Legendary gold investor Larry Lepard joins Trey Reik for Part I of a powerful two-part conversation on why gold is pressing to all-time highs, and what it signals about a potential collapse of our global fiat-based financial system.
Larry breaks down the key themes of his new book The Big Print, explaining why the sovereign debt crisis is already here, why trust in fiat money is evaporating, and how sound money like gold, silver, and Bitcoin will be essential to surviving what’s coming.
In this episode:
- Why gold’s breakout is the ultimate warning signal
- How the Federal Reserve system is at a breaking point
- Gold vs. Bitcoin: competition or complement?
- Why gold equities are misunderstood — and undervalued
- The smart way to position yourself now
Don’t miss part II, coming out tomorrow!
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Larry Lepard 0:00
There’s no better indicator that we were coming to the end of the road on this great Keynesian experiment, you know, or this, what I call sovereign debt crisis, than the fact that gold is pressing to record highs every day. I mean, to me, that’s just that’s a huge alarm bell going off.
Trey Reik 0:20
Greetings and welcome to our show. My name is Trey Reich of Bristol Gold Group, and today we’re conducting part two of our conversation with Larry Lippard, managing partner of equity Management Associates in Wellesley, Massachusetts. Larry the legend, as he is often called, is one of the most vocal and articulate champions of sound money in the contemporary investment landscape. Larry, thanks for your time in completing our conversation today. Well, thank
Larry Lepard 0:55
thank you, Trey, and thanks for having me back. I always enjoy our conversation. I just reread your most recent report on the gold market, and found it fascinating as always. So a lot of good insights. I I think we got a lot to talk about.
Trey Reik 1:09
I agree. So as viewers may remember, Larry and I began our conversation in early Feb, when Larry had just published his first full length book called The Big print. And as we discussed, I found the book very accessible and chock full of facts in the history of what I like to call the modern era of unconventional central banking. But Larry, since that time, how’s the book been received, and What have your experiences been around its release?
Larry Lepard 1:44
That’s a great question. Trey, thanks for asking. It’s it seems to have gone reasonably well. I don’t know what constitutes good sales. I’m kind of tracking around the 15,000 units sold level, which I guess is better than a lot of books, but still, still low compared to we got a country of millions of people, and we got a lot of people to educate about sound money. Sound money. So, you know, hopefully we’ll sell a lot more and spread the word more. Because I think, you know, people need to protect themselves with gold and Bitcoin, as the book talks about.
Trey Reik 2:15
We’ve talked about this a little bit last time, and I noticed you’ve been very busy with interviews and podcasts on the book. But can you give us a two minute precis of what the book is about and why our viewers want to buy? Yeah, sure. So
Larry Lepard 2:31
just I wrote the book because I wanted to try to educate average Americans and citizens of the world. But obviously I live in America, and I’m running from American perspective. Running from American perspective. I wanted to educate them on the issue of sound money and try to inform them that the reason that we have so much inflation, the reason that their lives are getting harder, the reason that there’s monetary dysfunction, is not greedy corporations. It is, in fact, the Federal Reserve and the system as constructed, where it must continually print money or else die. And sadly, that system has devolved in a bad way since 1971 and it’s closely, in my opinion, it’s close to going critical now, as we see with gold hitting record highs. And so part one of the book is to try to explain so that somebody, even without a monetary background, somebody who just has a regular job and lives in America, can try and understand the things that you and I have known for some time, Trey, about the monetary system. So I try to keep the language simple. I try to put in footnotes to explain things. Like, somebody read an early version said, what’s the Federal Reserve? I said, I better create a footnote for that. So, you know. So the first part is, hey, here’s, here’s why it’s broken, and here’s how you’ve been getting screwed by, you know, the banking system and the Federal Reserve for all these years. And here’s why your life is getting harder. And then the second part of the book is, here’s the solution. You know, you need to front run everybody else and get to forms of sound money that are, you know, constituted in gold, silver and Bitcoin. And I know not all your listeners believe in Bitcoin, that’s fine. I mean, you don’t have to believe in Bitcoin. Gold and silver are gonna do just fine. But those three forms of money, in my opinion, or two forms of money, gold and silver and Bitcoin, is becoming a third form. It’s emerging, I think, are the way to protect oneself from what I think is gonna get worse. I mean, as you and I both know, the dollars lost 97% of its value since 1971 in gold terms, and I think the last 3% is on the way. So the book is a the book is to try to help people to understand what’s gone wrong, and then to try to suggest how they can protect themselves, because I think it’s going to continue to go wrong. Great.
