Interview with John Reade, Chief Market Strategist of World Gold Council.
READ ARTICLE FOR THIS INTERVIEW HERE.
The World Gold Council is an unbiased, objective, global authority on gold. Formed by 26 gold mining companies 34-years ago, it introduces investors to the benefits of investing in gold, including physical gold.
Gold is an especially useful investment commodity for 4 reasons:
- It is a source of portfolio performance.
- It is liquid.
- It is a source of returns.
- It is a means of diversification like no other.
We discuss the different ways to invest in gold, the outlook for the gold market and the primary drivers and mechanisms behind the most popular trading commodity behind oil.
What did you make of John Reade and the World Gold Council?
- Introduction to John Reade and The World Gold Council
- Why Should You Own Gold? A Look at the Bigger Picture
- Long-Term Investments for Greatest Gain: Is That for Everyone?
- How Much Gold Should You Own and What it Depends On?
- Perception of Gold: Now vs 2-3yrs Ago
- Types of Gold You Can Own: Accessing the Market
- Investing in Equities and Royalties: Pros & Cons
- The Unbiased (?) Nature of the World Gold Council: Who’s Remunerating Them?
- India and China as Gold Consumers: Effects of COVID-19 On Buying Behaviours
- How Do We Value Gold and What is its Function?
CLICK HERE to watch the full interview.
Matthew Gordon: John, how are you doing, sir?
John Reade: Very well, thank you.
Matthew Gordon: Well, thanks for joining us. You are Chief Marketing Strategist for the World Gold Council. What do you do? And what does the Gold Council do?
John Reade: Well, the World Gold Council is a market development organisation for the Gold mining industry. We are owned by 26, I think it is, mining companies around the world. Some of the largest and most important mining companies are our members and our job is to increase the visibility of Gold specifically for investors. Ideally, we would like most investors to have a portion of Gold in their portfolio. My job as Chief Market Strategist is to take the messages that are produced by the research team, which reports to me, and to speak to investors, to persuade them of the merits of holding Gold in a portfolio.
Matthew Gordon: Okay, fantastic. And I think that I would recommend that people go to, and we’ll put a link below for your website. There is a lot of useful information, a lot of useful reports. And I think there’s a deep catalogue of those as well. What I want to talk to you about today, is that we have been speaking to a lot of macro economists over the past few weeks and months. It seems it’s all doom and gloom. And one of the things they keep saying is that Gold should be part of anyone’s portfolio. And then I guess there’s a number of ways to hold Gold. I want to talk to you today, maybe even a bit of role play. – so, I’m an investor. I invest in a multitude of different sectors, verticals, and I’ve never really considered Gold other than holding equities in Gold companies. So, can we, do you mind if we discuss that? Maybe start with the macro first of all, in terms of what is going on out there? Do you have a view of the macro economics and how Gold fits into that?
John Reade: We don’t produce an economic forecast for the world. What we certainly do is we consume other people’s economic forecast for the world, and we use that to sort of help think about the way that the economies and markets might deliver or perform in the future. I guess there are two points I’d really like to talk about. One is which is the strategic case for owning Gold, and the reasons why pretty much all investors should have Gold in their portfolio all the time. We can talk a little bit about the outlook for Gold and the Gold market and other markets perhaps at the end, but I’d start off by talking about the strategic case for Gold. Because I could have had this conversation three years ago or four years in the future. It’s just strategic arguments, which I struggle to pronounce sometimes, which is probably a bit of a failing. But it is strategic arguments, which is evergreen.
And it really comes down to a very few number of simple points: the first is about returns; Gold has been a source of returns over the last 10 years, over the last 20-years, and since 1971 when Gold was uncoupled from the dollar, those returns have been similar to, or better than most other asset classes, certainly over the longer period. If I look since 1971 for example, average returns for Gold have been just over 10%. Average returns for US stocks over that period have been about 11% or 12%. Similarly, over a 20-year period, it has been better than US equities. Emerging market stocks outperformed Gold over that period, but only just. And then over the last 10 years of course, we’ve had a huge bull market in US equities, which have done particularly well. Gold still delivered average returns of about 5%, just under. It has been a source of returns for portfolios all the time, not just during financial crises, not just during periods of inflation or deflation, but pretty much throughout.
