When will the Fed taper? Never, says E.B. Tucker, director of Metalla Royalty and author of "Why Gold, Why Now?" "Now the debate is why will they stop [quantitative easing]? They'll never stop. It's never going to stop," Tucker told David Lin, anchor for Kitco News.
Kitco news special coverage of the Denver gold forum is brought to you by new Pacific. If you Tucker director of Metalla royalty at author of why gold, why now? Welcome to the Denver gold forum. Thanks for having me to see you. I'm see you again. Yeah, I finally, we get to meet in personnel. You, uh, well, you and I have been speaking about your book ever since it came out last summer, you've sold 35,000 copies.
Congratulations. Okay. I've got to visit the title again. Why gold? Why now? You wrote this last summer. So presumably people should have bought in last summer. Of course, it went up for a while and it didn't do so well this year. Should you still go into gold now? Is this question still applicable today? You know, from reading the book, the subtitle is the war gets your wealth and how to win it.
And wealth has been under attack in a, since we came out in the book, I mean, 18 months or so there's never been a time. As, as a Western person in a free market where your wealth has been more in danger and in people that read the book, realize that at the end, I tell what I've done with my money, which has worked out quite well.
So everybody looks at the price of gold. What's the price of gold going to do, you know, and all this, this is a tough year. As you mentioned, you know, hit a high of 2083 last August. Now it's about 1800. And, uh, we do think the gold price will go a bit higher, but that's not really how you create wealth.
It's it's you can have it as wealth insurance. We explain that in the book, but the secret sauce in there is the royalties and that's, that's what I've done with my time and my money. And it's worked out quite well. Let's talk about royalty and financing and just a bit, but, okay. Let's back up for a second here.
Let's let's talk about portfolio allocation because after all. This book is really all about protecting your wealth, how to allocate your assets. You even have a chapter in there called how much gold is enough gold. And you said minimum 3%. I don't want to say really a minimum, but what happens is, is that people always say, how much gold do I need to own?
You know, is it 20%? Is it 10%? It's a lot less than you think. You know, gold is not really an asset that you buy to go up in value tremendously to make money, you know, I'm going to buy these gold coins are going to go crazy and value. Government's going to try to seize them. I'm going to make all, it's not really like that.
It's it's insurance, you know, gold does well with other things get really hurt. And so we worked with a number of 3%. We, we kind of play with this number and we say, look, if you had 10 million bucks and you had 300 grand worth of gold, that would probably be a starting point for saying it's enough. And, and I think a lot of people were shocked by that.
I mean they think, wait a minute, not so much more now. I mean, your, your investments, your royalty company investments, mining businesses, all these. These are things that you would see appreciation and sell where's the, and you can just hold. For someone who is not yet invested in precious metals, he might ask you Eby, what's the difference between gold in a high interest savings account?
Well, there's a huge difference. I mean, everybody used to say gold, doesn't pay a dividend, but the highest your savings got it. Doesn't pay a dividend either. In fact, you know, so, so you arguably are going backwards. I mean, in the book we talk about negative interest rates, which are here. Now we can talk about that more.
If you look at the real rate of interest it's negative, that means the interest rate you're being paid minus. And everybody out there, the real people in this world, no inflation is really high right now. I mean, all you gotta do is go to the grocery store. Things are sold out there's inventory shortages.
I buy prime beef to, to cook for myself and my kids. It's over $30 a pound us right now for prime. It was $20 a year ago. It's it's up across the board now, granted that's the nicest beef you can get, but I mean, everything is up, you know, the member of the paper towel shortages that we had, all these different things, you know, I have stock and Campbell soup.
They, they run this report on what does it cost for a basic can of tomato soup over the decades. And the price of all these things is going up, up, up, up, up. So when it come down, that's the. Well, maybe, but of course always it's possible if you, but what's going to make it come down. You have labor shortage, stop buying the beef Eby, make the price, come down, come a vegan vegan.
The price comes down. But, but I hate to tell you what the grain grain is the same way. You know, all your grains, your vegetables, supply chains are considered. You know, the port is backed up in Los Angeles consistently for 15, 18 months. It's Peter having to pay people minimum wage. That's much higher than people thought in the past.
They're still complaining about the wage. I know where I live. There's shortages everywhere you go to a restaurant services, slow, the tables are all. I think this is something that people are really underestimating. And so here's the point. The point is not conspiratorial. The point is your high interest savings account pays you half a percent interest per year.