Trey Reik 4:41
And I think it’s fair to say that the largest conclusion of the book is that Bitcoin offers an interesting solution to the hard money conundrum that the world is facing. But we’ve talked about that, and what I’d like to focus on today is the rule. Gold, of gold and gold equities, absolutely. So just
Larry Lepard 5:05
to love gold, and I’ve always loved gold, I always will love gold. It’s it’s been money for 5000 years,
Trey Reik 5:11
right? So to kick things off, can you talk a bit about the disparate roles that Bitcoin and gold can play in an investment portfolio are Bitcoin and gold competing assets or complementary assets.
Larry Lepard 5:26
I think, I actually think they’re complimentary. I like to think of the competing asset as Fiat and the money that’s printed by the governments. The way to get back to a sound money standard is to reject all of the Fiat things. And so that’s what gold people are doing, and that’s what Bitcoin people are doing. And really it’s just the difference is just a matter of choice. I mean, if you’re 80 or 90 years old and you don’t want to suffer from high volatility, which is existent in Bitcoin, well then gold is a great choice to protect you from monetary debasement, but it doesn’t have as much alpha as Bitcoin. In turn, if you’re young and you can live with the ups and downs, and you’re prepared to huddle through very difficult draw downs. Well, you know, Bitcoin clearly has a bit more alpha and is outperforming gold, because it’s on an adoption curve. So whichever of those you choose, or whatever the balance, and I have a lot of clients who are in both, and everybody’s in both, I’m in both, you know, and it’s just you weight it based on your kind of volatility and risk preference and on your confidence in Bitcoin. I mean, I I have a pretty high level of confidence in Bitcoin, but some people don’t, and that’s okay. I think everybody just makes their own choice. But I think and so do they compete? Yes, I suppose at the margin. You know, I actually thought about this a little bit with respect to gold stocks. I mean, as you and I both know in the past, if you felt there was going to be rapid monetary debasement. The gold stocks were probably the best way to express a bet on that, right? Because they went up rapidly when gold went up. And I think that’s, I think a little of that that’s changed a bit a little of that shine has been taken off of that. Because, you know, in the olden days, when we had that monetary debasement, 20 and 30 year olds who buy gold stocks. And think today, 20 and 30 year olds aren’t interested in gold stocks. They, you know, they see the debasement, and they prefer the Bitcoin choice. So I think there’s a little bit of that going on, but, but, you know, let’s not kid ourselves. I mean, gold is a huge market. It’s almost 20 trillion bitcoins only two so, you know, they’re both big markets, and there’s room for there’s room for all of us in the same boat. You know what? What needs to happen, really is that, you know these things need to we need to return to a neutral reserve currency, as we talk about in the book. So and we will that’s that process is happening as we speak. Excellent.