Matthew Gordon: But it says to me that you need to believe in the Gold thematic as a long-term hold. I mean, you can’t dip in and out of this, you’ve got to say, I want it as part of my portfolio, but I’m going to have to hold this. Obviously, it is liquid, should you need to, but the thinking is as a long-term investment is it?
John Reade: It really is a long-term investment. It should be a part of your portfolio all the time. Now, of course you can flex up or flex down your holdings based on a tactical view of where we are in the economic cycle. And perhaps, as I say, we can talk about that a bit later. But the argument here is that it should be in your portfolio. Pretty much every portfolio benefits from having Gold in it. Now, we’ve spoken about returns, there were a couple of other points to make as well, one of which is the diversification argument: Gold is generally uncorrelated to other asset classes, particularly equities. And the uncorrelated nature of it means that it is a good diversifier, but there’s more to it than that as well. We’ve broken down, and as I say, all this research is available on our website – Gold hub -for free. And I do recommend that you download it because it’ll go into far more detail than I can.
But when we looked at the returns and the correlation of Gold, as I say, compared to US equities, normally uncorrelated. But if you look at what happens when US equities fall sharply, so in other words, they are down by more than two standard deviations in a week, the correlation of Gold moves quite negative. So, in other words, you are negatively correlated to something that’s falling quite quickly.
And similarly, when equities are going up sharply, Gold is actually modestly, positively correlated to equities. So, when it’s going up, you’ve got a positive correlation. When it’s falling fast, you get a negative correlation. And that flip over of correlations that takes place under different scenarios is extremely rare.
We’ve looked at pretty much every other asset that you can put into a portfolio to diversify and with the exception of Silver, which is, well, more volatile, less liquid, and correlates quite closely to Gold. Gold is the only asset that actually demonstrates this flip over. So that combination of returns plus diversification that works when you really need it has a really interesting impact on your portfolio.
Typically, adding Gold to a portfolio increases the risk-adjusted return. So, in other words, you get more return per unit of volatility. And that’s a great attribute to place into a portfolio.
Matthew Gordon: And you’re not advocating any certain percentage. You are just saying that you perhaps should be considered as part of the portfolio.
John Reade: Well, there’s a good question, you know, the answer to that is complex. People often ask me how much Gold should I have? And the answer would be, well, it depends. It depends what else you’ve got in your portfolio, to be frank. The work we have done suggests that the more risk, and if you think of equities as being the principle risk component that you have in your portfolio, the higher proportion of equities you have in your portfolio versus say fixed income or real estate, the higher the proportion of risky equity is the higher the proportion of Gold you should have to offset that. And the reason there is, is that Gold is a better diversifier of equity risk than it is say, a fixed income is. It still is. But it is a much better diversifier of equity. So, the more equities you have, the higher the weighting of Gold you should have. And most portfolios come in at somewhere between 4% and 10% allocation to Gold when you do an optimisation study.
Matthew Gordon: It is quite interesting, actually. I think people are feeling slightly more nervous in this current environment, and like I said, we’ve had lots of conversations with macro economists, and I know you don’t necessary want to comment on that per se, but all this quantitative easing; it’s creating, you know, everything that you own is becoming devalued. And your investments right now are becoming worth less as a result of this. And we spoke to someone, we’ve got this investor club, and we like to talk to, and interview our club members, and what I’m saying, he switched 30% of his equities into physical Gold. Now, I think that’s quite extreme, but nevertheless, it’s kind of indicative of the sorts of conversations that we’ve been having recently. And the old adage that, you know, Gold being a safe harbour in times like this, or, you know, what may become, is true. And it has probably been true for about 3,000-years. But even on a personal basis, what’s your take on the way people are viewing Gold now as opposed to 2, 3-years ago?
