Articles, Blog

🔴 What Moves the Price of Gold & China’s Role In It (w/ Luke Gromen & Brent Johnson)

September 7, 2019


BRENT JOHNSON: So Luke it’s a great opportunity
to be here with you at Real Vision headquarters. I’m especially looking forward to it because
I cannot tell you how many times I will meet people at conferences or talk to them
on the phone or they’ll send me an email, and they’ll
say, I saw you and Luke Gromen on Twitter talking about– so it seems like half my conversations
with new people involve you in some form or another, even though you and I don’t get to
talk directly all that often. So this’ll be good. LUKE GROMEN: Absolutely. I’m glad– I get some of the similar feedback
on Twitter. So it’s
always good to actually sit down and talk face to face. BRENT JOHNSON: Yeah, so obviously, everybody
here has just talked about the dollar a lot. And I think we can maybe touch on that a little
bit again. But one of the things that also goes
along with the dollar is gold. I don’t know that me and you have ever really
talked that much about gold. Maybe we have a little bit here and there. So I thought we could touch on the dollar
a little bit more if you want to. But we can talk a little bit more about gold—
LUKE GROMEN: Sure. BRENT JOHNSON: –kind of where you see it’s
going. LUKE GROMEN: Yeah, I’d be happy to. Yeah, for me, I think about gold differently,
I think, than some people do from really two ways. Number one, I think gold is really useless
for about 99% of the long economic cycle. And then in the 1% of the economic cycle,
the long economic cycle, which tends to correlate or coincide with
sovereign debt bubbles globally, it’s critical to own. And
so the overriding– never had much interest in gold before 2008. And I think it’s an important asset
to own some of because I think we are in the midst of a global sovereign debt bubble that’s
begun to unravel. And then I think there’s also another way
that we’ve thought about gold and talked about gold a
lot, which is it is being leveraged by a couple other countries, and China in particular,
as a means of gaining credibility for China to be able
to print yuan for oil and other imported commodities. And so I have a lot of people ask me, hey,
why do you think China’s buying so much gold? Why
are they importing so much gold? What’s the end game? Do they to back the yuan with gold? And I suppose that’s possible. That’s not how I see them using it. What I think they’re doing is, what China’s
doing with gold is not about gold. It’s about oil. It’s
about copper. It’s about iron ore, in that, they are basically
appears to have reopened sort of a version of the Bretton Woods gold window where–
basically, the right way to think about it, in my
opinion, is China’s wanting to use or at least offer gold as sort of a treasury bond settlement
instrument under the post Bretton Woods system that the United States has shared. So that’s two
different ways that we are thinking about gold at the present moment. BRENT JOHNSON: And so do you personally own
gold, or do you recommend people buy gold? Or are you recommending miners or physical? Or what’s your view as far as investment? And maybe you don’t give investment advice. But I’m just curious if. LUKE GROMEN: No, I do own it personally. I never owned any before 2008 and have held
it the entire time. It’s a good size position for myself. And I think everyone at this particular moment
in the long cycle, I think, should own some because history is replete. The sovereign debt always
defaults– always. And you’re at that moment in time where we
have too much. There’s a sovereign
debt bubble. No one is–. .
Up until recently, no one was questioning the credibility of sovereign debt, particularly
in the Western side– Western sovereign debt markets. I don’t think we’re fully there yet. But we’ve
already run the playbook. Well, we’ll grow out of our sovereign debt. We tried. It didn’t work. Well, we’ll financially repress out of our
sovereign debt. We tried. It didn’t work. Populism’s
breaking out. And so sort of the last step in that whole
process, and the IMF has written about this in a number
of different white papers of the roadmap, the last one is a devaluation of the currency
or other sort of really inflating your way out of it. And so we’re sort of down to the last possible
way out of it. And so I think now, perhaps more than ever,
I think you said when we were talking earlier, you’ve been surprised how long things have
sort of taken to sort of go down this path post-’08. And I have been as well, to be honest. But I think now is a point in time where you
don’t know the exact timing. But you know that there’s
sort of three or four steps they can do. And they’ve tried two or three of those steps. And they
haven’t worked, which tells you the fat lady’s probably warming up just offstage. BRENT JOHNSON: Yeah, it’s interesting. I’ve been a huge gold advocate for a number
of years. And usually, when I talk, I usually talk about
gold, mainly because I think I have a unique view on it, to a certain extent. And there’s plenty of people talking about
equities and fixed income and private equity. And I didn’t really feel like I necessarily
had an edge there. And I felt
like I had a little bit of an edge in the gold world. But along those lines, it has surprised me
how long it’s taken. And based on a few things that’s
happened in the last 12 to 18 months, I actually think it’s going to take a little longer. And I don’t
know if I’ve told you this or not– I think I mentioned it to you just briefly before
we came on– but I actually shut my gold fund as of the end of
the year. LUKE GROMEN: OK. BRENT JOHNSON: And it’s kind of a hard deal
for me, to be honest, because I’m such a huge believer in it. But it was always a very small part of my
business– less than 5% of my assets under management and less than 5% of my overall
business. But I always felt like it was the most
important part because I really think that when the time comes, everybody needs to own
it. But
what a lot of people don’t know is when you own gold in a fund structure, there’s all
these expenses that nobody knows about, right? There’s audit. There’s administration. There’s tax. There’s legal. And when I started, it was just the precious
metals allocation for my current clients and thought, as
we get into a bull market, we’ll be able to raise more assets. Well, seven years into the bear
market, and we weren’t able to raise additional assets. And with poor performance due to the
gold price, we just weren’t– you know, the expense ratio kind of became too much. LUKE GROMEN: Sure. BRENT JOHNSON: And I really couldn’t justify
it. And it’s kind of a hard conversation with
clients, to be honest, because I’ve advocated it for so long. And at first, they thought I was saying,
well, we should not be in gold anymore. And then I had to explain, no, we should still
be in gold. But there’s more efficient ways to do it than
through this particular fund structure. I was always in
kind of an interesting position. And I’m interested to get your thoughts on
this because I don’t know what you think it’s going to do right
now. But I was always somebody who said it’s the
hedge against everything else. We’re not going to
get rich owning gold. It’ll hopefully save us when everything gets
really bad. But it was never the
play to make a lot of money. And so I was always one of the few people,
at least I felt– and there’s probably a few more out there in the
gold world, who– if I thought the gold price was
going to fall, I would say it was going to fall. LUKE GROMEN: Right. BRENT JOHNSON: And then people would say,
how can you be a gold manager? How can
you recommend gold but also say it’s going to fall? There’s some contradiction there, right? LUKE GROMEN: Sure. BRENT JOHNSON: And so I would have to explain