Trey Reik 7:32
So today, I think gold is up about 30 bucks. I’m not looking at the screen. Seems to go up just about every day, these days, no matter what’s going on. So after being up 27% last year, we’re up, I think, 19% year to date and 25 so you’re talking about a two year gain of 51% which is pretty significant for something as established as gold. So the financial media is attributing gold’s 2025 strength squarely to the physical movements of gold around the world to try to get in front of Trump tariffs. Do you? Do you buy that? I don’t. I
Larry Lepard 8:16
don’t buy it. I mean, there are a lot of physical movements going on. I’m not sure it’s tariff related. It could be, arguably, trying to restock Fort Knox in case they audit it. I also think it’s really,
Trey Reik 8:28
you don’t really believe that we all know it’s there, right? Oh, my God. So if they say it’s there, it’s there, you’re right, it’s there. I
Larry Lepard 8:36
tend to be a little more simplistic about it. I think it’s just very wealthy people looking at the setup that we have with all the money printing in the debasement, looking at what happened in COVID and so forth, and saying to themselves, you know, I’ve got too much wealth not to have some of it in gold. And you know, there’s, there’s $900 trillion of wealth out there, and the gold markets 20 trillion of it. And a lot of that’s not even available because it’s in central banks and museums. So call maybe the available gold market, 5 trillion, well, 900 trillion of wealth, 5 trillion of gold. I mean, all it takes is some fraction. Maybe it’s only five or 10% of that 900 to say, you know, I’m worried about this money printing I need. I better get some gold. And so I think, I think it’s as simple as, that’s what’s going on, you know, in terms of shoving the price up and, you know, to meet Ray, it’s, there’s no better indicator that we were coming to the end of the road on this great Keynesian experiment, you know, or this, what I call sovereign debt crisis, than the fact that gold is pressing to record highs every day. I mean, to me, that’s just, that’s a huge alarm bell going off.
Trey Reik 9:43
So yeah, and not to put words in your mouth, but I, I sort of reduced, you know, the strength in the past year to a three part argument, you know, the US deficit, anti dollar, Cent. Met around the world and fed credibility. So I like to say that those are the big three. We’ve been talking about them for 1520, years. But not to sound like we’re talking our own book, there are inflection points where these things start to truly matter do you? Am I overstated? No,
Larry Lepard 10:23
not at all. And I’m right in sync with you. I think those are the critical things. I mean, grabbing the Russian reserves told the rest of the world that, hey, maybe my dollar reserves aren’t safe. I should trade in something else. You know, the COVID expenses, and the fact that we didn’t reduce spending after the COVID expenses and that deficits blew out, you know, and then just general central bank buying and I think awareness of the, what I call the fiscal debt trap, which is to say, you know, that the even in spite of Doge, which I applaud, and as a move in the right direction, I fear that it’s Just too little, too late. You know, we have, we have too much government expenditure. And if we go, if Elon goes after that, you know, expenses, and tries to whack him back, the notion that he can take 2 trillion out is just, it’s, it’s not realistic. He’s being, he’s being overly optimistic. So given that, that means they’ll have to sell more debt. Given they sell more debt, that means they put pressure on interest rates. And we’ve all seen the interest rate chart for the federal government, which is kind of going parabolic. And so you know, what’s interesting to me, Trey is, if you study history, this has happened before in many, many other countries. This is not some new phenomena. Oh, government spends too much money, borrows to do it, prints money to pay the debt. Gee, that’s a usual, unusual thing. No, it’s not. I mean, take a lot of small developing countries, and we have, you know, hundreds of, certainly, dozens of incidences of that. What’s never happened before, what’s happened in quite some time, is to have that happen with the biggest country in the world economically. I mean, arguably, and with the, you know, with the reserve currency, right? And so, you know, if you do the same thing, I think you get the same result. Now, certainly with a lag, it’s, it’s all held together much longer than I thought. And you and I have discussed this in the past. I I thought 2008 might be the big one, but it wasn’t so. And there, as we know, you and I both know they’re pretty good can kickers, and they’re going to try and kick this can too. We’ll see if they can. I think they’re getting close to the end of can kicking ability, but we’ll see
Trey Reik 12:27