If you take out an inflation rate of two or three or four, you pick your own. You're going backwards. So with the ounce of gold, you don't get the interest payment, which by the way, it's taxable and taxes are going up, but you do get protection against that. Inflation. I think some people who argue for the transitory narrative, transitory inflation narrative, which is what the fed has been saying.
We're looking at data like the velocity of money, for example, the empty velocity of money still at all times. It's still, hasn't gone back up yet despite a recovering the GDP. And they're saying, well, look, velocity is low. No one's spending money like the used to, so this is going to be transitory. I say, you know, maybe I'll have my leg amputated temporarily.
So it'll just be, you know, a temporary thing. It'll pass. I'll grow. So, so it's, it's, this is not something that, that fades through. I mean, it's not fading through in supply chains, you know, every single company that you listen to, the earnings call regular companies, but telling you having problems, getting materials, Zen enough, rubber, there's not enough copper zone of employees don't have trucks.
They can't get it on any trains. I mean, I was looking the other day, some of the biggest investments for gates and his wife and all these people are around. You know, in railroads are, are, are a tremendous corridor for getting things here and there. And a lot of these billionaires are investing in railroads because you have this ability to, to, to have so much demand that businesses absolutely fantastic.
The railroads are buying each other, just think about, and this all matters because this, the government tells you it's transitory. I mean, it's, it's, it's like, what if, what if they really ever got anything? Right. I mean, let's be honest. Like, this is very rare that they've gotten something right. Use your own brain.
You go to the store, you're in the store. Now don't send the government to the store. You go to the store. Yeah. We're at 5.4% headline inflation. That was the latest reading, actually two months into. Do you think when you say it's not transitory, what do you mean by that? Do you think it would go higher and then plateau?
What do you think it'll come down a little bit and then plateau. Well, all right. So just remember the 5.4%. Not including all these things that no one buys like gas and housing and, uh, you know, all these school and, and, and, and healthcare and take everything out that went up and it's, and it's 5%, but here's the thing I want you to think about.
They're going to keep changing the way they measure this as time goes on. Because there's a bit of a disguise. I mean, even at 5%, the tenure is about 1.4, roughly. I mean, it's, it's, it's, it's way down now. Just one thing I want to really be sure we don't mess. Okay. Do you know the fed is buying somewhere around 40% of new treasury issuance right now, you know, and then they're also buying a 40 billion a month of mortgage backed securities, which definitely keeps rates low.
And to think about this, they own about 25. Of the total treasury market, they own about 20% of the tips market. So everybody looks to the tips, you know what your treasury securities that are inflation protected and they say, oh, well this is the rate. Yeah. But you have a will that's. That's fine. Most of the issuance that comes out, so how can they ever go up?
They can never go up. And this is 14 years into an economic emergency. Remember it was 13, 14 years ago that we said, we just need, we just need a little bit, a little bit of help. You know, it was this a tiny, tiny bit of help. And imagine 13 years later, you, you're still taking on a lot of help. And now the debate is, well, when will they stop?
They'll never stop. It's never going to, let's talk about that. Let's talk about you. Haven't chapter. Focusing just on negative interest rates, which we have now economists argue that that could stop because the federal reserve has announced tapering down the line of fact at Jackson hole, not too long ago, Jerome said drone power set that we will most likely taper before the end of the year.
And then of course he has a new set of criteria for actually. Further down the line upon further review. We, we, we will taper maybe a little later, but we still intend to do it. I promise I'll clean my act up purchases before the end of the year. Will they reduce their mortgage back security? Okay. So think about this.
If you had a S a stock, a lot of people hear about a mining stock and you had a big shareholder that never sells and buys 40% of all the stock that trades how. Not possibly go up. It would be, and you could, everybody could try to short it and it would still go up because you have a will that's buying into this thing.
And so these guys are never going to stop because if they stopped, the consequences would be catastrophic. I mean, the mortgage rate for example, is supporting this huge house. So if the mortgage rate went up by 1% or something, all the house refinancing was stopped because everybody will say, wait a minute, I can't afford this anymore.
So this is never going to go up. Let's see a market expectation right now. Do you think the markets are already factoring in or pricing going and tapering? Because if they are then it probably wouldn't have a huge, I don't even like when people call it a market, like everybody says the treasury market, it's not a market.
I mean, a market is where you have free thinking, buying and selling, going on all the time, which sets the price. We now have a. Chapter in the book, it talks about a senior bank executive that asks the fed why they don't fix the price of oranges. And they say, you fix the price of money, interest rates.
What's the difference. And the Fed's like, well, this is America, it's a free market. It's not a free market. You know, you don't have rates, trading freely between funds. And so to answer your question, a lot of guys that I'm close with that run guys and girls that run huge funds. When I meet with them, I find that their.