that it’s the insurance policy. You buy car
insurance. You buy fire insurance. You don’t necessarily want your house to burn
down. LUKE GROMEN: That’s right. BRENT JOHNSON: But when you’re in the investment
world, people don’t always see it that way. And so I tried to figure out a way that I
could have that insurance along the way and protect
them if this thing extended longer than I thought. And the reality, I wasn’t able to do it, and
so, eventually, had to come to the realization
that as much as I wanted to keep it open, it wasn’t in
the client’s best interest to do it in that form. LUKE GROMEN: Well, good on you for doing that,
right? That’s a high integrity move. BRENT JOHNSON: But it’s part of this business. And it’s part of– people talk about skin
in the game– you know, to be quite honest, I’m embarrassed
about it. I’m embarrassed that I wasn’t able
to get through the cycle. I feel like I should have done a better job. But the flip side is that I think if
you always do right by your clients or try to do right by your clients, in the end, you’ll
be OK. LUKE GROMEN: Mm-hm. BRENT JOHNSON: But I think it’s an interesting
time because I actually think that gold is going
to go lower over the next couple years. And I know that that’s a little interesting,
again, for a gold guy to say that. But you and I have talked about the dollar
a lot. And I’ve maintained for a while
that eventually the dollar and gold will go higher. But I think that in the short term because
of the dynamics of the way the dollar’s how I believe
is going to play out, I actually think I’m going to
get an opportunity to get back in, maybe even at a better price. But I’m curious what you think
about gold and the dollar in conjunction. LUKE GROMEN: Sure. BRENT JOHNSON: Do you think gold’s going higher
here? Do you care? Is it just an insurance
play for you? LUKE GROMEN: No. To me, one thing I’ve said a number of times
and I still think is true is I don’t think gold is a real market. And I don’t think it’s been a real market
since probably 2013. There were a number of things that happened
beginning in early 2013 shortly after Cypress announced that they were getting a bailout. And they’re going to get $10 billion in loans
and that they were going to write a promissory note. And they were going to also shed or sell 10
tons of gold. And it was odd. I don’t know what to make of it. But I know that if you divide $10 billion
in loans for 10 tons of gold, I would love to lend
my gold out at that because that’s about $46,000 an
ounce. So if anyone out there wants to provide me
loans at that collateral value, I’d be happy to
part with it for that, right? But in all seriousness, what was really interesting
is shortly after that happened, you had what was effectively a run
on physical gold begin globally. Chinese
purchases ramped up. You saw gold forward rates shortly thereafter
invert. I had a very interesting conversation with
a very large physical gold holder in the United States
that I had a relationship with at the time. And their comment to me was just buy to frame
up, if they would’ve been ranked as a sovereign holder,
they’d have been a top 20 sovereign holder in
the world. They owned a lot of physical allocated. They received a call shortly after one of
the bulge brackets had downgraded gold to a sell. Same bulge bracket called them up and said,
hey, here’s why we’re downgrading it. And we think you should sell it, and we stand
ready to buy anything you want to sell. And– this person is further indication of
other things I’d been hearing at that point in time that
there’s something happening here in terms of physical demand detaching from the paper
market. And when I say detaching, it ties back to
my point of why I don’t think it’s been a real market
since 2013, and that is that you’ve seen a very steady flow of physical from West to
East. It’s a
fairly opaque market. But the Swiss import-export data is a decent
picture. And it’s crystal clear
what’s happening. It’s flowing from West to East. And in particular post ’15 or ’16, it’s interesting. Goldman has written a number of times that
when the renminbi falls against the dollar, imports of gold rise into China. And so to me, I think
after five or six years of this process, to me, what appears to be happening is that gold
is effectively serving as a governor on how far
and how fast the renminbi can fall against the dollar. In other words, because the supplies of physical
sort of are theoretically finite, at least at certain
price levels, every time the renminbi falls, imports into China go up. The vaults in London and in
the US get drained because it can’t come out of China because once it’s in China, it doesn’t
leave China, by and large, at least in the volume
itself. To me, it almost seems like it’s the physical
market– I won’t say go all the way to it’s tightening or
it’s imminent– but it seems like there is actually a mechanism that is being put in
place by all of this dynamic that is beginning to wind or close
the gap between– at least making the physical market
have some semblance relative to paper because what you saw in 2013, you just saw the paper
contracts outstanding increase. BRENT JOHNSON: What I think is interesting
about that is back in 2013 and ’14, I saw a lot of
the same things. I wrote about the same things. I put out a number of research about it. But by
and large, a lot of that has gone away over the last couple of years. You still see the flows leave
London, leave Switzerland, go to Hong Kong, go into China. You see all that. But if you talk to
bullion dealers or if you talk to vault operators or if you talk to refiners, they’ve got plenty
of gold. LUKE GROMEN: They got plenty of gold. BRENT JOHNSON: There’s not a shortage of physical. LUKE GROMEN: Right. BRENT JOHNSON: So I kind of find that interesting. Again, I would have thought that it would
have changed earlier. But the fact that it hasn’t, it’s made me
think about it in a different way. And
this kind of gets back to our whole dollar discussion. And I want to ask you something about
something you just said. Part of the reason I’m going to ask you is
people ask me about you all the time. And I want to make sure I’m not putting words
in your mouth because I would hate it if somebody did that to me. But you’ve talked a lot about China figuring
out a way to print yuan first commodities and also a
way for people to sell their goods for yuan and then immediately go into gold so that
they don’t have to hold the yuan. Two questions– you just said a minute ago
that gold goes into China, and it never leaves. But if somebody’s going to sell their commodities
for yuan and then buy gold and they want to take it out, won’t you see gold
leave? LUKE GROMEN: Not mainland, no. If you look at how they’ve set it up–
BRENT JOHNSON: So it’s your gold, but you have to own it in China? LUKE GROMEN: No. So you have Hong Kong where it can come and
go in and out of Hong Kong. It can come and go in and out of Shanghai
International, the free trade zone. As a
practical matter, not a lot moves there. BRENT JOHNSON: Right. LUKE GROMEN: Dubai, it can come and go. There’s a yuan gold contract there. And oil, in
theory, would be willing to transact for gold in yuan– you know, make that convenient. Obviously,
it’s the financial center of the Middle East. So it’s a two-tiered market almost, right? The gold that
goes into mainland China, it’s almost as if China understood the Bretton Woods system
and the faults with the Bretton Woods system. And they were twofold. Number one, the US’s gold was finite. We weren’t going to let it all go. And number two, the
price of gold was fixed, which is a bad idea. You’re not be able to maintain either your
volume or your tonnage or your price. One of those two are going to have to break. And we actually broke
