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 [Music] I'm Charlotte McLoud with investing is.com and here today with me is Tabby Costa macro strategist at crescit capital thank you so much for being here great to have you thanks for having me yep really good to be catching up with you it's been it's been a little while I was looking back it's been about a year since we last spoke and it was back when many people were still looking at gold and they were wondering is this move real and I think you were pretty confident at that time you said it's

more sustainable than people were thinking probably going to go a lot higher so and it has has gold's price activity has the level of the price and the quickness of the move surprised you or is this in line with what you thought no I I think it's surpris me as well um what what surprises me the most is that we haven't seen a followup of other things um gold prices have gone up significally I think we've had a big change in in the whole fees um yeah central banks have been buying gold but

with the new Administration and this Focus from Scott Batson the new treasury secretary talking about you know a monetary alignment and all these discussions are usually big turning points in history I can't ignore the fact that we're you know today running one of the lowest US gold reserves in history probably a 90-year low it's a little scary it's a little um you know I think these things become more relevant at times and I think we're at that time right now and so clearly a lot of people are learning a

history lesson kind of like a crash course about gold uh but ultimately that tends to actually be to other things like silver uh the miners I think we're at a golden age of mining um so there's a lot of really interesting opportunities that are tied up to Gold uh that we haven't seen yet play out yeah I think I think many investors would probably identify with that kind of lack of of follow through so let's talk a little bit more about gold and and the US I know crescit Capital just

published a pretty interesting piece which I'll I'll link in the video description on us gold reserves and I as I understand the basic premise is that the US is ultimately going to have to add to its gold reserves so can you can you talk about that it's pretty interesting yeah well I I think a country can run with a lot of Leverage for a long time until the cost of service that debt starts to really eat into your GDP growth and what is that level that starts to really become an issue I think about four to 5% of growth

just to pay down debt is when you start seeing some problems and beginning to see changes of prioritization of policy so what is the policy right now the policy is to reduce interest rates no matter what 10 year 30-y year fed funds rate everything used to be brought down so how do they accomplish that well we got to bring back discipline uh austerity is one of the the plans is the idea of Doge uh but also in my view is is interesting how we have to reduce uh interest rates also to reduce austerity

uh or to accomplish austerity uh because majority of the of the government spending is actually uh to service the debt so it's sort of you know you don't it's kind of a chicken and EG question uh but in my view this is absolutely critical and the us at some point used to own about 40% of the debt so if you look at treasury outstanding used to be backed by about 40% that treasury standing used to be backed by gold now it's only 2% so if we go back to the even in the 70s which was about 177% it

would imply a gold price increase of about 2500 uh or thousand uh uh price of of gold or 55 if you go back to the 40% level in the 1940s you know I I don't know if those are necessarily price targets or hypothetical ideas not at all but the point is I think that those kind of give you an idea how undervalued the Met is despite this run up so yeah the US is in a in a very difficult position uh I shouldn't say you know it's flirting with a bigger problem and it needs to be changing its policy so it's

a you know this is why I thought was relevant to point out where we are versus other central banks which been the clear buying spree of gold you're right so that's very true we have seen all the support for gold from the Central Bank ly around the world not from over here in the Western World so do you think you do you see the US starting that up again I I think it's been a different runup recently like the last six to 12 months have been different in the last 24 to 30 months and the difference is the prior one was

definitely driven by bricks and potentially Chinese investors um Russian investors and we don't know we can track the the official data but the official data you know it doesn't is not explained by the volume we've seen and so there's a lot of unofficial buying happening is my point recently I would say it's been more broadly driven this demand um Western societies have been participating more and in my view this is a change in the dynamic and this is what takes gold much higher the next lag

up for gold in my view though is probably going to be driven by the dollar is is where the dollar uh the valuation of the dollar in the US versus other FIA currencies is to me where the next support or next pillar of the is going to come from right and and let's go into the dollar I know you're here at pdac presenting on the bear case for the dollar and unfortunately I didn't get a chance to see your presentation but maybe you can share some some key takeaways well I think that the key takeaway is I listen

closely to people like Stanley Dr Miller and other macro guys that I think are remarkable in this industry in terms of timing and some of the things that they usually talk about is this combination of tightening monetary conditions along with aggressive of fiscal spending tends to have uh cause the strength of the dollar and we have the opposite of that today we're talking about austerity and we're talking about lowering rates again chicken and that question both of them actually accomplished lowering uh

government spending and so that combination is is tends to cause a weak dollar and then you look at the interest rate uh that we have policy in the US versus other countries and how much we're paying on that 5% any other economy spaying about half of that like 2% Japan is paying less than 1% uh in terms to services that uh on a GDP basis and so the US has to lower rate relative to those other economies quite substantially and that's what usually causes the dollar to have issues and then the last part of it is that the US

dollar today is probably not probably it's one of its most expensive levels in history and so the other precedent times was 1985 which was the plaza Accord a coordinated act across central Banks to reduce the value of the dollar and the other one was 1933 um which was in Great Depression right before 31 1931 most central banks sced out and said well we're going to actually going to lose the gold standard uh and their currency devalue and so the dollar surged and this was not a coordinated act later on because the the

