to happen into Gold. I mean, it’s still a minority of investors that even consider it. It is growing. It’s not a fringe asset anymore. And we keep talking about this; our client basis expanding you know, laterally, and going from sovereigns all the way to the smallest retail investors, but still, households in general haven’t converted. The average household has no money that’s denominated in Gold in their system. Institutions, I would say, are still only 20% adoptive to Gold. And so, there’s this huge influx that needs to happen as Gold retains its legitimate status as the preeminent store of value. And the question then is, how much volume can it handle and where does it go? And I think that process is a very slow process, because of course, governments are fighting it every step of the way. And I think it’s going to take until we see some inflation after this current crisis. I think it’s going to take until we see some loss of control and budgets and fiscal deficits. And I just think, based on everything I’ve seen over 2000 is now healthy recommendation by the end of the year, by early 2021. Personally, I’m going to take it one step at a time. You know, I’m not going to go out and say it should be USD$3,000 based on, on the amount of debt that’s outstanding compared to during the financial crisis or what have you. I recognise that those are all valid, but so are those people that are worried about deflation. So, it takes a while for this super-tanker to plumb its way higher, especially against its main competitor, which is of course the US dollar.

Matthew Gordon: Absolutely. No, I’m with you Peter. I have to say, I’m absolutely 100% with you. One step at a time. Less sensationalism, because I think, again, it affects retail investors.

Peter Grosskopf: Yes, well let’s just make money as we go here and you know, put some runs on the board.

Matthew Gordon: There you go. There you go. So, what makes you nervous about the market? Well, you have mentioned a few things there, but what makes you especially nervous about where we find ourselves today? Clearly COVID-19 has had a kind of ramping up effect, but some of the quantitative easing which has gone on around the world. What do you think the impact of that is going to be and when? When do you think we’re going to start being impacted by some of that decision making?

Peter Grosskopf: I mean, it’s absolutely massive, right? And governments have now taken on an entirely new mandate. They now seem to think it is within their mandate to control all markets, including the markets for employment, the markets for treasury debt, including the, obviously the fiscal and monetary techniques that they’ve had available to them. And now they’re responsible for the health and safety of all of their citizens, it really, you know, frighteningly reminds me of you know, the books that were written decades ago, like Anne Rand, Atlas Shrugged, and 1984. So, it has come to this now. The numbers are staggering. In order to support those numbers, again, I do not think there needs to be debate as to what happens. Sovereign bond yields need to be anchored at close to zero nominal rates. Real rates need to be zero or less for an extended period of time. Cash needs to be confiscated by a process of inflation that will eventually make sovereign debts more manageable. That process will take from savers and it will potentially reward risk-takers with equities, because some equities of course can do well during inflation, but it will hurt anyone that sits in cash. And, you know, from a very personal perspective to a corporate perspective, to my perspective as an investor, as a professional investor, I would say it is absolutely time to hedge that. So that’s how I see it. I don’t think it’s debatable anymore. These deficits are never going to come down. These sovereign and central bank balance sheets are never going to come down.

Matthew Gordon: Yes, well, yes, I agree. It is tough. It is going to be tough.

Peter Grosskopf: They are going to be monetised. As in money printing, MMT, whatever you want to call it.

Matthew Gordon: Yes, I know. It is tough, I struggle to wrap my head around the size of the numbers that we’re talking about here.

Peter Grosskopf: Just look at what is happening in Japan:  I mean, the Japanese government is going to end up owning half that stock market. When is the stock market not just going to become a controlled market of the government? I mean it’s shocking what’s going on.

Matthew Gordon: Yes. It is shocking, but no one really seems to have a cohesive plan as to how we collectively solve this. So, I again, I think it’s probably one for another day, one to monitor for sure.

Peter Grosskopf: That’s a question of democracy and you know, subjects that are beyond the scope of what I can kind of discuss.

Matthew Gordon: I think that it is also beyond the scope of democracy in a way, because these are decisions that people have not had to make before on this sort of scale. But like I say, let’s not make this too big a subject for now.

You have used a phrase previously, which I think you have sort of covered, which is, you know, anti confidence in the momentum or in the shape of Gold. But I did want to talk about that, but I think that you have covered it beautifully elsewhere. Can I just, one thing you just talked about, which I think is interesting and I want to help people watching the show understand how they can go about doing it, which is, you should hedge. You have got to hedge against this scenario because there will come a point where this gets tough. So what are their options? Sign up to Sprott?

Peter Grosskopf Okay, well, of course, yes, we would love to talk to them about it, but what are the options? So, the options are to sit on cash, and one step removed from that is to sit in treasuries, because of course they give you hardly any yield, but they’re liquid, so you can sit and wait. And I think there’s some rationale to doing that. I think there’s some rationale to sitting and waiting because as other markets stumble, they create buying opportunities. So, it’s good to have some ready cash. However, every year you’ll be taxed on that cash. You’ll be taxed on it through the process of inflation and reflation, and it is going to penalize you to hold that cash so that that’s an option. I like Gold better than that option, but it is an option. And then of course, the equity markets can provide amazing trading opportunities and also very solid investment opportunities. And some of those can keep pace with inflation. Some of them can even do better with inflation. So, it would be, I think, imprudent not to have an equity portfolio.

In terms of hedging the risks to the world going the wrong way and confidence starting to bleed and you know, major corrections in markets. I really only think there is Gold and put options on the market, which are expensive, and you need to know how to time them. And there are you know, perhaps some other hard assets like agriculture, timber, other necessary hard assets, you know, even some forms of infrastructure investment that are fairly immune to economic shocks and fairly immune to inflation or should even benefit from inflation. So, you have to start going fairly far afield to get those options. As an individual investor, you need to look at liquid alts, you need to look at very specific funds. So, unfortunately the way the FSC and the other regulators have made it, it’s tough for smaller investors to get into those areas.

Matthew Gordon: No, it certainly is. And I think that it comes back to, you have got to know what you’re doing. You have got to know what you’re investing in before you kind of put your money down. And that’s why I asked the question earlier: do you think that all retail investors are equipped to do this with what you and I are talking about; knowing what’s coming down the line pretty quick.

Peter Grosskopf: Well, I didn’t want to be too commercial and again, get into a you know, a Sprott advertisement here, but it really is the kind of area where it would benefit most investors to have a consultant and an advisor, a broker, you know, a money manager who can handle their interest. Bullion itself once it gets to be digital is going to be a bit more simple. You’re going to be able to own bullion and have it in your financial accounts, but as soon as you go past that, I think having a professional help you is a good idea.

Matthew Gordon: Yes, I think that’s an extremely, extremely good idea for sure. And if you still want to play with some of your money, play with some of your money, but it comes back to this portfolio approach of different risk strategies for different parts of your portfolio, depending on what your needs are, obviously.

Peter Grosskopf: Yes, like what’s your timing? Timing is, especially for Gold equities, it’s everything, because even outside of bullion movements, those equity cycle up and down 30% on sentiment.

Matthew Gordon: Yes, never a truer word. Peter, I’ve got so many more questions, but I am very conscious that you have got to dash off for another meeting shortly. And I’ve learned a lot today and I’d love to, we should definitely speak again, and we have drilled down on some other areas of –

Peter Grosskopf: Please. Let’s do it. You have asked some very good questions and we took our time. So, I think if you have follow-up questions, I’d be happy to do that.

Matthew Gordon: Beautiful. Peter. Well, I’ll let you go, Sir. Thanks so much for your time, it was an absolute pleasure to have spoken to you.

Peter Grosskopf: Thank you. Okay, thank you.

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