them both. So you can’t get the gold. And the price rose. China seems, by looking at the system,
they have appeared to have set up, the gold that’s in mainland is their gold. You are free to exchange offshore renminbi
if you so desire. Now, as a practical matter, it’s not
like every offshore renminbi’s going to get exchanged for gold. It’s going to be Chinese goods–
Huawei equipment. It happens to be they are one of the biggest
trade creditors in the world. So if
you’re Russia 10 years ago, it was trinkets. It was housewares. Now it’s 5G, hypersonic weapons,
et cetera. There’s real trade goods there. But if you have a net surplus still against
the Chinese– and as a practical matter, other than South
Korea, they tend to be commodity exporting nations that are running surpluses against
the Chinese– then you can put some into Chinese
financial markets– Chinese government bonds– and
some into gold. Now, that gold will have to come from Hong
Kong, Dubai, or the Shanghai Gold International Board. That then has to come from one of two– really,
three– places– UK vaults, US vaults, and US mines and vaults, or India. And so it’s been interesting. UK doesn’t have any mines
to speak of. So that’s just vault dishoarding. The US, you have mines and vaults. And that’s
probably, to some large extent, US mine production heading East. India, you’ve seen some more impetus behind
trying to financialize gold, which is a way of saying
take the physical off them and give them a paper receipt, which would sort of buy time,
which is interesting, I think, to me, when you sort
of look at those initiatives through this lens. But ultimately,
what this does is it sets up a London Gold Pool II, if you will. We’ve seen this movie before. From
’65 to ’71, foreign creditors decided they didn’t want to stockpile treasuries ad infinitum
to finance Vietnam and Great Society. They started asking for their gold back. The price of gold didn’t move,
even though physical volumes were flowing. And then all of a sudden one Sunday night,
Nixon said we’re done. In fact, there’s another
interesting– with the US just asking the BOE not to release gold to Venezuela, the
US actually asked England to shut down the gold market
in the late ’60s for a couple of days till they figured
things out. What it sets up, this sort of London Gold
Pool II dynamic, is a choice. You can either let
the gold move at the same price– the physical move at the same price– and just increase
your paper leverage. And so you get sort of $1 gold peg price behavior,
which is what we’ve had since 2013, effectively. More and more leverage—
BRENT JOHNSON: In the band. LUKE GROMEN: –in the band. It’s a 1,150 to 1,350 band. Or you can let the gold price move
in response to that demand. But if the gold price is moving, to your point
before, you’re talking about $1 devaluation. So now if China buys gold or if there is concern
about the renminbi and people buy gold on concern about the renminbi
and the gold price rises, they’re not just devaluing the renminbi against gold; they’re
devaluing the dollar against gold, too. It’s a natural
hedge. It’s very elegant. Or you can not give them their gold. One day, you just say, sorry, no. And that, I think, is also– I
don’t think that’s imminent. I think that’s something that would likely
not be dollar positive if that were to ever happen again. It certainly wasn’t the last time it happened. And so that’s what I think
China is doing with gold is it’s not all going to settle in gold. But it’s creating this London Gold
Pool II dynamic with an improved sort of Bretton Woods system. BRENT JOHNSON: Again, I find this fascinating
because I look at the same information, and I
kind of come to a different conclusion. Probably not surprising there. LUKE GROMEN: I would expect no less. BRENT JOHNSON: I guess I kind of feel like
if China is becoming this new power and they’re wanting to not necessarily replace the global
reserve currency but be in the basket of reserve currencies or one of the major currencies,
they don’t have an open capital account. They’re saying
to the world you don’t have to hold our currency. You can exchange it into gold. Well, to me,
that’s not a good argument for owning the renminbi. And to me, it’s telling me that–
LUKE GROMEN: Well, it’s the argument the US used at Bretton Woods. BRENT JOHNSON: Yeah, but we were in a little
bit different position then, right– than China is
now. LUKE GROMEN: Yes and no– certain ways, yes–
certain ways, no. BRENT JOHNSON: But I’m just saying if China
wants to have the yuan be a major currency and
if they’re in such a better position than the US, why are they saying, well, you don’t
have to hold our currency. You can hold gold. To me, that’s a little funny. LUKE GROMEN: I would look at it as– so like
you said, the Bretton Woods, the deal was you
can hold dollars or you can hold gold. BRENT JOHNSON: Yeah. LUKE GROMEN: Of course, when push came to
shove, we were kind of like, yeah, we’re just kidding. Don’t take that gold. You know? BRENT JOHNSON: Yeah. LUKE GROMEN: I think when the US, once we
switched to you can’t have gold, but you can have treasury bonds, it’s a great deal for
the US. And that system worked. Importantly, the US
gave– Volcker– what Volcker did in the early ’80s– gave that system tremendous credibility. We
came out, and we said we are willing to blow up the US economy to keep the purchasing power
of your dollars consistent in oil terms, in commodity terms, in your critical import terms. And so the
world said, ah, this system’s got issues. But you know what? Americans are– for all of the 1970,
it’s our currency, but it’s your problem. In 1980, Volcker said it’s our currency, and
it’s our problem. And he bought us 30 years of credibility–
maybe 35 years of credibility, 20 years of credibility, 25 years of credibility. It was sort of early part of the 2000s when
you have the deficits for the war, et cetera, and it
became, it’s our currency, and it’s your problem again. And China’s system is, it’s our currency,
and it’s our problem. In other words, what they’re saying is if
the US prints $100 trillion for Social Security and Medicare, sorry. The price of oil for everyone on the planet’s
going to go through the roof, and people are going to starve. And sorry about your luck. And we’re going to have to
print that money. With China’s system, China prints 100 trillion
yuan or whatever the equivalent is for Social Security and Medicare. Everyone can show up and bid for gold and
yuan. And the price of gold
rises in yuan terms. The purchasing power of their creditors in
Chinese goods terms remains constant. And the American deal is not keeping that
constant. BRENT JOHNSON: But can’t it happen in American
terms, too? Like, people can exchange their
treasury bonds for gold right now. People can exchange their dollars for gold
right now. It’s not
automatic. But it’s one more step. And it happens in the most liquid market in
the world. So why is
it so hard– LUKE GROMEN: You and I could. If you and I were ruling countries, we couldn’t. We could ask
Saddam about that. We could ask Gaddafi about that. BRENT JOHNSON: Yeah, but if Bretton–
LUKE GROMEN: There’s geopolitical realities there that–
BRENT JOHNSON: No, absolutely– absolutely. But I guess I struggle to find out why are
they going to be able to do it with the Chinese
gold contract. LUKE GROMEN: Because China’s not the reserve
currency of the world. Well, that’s the one
thing the dollar has that the yuan doesn’t– that the renminbi doesn’t is that the Americans
absolutely could do that. And the only thing keeping them is they would
be giving up a credit card that has no limit and that is always
rolled over and that the balance can grow and grow and
grow. It’s the reserve currency. Washington will lose its ability to run deficits
without tears if they did that. BRENT JOHNSON: But wouldn’t that hurt everybody
