Slate Money: SWAG: Gold
Date: November 19, 2019
Host: Felix Salmon (Axios)
Guest: Justina Vasquez (Bloomberg)
Podcast Theme: The investment role, allure, history, and practicalities of gold in modern portfolios, from physical coins to ETFs, and how it compares to other "SWAG" (Silver, Wine, Art, Gold) assets.
Overview
This episode of Slate Money SWAG takes an in-depth look at gold as an investment: its appeal throughout history, the mechanics of the modern gold market, the differences between holding physical gold, ETFs, and mining stocks, and the myths and realities of gold's role in wealth protection, speculation, and even crime. Felix Salmon and guest Justina Vasquez, Bloomberg's gold markets reporter, dig into practicalities, prices, and whether there’s any reason today’s investor should buy actual gold.
Key Discussion Points & Insights
1. The Timelessness of Gold (00:53–02:15)
- Felix introduces gold as the "original" investment good, predating modern collectibles or alternative assets like bitcoin, art, or wine.
- Justina affirms gold's status, noting, "It's been... millennia. The number one pitch I get is just folks saying, 'Hey, the dollar does this. But gold is the one that has really withstood the test of time as an investment.'" (02:19)
- Gold’s reputation as a reliable store of value makes it a fallback when riskier assets look uncertain.
2. How Gold Performs Over Time (02:52–04:20)
- Gold generally increases in value over time, but more slowly than higher-growth assets.
- Felix digs into how "increase in value" is judged (dollars? purchasing power?), with Justina noting Bloomberg data for spot pricing dates back to the early 1900s, and that gold has "definitely been up" over the last century, though with fluctuations.
- In good economic times, gold may underperform as people seek higher returns elsewhere. In turbulent times, gold shines.
3. Precious Metals: Why Gold and Not Silver or Platinum? (04:20–06:16)
- Gold is the "standard" for investors. Silver is seen as a cheaper, accessible alternative—"It costs $1,450... to buy a gold coin. It might cost $15 or $20 to buy a silver coin." (05:13)
- Government-issued coins (like the American Eagle) typically cost more than just the spot price due to premiums for minting and distribution.
4. Physical Demand vs. Investment Demand—What Sets the Price? (06:16–09:04)
- While gold has industrial and jewelry uses, investment demand dominates price action.
- Felix questions basic supply and demand: "If gold is $1400/oz, why not just mine more?"
- Justina counters: Mining and supply shifts are less influential than macroeconomic shifts; "It's largely driven by the investment profile and less so by kind of how much supply is out there." (08:00)
- When prices rise, miners may ramp up production or pay higher dividends; when prices fall, they slow down.
5. Gold vs. Gold Miners vs. ETFs (09:04–16:31)
- Gold mining companies offer leveraged returns—when gold rises, their margins (mining cost vs. gold price) can improve.
- Felix wonders: "If you think gold is worth investing in, doesn't it always make sense to buy it in the form of gold miners?"
- Justina: Some want the physical safety/utility of gold coins, especially in "apocalypse" scenarios, while others are comfortable with stocks/financial products.
- Discussion on ETFs: Gold ETFs give exposure to the spot price without owning the metal; they're cheaper and more liquid, but lack "crisis utility."
- Notable exchange on long-term performance:
- Felix: "Historically speaking, what’s done better—gold miners or gold?"
- Justina tries to pull historical data and finds Bloomberg tracking starts in 2006. Both gold and miners track similarly, but during market cycles, miners can suffer poor operational cycles that dampen performance.
6. Costs of Mining and Operational Nuances (15:36–16:54)
- Mining costs fluctuate with spot prices: "Whenever gold becomes more expensive, miners want to mine more of it. They're going to have to input more spending to mine more of it..." (15:56)
- Larger producers may buy smaller miners or assets rather than ramp up their own exploration.
7. Investment vs. Industrial Uses (17:22–17:50)
- "It's probably about half, maybe a little bit less than half investment [demand]. And the rest of it goes into jewelry, things like electronics..." (17:35)
8. Gold, Portability, and Money Laundering (17:50–21:21)
- Gold’s portability is classic for discreetly moving wealth across borders or circumventing capital controls; less so in today’s world, Justina notes.
- Compared with cryptocurrencies, gold remains "completely anonymous, unless you're buying it from... a vault." (20:14) Makes gold attractive for laundering.