central banks get a lot of attention in Goldman Sachs, as I’m sure you saw last week, put out a report, and the Goldman Sachs sort of angle on gold analysis, Lena, I think, is the analyst name. And you know, they have this sort of shadow system where the UK reports central bank gold transaction, but Switzerland does not. So they take UK exports, subtract Swiss imports, and they come up with an interpolated number, which they assume are unreported central bank purchases, which, since Goldman is probably handling most of the trades, we’re going to have to go with it and say, that’s a very logical way to do it. And, you know, they really emphasize central bank buying. Personally, I’ve always felt central banks it’s not really in their DNA to buy on upticks, and a lot of the big buyers buy from domestic producers like China and Russia. So I’m actually in your account. You started this earlier. I actually think we’ve hit the point where a lot of this strength in the gold price is coming from pools of global wealth, sovereign wealth, family offices, et cetera. Maybe not in the West, but around the world. I really do believe that the migration to gold in those big pools of capital has started. Are you seeing any evidence of that? No,
Larry Lepard 14:00
just nothing other than the shipments and the things that I read on Twitter and in the press, I mean, but I think that’s right. I mean, I do see a change in tone. And I you mentioned the Goldman report, and I found it very funny. If you go to my Twitter feed, you’ll read it. I i loved it because Luke Roman retweeted, you know, that Goldman report, and then right above it, he had the part in The Big Short where Michael Burry was complaining to the bankers that, oh, now that you’re you know, now you’ll mark my, you know my CVS correctly, now that you’re on side. And it was like, Okay, now we know else. Clear when Goldman Sachs is predicting higher gold prices, we know that they’re now on side. So, yeah, it’s, it’s, it’s really something to watch. I mean, up 55% in two years. You know, you have a better sense of the historical numbers than I do. I’m not sure we could point to maybe, except for the 70 789, run. I don’t think we’ve seen a couple of years like this in a long time, right?
Trey Reik 14:57
Another a. Factor that’s been pointed out to me from some of my SCP colleagues, is the Basel three implementation. So we’ve been reading about Basel three for enough years that I sort of have dismissed it as not that important or never going to happen, but I guess it’s going to be implemented in June. Have you heard or do you believe that banks may,
Larry Lepard 15:26
I haven’t, to be honest with you, I’m aware of that. I haven’t focused much on it, but it makes gold, you know, risk free collateral, which I think is a positive thing. I mean, I I think there are a lot of things behind the scenes. And, you know, Ronan Manley and some of the other guys on Twitter have done a better job, you know, John’s new house and so forth, of laying this stuff out. But I you know, I mean, the fact that that, you know, JP, Morgan started being a custodian for all the GLD stuff. I mean, that’s interesting. You know, there are a lot of little signs that it’s starting to matter more to more and more people, and Basel three is certainly one of them, I think, two other data points that I find interesting that others might as well. The Jay Powell recently started to taper the Qt from 25 trillion a month of treasuries to 5 trillion a month of treasuries. And then, in fact, also said that maybe he would start to use some of the runoff in the in the MBS to repurchase the Treasury. So that’s effectively QE. And then also, I think Scott ascent floated the notion that maybe the SLR ratio, the supplementary leverage ratio that the banks have, might be waived, which, again, would allow the banks to buy more treasuries, because the Treasury market is getting, you know, is getting tight, you know. And then there was some good stuff this weekend that I retweeted, and that was on Zero Hedge. I’m sure you saw about this Brooking Institute paper where they floated the notion that the Fed ought to be stand ready to step in and backstop the basis trade. And the basis trade is is being used by the hedge funds to to purchase a lot of the short term treasuries. And so, so we see signs around the side of the building that there’s smoke starting to come out. And these are all signs. And then we see the gold price hitting record highs. And so these are all signs to me that, you know, we’re really in it right now this, and we see the imports, you know, and so forth. I mean, we’re really in it right now. It’s kind of game on and, you know, it wouldn’t, it wouldn’t surprise me to see, you know, something blow up in the next three to six months. And you know, somebody’s on the wrong side of this. Another
Trey Reik 17:39
thing about the Basel, Basel three situation is it could be, not to be too conspiracy theory, but it could be that banks are starting to get a little nervous about gold as a tier one physical asset and the massive derivative books that are out there. So once it’s another thing we’ve been reading about for decades. You know that that was due for a comeuppance, but Basel three may be ushering that a little bit sooner than would have otherwise been the case, very
Larry Lepard 18:12
possibly. I mean, those derivatives have always, you know, scared the hell out of me. And you know, the title of my book alludes to the biggest tool or weapon that the Fed has, which is printing money. And, you know, we don’t know how it’s going to unfold. You never do, but we do know that. You know mathematically, if you grow the debt faster than the underlying GDP, which services the debt, eventually a problem occurs. And so, you know, I see signs of smoke coming out of the building. I’m guessing there’s a fire in there somewhere.