else initially just as much as it hurts us? I
think this is something I want to kind of dig a little bit deeper into with you is,
do you see a situation where the US could go into a severe
recession but everybody else would be OK? LUKE GROMEN: It depends. If the dollar strengthened, no. If the dollar weakened
tremendously, yes. And the reason I say that is, to your point,
everybody’s short all these dollars. We saw it in 2017, right? Everyone came into 2018– coordinated global
growth. That was the
theme last year at Davos. BRENT JOHNSON: Yeah. LUKE GROMEN: It wasn’t coordinated global
growth. You know what it was? It was the dollar
was down 12% in 2017. Everyone was able to cover their dollar short–
12% lower. Now cover
your dollar short down 30%. Cover your dollar short down 40%. But everyone’s going to be
richer. BRENT JOHNSON: Well, it helps from that perspective. But if the US is in such a severe
recession that the dollar’s down 20% or 30%– LUKE GROMEN: It’d have to be a special kind
of recession. BRENT JOHNSON: Well, I’m saying nobody else’s
GDP numbers and growth numbers are the same because we’re one of their biggest customers. LUKE GROMEN: Right so that’s–
BRENT JOHNSON: So you gotta reset all those ratios. LUKE GROMEN: No question, it’s going to be
weird. And that’s why I didn’t want to– the odds
are that, no, the world couldn’t grow certainly to potential if the US was off the map. But there’s a
lot of conditions to that. Again, if it is a– the dollar goes up– we’re
seeing that. There are no
winners from a stronger dollar– full stop. BRENT JOHNSON: Yeah. LUKE GROMEN: A weaker dollar, there are some
losers. There’s a whole lot of winners. If
you’re short the dollar– and everybody’s short the dollar from Uncle Sam to you and
me to corporate America to China– all across the
world, everybody’s short a lot of dollars– and the
dollar goes down, I mean, it’s like paying your mortgage in a currency that your currency
appreciates against. You’re going to go out to dinner a few more
times a month. You’re going to
buy a new car. BRENT JOHNSON: If the dollar goes down that
much, then that would mean that the euro goes up a lot. It means that the yuan goes up a lot. The yen goes up a lot. None of those countries
have growing growth, either. Or they do, but the growth of the growth is
slowing, right? LUKE GROMEN: And that’s where it gets tricky,
right, because now the question is you covered your dollar short up 20% 30%. BRENT JOHNSON: Yeah. LUKE GROMEN: OK, can you take that savings? Do you have the endemic demand within your
society that will take that 20% to 30% and go out to eat, go on vacation, buy a new car,
et cetera? Europe– Japan– Japan, probably not– Europe,
maybe– China, yeah, they probably would– a lot of the rest of Southeast Asia,
oh, yeah. BRENT JOHNSON: So how does– I’m going to
use one of your arguments against me against you. Is that fair? LUKE GROMEN: I’m confused now. BRENT JOHNSON: How does China– without dramatically
devaluing their currency but actually appreciating their currency– if the dollar
gets so weak, how do they pay off all their debt? LUKE GROMEN: How do they pay off all their
debt? Ultimately, it’s dollar denominated. And
I’m not convinced they– BRENT JOHNSON: Or even their yuan debt. LUKE GROMEN: Even their yuan debt? Oh, they’re either going to have to grow or
they’re going to have to default, right? I mean, it’s sort of the same as everybody. And you know, I’m not
convinced they have as much debt as it says. I mean, Carmen Reinhart had a great piece
a couple months ago–
BRENT JOHNSON: Because they owe it to themselves? LUKE GROMEN: Well, no, because everyone’s
counting this hand of the ledger, where they are
borrowed a bunch of dollars. But they also have lent a bunch of dollars
to other emerging markets. So somewhere on the net of that book is smaller. Now, there’s timing and there’s other. But the net number might not be smaller. But yeah, they do owe it to themselves. There is this
element of modern monetary theory, if you will, where if a Chinese state-owned bank
has a loan to a Chinese state-owned company and the Chinese
state-owned company defaults to the Chinese state-owned bank, is there a loss– not technically,
which is incredible. It has currency implications. BRENT JOHNSON: Yeah, I mean–
LUKE GROMEN: To be clear, it has potential currency implications. BRENT JOHNSON: I mean, that sounds like something
Ben Bernanke would say, right? LUKE GROMEN: And this is some of what they’re
doing. If you watch what they’re doing, after
’08, it was like, oh, those are the rules of the game? BRENT JOHNSON: Yeah. LUKE GROMEN: Hold my beer, and watch this. BRENT JOHNSON: Yeah. LUKE GROMEN: Yeah, OK, well, if you’re just
going to print your way out of any trouble, why
would we ever– the optimal strategy in 2008 was be big enough to crash the system if you
had trouble because the Americans moved heaven
and earth to help you. If you were small, you’re
done. So what did they do? They went and made themselves the biggest
of the biggest– too big to fail. It’s exactly what I would’ve done. The optimal investment strategy is go take
out as many credit default swaps with the biggest US banks
that you could because then they had to save you. And that’s effectively what they’ve done. BRENT JOHNSON: Well, interestingly, now, the
biggest banks in the world are Chinese. LUKE GROMEN: Yeah, right? BRENT JOHNSON: Right? So they’re systematically important. So anyway. LUKE GROMEN: That’s right. BRENT JOHNSON: Well, you know, I do have a
big thank you to give you because our conversations have definitely made me dig
deeper than I probably would have dug before. LUKE GROMEN: Likewise. Likewise. BRENT JOHNSON: You know, it’s made me kind
of crystallize what I think’s going to happen over the next two or three years. I think me and you both agree where we’re
going to be, let’s say, five years from now. I think the path is where we typically disagree. But because you’ve
made me crystallize it, I think, you know, part of the series is called “Skin in the
Game.” It’s one
thing for us to kind of have fun on Twitter and bash each other back and forth. But I’ve had a lot
of people ask me, what are you doing to profit from it? And the reality, for a long time, I was just
kind of playing it conservative and owning gold, right? LUKE GROMEN: Right. BRENT JOHNSON: But this is a way, I think,
to actually really profit from it. It’s going to be
really interesting. Are you betting on gold for this “Skin in
the Game”? How are you playing it? LUKE GROMEN: Oh– I’ve got a number of different
curious or some of them are sort of esoteric ways of playing it. I own gold. I’ve got some equities. And I sort of move those around based on
exposures. I don’t do a whole lot of– we don’t do stock
picking at FFTT. So it’s sector stuff I’ll move
around. It’s really been about, at this point, levered
long, really. For me, the past 10 years have
been basically levered long. I had the biggest mortgage I could take. BRENT JOHNSON: Yeah. LUKE GROMEN: I had the difference that I would
have had down on my house in equities. It’s
worked out well. I’ve recently been starting to get a little
lower over my skis. And some of that is
Wall Street, I think, is really under appreciating the potential risk on the geopolitical side. And I’m
a realist. If that gets worse, I think people are going
to go to the dollar. You have to. I would. BRENT JOHNSON: Yeah. Well, it’s always fun. LUKE GROMEN: Absolutely. BRENT JOHNSON: We managed to get through it
without– LUKE GROMEN: No fisticuffs. BRENT JOHNSON: No swearing– no head-butting
and everything. LUKE GROMEN: [LAUGHTER]
BRENT JOHNSON: So maybe we should just go grab a milkshake and get out of here. LUKE GROMEN: [LAUGHTER]
BRENT JOHNSON: Good to see you. LUKE GROMEN: All right. Great seeing you, too. Thanks for your time.