US just decided to devalue the dollar at the time so I'm not sure the the the question the relevant question is not if if it's going to be a coordinated or organic the point is I think that the dollar is at a peak level it's going to be capped and if that's the case along with interest rates this is a green light to a lot of Investments particularly Emerging Markets so I'm very bullish on that as well okay okay so maybe just a little bit more on the dollar when we talk about the bease for

the dollar people can get a little bit maybe carried away start talking about the depth of the dollar is this so for you how how severe are you thinking oh I don't think you you can really trade on the idea of losing the reserve currency I mean I I that's not my point at all we've had many cycles of the dollar falling versus other FIA currencies and this idea of thinking the dollar is the cleanest of all dirty shirts was the right thought five years ago now we're at a peak you know it's easy to report

that in the back and say well you know the dollar yeah today it is but the question is will that be the case in 5 years from now and I don't think can continue to have the global economy growing and I don't think it's also under um you know the uh maybe even for policy makers I don't think they can continue to have a strong Dollar in this environment allowing the global economy to grow that's going to suffocate everything and so in my view it's almost like we have to have a weaker dollar and

if you are operating under those conditions as an investor well look you have a you know you have a scenario for the next five to 10 years that probably the dollar cannot you know it it may not fall apart but it it might not be as strong as it had been in the past so you know plan accordingly what are things that tend to benefit from not a strong dollar and you know Emerging Markets rest of the world you know we we have we've seen the the the basically the US sucking all the dollars in capital of

outside of the world we're going to see a rebalancing back to other things that have been ignore for a long time and so hence why I think Emerging Markets should be one of the top of the list so yeah yeah yeah that's pretty interesting so Emerging Markets how would you suggest investors approach that because that's that's pretty broad well I I I agree I think there's you know implications under Emerging Markets you have resource um exposure countries um that I think should be more relevant

than others um so I like Brazil I like uh South America I think South America will do very well South Asia could do very well um know other countries like China I think there's more tactical ideas there but I'm not interested in investing in authoritarian and also uh issues with you know a commodity importer the same thing goes for Russia it's a very difficult um you know case you can make a contan case um that potentially the war will end and something will will cause Russian assets to do very well I'm

not the guy the right person to do that I think that we have countries like Brazil Argentina um Peru Bolivia all those countries are providers of energy uh in general and so you have Brazil for instance has a surplus of electricity um that is not being consumed and you have in us a deficit about to come because of AI and on Shoring so what you're likely to see is that some of these countries will create Partnerships with with South America in a big way Argentina is the first one leading the pack but that's

going to spread to the whole region and so I am extremely bullish South America and looking to do more things down there okay okay so that that covers that kind of Emerging Markets angle I think I've got a clear idea of what you're thinking there if we if we go back over to Gold I want to bring up the gold stocks because we get a lot of questions on the performance of the gold stocks and why are they lagging behind I know I know you've written on Twitter about this pretty extensively saying that we could

we could be on the verge of a breakout so tell me your thoughts there what what would be the trigger well the trigger is these companies need to make money you know if you look at the performance of the miners has been tightly linked to how much money they make free cash flow per share uh or I should say earnings per share recently uh were down about 50% from their peak in 2011 so it makes sense that the companies are not at their Peak uh and so now we're seeing free cash flow which I think it matters

even more than earnings per share um are reaching near all-time highs that's going to have an impact on shares and you know I think free cash flow is not lonely going to be uh retesting the highs of the 2011 levels but really breaking out from a in a big way the oil the gold to oil ratio today is is at record levels uh or second highest in history outside of the covid um which gives gives you an you know an idea of the expansion of the margins you look at the structure of even the mining costs

uh of the overall industry is probably at around 1,400 gold prices are doubled that amount even if gold prices fall to 2500 which would be a pretty significant correction um and and and and could happen and certainly not my opinion but it could happen they would still be making substantial amount of money and what I find it interesting is that when you look at the margins of you know especially companies that are private that are not you know being priced in on a daily basis with a share price they're

doing great you know they're making money they're being being able to accomplish uh know generating cash flow in a large way and you know ultimately we're seeing a very competitive landscape in the private world and I think that is going to drive the the the uh the public markets as well and one one last thing it was a chart that we put out in our lad that maybe it it maybe is is underrated in my view which is the for cash flow per share uh of the miners the senior miners versus exploration stocks you know there's a

big gap between the two you know what do what do companies do when they start making money Acquisitions so you know we're starting to see Acquisitions across most know mergers between know niters and seniors but that's going to fly into flow into the the smaller names too in my view so very bullish on that as well yeah it sounds this is what I was going to ask you when it comes to the gold stocks are you bullish across the Spectrum well I think the seniors are starting to show fundamentals