Trey Reik 18:47
For the average investor, I’ve always joked gold is one of those assets where the current price is never the right price. If it’s rising rapidly, people think they missed it. If it’s falling, there’s no urgency. And people say, I told you so, and if it’s not moving, you know, nobody’s interested. So what do you say to investors who think they already missed it? You know, we’re at 31 yeah, that’s pretty hard to take a shot at gold at 3100 so what can what advice can we give there? Well, a couple
Larry Lepard 19:20
things. One, you know, you should, yeah, obviously it’s the best time to plant a tree was a year ago, and the second best time is today. But, you know, obviously dollar cost averaging isn’t a bad way to go. I mean, I think, I think it’s important, you know, to have a multi year time frame. And you know, gold is a little bit extended above its 200 day moving average now. So if I had a lot of gold I wanted to own, maybe I wouldn’t buy it all now, maybe I’d space out my buys over a year or two. But on the other hand, the flip side of that is that this could be a, you know, a non linear event. I mean, a la, 2008 I mean, you know, or an 87 I mean, people kind of assume that markets have a certain. Year path. And as Taylor laid out with, you know, the fat tails thesis, occasionally they don’t, and so the proverbial hockey stick, right? Yeah. And as I’ve as, and I’m not sure, the problem is, I’m not sure if this is the one, none of us are, but, but here’s the, here’s another way of looking at it. I mean, you know, it’s, it’s like an avalanche, which snowflake is going to cause it or, you know, I’ve used this in in the Bitcoin example. But it applies to gold too, you know. So if the financial system and fiat currency is the Titanic, you know, and owning some gold is a seat on the lifeboat, you know, yeah, you want, it would have been great to buy the seat in 2018, or 19 for 1365, but now the seat cost, you know, $3,100 but, you know, do you want the seat or don’t you if the financial system is the Titanic? I mean, that’s so that’s kind of the question. And, you know, I think everybody just has to probability weight. I mean, I would never suggest everybody go take all their assets and put them in gold. I mean, nobody knows what’s going to happen, but as you and I both know, and I think you probably have some numbers of statistics. I think your recent letter talked about this. You know, there’s very, very there. A lot of people have zero exposure to gold or very light exposure to gold, and it’s a great portfolio diversifier. So yes, it feels expensive at 3100 but guess what? It’s going to seem cheap when it’s at 9000 so, you know, if you don’t have 5% 10% or something allocated to it, there’s never a bad time to buy it, kind of, in my view. And you know, with an eye toward if it had a serious correction, you might want to add more, right? That’s, that’s kind of how I see it, because I think the trend is that Fiat will ultimately be massively debased and arguably even fail. So
Trey Reik 21:46
So there are lots of different methodologies for how to value gold. They’re one of the most popular is sort of the shadow base money equivalent in terms of the Fed’s balance sheet. Do you have a methodology for what is the proper way to imply gold’s long term? I
Larry Lepard 22:07