John Reade: Yes. We’ve certainly seen a pickup in interest. We’ve seen a pickup, an interest in Gold investment in a number of ways, and that goes from bar and coin demand in Western Europe and in North America, where we’ve seen a big jump in coin sales in the States, and a lot more interest in in Gold bar buying, probably from investors such as the one that you mentioned. We’ve also seen institutional interest in Gold coming through, and that’s usually reflected in, well, in a couple of ways. One of which is exchange traded funds. Another is actually buying physical Gold and holding it with a bank perhaps in an allocated account, a bit like a safety deposit box. So, one of the things that we do at the World Gold Council, the research team is, we track the inflows into exchange traded funds on a daily, weekly, monthly basis. We produce a nice monthly report on it, and I often tweet or blog on the trends that are going on. And certainly, we’ve seen a big hiccup in inflows into physically-backed ETFs over the course of this year.
Matthew Gordon: Okay, well, let’s segue slightly; I did want to get onto the liquid market, as it were. And also, you know, coming back to enhanced portfolio performance, but let’s talk about the different ways people can view Gold access, investing in Gold. So, obviously we have talked a little bit about physical there. Can we just talk precisely how people can do that? You mentioned coins, but there’s bars, ingots and so forth.
John Reade: Sure, and it depends, again, on which market you’re in. And I know that your subscribers are from various different markets. But to be frank, in most markets around the world, you can find a place where you buy physical bars and coins. It’s not the cheapest way of buying Gold. You’re probably going to pay, the minimum sort of premium over the OTC Gold price is probably 3%, and for a coin that could be as much as 7%. And when you sell it back, you probably get the Gold price at best, and not even, you know, potentially even a discount.
But for people that are really concerned about systemic financial risk; they’re worried about the security of the banking system. They’re worried about even Gold in safety deposit boxes or in allocated accounts. This is sometimes the choice that they choose to make. And it’s interesting; it is one of the things that I keep an eye on, is to see not only how much Gold has been bought in investment, but in what types. And when you see physical bar and coin demand in the West picking up, you can see that people are really worried about the future.
If you see people investing in futures, and there’s a big futures market in the States called the Comex futures market, which is part of the CMA. You see futures market investors, or speculators, playing there, you know they are trying to profit from the Gold price. ETFs are probably somewhere in between. So those are three of the methods.
Now, we’ve spoken about bar and coin demand. Exchange traded funds, which were pioneered by the World Gold Council back in the early 2000s, we also are sponsors of the largest one, which is GLD or the SPDR GLD in the United States. And we have others, and there’s a whole plethora of funds out there; probably about 80 now in our database in most major markets around the world. These allow investors to buy an instrument whose only assets are Gold. So, in other words, you are buying units issued by a trust which physically owns Gold held in a vault. And that Gold is audited. It’s not lent out, it’s in an allocated account. So, it’s as safe a structure as can be put together with the advantage of an ETF because you can buy it in your stocks and shares portfolio then list it on stock exchanges. And the management fee for the products varies from, I think the lowest is 17 basis points per annum. And there are some up at the 50 basis points per hour. So, lots of different markets listed, all in the end, the same underlying exposure, which is to physical Gold. And compared to some funds, as I say, that’s a reasonably cheap way of doing it.
The futures markets, and they exist principally in the United States, although there are other around the world, including Shanghai, which is big and growing now. Futures markets allow investors to access Gold in a different way. Futures obviously allow you to buy Gold with leverage and margin. It’s a more complicated way of accessing the market and it’s not for everybody. But certainly, there are large liquid Gold futures markets around the world that people can gain access to.