Because they're looking at this interest rate market and they're talking about it as if it's a real market and it's not, it's a, it's a market that's heavily controlled. I'm not going to say fixed, but it's heavily influenced by one purchaser with limitless amounts of money. So people need to see that.
When does this stop? I don't know, but in the book I say that I think that the rates can go a lot lower than people sink and need to be ready for that. Okay. Now let's talk about, uh, The other metals now, Evie metals, another piece of news I've found interests. Was Jeff Bezos and bill gates. We talked about billionaires earlier.
They're now investing in a new startup, a minimal exploration company specifically for copper nickel cobalt. So they're, they're, they're, they're investing in the EVP. Yeah. Yeah. Well, they're, they're late to the party. We did this about a year and a half, two years ago with Nova royalty. It's an OVR in Canada and a VRF in the U S.
Now what people need to understand is let's just talk about these real time. Everybody's worried about what's gonna happen next week. Next month, all this is speculative type of market that we're in. But the thing about royalties is you have decades, decades of exposure to higher metal prices with no responsibility for operating costs.
Okay. So think about that for a minute. That means if the gold price goes from 1800 to 2000, you got a 30, 40 years of output coming to you with no purchase. You don't have to pay. That's huge. And so what that means is it just goes like this over time, you have this huge lift that you see with the valuation.
Now we did this in metallic because Metalla buys gold and silver royalties and the third-party market. People don't understand that even though I told the whole secret in the book, and then we did this with Nova royalty that does copper and nickel. And I think the, the billionaires see that this is a tremendous, gigantic problem.
Financial times has a great article over the weekend about Elon Musk has been securing nickel supply over the. Frantically securing nickel supply. Why are they doing this? Because Nichols, the key ingredient in, in batteries for EVs and there's, there's a lot of nickel in every Evie and the demand is, is literally it's impossible to meet.
And so you're also going to see regional demand become a big factor. Indonesia's the big producer right now. Russia's a big producer. This nickel is not going to hit north America and the way people. Because there's going to be ESG concerns. Uh, there's all different types of issues that people don't see coming.
So Canadian American, uh, south American Australian nickel projects are the ones to look at. And Nova has been an early mover. In fact, you know, earlier than the names that you mentioned. Okay. And so. Growth potential now, precious metals versus base metals. Where do you see the most growth potential? Well, sadly I think the base metals are a freer market because they're not as influenced by some of the macro things that influences gold.
I mean, the gold price is heavily levered. You know, it moves around in the futures market. You see it slammed down $20 and then shoot back. Uh, you can have futures contracts that offer you a heavy amount of leverage. Copper is not like that. You know, and nickels, definitely not like, and you can barely even get a futures contract and Nicola, we have an investor who's done that, but they had to create a product for him.
It was in something that wasn't even available. So the copper at four and a quarter, let's just call it a, a pound. You know, if you take it to $5, $6 a pound, which is very reasonable, the price of those royalties, you're talking 40, 50 years of expected copper output. Crazy. And so I think that that gold is obviously a big, a big focus for me.
It's a, it's something, that's a business that I love very much and I'm very excited about, but the copper and nickel market, I think is more freely trading, um, interest rates, let's talk macro markets and interest rates. Now I find it interesting that I'm looking at the tenure yield it's been rising, but, uh, the three month library rate London interbank offering rate the rate at which.
Meant to each other. That's been low that hasn't tracked the tenure at all. So the cost of financing, the cost of capital around the world is still at an all time low. Do you see that changing anytime soon for everyone? I mean, obviously if you try to borrow money for certain reasons, it's quite high, you know, there, there, there are still situations where people there's usury, you know, in many of these markets, it's only held low by the central banks.
You know, how long can they hold on to this? I mean, I think. Kind of a big picture thing, but I think we're transitioning into a new system. Uh, there, this is going to go on, it's kind of run the car as fast as you can, until you run off a cliff and there's a fireball, and then you solve that panic. Remember you always have a panic.
And then that gives people the courage to say, yes, we want you to fix the panic that you cost. You, you know how this goes, you know? So you set my house on fire and then you shoot. The hose ready to help. So, so it's certainly ready to rebuild for a small fee. That's how you'll see this go. So they're going to keep this.
This is not a real rate of return. I mean, everyone knows you work your whole life, you save up money and then you loan it to someone for a quarter of 1% or something. This is this, it doesn't work. Well, that's what investors would like to know. Evie is that in a real low, real rate environment, where do you go to find yield?