do. I mean, I yeah, I look at that same model. And there’s actually a great chart done by Brent Johnson, San Diego capital in my book, that kind of shows how much you know, look in 19 7980, we were in a gold bubble. Gold went to 800 the gold on the Fed’s, you know, Treasury’s balance sheet covered more than all of the outstanding dollars outstanding. If you did that same math today, to make those numbers balanced, gold would have to be 80,000 an ounce. And you know, it’s a 3100 so we’re still, in my view, very much on our side of the ledger. But, you know, there’s no, I mean, we could live on a gold standard without having 100% gold coverage, right? I mean, many gold standards existed more successful with 40% coverage. So. But I, you know, I can see a clear path of 5000 or 10,000 and I highly, I expect that. I mean, I have a high degree of confidence that in this cycle we will see that in the in the 70 cycle, we went from 35 to 800 now that started at a press Lariat, because a 35 was kind of a non market rate. So that was a 22x but even in the 20 to 2011 cycle, we did a 9x and if this cycle started at the bottom in December of 2015 which I believe it did, it was 1050 at that time. So a 9x would take you to 9000 so I see a very clear path to five to 10,000 gold beyond that. Who knows? I mean, you know, the book talks about this, you and I have discussed this as well. You know, there’s just the issue of, what’s the new what’s the next monetary system going to look like? And they’ll probably try a lot of stupid shit before they figure out what the right thing to do is, and the right thing to do is to return to a sound money standard. So, but, you know, but the zigs and zags between here and there are going to be tough, and that’s the other thing I think people have to understand when they’re in this category and in this asset class. You know, monetary systems failing are very volatile. There’s a really good chart by Dan Oliver in the book, shows the the volatility of the gold price in German marks during the Weimar hyperinflation. I mean, gold was clearly the right thing to hold if you were in Germany in 1919 because by 1923 the Mark was, you know, worthless. But the gold price zigzagged a whole lot, and so it went up and it went down in Mark terms. And you know, if you, if you panicked on one of those downturns, well, you lost your seat on the lifeboat. So, so people, you know, it’s, this is a tough trade, as I guess, what I’m trying to say, and you don’t want to get scared out of it. If you really believe, as I do, that inflation and the monetary inflation, is a high probability, and the monetary system is in deep shit. You want to make sure you hang on to your life insurance, which is your, you know, your wealth insurance, which is gold.
Trey Reik 24:47
So, oh, you know, over the decades, I have argued because gold bears like to point out that gold adjusted for the 1980 high, you know, isn’t. Necessarily that high. But my retort has always been there decades to own gold and decades where it doesn’t make a lot of sense. January 1980 inflation was high, interest rates were high and falling. Productivity was high, savings were high, and so gold really was,
Larry Lepard 25:19
debt was low. They were able, I mean, Reagan, through his deficits and his defense build up to defeat the Soviet Union, was able to kind of, you know, jump start a pretty healthy economy. I mean, we had some, if you go back and look at those Reagan years, I mean, everyone bitch about the deficits, but we had some really great growth. You know, through the through the 80s, there under Reagan, I think one year, we had 7% real growth. I mean, so So yes, in when a monetary unit is sound and credit is expanding, gold sucks as an investment, and that was true. Yeah,
Trey Reik 25:55
all of those parameters were reversed. So here’s my question, how are we going to know when gold has done its thing? Like, well, how will we know it’s time to move away from the trade?