100 Comments

  • Reply jackgoldman1 August 31, 2019 at 9:51 pm

    Gold never goes up or down. An ounce of gold is always an ounce of gold. Currency goes up or down, mostly down, over the long term. $20 an ounce, $35 an ounce, $800 an ounce, $1,900 an ounce, now $1,600. Paper currency is going down, down, down, gold is not going up.

  • Reply carman geek August 31, 2019 at 9:54 pm

    He couldn't run his gold fund, so I don't think I'll be following his opinion on gold.

  • Reply Tammy August 31, 2019 at 10:17 pm

    Neither is creditable at all….wonder who is paying for their so called opinion.

  • Reply bill blohm August 31, 2019 at 10:27 pm

    I am a RealVision subscriber: I just confirmed, This interview is from Feb 11, 2019 so fairly dated!

  • Reply Frank Drake August 31, 2019 at 10:44 pm

    Americans appreciate being the "Reserve Currency." Under Trump, either the Fed is histoire or we remain the "Reserve Currency" through 2040. P.S., Russia joins the EU.

  • Reply Steven August 31, 2019 at 11:20 pm

    Guy won't let Gromen get a word in. stopped early

  • Reply Vince T August 31, 2019 at 11:44 pm

    Please get ultra wealthy Chinese citizens such as Miles to talk about China Gold topic. They will have the real scoop on the goal of ccp. You guys are only talking about ideas not based on true facts.

  • Reply James Yonan August 31, 2019 at 11:46 pm

    Fascinating informative discussion! This was great!! 👍

  • Reply Josh August 31, 2019 at 11:50 pm

    So Brent, you went long gold as it was going down. Cleared out your position at the low … and then went bearish on gold when it started making month over month gains?

  • Reply Joshua Salley August 31, 2019 at 11:52 pm

    Every time I see Raoul on a twitter rant, I know to check for new videos.
    Pavlov'd.

  • Reply Lisa Murphy September 1, 2019 at 12:04 am

    I have no idea what Luke is talking about. Everyone is short the dollar? He says this but doesn't explain what makes this so. Seems to me everyone is long the dollar. Most owned currency in the world, by far.

  • Reply Jay Copper September 1, 2019 at 12:06 am

    Jesus… this guy opens his gold fund at the height of the gold rush and shuts down the fund almost at the exact bottom. then he calls for gold to go lower right before it makes a parabolic multi month move to the upside. he literally could not have been more wrong if he had tried. brutal..

  • Reply Lisa Murphy September 1, 2019 at 12:06 am

    Brent says "we both agree where we'll be in five years" but then he does not articulate anything about where he thinks we'll be. Weird. Where does he think we'll be?

  • Reply Satoshi Number Go Up September 1, 2019 at 12:17 am

    Bitcoin fixes this!

  • Reply Rob Saunders September 1, 2019 at 12:42 am

    I really like these guys. They just seem open and honest.

  • Reply Linda Freeman September 1, 2019 at 12:49 am

    How about that JP Morgan trader who was recently prosecuted in London for manipulating the gold market From 2007 to 2016. Others at JPMorgan caught as well. How many have damages to collect if you can quantify the losses to investors

  • Reply Stacy Blaustein September 1, 2019 at 1:14 am

    Where's Bass? Doesn't he have something negative to regurgitate from his CIA handler? Like: "China stole all of USA'S gold".

  • Reply danis1977 September 1, 2019 at 1:16 am

    This is obviously very old, not relevant now given what has happened in the last few months.

