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[Music] Before starting this interview, don't forget to subscribe to our 100% free newsletter. To do so, it's very simple. Just click on the link in the description below the video or on the link that appears at the top right of the screen. In this newsletter, you will find our view on the markets and also societal analyses accompanied by our point of view. Alright, back to today's topic. Hello everyone and welcome to Synapse. We are going to talk about gold with our guest Pierre Sabatier, president of the economic analysis firm Primew and also president of the OEP. But before discussing the prospects of the yellow metal with Pierre, a ritual reminder to support us. Subscribe, comment on the shows, share them, and give a thumbs up if you appreciate them. Pierre, hello. >> Hello Vincent. So, remarkable performance of gold. Hm >> hm. >> More than uh 40% roughly, huh. I'm rounding uh since the beginning of the year. So, isn't it time to cut positions? >> Well, it depends why. So, I think to answer your question, we first need to know why we bought gold. Why have we actually recommended buying gold for many years now? Uh, some say some compare gold to a zero-coupon bond. In fact, basically, you know what you put in, you know what you will get, meaning that if it's physical gold, well, it's the same thing, concretely. And so some say that gold should rise when interest rates on bonds fall because the attractiveness of gold increases since bonds yield less and less, and well, what yields nothing as a tangible asset becomes more attractive, which drives up gold prices. So supposedly, falling rates are rather favorable to gold since its substitute will be less interesting to buy. Conversely, rising rates should actually penalize gold prices. The more bonds yield, and gold yielding nothing, between quotes, no coupon, then naturally, it should cause gold prices to fall. However, gold prices have not fallen during the period of rising rates, quite the contrary, we will discuss it precisely, during the period of rising interest rates. So, we are entering a phase of falling rates again. So theoretically, one could say that it could actually be a driver for the appreciation of gold. This is a theoretical vision that makes sense, it's a logical reason, but it probably forgets the reason why the cycle that gold is in today is a structural cycle, and I will answer you very concretely that we will not arbitrate. That is to say, our recommendation will remain to buy gold. In proportions that must be reasonable, of course. >> For a relatively simple reason, which is that in reality, if we recommend it, it's less relative to others than simply as if we were buying insurance, particularly long-term insurance. So, against what do we want to insure ourselves, and why is it not time to sell this insurance, regardless of the price of the insurance? You know, when you insure yourself, you might find the insurance expensive, but that's not why you don't insure yourself, because you want to be insured against what? Against the loss of credibility of the currency unit, of fiat currencies, quite simply. You are aware that we are in a complex world, a world that has been enormously fueled by money creation for about fifteen years. So, we have recently emerged from it, but we will probably return to it because, given the very high public debt, very high initial money creation, >> low interest rates for a very long time, which cannot remain high for very long because, given the stock of public debt to be supported, if you do that, it will lead to economic collapse. So, you must keep in mind that if monetary policies can move away from money creation, from quantitative easing policies for a while, they cannot do so for very long because otherwise, it is too risky from an economic point of view. And when you are in that situation, the long-term risk, really, it's a long-term risk. I have already mentioned it, particularly in the Japanese situation, it's when monetary policy is dictated for reasons that are not economic, but for reasons to keep the music playing. And in such cases, the risk is that in the end, your citizens will no longer trust the unit of fiat currency, the banknote, and will consider the loss of confidence. And in a way, when everyone does this globally, when everyone is indebted globally, when all central banks have steered and managed prices until now, when all central banks cannot afford to stop doing so for long, then in the ultimate situation where you need to insure yourself against this risk, gold is one of the available insurances today, and that's why gold continues to rise, whether rates fall or rise, etc., because in a complex and uncertain world where even the status of the dollar as a reserve currency is being challenged, can you imagine? Can you imagine what that means? It means that basically everything we have built over the last 50 years in financial markets is being questioned. I'm not saying it shouldn't be done, but if you do it, it obviously opens the door to a