Larry Lepard 26:11
It’s a great question. I’m going to count on Michael Oliver, because he’s really good technically, and he told me to get out of it in 2011 and I didn’t I wish I’d listened to him, but I’m half joking, because it’s just technical analysis. Look, I think when everybody’s in it, you know, when the shoe shine boy is talking about it, when the value is, is it covers the monetary system, and probably more importantly, when it really is clear that we have a new monetary system emerging that that gold is a piece of well, then it’ll just, it’ll just be, it’ll just be the base layer of money. And you know, a much more productive asset will be to buy something that, you know, produces things and grows because, as Buffett points out, correctly, so the gold just sits in a ball. That’s a goose that doesn’t lay eggs, but that’s a very useful goose to have when, you know, the thing that lays eggs is printing money like crazy. So, right, so I don’t know, I think, I think it’ll be a geopolitical event, actually, Trey. I think we’ll, we will realize that, you know what, they fixed the monetary problem. This is a good thing. We fixed it. We had to fix it. Inflation was just so bad and, you know, but, but I envision that as kind of being from today. It’s probably a 10 year project and and it could be longer if they drag this thing out. I hope not, because I want to see it. My question is,
Trey Reik 27:36
clearly, come to mind, will it be in our lifetimes? But we, I know. Yeah, so moving on to gold equities, which is a matter close to our hearts, what role do they play in an investment portfolio? And frankly, why are they worth the trouble?
Larry Lepard 27:55
Well, the second question, some for some people, they’re not. I mean, and because, and it is a very tough business, as you know, and there are a lot of bad gold equities, and always have been, and so it’s very important to separate the good from the bad. But what they do provide is, if you think about it, gold is a is an asset that doesn’t produce anything. A gold equity, a stock, a company, you know, defines a resource, it may have a multi year life, sometimes 10 or 20 years. They build a plant, and they’re able to pull the resource out of the ground at a cost where the margin between the selling price and the cost to pull it out is substantial. In today’s world, it’s getting quite substantial and and that’s a stream of cash flows going forward. And so now suddenly you have a company with a discounted category where you can actually do a discounted cash flow analysis and say, If I knew this company was going to earn this amount for this many years, what would that equity be worth? You know, in terms of dividends or other things. And so that’s the that’s the gold equity thesis. And in historically, you know, gold equities have produced, you know, kind of two to 3x the alpha of gold. So just as a rough number, say gold gone up 10% the gold equities should go up 20 or 30% because they represent that stream. Now, within the equities, I don’t know, maybe I’m front running your next question, but let me just say I think it’s very important for people to understand this there. There are all kinds of gold equities, many of which aren’t so good. And in my opinion, the sweet spot in gold equity land is a company that actually has a mine. The mine is actually producing metal, and the metal is actually producing a good operating margin, and therefore a profit. And so the first thing about that company that you notice, compared to many other gold companies, they do not need to raise money. They are cash generative. So that’s kind of test number one that I apply. Test number two is, what are they doing with that cash? Are they capital? Are they smart capital allocators? Do they have mine? Number two. Two, does mine number two look economic, and can they apply that cash to growing their production and their revenue? And if the answer to that is yes, well then you’ve got a growing producer, and that’s the sweet spot, in my opinion, of the equity investment business. Now there are other areas that have more upside, but they also have more downside, and those other equities would be the drill story category. These are people who do not have any production there. They’ve got a resource, and they’re drilling it out and trying to prove that they have a lot of ounces, which then inherently will have value someday. And then the third bucket is the developers bucket, which is they’ve actually got a proven resource, a 43 101, compliant resource, and they’ve done a at least a pea and sometimes a full feasibility study that shows okay, if we’ve invested x in cap x, we would get Y in production, which would lead to Z of profits. And you know, X, Y and Z are very squishy numbers that they can lie about, and you have to kind of do your, you know, give yourself a lot of margin of error on but, but these developers can really grow in value too, because some of them are quite low values, as you know, because they’re not producing any or yet. So, so that’s, that’s kind of the the story. And so the story is, if you do this right and you pick the right names, you know, you can vastly outperform the underlying appreciation of the gold price. So I developed
Trey Reik 31:27
a term I call negative survivorship bias. So, you know, in most industries, you want to go with the biggest established companies because they’re the least risky. But gold mining is one of the few industries where I think you want to avoid the top 10. So a lot of people buy GDX, and with all due respect, the Van Eck, and that’s a massive ETF. If I looked at the top 10 holdings, I’m not sure my conclusion would be to be long each of those top 10 holdings, given the challenges they face with reserve replacement, etc. So can you talk a little bit about how that impacts your view? Yeah, that’s
Larry Lepard 32:10
a great point that you make, and I want to emphasize that. I mean, the thing to keep in mind about any gold mining company is that it is a wasting asset. Once the gold is mine, it’s not there anymore, and they need to find new gold. When you’re a small company, and you’re mining 100 or 200,000 ounces, you know, and you’ve got a fairly respected deposit, it’s not crazy to think that you could, you could find, you know, and replace your production every year. When you’re you know, Barrick or Newmont, and you’re mining 5 million ounces a year. It’s hard to add 5 million ounces of reserves every year. So you know, the bottom line is that you want to find companies that can replace what they mine in any given year in terms of prospectivity. And you’re right. I mean, however, I will say this, there are some majors, not many, but I know you know which ones they are, and we’ll mention one, like agneco. There are some majors and a few others around it. I’m not going to mention them, but that have done a pretty damn good job, and even in spite of their large size, are able to replace what they mine and add value and grow value within their company. Interestingly, what i The two largest miners in the US, which are kind of go to names for hedge funds, barrica, Newmont, they do not fall into that bucket, and I don’t either of them for that reason.