uh some fundamental improvements and and that's that's very very positive and I think that they are also extremely cheap right now um and so that that'll be one answer what do I favor I favor always favor and I I think this is usually when you have a cycle a long-term cycle for mining exploration is what really outperforms so I've been very focused on finding high quality exploration assets because I I I understand that empirically that's that's really where the biggest returns will likely come

from and so I want to make sure I'm covered on that front first now owning some seniors and some mider uh producers and and and even large producers I think it makes sense as well I mean they're making money um you know just to give you some sense uh today if you look at free cash flow yield so divide free cash flow annual free cash flow divided by Enterprise value of a company which is market cap and debt and and you compare that with technology companies this is the first time in a very long time that

gold stocks which are mostly senior companies are trading at a more uh at a cheaper multiple in terms of free cash flow how much money they make uh relative to uh technology companies and so you know ultimately even the generalist people that I've been you know in touch with very closely in fact um are starting to you know catch on to the fundamental improvements and so I think it's a matter of time until money really starts flowing back it's just my my two Sense on this yeah yeah okay okay

I got to ask you about silver as well cuz I've I've seen you right it's got one of the most bullish setups that you've seen and like gold stocks I think silver has been frustrating for some investors who are waiting for that big move that we've been told is coming so thought on Silver what what makes you see it as so bullish right now the frustration of everybody I I love it I think it's it's you know it it catches my attention I have a very contrarian you know know way of of investing I love

when people hate something um and to me Silver is right on the brink of something really special uh uh what I think it could be a quarterly close at record levels that would you know finally make folks believe that this is a real cup and handle formation about to break out and Yeah technicals matter and so forth uh but but not as much as fundamentals and we're not seeing production really rise so Supply remains very constrained um the gold to Silver ratio who would have thought the silver would be trading at 30 plus with gold to

Silver ratio 90 what a bullish environment I mean this is historically one of the best setups to see a major major breakout and we would still see the gold to Silver ratio be at historically high levels and so to me you know this is the beginning of a runaway movement uh that could be quite substantial and would be meaningful for the overall industry we've seen if you look at Silver and track silver prices closely it's been following very very uh tightly with with industrial stocks and so you know you look industrial stocks

and you look at Silver they've been kind of in the same line for the last two years now what we don't see yet is is that monetary aspect of silver to bring on the demand and I think that's going to be the big story and so that's why I'm focused on on Silver so much I mean we own you know we we done a a leverage buyout of the third or four fourth largest silver mine in the world um St Chris Ball in Bolivia uh and we own it privately and look it's it's you know it's a wonderful time to be finding

leverage to Silver in my view right and I you you touched on this a little bit I was going to ask if like gold you would play silver across the spectrum of the miners uh would you look at the metal itself well I I think I think that the mining industry right now looks very very compelling um to answer between gold gold and silver uh you know obviously you I think you want to favor silver at this point just given the lack of performance but for the mining industry I'm not sure it really matters

because the mining industry overall has been lacking performance so everything looks cheap in that front of course you know silver looks even cheaper because if you think it's going to have a even larger run up you know then that's that's uh that's something you should be considering and I do uh but it's not easy to find silver miners anyways so um you know it's very rare to find large exposure to Silver producers and or even exploration stocks uh or development stories and so um I just I just T to

lean on Silver but another metal that I really think could be uh interesting in this environment is zinc no I can see sentiment on zinc has been terrible i've been hearing some people talk about zinc you know is is a terrible investment there's no and the fact is is that we're not seeing major discoveries come along and the amount of zinc we're going to need for the next 10 years relative to uh where you know especially the supply is the supply curve of zinc um it's you know it's a it's a metal that cannot be

recycled and it's going to be really interesting in my view it's probably one of the most asymmetric opportunities as well out there okay yeah that's interesting i' I've heard maybe some small whisperings on the zinc side so it sounds like for sure one to watch all right this has been really good to to go through what you're looking at right now any final thoughts that you would leave investors with right now I know there's a lot going on and you have a very Global macro

perspective well you know I I think that this dollar dollar situation is something that you want to emphasize as much as possible in your thinking because you know emerging markets and particularly the derivatives of gold have really lacked uh performance and I think that is also tightly held to the fact that the dollar has been so strong and once that turns things are going to change quite significantly you know i' I've been uh I've been following the the Emerging Markets space for a long time

and I haven't found you know when when you think about the two things that tend to hurt those economies is rising yields and dollar a strong dollar when you take those two things out of the equation you know you have a green light to invest in those places and so to me it's something that you know the same way gold was interesting a few years ago I can't help but be looking at Emer markets as well you look at gold prices versus Emerging Markets you know they usually follow each other closely too and so um you

know it's it's a high beta version of gold as well just like silver uh just like copper also follows gold all other metals but also emerging markets and mainly because they have a large exposure to Commodities and so I'm really bullish on that as well yeah and I think that that connection with gold and emerging markets that probably really drives the point home that's right very good okay well thank you so much much for for coming by to talk this is really good always nice to have you

thanks for having me appreciate it of course and and once again I'm Charlotte McLoud with investing.com and this is Tammy Costa with croset capital [Music]