What investments do you go to bonds? No, gold may be, I mean, the royalty, the royalty business, I think is for me, has really been a huge creator of wealth. And what people need to understand is that, I mean, the stocks that you can buy in the market, everyone can buy in the market. This is not like some insider.
What happens is every time gold moves just a little bit, the value of is over 70 royalties expense. And so what happens is, is you get credit for hundreds of thousands of ounces of gold in the ground that are going to come out in future years that are worth that much more. So it's, it's leverage in its truest form without borrowing.
That works. So you, your metallic goes to a producer or an Explorer. And they asked them for a percentage of their sales. It doesn't work out very well. So we don't do that. Don't do that. We do is we buy royalties in the existing market. No one else does a good job of this. This is what we do. This is our secret sauce.
So we go find royalties that have been around for 10, 15 years projects, nearing development. And we buy that royalty and bring it into Metalla as part of a diversified collection. So that, that seller, that royalty becomes a shareholder most of the time, not all the time. We bought a royalty today on Equinox gold.
It's a 5% royalty on an expansion portion of their castle project. They would've never sold us that royalty. Right? They don't need the money. They're well-financed, you know, I was with Greg last night, it's a super company with extremely strong backers. Like Ross speedy. They would never give someone a 5% royalty, but we found someone that had owned that roti for ages.
I mean, decades and wanted to see. And sold it to us. And so now we own that royalty on Equinox, which I think is going to turn out to be really a cornerstone, uh, acquisition. I think people are slow to see that that's the seventh deal we've done. Seventh deal this year, senior portfolio in terms of metals is in mostly gold.
Cause I'm looking at stocks. Yeah. All gold, silver. That's it. Now what we did is we created a separate company, Nova Metallica, ticker symbol, MTA on the, on the U S trades in the. That's about five years ago, we started that company at 80 cents. It's about seven 50 close to eight bucks right now. So, and it's down a lot.
Right? So, so when people look, I mean, they say, oh, I buy low, sell high, but it's not really true. Most people are, are, are panicking when it's eight bucks, you know, it was 13 at the beginning of the year, but the gold market has been really tough. Yeah. It's been really, really tough. All of the stocks in the royalty sector have been down this year and Franco's the only exception and that's barely.
Well, some investors might ask now that, uh, why would I be exposed to the miners in any form, whether directly through buying a stock of a minor or through loyalty? Because after, before the royalty chapter is all about how I can't stand mining stocks, no offense to all my friends will get this. I mean, I mean, the price of gold has stagnated yet.
The cost, the raw input costs have gone up due to inflation. So their margins are getting squeezed. And so it's very typical investor. Would you be in an a, what would you be invested in. Where you can't, you can't really have control of the output tray. It's a good product. I mean, the mining, I, as you know, ages ago, I ran an equity fund with Brett east, my partners, CEO, Metalla where we bought gold mining stocks.
And it was the hardest job I've ever had because they just can't ever kind of quite get altitude. And, and so that's why we fell in love with the royalty business, because you just said it yourself, the cost to bring the gold out of the ground, the labor costs, the oil costs, the equipment costs, you know, all these miners are going to have to have.
Dump trucks and all this dissolve coming, solar power, everything. So, so the cost that's going up, but for the royalty company, there's no more costs. Know if you are royalty five years ago when gold was $1,200 and it's producing today, we have no. Cost. I mean, we, we bought a royalty from Alamos that got news recently.
It's a, Yamana mine. That's coming into production. We paid about negative $2 million for that after the buyback. And that'll produce for 10 years at three or 4 million a year, it's crazy. And we have the oil price can go to 200 and we pay nothing. So see, that's why I think people need to see the royalty business is very special.
It's it's been, it's been something that's been my total. And, and I, I try to explain it to people, but I don't think they read it. I think they just look at the picture. Yeah. Important chapter you have here is on MMT, modern monetary theory. It was a theory. Maybe it's not so much theoretical anymore, but how has that affect your investment decisions?
Why would I go into a risky sector when I can just buy the S and P 500 with free money being injected into the capita markets every month? And I think the thing you got to realize about doing that though, is that's a pretty old trade. I mean, that's been going on for like a 10 or 11 years now. And so you really got to ask.
Oh, how much more meats left on the bone there? I mean, is, can it double, can it triple, I mean, you're talking about the world equity markets, or maybe 115 trillion or something like that, roughly the whole world. And then the gold market is 12 trillion in the crypto markets, 2 trillion. And so you kind of like look at these pieces and you just say like, can the overall equity market, the tech stocks, you know, these tech stocks, remember that the people are excited about user growth far into the future are willing to accept negative earnings.