  • Reply no name September 1, 2019 at 1:17 am

    yo brent, instead of the $milkshake what abt the gold milkshake

  • Reply AQuah September 1, 2019 at 1:20 am

    Gosh love it!! …. This is what i wanna see …. Debate … Subtle Spiciness to the Convo …. "YOU can ask Saddam about that!!" … "YOU can ask Gaddafi about that!!" … Oh WAIT!! Hahaha

  • Reply Stream of Thought September 1, 2019 at 1:49 am

    "Useless for 99% of the economic cycle." Gold is literally money. Its been money for basically all of human history, at least 5,000 years probably much longer, except for when the world went off the gold standard in mid 1900's. Notice alot of really smart finance peoples' time perspective doesnt go past the time they were born.

  • Reply Chuchai Tangsompon September 1, 2019 at 1:50 am

    This has to go back to the lessons of what is Money that has an impact on a society discussed in many episodes by, the genius, Mike Maloney.

  • Reply Johnny Doe September 1, 2019 at 1:51 am

    Brent shut down his gold fund just before the precious metal bull run..ouch

  • Reply Hec Tor September 1, 2019 at 1:52 am

    Brent is really no match for Luke's brain!

  • Reply Oldfogey Oldfogey September 1, 2019 at 2:04 am

    Who is the interviewer and interviewee? Thought the interviewee is supposed to do most of the talking.

  • Reply jmwSeattle September 1, 2019 at 2:39 am

    Wrong, it’s Reagan & then Gingrich that brought us credibility. 20:10

  • Reply John Salsa G September 1, 2019 at 2:50 am

    You mentioned Gaddafi. He provided a system that gave Libyans free health care and free education.

  • Reply Danny Harumitah September 1, 2019 at 2:53 am

    Change your paper money to gold

  • Reply mynameisawesomeman September 1, 2019 at 2:53 am

    END THE FED

  • Reply Octopus Hunter September 1, 2019 at 3:13 am

    The factor you may not count is that Chinese using gold to back a Gold-base RMB, which reduce its dependency on U.S. $ in oil transactions settlement.

    This has a number of motivations. And so for North Korea, Iran etc.

  • Reply Geo S September 1, 2019 at 3:16 am

    Luke is way more on the ball than Brent. Brent has turned into a contrarian indicator…

  • Reply R R September 1, 2019 at 3:33 am

    Fiat savings in the Bank= Zero/Negative interest. Fiat currency losing value/rising cost of living.
    Gold in the only safe place for savers.

  • Reply BRIANMORAN September 1, 2019 at 3:51 am

    "sovereign debt always defaults?"..The UK after the Napoleonic wars had a debt to GDP ratio of 250% and they did not default..so each country must acquire an empire the size of Africa.

  • Reply D Lux September 1, 2019 at 4:16 am

    Psst … Bitcoin. (No, really 😉

  • Reply Jonathan Langlois September 1, 2019 at 4:20 am

    Wow he was wrong about the rate cut(s) AND he sold gold in January saying “itll go lower, ill buy cheaper”….

  • Reply Oren Elbaz September 1, 2019 at 5:09 am

    I think where Brent Johnson got it wrong on the dollar is assuming that the US stock market will remain strong. It has'nt fallen yet, but for all the noise, it has pretty much been moving sideways since early 2018. So "the milkshake" is not flowing towards the US as much as he thought it would, and the dollar is not as strong as he thought it would be, not enough to hamper gold, at any rate.
    Now imagine how all this will be exacerbated if the US stock market crashes…

  • Reply achtung001 September 1, 2019 at 5:19 am

    why is this interview so "OLD"..?

  • Reply Dave Bowling September 1, 2019 at 5:31 am

    Gold is a store of value, currency is not… simple

  • Reply jaddy540 September 1, 2019 at 5:32 am

    For the price of a couple of ASEs, you could buy a few shares of a low price miner,trading at 1 to $3 a share. Trade these for some profits,DO NOT TRADE YOUR GOLD. EXK, which trades about $2.50, was up 7.5% one day this week, up about 15 cents in a day.

  • Reply Pramod September 1, 2019 at 5:36 am

    Opens fund in 2011-12 with gold at 1800-1900
    Closes fund in 2018-19 with gold at 1200
    Expects gold to go lower in next 2 years out of sheer frustration… and gold goes from 1200 to 1500, just 7 months after this was filmed!

    BRUTAL!😂

  • Reply jaddy540 September 1, 2019 at 6:32 am

    WHEATON,   WPM gets $27 million cash flow per employee!

  • Reply peter wright September 1, 2019 at 6:38 am

    we live on a finite planet which is being trashed let me see we are going to grow our way out of trouble der!

  • Reply DigitalDreams September 1, 2019 at 6:51 am

    I keep hearing "well in another 5 years" this and that will happen. 5 years wrong every time until you're dead.

  • Reply Chris Lemieux September 1, 2019 at 7:00 am

    Ain't looking so hot for luke. Man thought you said China has upper hand

  • Reply Earej September 1, 2019 at 7:04 am

    "We could ask Saddam about that."

  • Reply Chris Lemieux September 1, 2019 at 7:30 am

    For those praising Schiff, if you bought his international "value" fund in 2010, you'd be down today almost 25% – expense ratio 1.75%

    If you bought his International dividend fund in 2014, you'd be down 24% today – expense ratio 1.5%

    If you bought his EM small cap fund, you'd be up a meager 2.9% – expense ratio 1.75%

    If you bough his International bond fund in 2010, you'd be down 1.63% – expense ratio 1.15%

    If you bought his gold fund in 2013, you'd be up 3.3% – expense ratio 1.5%

    So you've paid Peter to under [email protected]$!%!$! Perform and then pretend he how to manage money.

    Pontificating is the easy part.

  • Reply Crypto oyster September 1, 2019 at 8:06 am

    That's way Bitcoin come to play the game

  • Reply Ian Cassie September 1, 2019 at 8:17 am

    if gold goes lower you are going to loose way more in other assets , maybe its not the lower price in gold but the LOWER PURCHASING POWER, as i dont see this dropping

  • Reply stem September 1, 2019 at 8:32 am

    Brent Johnson proves himself here that he thinks he way too smarter than he actually is.

  • Reply Christianity Boxing Mafia September 1, 2019 at 8:48 am

    Gold is going to the moon, its already starting!!