Matthew Gordon: It is quite interesting times at the moment. You have been through a few cycles. You have seen a few things, I would suggest. But we have been having conversations recently with people like Peter Grosskopf, CEO of Sprott, you know, he’s a big digital Gold fan, so, effectively Gold-backed. We’ve seen companies who are printing Gold notes. So, Gold between – yes, it’s true – Gold between laminate sheets, but printed at a nano level. So, people can collect them like a coin, or they’re suggesting that they would like to see these, you know, actually physically traded. And if you look at the bank of Ghana, they are actually in the process of printing some of these Gold notes. And I don’t know if it’s a novelty, or these sorts of things happen every cycle, every time Gold goes up. I mean, what sort of things have you seen in the past in terms of people trying to take advantage of the situation?
John Reade: One of the funniest things I’ve seen have been Gold business cards. It was a Japanese trading house. I can’t remember which one it was now. This was in the 1980s. They issued to its executives, Gold business cards. Not gold-plated, solid gold business cards, which they would hand out very selectively to their most important relationships. So, I think from memory, every executive, every top executive got a hundred business cards to hand out.
Matthew Gordon: I think I’ve just worked out what they were doing there.
John Reade: So, to be honest, every bull market in Gold, every time where Gold has regained its tactical allure to investors, we see this sort of innovation. And it’s generally very good. There was, I think the last time around I saw, yes, I think that it must have been 30g or 50g wafers of Gold which you could snap off into 1g units. So, one of the criticisms sometimes about owning physical Gold is, you know, you’ve got a 50g bar, or a 1oz bar, what do you do with it? I mean, no, one’s going to give you change. Well, you can break it up and get it into smaller pieces when you’re trying to buy your, whatever you are trying to buy in exchange. So, I think this sort of innovation is very typical.
I haven’t come across the laminated Gold sheet or the Gold notes. I think that’s a really interesting idea. I mean, look, what I would say is, you have to be really careful from who you buy physical Gold. And as soon as you’ve laminated it and put it through two sheets, then I wouldn’t be necessarily confident about what’s in there unless I bought it from an organisation which I really trust.
I’d also be very careful about premium. The premium that you pay over the spot price, to me is an important determinant of whether you should be getting involved or not. And in the end, you can buy 1oz Gold coins at probably 5%, 6% premium to Gold. That is probably about the cheapest you are going to be able to get relatively small units of investment Gold. I would be surprised if those laminated nano printed things are trading at tens or even hundreds of a percent premium to the underline. But as I say, I haven’t come across them before, but I certainly shall look into them.
Matthew Gordon: Well, I’ll send you the details. To your point, they come in different denominations. You can hold it as low as USD$3 up to USD$150. I think, certainly for the US components that they’re looking at. I guess their biggest challenge is going to be understanding and distribution in the market. But that’s for another day.
Equities – lovely equities. Most Gold producers have seen an uptick in, you know, because the Gold price, which had been sitting at about USD$1,250 for so long, you know, last August it started rising. It is up to around USD$1,700 at the moment. Everyone is benefiting, cash is flowing, and increased their optionality in the marketplace. But as investors, we see, and quite often see these quite sensationalist headlines of Gold going to X number, usually $3,000, $5,000, $10,000. I’m not going to talk to you about what your guesstimates are. I know you stay away from such sensationalism, but it does suck people in, and people do have to take a view on Gold as a thesis. Most people, predominantly, people invest in equities because it is slightly easier to understand. Those guys are digging underground. There is Gold under there. They tell us how they’re going to get it and how much it’s going to cost.
What’s your view on equities as an investment? Because we had E.B. Tucker on the other day, he was telling us that ETFs and equities are dead. Physical Gold is the only way ahead. Do you still see a role for equities in the market?