lot of uncertainty and therefore a lot of questioning of everything that has been our foundation until now. And in such cases, we take refuge in assets that are tangible. >> Indeed, it's not by chance that central banks themselves, but major central banks, are buying gold. That's true. That's true. We have a graph on this, in fact, which shows that the proportion of gold held by central banks is increasing again, whereas it had decreased in the distant decades, but it had decreased a lot because there was no question of challenging this, because the dogma underlying monetary policies was simply based on the simple rise or fall of interest rates and not on quantitative easing policies. The size of central bank balance sheets for decades has not been a lever of monetary policy. From the moment it becomes a lever again, then in the end, we know that if we use this lever too much, it can lead to the risk of credibility, of real confidence in what the currency unit is, namely the ability for an economy to move away from barter. I trust, I give credit to the banknote, which means that the person in front of me will accept it and against it will deliver my lunch. And if I no longer have confidence, I don't want one, I want two. That's what distrust of currency means. And well, basically, what people are saying through the bet they are making on gold is that today it is insurance, and the current context means that we need insurance more, not less. So, we are probably around $3600, well, beyond $3500. >> So, be careful, what I'm saying is that the movements are not linear. Perhaps we will drop to 3000, but nevertheless, we don't time insurance. And so, concretely, the orientation will always be upwards for gold because there are not enough alternatives to protect against a loss of confidence via fiat currencies. >> You say there are no alternatives. Some would retort that now there are cryptos. Why not? Why not? So, perhaps on one, let's say Bitcoin. Why not? Now, simply, I have been insisting on this subject for a long time. So, I am neither pro nor anti on the subject, but simply, one must know that the power of money is an attribute of the political. An attribute of, there are only two attributes of the political that make the public agent respected in the zone in which he operates. The power to legislate, that is to say, the power to set the rules of the game, and the power to coin money. If one day cryptocurrencies are to substitute, or at least preempt the power to coin money from the political, the political will ban it. That's the real issue. It's a regulatory risk, not a fundamental risk, because it could technically substitute. But that's where I wouldn't make that bet, because I don't believe politicians are ready, even if it were necessary, to make the sacrifice of the power to coin. I would just recall that France is France because at the time, the Kingdom of France, which corresponded to the Île-de-France, stifled the other duchies through the power to coin money. What makes, why do I say it's a power of the political? It's what makes the state always, and indeed, sovereign debt is always the benchmark asset. It's simply because it's the only entity in a zone composed of three agents, two private agents, households, you and me, businesses, you and me, and the state. Why is the state not the same as private agents? Because it's the only one that can look you straight in the eye and promise you, and you know it will always be able to fulfill that promise, that what it owes you, it will repay you, because it has the power of your currency. That's why it makes it a special actor, and that you can do anything when you have that power. Except that in the long term, what is not said is that contractually, if you have lent him 100, he tells you he will repay you two for these 100, he can repay you. What he doesn't say is whether the two bills he commits to returning to you, whether what they allow you to buy in the end is the same as before. That is to say, in fact, he can pay you in monkey money, but contractually, you have the assurance that he can fulfill that promise. And that's why when you talk to me about cryptos, I say yes, it's technically possible, but where I have a doubt is that one must be careful. The day it becomes a real competitor >> to a traditional fiat currency, I fear that the natural reaction of the political will be to cut off the possibility of even being able to enjoy it, at least in its zone. You see, so it's complex. So, it's new, no, it might be, but in any case, what is certain is that gold today, to return to the initial subject, plays the role of insurance against the possible loss of confidence in the currency unit, whether in Europe or perhaps even in the United States or China. So, those who are interested in gold often wonder how to play it, since one can buy financial gold, of course, >> yes, >> one can also buy physical gold, or one can invest in gold mining companies, which have performed very well this year, indeed. They have even outperformed gold >> in terms of >> so even though