Trey Reik 33:29
So before we get into the stocks that you traffic, I’ve got a bunch of them. Yeah, I have a more general question for you. You know, gold went up 12 years in a row from 2001 to 2012 I’m not aware of any other asset that has gone up 12 years in a row, literally in the history of financial markets. So management discipline, capital discipline completely eroded. Didn’t matter what mistakes you made you got bailed out. The gold price only went up, and we both know that led to massive misallocation of capital, capital write offs, and I think about a peak to trough decline of about 85% in the sector, which you know is going to be tough to ever recover from. But my question to you is, am I overstating things in saying that it’s no longer justifiable for folks to look at the gold industry in whole as poorly managed and lacking capital discipline? Is it fair to say there’s been some improvement on average?
Larry Lepard 34:38
I think there’s been a ton of improvement on average, but I but I emphasize the on average, and I also emphasize that there’s a large difference between the best and the worst, and so stock picking really does count. You know, it’s that that whole experience, and I was in the market at that time from eight to 11, and then I. Wrote it down, that curve. So I suffered all those losses, which I’m ashamed of. But it is what it is that curve educated a whole couple generations of gold stock managers. And to my way of seeing it, they’ve actually become almost too conservative now. Trey, I mean, if you know, knowing what they know, sitting where they’re sitting, spending what they’re spending to drill and find replacements. They should replace one ounces. You know that looking around the landscape, surveying the landscape, if I were a corp fan or a CEO of one of those big companies, I’d be buying some of these small, smaller companies now, when I could still get them at something that approaches cheap, as opposed to a year or two from now, when they’re going to double or triple in price, and I’ve got to pay a higher valuation form. And sadly, all these industries are the same. They’re kind of like sheep. I mean, right now, they’re still they’re still afraid. And part of the reason I think the gold stocks, I mean, I don’t have the chart to put up. But if you, if you run a chart of the price of gold versus the price of gold stocks, there’s a really big disconnect, right? I mean, gold has gone up quite a bit, and the stocks have not part. They participated, but not nearly to the same degree. And and I think that’s because, you know, people are still very feeling very burnt and very cautious about these stocks, and they really don’t believe higher future gold prices, and arguably, they’ve lost some trust in the management, etc. So, yeah, it’s but I do think, I think in general, management teams are much better than they were in 2011 I think in general, they’ve been much more conservative, like I say. I, you know, I kind of wish a few them would be a little bit more aggressive, right? Because there’s some good opportunities, right, right?
Trey Reik 36:44
So, and then the last sort of general question before we get into your portfolio, sure, I always think it’s important to share a disclaimer with folks viewers who are building their own portfolios that picking one or two gold stocks is a very bad idea. Oh, terrible idea. So what do you think? Five to 10 minimum?