John Reade: I’d have to qualify what I say here: we don’t study Gold equities closely. That’s not part of our mandate. We’re actually into the Gold market. I am somebody who started his career underground with a shovel, working in the Gold mines in South Africa. I’ve been a Gold equity analyst. I’ve been a fund manager. In fact, I’ve been in Gold in one way or another for 35-years. I have seen all different aspects of the industry. The difference between Gold and Gold equities is that when you’re buying something which is physical Gold or backed by Gold, like an ETF, you’re getting exposure to the Gold price, and certain credit risks aside, you know what you’re getting. You buy a Gold mining company, you’re getting exposure to Gold, but you’re getting a lot more as well. In theory, you’re getting leveraged exposure to Gold because these Gold companies produce Gold at a cost of maybe USD$1,000 or USD$1,200 p/oz. The Gold price is USD$1,700 p/oz. If the Gold price goes up, their margins expand by more than just the Gold price going up. You’re getting leverage there. You’re getting exposure to exploration success; all Gold mining companies look for more Gold, either it’s of their own operations or at exploration projects. And, you know, you can hit it lucky and somebody can discover the next Eldorado, and that does happen. And investment success can be a big part of the performance of a Gold mining stock as well.
But you said it yourself; you’ve got to dig it out of the ground. And as a mining engineer and as an investor in in Gold stocks previously, that means that suddenly there are risks involved in that. And those risks can be technical. They can be geological. They are often political. Often Gold mining takes place in countries that are not developed countries. But then again developed countries, it can be very difficult to get an environmental permit to develop a mine. There’s all manner of additional pros, potentially, and cons behind investing in Gold equities.
I leave Gold equity investments and the comments on individual Gold stocks to people that are employed to do exactly that. All I would say is that the Gold price is only one component of the potential returns that you get in Gold equities. And I think, look, I think a lot of money can be made in Gold equities. And if you look at previous cycles, Gold shares have performed really well under certain circumstances. But that’s not really our area of focus.
Matthew Gordon: And I know that this is probably also not, because it is equities in a way, but it’s the de-risked equities: it is Gold Royalties. Again, people are viewing those in very sort of similar terms to the ETFs in a way.
John Reade: Well, Gold Royalty companies have been great success stories over the last couple of cycles. And there’s lots of merits in the arguments of what they do, particularly the diversification. One of the good things about them is that they’re generally exposed to lots of different producing Gold mining companies. But it fits pretty much into the same category, as far as I’m concerned, as Gold equities in that it’s not something that we’re experts upon.
Matthew Gordon: Can I just talk about, you mentioned earlier that Gold outperforms broad-based commodity indices, generally, generally, over time. Can we talk about, because I do want people to come to your website? If you are interested in investing in Gold, you have got to go to the World Gold Council website. Okay. It has very robust data. But can we talk about the way that you go about measuring this data? You know, in fact, how are you remunerated? Who gives you money to exist? How does it work?
John Reade: Well, we are owned by the Gold mining companies. They formed us, I think now 33 to 34-years ago. And they are there to, sorry, they sponsor us on the basis of the amount of Gold that they produce. For each ounce of Gold that they produce, they gave us a certain amount of money to fund us to develop the Gold market. And as times have moved on, I mentioned before that we were instrumental in bringing the exchange traded funds, Gold-backed exchange traded funds to the market. And because we were involved in the management of two of the big exchange traded funds, we get some revenue from there as well. So we’re no longer wholly dependent on contributions from members. It’s a mixture of the two.
Matthew Gordon: So, it is unbiased research. Unbiased, not necessarily advice, but information on the Gold market. Are you in any way influenced by outside groups to push Gold when perhaps you shouldn’t be?
John Reade: Well, let’s put it this way: when I joined the World Gold Council three years ago, I’d been in this industry for 32-years. The only reason I joined here, or the number one condition that I had when I joined the World Gold Council, was that I would be allowed to be objective. When you are producing data about Gold demand, Gold supply, and what’s happening, and what’s happening in various markets, there is no point in producing data when it’s made up. You have to be objective. And I’ll give you an example: we came out with our Gold demand trends report, which is a quarterly report we produce looking at primarily demand, but also a little bit on supply. We came out with our first quarter Gold demand trends number. And I’m just looking through the headlines here. I’ve got the report up from Gold hub. The pandemic slashed jewellery demand as governments across the globe-imposed lockdown measures. Demand fell to the lowest on record, a 65% decline in China. We’re not trying to sugar coat what happens in the market. There are good things that happen. There are bad things that happen. In terms of our data and our analysis on this we are objective as we can be.