  • Reply Emperor Vitellius September 1, 2019 at 9:18 am

    The Gold rush is a Ponzi scheme, the physical gold never leaves a vault, but the bonds that are sold and traded digitally are laundered by the Chinese. China concocted a scheme to fool the International holders in believing that their bonds are legit, when in fact the China Mafia Elite have manipulated the market and flooded it with printed money that they cannot back up. Years ago a private investor bought 250 tons of gold and supposedly moved it to Europe and within a few months had sold it back to the USA to another private buyer, the gold never left the vaults, but the numbers where juggled to make it look legit. Ask any investor if they had physically seen or touched their product, the answer always come back 'NO"

  • Reply Colin Miller September 1, 2019 at 9:53 am

    old new travels fastest

  • Reply 112deeps September 1, 2019 at 10:19 am

    This is a dialogue not an interview !
    Re do the interview or edit out the host.
    Intestering re Gold and Dollar

  • Reply Tristan Coates September 1, 2019 at 10:54 am

    Run on gold and silver

  • Reply Angelo Picasso September 1, 2019 at 11:32 am

    There are atleast 5 different governments countering gold so who knows. I bet it crashes switch to bitcoin for now your clients will thank you

  • Reply Rustsamurai1 September 1, 2019 at 11:39 am

    Better set and wardrobe on left as a cowboy in an1850's Wyoming saloon. And on the right side as a bearded hermit in a cave up a mountain wearing a ragged old suit.

  • Reply fntime September 1, 2019 at 12:26 pm

    The globalist bankers have a party for the last 100 yrs. Raising & lowering interest
    rates, controlling the economic cycle, they make money on stox, shorting stox,
    buying bonds, selling bonds, buying gold and selling gold short same for real estate
    I think of a line from the movie Revolver, 'people to realize who long the con
    has been played and how widespread it is'. The secret of making money is
    to do what the banksters are doing. There is no risk in their investments.

  • Reply fntime September 1, 2019 at 12:32 pm

    China's economy was controlled in the past by England through gold.
    China used Silver as their currency and England forced them to use gold
    which they didn't have. Today, China probably has as much gold or more
    than USA. Bankster treat gold as a commodity today because for them
    their fiat currency allows them to control the World economy.
    People go the college and have no idea what's going on in the economy.
    The banksters make the mafia look like 'pick pocketers' compared to
    them. Bankster think in terms of decades, the people think in term
    of weeks. The whole trade agreement with China is an example.
    It's on, market goes up. It's off, market goes down. How many times
    in the last year has this happened?

  • Reply Wonderful Mockingbird September 1, 2019 at 1:20 pm

    Brent Johnson is a bull with mosquito-size brain. His famous arguments that "Dollar will go strong since US govt let debt ceil gone" shocked me. if that is the IQ level of American elites, we can boldly predict the fall of USA is in next 5 years.

  • Reply Larry Moser September 1, 2019 at 3:13 pm

    The problem was he Couldn’t justify his clients owning gold because of cost associated with storing it when in fact they( his clients) should’ve just been personally holding their own gold as an insurance policy which would’ve cost nothing and now they would richer and getting more wealthy by the day or really just not be losing. Or better yet how about silver. Lol

  • Reply Lim Lin September 1, 2019 at 4:22 pm

    What does the Bible tell us about gold? The Bible is 100% accurate all the time.

    Ezekiel 7:19 speaks of those 2 precious metals (gold and silver) during the Day of the Lord commonly known as the 7-year Tribulation period. The Antichrist (chief son of Satan) will implement the Mark of the Beast system during the Tribulation period, because gold and silver will have no value to anyone then. I believe after the rapture of the Church, the gold and silver will start to rust.

    Ezekiel 7:19 ~ "They will fling their silver into the streets and their gold will become an abhorrent thing; their silver and their gold will not be able to deliver them in the day of the wrath of the Lord. They cannot satisfy their appetite nor can they fill their stomachs, for their iniquity has become an occasion of stumbling."

    Isaiah 13:12 New American Standard Bible (NASB) ~
    "I (=God) will make mortal man [a]scarcer than pure gold
    And mankind than the gold of Ophir."

    Footnotes: [a] Isaiah 13:12 Literary more precious

  • Reply Dave Ktver September 1, 2019 at 4:35 pm

    I listen to all highly-educated, knowledgeable finance experts to remind myself why I'm a quant trader. If 100 of the best meteorologists in the world tell you it's going to be sunny, but when you look out your door you see rain drops, grab your umbrella.

  • Reply Ant Party September 1, 2019 at 4:48 pm

    This pro China long logic is insane .,

  • Reply DSWH September 1, 2019 at 4:59 pm

    Luke Gromen, you are highly accurate.

  • Reply THE COMING REVELATION OF THE THREE GORGES DAM September 1, 2019 at 5:05 pm

    THOSE CROOKED COOMIE CHINESE'S AGAIN !

  • Reply Icindeki Ses September 1, 2019 at 6:16 pm

    When the aliens come and request 47 ounce gold for a human life, only the once who physically own 47 ounce of gold will be able to trade their life.

  • Reply Leon Lobos September 1, 2019 at 8:46 pm

    Isn't the rest of the world already in a recession? Listen to time stamp 22:49 min discussion.

  • Reply jons September 1, 2019 at 11:18 pm

    if everybody's short the dollar, and they can cover after a 30% drop, well they're a lot wealthier now. why do they need to buy US products? why do they need trade with the US in order to grow? they're perfectly capable of consuming the things they already make. all that great "made in china" stuff just doesn't make a trip to the US before it hits shelves, simple as that. nobody needs the big fat american consumer anymore after that payday.

  • Reply manaohar samtani September 1, 2019 at 11:55 pm

    Where were you when Gold was 350 an ounce. So now you want to recommend gold.
    Dishonesty to become rich at expense of others, this is what I say.

  • Reply A Google User September 2, 2019 at 1:21 am

    Brent was so wrong with his dollar milkshake theory. Caveat emptor

  • Reply M S September 2, 2019 at 2:48 am

    who is shorting gold? and, why? listening to any conversation that ignores this elephant in the room is a waste of time.

  • Reply Dark PePe September 2, 2019 at 2:56 am

    The Chinese are smart, they know gold/silver are the only currencies that can be relied upon in the end.

  • Reply zenigel September 2, 2019 at 12:54 pm

    that was more entertaining than i thought.Informative too.