- Felix: “If I place myself in the mind of a criminal... this would be a very attractive asset.” (19:29)
Memorable Quotes & Notable Moments
-
On gold’s permanence:
- Felix: "This is the one that actually has, in some sense, withstood the test of time." (02:02)
-
On premiums for coins:
- Justina: "A lot of people... say the gold price, the coin shouldn't be any more than, I think it's... like 5% more than the spot price." (23:56)
-
On buying and selling costs:
- Coin Dealer: "We're buying those back at 1471. That’s only about 3% less than we sell them for." (28:15)
-
On diversification:
- Coin Dealer: "...there is a case for both [miners and gold]. I own some mining shares myself, but I also do own some physical gold. The investment stool is basically three broad asset classes: commodities, real estate, and then businesses..." (33:25)
Practical Segment: How to Buy, Sell, and Store Physical Gold (21:21–33:04)
How to Buy
- Most common is buying online from reputable gold dealers.
- Check for trustworthy websites (usually rated and with fine-print on markups and purity, e.g., 99.5% or 99.9%).
- "The markup should be no more than [about] 5% above the spot price." (23:56)
How to Sell
- Dealers will buy back gold coins with roughly a 3% spread; buy/sell roundtrip costs (including shipping) are around 5%.
- Example: Buy a 1 oz American Eagle for $1,517 (spot + premium), sell back for $1,471 (28:15), plus shipping.
- Dealer recommends a minimum purchase (10 coins = ~$15,000 for American Eagle), but some coins available in smaller lots.
Popular Coins
- Most popular globally: Canadian Maple Leaf, Vienna Philharmonic (European market), American Eagle (U.S.), and Krugerrand (South Africa).
- Dealer: "The Maple Leaf is the best-selling gold coin in the world... After that is the one from Europe—the Vienna Philharmonic." (30:45)
Transaction Insights
- You need about a 5% rise in spot gold to break even after costs ("...unless it moves at least 5%, I’m not going to be able to make a profit." - Coin Dealer, 32:27)
- ETFs offer a much lower roundtrip cost and are more liquid, but lack the tangibility and potential 'crisis utility' of coins.
Final Insights (33:11–35:20)
Diversification Philosophy
- Coin Dealer: "There is a good case to be made for owning [physical gold] as part of a portfolio for both the wealth protection aspect and for... a crisis fund." (33:38)
- Felix: Still not entirely convinced about physical gold; prefers the additional return from mining shares and ETFs.
Long-Term Strategy
- Physical gold is ill-suited to short-term trades due to costs.
- Gold ETFs are suited to long-term holding, with day trading being rare and generally discouraged.
Key Timestamps
- 00:53 — Introduction to gold as an ancient investment
- 02:19 — Why gold historically outlasts currencies
- 04:20 — Difference between investing in gold vs other metals
- 09:04 — Investing in gold miners vs. gold
- 13:02–14:55 — Comparing historical performance of gold vs. miners
- 17:35 — Gold demand: investment vs. industrial/jewelry use
- 19:29-20:46 — Gold and money laundering; anonymity vs. crypto
- 21:21–32:27 — Step-by-step buying/selling physical gold, pricing, spreads
- 33:25–34:41 — The case for owning both gold miners and physical gold
- 35:07 — Wrap up: ETF practicality vs. physical gold
Summary Tone
The episode is both skeptical and practical, mixing economic curiosity, irreverent humor, and insider knowledge. Felix challenges the conventional wisdom around gold’s safety and utility, while Justina brings real-world perspective from the gold professional's lens. The coin dealer's responses anchor the conversation in the practicalities of real-world investing.
Bottom Line
- Gold’s main allure is its history and perceived safety, not profit.
- Physical gold offers tangible crisis insurance but is costly and cumbersome for ordinary investors.
- Miners and ETFs provide easier, more profitable market access, especially for those not prepping for armageddon.
- Serious gold investment demands careful attention to costs, premiums, liquidity, and personal priorities.
- A small allocation can make sense for diversification, but it’s no guarantee of riches—or apocalypse survival.
Notable quote to close:
Coin Dealer:
"If everything goes wrong... to have some gold which is very convertible into goods and services in any economy, in any place in the world—I think that it does make sense to have at least a small portion of one's portfolio in actual physical gold." (33:38)