Matthew Gordon: Now that you’ve actually hit upon the next question, which was: traditionally, I used to, when I was in banking, I did a lot of business in India and China, both huge Gold consumers on jewellery and as a means of saving. It is kind of, I think when there’s a bull market, people go, ‘Oh, why go to the antiquated measure of hoarding small amounts of Gold under your mattress at home?’ And then when times are a little bit tougher, or what people suspect may be coming down the line, it’s in vogue again. It is actually in vogue again. But as you say, China has been affected on the jewellery market, as has India. Do you think that after we get through this COVID lockdown period, it is going to be a resurgence of buying again? Are we going to get back to the norms of before?
John Reade: Eventually, I expect, depending on where the price is, but it wouldn’t necessarily be quickly. If you think about what happened in the first quarter; we had China going into lockdown first because that’s where the virus seemed to affect first. So, the China market was affected most of the first quarter, and now we’re seeing the Chinese economy coming out of lockdown, and jewellery demand is, well, has improved from a very low level, but it’s not growing rapidly at the moment. In fact, I’d argue that if you compare it to other aspects of the Chinese economy, it’s lagging somewhat. I expect sequential improvements there, but I don’t care how fast it improves 2020 will be a core year for Chinese jewellery.
In the case of India – first quarter wasn’t great anyway, and the lockdown mostly will affect the second quarter. I mean, I was talking to a managing director in Mumbai earlier today on a weekly call we have, and, you know, he says, yes, the Indian economy is opening up again. But again, we’re not expecting a very rapid increase, a very rapid recovery in jewellery demand from India and China. And in fact, if you look across the numbers for the entire world, I think there was one country that actually showed year on year improvements in jewellery demand in the first quarter. And that’s for very technical reasons for something that was happening last year. It’s not going to be a strong year for jewellery. But in a way, this is one of the advantages of the Gold market. Many commodity markets are one trick ponies: They genuinely are boom to bust. I was going to use another mining expressions there, but I probably shouldn’t. things go very, very well because of the demand for auto catalysts and petrol cars. And I’m thinking Palladium here. So that goes off to the moon and then there’s a switch over towards more diesel vehicles that took place, and then suddenly Palladium is out of favour and it crashes back again.
There are a lot of commodities and indeed, a lot of assets, which are dependent upon a very narrow range of drivers. Gold is much more balanced; you’ve got investment demand, you’ve got jewellery demand, central bank demand. You’ve got technology demands. So pretty much every electronic good that you have has got some Gold in in some form or another. And the big two: investments and jewellery, they tend to vie for dominance depending on what’s going on in the world. So, jewellery demand is very much driven by economic growth, prosperity, particularly in the emerging markets that really drive Gold demand. So, historically India. Now over the last few years, more so China. But you name the countries – Turkey, Indonesia, lots of demand coming from there. Investment demand is more Western-centric in general. We are seeing development in investment markets in some emerging markets, but generally speaking, it’s a Western phenomenon, and that tends to do well when economic growth is weaker. And the fact that jewellery demand has collapsed at the moment, partly because of the coronavirus, partly because of the rapid increase in the price, that is absolutely normal. Gold is being driven up by investment and speculation so that has come to the fore and has become the dominant market.
Now, we will come out of this current coronavirus crisis. It might take a few years for the global economy to recapture the levels that it saw back in 2019. But it will recover. I’m sure these viruses will eventually be brought under control either by vaccines or drugs or whatever. At that stage I would expect to see investment demand as the component of the total decline and jewellery demand picking up again. So very much, you know, what I’m taught, you know when investment demand is weak, because I spend a lot of time talking about what’s going on in the Indian and the Chinese physical markets, and you’ll know when jewellery is weak, because I’m talking about ETF inflows and bar and coin buying in the West.
Matthew Gordon: Yes. A really simple question coming up, okay? Which you’ve probably had –
John Reade: They could be quite hard to answer.