  • Reply David Chaveriat September 2, 2019 at 1:08 pm

    The graph they show is dated to April 2019. This talk is clearly 4+ months old. Why so delayed?

  • Reply Agustinus Biotamalo September 2, 2019 at 4:21 pm

    Gold price and other commodity prices are controlled in the US. For sure the US benefited most from it.

  • Reply Agustinus Biotamalo September 2, 2019 at 4:25 pm

    rather than burying your money on these speculations. Why don't anyone opens a gold shop and gets profit from the spread and fees?

  • Reply Agustinus Biotamalo September 2, 2019 at 4:25 pm

    If the Gold price keeps increasing why these gold shop sells Gold for paper money instead of stocking them?

  • Reply Miguel Guizar September 2, 2019 at 4:25 pm

    "No amount of evidence will ever persuade and idiot."- Mark Twain

  • Reply Agustinus Biotamalo September 2, 2019 at 4:39 pm

    The Bretton wood system is very nice actually when the inflation is keep in check. If you can hold dollar and gold, then there is no gain because it's 1:1. But if you hold either one of them, surely you get some capital gain on either one of those. If the inflation is keep in check, the capital gain would be great for the speculator.

  • Reply DJ Par September 2, 2019 at 5:58 pm

    This didn't age well. Real vision didn't do much for Brent replaying this one. Ouch

  • Reply John Chew September 2, 2019 at 6:41 pm

    This video captures perfectly the waste of talent discussing the slinging of paper whereby no wealth is created.

  • Reply Nicholas Eff September 2, 2019 at 6:48 pm

    If you never owned gold before 2008 you have no credibility to speak as an authority on gold, particularly with respect to economics and monetary systems. It is not portfolio insurance, it is money. Based on the current price, the annual compound appreciation over the last 48 years is greater than 8%, with no active "portfolio" management or counter party risk, despite the agenda and efforts of fiat currency advocates. Ask yourself – why is gold headed east? Its only plentiful in the west because westerners are clueless debtors easily dishoarded of their gold.

  • Reply Panda Wang September 2, 2019 at 8:48 pm

    2019.9.1China Mainland netizens hot topics: the CCP- Hebei province ,Provincial Councillors "Liqiu  Zhu " United Hebei province District
    Court, using mafia means  , Threats,intimidation,many students and families pay  Huge
    service charges for her private company which Illegal operation in the  National Public Schools. Despicable means
    ,turn off water and power suply, False invoice fraud,Administrative intervention and  bribery, make the Law and
    courts  service for her personal company and united national pubilc shool  ,
    Forced students to live in their Shabby and polluting"room" WITH Presidential Suite Spending. nakedly declaring the CCP Provincial governments
    like Taiwan  and the rights holders  “”Illegal organizations and anti-people” Essence,The investigation team joined the incident,Cover-up and
    circumvention once again, Public anger boils over
    天价学生宿舍幕后老板"朱立秋-ZHU LI QIU":现任河北政协常委  网易新闻      天价宿舍调查:幕后老板“”朱立秋-ZHU LI QIU “”曾为全国人大代表  新浪新闻

  • Reply heat cliff September 2, 2019 at 10:43 pm

    China is USA God.

  • Reply Acere Quebola September 3, 2019 at 1:28 am

    this why the government of china is afraid of look at this @

  • Reply Acere Quebola September 3, 2019 at 1:28 am

    this why the government of china is afraid of look at this @

  • Reply Alexander H September 3, 2019 at 5:54 am

    Luke Gromen is very intelligent when it comes to whats actually happening in the world and he has the rare ability to use pure deductive logic to formulate his ideas and he can communicate them very clearly as well. I recommend everybody watch his other interview with RVF as well. The guy is one of the best out there.

  • Reply Paul Hurst September 3, 2019 at 6:11 am

    Great conversation. I learned a lot.

  • Reply JellyBellyMystic September 3, 2019 at 8:08 am

    Boycott, Divestment and Sanctions For China NOW!

  • Reply raw data September 3, 2019 at 4:31 pm

    I'm unclear following these arguments.
    Gold has been doing better than almost all other investments,,,priced in Canadian dollars anyway.
    23% – 28%
    Who can call that bad?

    What would be the driver for golds falling value,,,,,moving forward?
    Are the governments going to get their financial houses in order?

    Is Canada going to ramp up productivity,,,,,and become a manufacturing powerhouse?

    Wise investors during the last depression got out of the stock market and held savings in a solid currency during the crash.
    Then they re-bought good stocks at bargain prices.

    In my estimation gold is currently,,,that solid currency,,,,to hold.

  • Reply shinvergil September 3, 2019 at 7:31 pm

    Great standup! Couldn't stop laughing for the entire show!

  • Reply Gloria Bort September 3, 2019 at 9:51 pm

    paper money printed without Any back up from precious metal like gold or the like is worthless .

  • Reply Andy Johnson September 3, 2019 at 11:52 pm

    Any American who sells gold to China is a traitor. China has been buying 5-10X more gold then they claim…

  • Reply Tomthebomb September 4, 2019 at 4:13 am

    When this guy starts his gold fund again SELL

  • Reply Tomthebomb September 4, 2019 at 4:13 am

    Imagine a "gold guy" not being in gold right now. Sad.

  • Reply Pop Pop September 4, 2019 at 8:12 am

    Gold is not particular in economic system, then keep dollar friend… Good Luck on Recession.

  • Reply Jessica White September 4, 2019 at 3:57 pm

    Dolar is keep producing so gold is not as bad as dolars
    If you think that every single minute you press dolar without any value so time is coming to kill dolar in the world!
    Dolar is going to die soon
    Keep producing dolars will bring gold price high and it could go to $5000 once even

  • Reply Jaded Cynic September 5, 2019 at 4:19 pm

    It is all fake debt. 300 trillion over 300 years. Enough to rebuilt all infrastructure on earth….twice.

  • Reply Martin LeRoy September 6, 2019 at 10:40 am

    Gold WILL be shaken out of weak hands, time and time again. True wealth never holds a weak hand.

  • Reply Fook Seng Loke September 6, 2019 at 6:17 pm

    China’s domestic private debts? Depends on what did they do to the debts. If it is to buy hard assets, then changing of hands of assets is not a big problem.

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