it itself has performed very well. Interesting question. So, indeed, if one had to answer very concretely, if you really want to play it intellectually, you should rather buy gold coins than a bar, concretely. Anyway, but when we talk about how to play it, sometimes you can't buy gold because it's complicated, etc. And so people say, well, you just have to buy miners, mining companies are people who produce it, since theoretically, what is a mining company? It's a company that doesn't buy its raw material, it extracts it and sells it. So, if the prices of what you sell go up by 40%, naturally, the company should benefit. This is true over the long term, but indeed, on average, when you look at the correlation rate over one year, the stock market performance of companies and gold, the correlation exceeds 0.8 out of 1, so it's really very correlated on average and over the long term, and that's the problem. So, recently, yes, the way to play gold could have been and can be done through mining companies, but on the condition, on the condition that there is no stress on the stock markets. That's it. And that's where it's a bit delicate to play. That is to say, basically, when you buy a gold stock, you are also buying a stock. And in fact, there are times when, globally, the very status of the asset you are going to play takes precedence over what it sells. And so, basically, if you are a stock in a moment of stress on the stock markets, even a gold stock, you will lose as much as the others, or even more, which happened in 2007, which happened in 2011, which happened in 2018. So, that's why I repeat that the way to play gold through gold companies is only done if there is no risk on the stock markets. If you have concerns about the evolution of stock markets, then you should not play the gold theme through companies. Right now, we don't have major concerns, so it's quite legitimate to see them progress. But when you look, indeed, since 2021, be careful, over 5 years, you are at parity between the price of gold and the price of companies. So, recently, companies have performed very well because there is no risk on the stock markets. In 2022, there was, and what happened? What happened is that, in this case, there was a huge outperformance of gold prices, which is a real insurance. That's the real insurance, monetary insurance, but also insurance in times of stress, which truly plays its role as insurance, whereas gold companies, most of the time, play it, but not when you need it, particularly through increased risk on stock markets. So, again, I repeat, the correlation is very high, so it's a good idea, but over a very long period, and over 20 years, I believe you have a graph, in fact, over a very, very long period, you see that the price of gold far exceeds the evolution of the stock prices of gold companies. It's logical because over 20 years, we have had major periods of stress, and what you lose at that moment, that insurance status that you bought for insurance, the fact that it doesn't play that role means that in the end, it's less effective. So, generally speaking, always prefer the original to the copy. So, so, and understand that it would be sad to have bought this to insure yourself against a risk and when the risk materializes, to see that it doesn't work, then you will have a bitter taste in your mouth at the moment it can materialize. So, we would tend to say to contextualize these bets well within a market context that allows it. So, in this case, we are not very worried about the stock markets. Perhaps we can continue to be carried by this very favorable momentum, even if it's already quite high, and the last few weeks have propelled the price of reference companies to quite stratospheric levels. But in itself, you understand, it's stress on the stock markets, in this case, gold stocks or not, you have to take it. >> The insurance we think we are buying risks not working if we are with mining companies. Yes, >> exactly, that's what you're saying. So, to summarize, you are structurally a buyer of gold because you say it's not an asset that one should, we'll use an anglicism, time, meaning one shouldn't try to play a market phase, one should have it because it's insurance. >> Yes, in reasonable proportion. Obviously, insurance is a reasonable proportion. >> There you go, you see it structurally rising. We recall that you are not the only one, in any case, to advocate its use as insurance, since major central banks are doing so, and increasingly >> and >> yes, and visibly. You say that, well, the best way to play it is to buy the original and not the copy or the derivative product. So, mining companies can be interesting, but in certain stock market phases, but not in stock market stress phases where they ultimately do not play their role of insurance at all. So, if you really want insurance, it's physical gold, roughly speaking. >> That's absolutely right. Vincent >> Pierre, thank you very much. Thank you for following us. Subscribe, comment, share, and give a thumbs up if you enjoyed it. See you very soon.