Matthew Gordon: So how do we value Gold? It doesn’t really perform a function. It is used in some electronics, as is Silver. And Silver is used in solar panels as well, but you’ve got all of these wonderful commodities, like Palladium and Nickel and Lithium and Graphite – they are going to be used to drive our world; this electric vehicle revolution that we are going to hopefully see at some point in the near future. But Gold doesn’t really have a function other than people wearing it as jewellery on the whole. So how does the market value Gold? Why is it USD$1,700 today? Why is it the most traded commodity outside oil?
John Reade: Well, first of all, I mean, the simple answer to your question is that the Gold is USD$1,700 p/oz, or thereabouts, because that’s the intersection between supply and demand. That’s the market price for it. How does one put a theoretical value on Gold? That’s a different argument. First of all, I would slightly disagree. I would say, look, 7% of demand typically for Gold goes into industrial applications with, primarily, electronics. It is an essential component of 21st Century life. And ironically, for all of the focus on Platinum and Palladium, and then their industrial applications, more Gold in tonnage terms is used in industrial applications each year than either Platinum or Palladium. It is important. Admittedly, 93% of demand isn’t in industrial applications, but typically about 50% of demand goes into jewellery. And again, that’s very much an intersection between what people think it’s worth when they go and buy Gold to wear or to give as a gift. I think the investment side is important too; Gold has an historic store of value that dates back, I always get in trouble for this. I mis-tweeted something, I think it’s in the order of about 5,000 years since the first evidence of Gold being valued as something beautiful and valuable. And we’ve seen coins in existence, or coins or tokens, I think for at least 3,000 years. It has been around a long time.
If we look at how the supply and demand intersect in the Gold market and what drives them, we’ve been able to build, effectively, a quantitative model, which tries to predict the components of demand, and also the impact of supply as well. And what that should mean for Gold, depending on the macroeconomic variables you put into it. So, on section of our website – Gold hub, we have the gold valuation framework and the internet tool that we’ve developed called quorum, which allows investors to stick in their assumptions for factors like economic growth, currencies, credit spreads, et cetera. And it will tell you roughly what you should expect to see in terms of all the components of demand. And that should give you, based on your inputs, an expected return for Gold, both in the short term, but also in the long-term as well.
And we’ve done this to answer your precise question that you’ve said; a simple question sometimes requires a complicated answer. We spent about 3-years looking at all of the drivers of all the components of Gold supply and demand, putting them together into this valuation framework. And it’s there to answer two questions really. It’s like, well, number one – how do you value your Gold? And number two – what sort of return should I put into my asset allocation model for Gold.
Historically, people have struggled with that. At best they’ve said that it might hold this value in the long-term and you put in zero real, depending on the assumptions that you put into the evaluation framework, the quorum tool will tell you that long-term expected return of Gold will be greater than 0. And let’s say it depends on your assumptions. That’s proved a really interesting piece of work that we’ve done. It has allowed us to engage with institutional investors and particularly asset allocators to make the case why you should think about putting Gold into your portfolio. So not just on looking at historic price performance and historical relationships, but a mathematical model which they can tear down. They can look at themselves. With macroeconomic variables that they are already using in their other work. And that they can say, all right, fine, we will put those in here. How much should we expect to return over the long term?
Matthew Gordon: I love that it has taken 3-years to put together an answer to a basic question. That’s fantastic.
John Reade: Well, it’s taken 3-years since we’ve even started to think about ways that we could answer the question. We’ve been asking that question for much longer than 3-years.
Matthew Gordon: Well, no, but I like it. I think people need to understand that it is okay to ask the simple questions because sometimes they are the hardest to answer and they are the best answers to know. So that’s fantastic. Look, John, I’ve taken up enough of your time today. That’s been a wonderful introduction for us and some of our viewers to the World Gold council and some of the facilities available to them and information available to them. We’d love to have you back on and drill down on a few of the topics we discussed just before we went on air. I appreciate your time. And thank you again.
John Reade: Thank you very much. It was a really interesting conversation.
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