Yeah. Okay. So think about it. If interest rates do go up, like you were talking, you were mentioning hypothetically, which I don't think they will, but if they did, what does that do to these tech themes? I mean, it really kills the whole narrative. It was driving that. So my point is, is that I don't see the royalty businesses risky.
When you have a company with 70 plus assets, five employees. You know, with the highest cost they have or, or the exchange fees. And you say to yourself, you could just slow down the company and just sit for 30 years. What's the gold price going to be in 30 years? Yeah, probably not lower. I mean, I, I dunno. I mean, it doesn't need to go crazy 2020 100 2200.
I mean, this is big, big. For 30 years of cashflow, you know, so you look out there three decades and you pull that value into Zik that's coming. People are going to, when they, when, when they see that these pension funds are fighting over pennies, and this is not going to last, they're speculating, they're doing all kinds of crazy things with their assets, not going to last.
So you mentioned fed coin in your books. Now this was, you wrote this actually before the federal reserve, after you made any official mention of fed point. Of course they were talking about other central banks were talking about. What is that going to do to gold when it does come out eventually, what are they going to do with all your other events?
Well, gold is, is a shunned asset, you know, and most of the time it's because it's very difficult to track and it has all these features that, that governments don't like, that's not going to change. I think actually probably the wrap up, I talk about, you know, maybe if they get really. What that would look like, you know, an excise tax or something on gold.
I don't think there's going to be a lot of enthusiasm from your elected leaders, elected leaders about assets that give you personal freedom. And you've got to realize the reason why governments love crypto is because it's infinitely trackable traceable. Look at the hacks that happened this year. They met miraculously, found the crypto, pulled it back.
See they can do that. Okay. So just be open-minded about this fed coin is going to be how you pay for everything. You'll have a fed point wallet. Maybe they'll call it something different Liberty coin or something who knows, whatever they'll focus group, test it, whatever it gets the best reaction. It doesn't seem to tell a Tarion.
Okay. But at the end of the day, Every single transaction will be taxed. You know, I'm curious how that's going to change the money supply because essentially they're creating a new currency. Totally. M two is going to be affected. I mean, we talk about the money supply increasing and how that has a positive effect on gold.
So theoretically shouldn't increasing the, my supply through a new digital currency also have a positive. On monetary metals, like gold. What do you think? Yeah, but think about like 12 trillion printed and thrown at this virus crisis, you know, the gold price is only went up 200 bucks or something like that.
Okay. So what you see is that the futures market is, is drives the price of gold. So the price that you see in the futures market, you know, with. Is different from the price you pay to get an actual coin, it's a different price. And so you're going to see that stay like it is now when the supply gets tight, maybe you step the price up a hundred bucks and then you have a battle there again.
Right? Cause a little more supply comes into the market. You know, people recycle the coins and electronics, all the stuff. So there's enough supply to meet demand, but most of the turnover and most of the price you see is the futures market price. It's not the physical price and that's just not the case.
With other things. I mean, I think they can keep that up for a while. So my point is they can create this new entity and the gold price can stay wherever you want it to stick. So bottom line, if you're anticipating central bank digital currencies to come out around the world, even in the U S should I be selling my gold home?
Where do you think I should? What else are you going to do with the money? So if you sold the gold, what are you going to buy? People say, well, I'll buy property. Okay. Well, that's got problems too. You know, it's, first of all, it's trading at sky prices, but you want to buy something that's out of favor and gives you the tools you're going to need in your toolkit to survive.
The book is again, the war against your wealth and. Not the war gets 10 years ago and how to win. It is the worry is the future is a war that's happening now. So when you look at your goal, I mean, you shouldn't have too much goal to think about it. If you have two, 3% of gold in your portfolio, it's a lot.
So some of that is, needs to be held physically and just hold it. That's all you do. I mean, you hope you don't. Like, cause you think about it. If your SOP stocks double or triple you just say, oh, well the gold went up a little bit and I can always sell it later. I can give it to my kids or do something with it.
It's not like you leveraged your house and bought coins. It's crazy. Like who would do that? So it's not, it's not that they're missing the point. You know, they're, they're caught up in like a speculative. And that's okay, but, but it's way out of proportion to what's. Okay. Excellent. Thoughts, Eby. Thank you so much for coming today.
Thanks for having me and thank you for watching Kitco news. We'll have more for you at Denver gold. No news special coverage of the Denver gold forum is brought to you by new Pacific metals.