Confounding the standard line that gold doesn't produce a yield, a business that uses gold to earn more of the metal argues that it fits into mainstream asset allocation and approaches to liquidity. We talk to Monetary Metals, a firm that is now over a decade old.

We are just beyond the halfway point of 2023 and where does gold fit into wealth managers' thoughts? And what place does it have on the menu?

Well, it appears that gold has had quite a good year so far. As 2023 got under way, investment figures were bullish on gold. And while rising interest rates aren’t always auspicious for gold, the yellow metal rose in the late winter and spring in an uncertain financial climate, starting at $1,854 per ounce on January 3 reaching a high on May 3, 2023 of just over $2,050 before easing off a few weeks ago. 

Geopolitics are as unappealing as ever, there is a likely fractious presidential election in the US next year, and there is due to be a UK general election in 2024. The economic sounds coming out of the UK and US are mixed, they are a concern in continental Europe, although a bit better in Asia. All in all, the supposed “safe-haven” asset of gold has its fans and is winning more. UBS, in a note a few days ago, said it remains positive on gold.

Monetary Metals, a Scottsdale, Arizona-headquartered business, says it offers a unique approach to tapping into the gold story: a yield in gold and paid in gold. The firm uses the gold to earn more gold. It has been developing the gold yield marketplace™, not for buying and selling gold but to connect gold investors seeking a yield with corporations and institutions who need gold capital and can pay in gold for it.

In May, it entered into an agreement with Asahi Refining (Asahi), a division of Japan’s Asahi Holdings. Monetary Metals provides metal to Asahi. Asahi, in turn, provides its services to Monetary Metals, which helps expand Monetary Metals’ capabilities. In the same month, the firm appointed Jeff Deist, who had been president of the Mises Institute, a free market think tank in the US, as general counsel. Deist also worked in the congressional office of Dr Ron Paul, and focused on areas such as monetary policy and the US Federal Reserve.

Family offices, ultra-high net worth and HNW individuals are clients that Monetary Metals has and wants to do business with. Keith Weiner, founder and CEO, likes to point out how his firm differs from most in a sector that sometimes suffers from being seen as eccentric or very “niche.” Weiner spends a large chunk of his year flying around financial capitals, talking to investors and prospects. 

Getting paid in gold
“Monetary Metals is the only company that offers a Yield on Gold, Paid in Gold® to investors by financing qualified gold-using businesses. Investors can choose between short duration, secured leases, which offer between 2 per cent to as high as 4 per cent per annum. Or they can choose longer duration, riskier bonds that can offer double digit yields on an annual basis,” Weiner said. 

“The more wealth one has, the more one stands to lose. And therefore, the greater care one must take in stewarding that wealth,” he continued. 

Family offices and others looking after large amounts of private clients’ wealth, need to be careful. As reported here, UHNW individuals put inflation high up on their concerns. Wobbles in the Western banking system (Credit Suisse, First Republic Bank, Silicon Valley Bank, Signature Bank) underscore the need for solidity. 

“In light of the most recent banking crisis, gold offers so much. It offers one-of-a-kind protection against bank default risk, one-of-a-kind protection against erosion of principal due to inflation, and one-of-a-kind diversification for your asset portfolio, lowering volatility without sacrificing returns,” Weiner said. 

“What we offer is gold with yield. This removes the carry cost of owning physical gold, which can create a drag on returns and often deters large institutions from owning it. But even more importantly, our Gold Fixed Income offers an alternative to dollar fixed income and similar products. These currency fixed income markets are volatile and riddled with hidden and opaque risk. Not to mention capital allocators must constantly contend with inflation eroding away both yield and principal returns,” Weiner continued. 

“Put it this way, assuming an equal risk profile, if you could earn 3 per cent in gold, or 3 per cent in dollars over the next 10 years, which would you choose?” he said. 

It is now just over a decade since Weiner founded the business. It initially offered precious metals analysis and research. In 2016, Monetary Metals launched its Gold Fixed Income product line, beginning with its first gold lease. Since then, it has continued to build out its Gold Fixed Income product offerings, issuing and funding what it says is the first true gold bond in the US since 1933, and funding more than 50 gold and silver leases.

The origins
Weiner explains how he got into this business.

“It was the summer of 2008 and I had just completed the successful sale of my previous company Diomandware in a $10 million deal. Nortel Networks, as it was known then, was the strategic buyer. Diamondware was a software company (I was a software engineer in my previous life) that pioneered 3D voice technology before Apple and others thought it was cool. The acquisition was finalized on August 19, 2008, just as the financial crisis unfolded. I found out later it was the last deal Nortel did before they went bankrupt! And soon after, the entire world seemed to be teetering on the edge as the crisis worsened,” he said. 

“So, I’m sitting there having just experienced a life-changing financial milestone, while traditional financial institutions were melting all around me. Needless to say, I was motivated to dig in and really understand what was going on. The more I read (and I read a lot), the more it became clear to me that the crash was much more than a few banks making some bad bets.

“The root of the crisis lay in the nature of the monetary system itself. Before then, I thought I’d go on to build another software company. And if it weren’t for the GFC, that’s exactly what I’d be doing. But once I understood monetary science, gold, and the problems we continue to face today (which are getting worse, not better) I decided then my next venture would be in the gold space. And Monetary Metals was born,” he said. 
 

Misconceptions
Weiner gets exercised by misconceptions about what gold can do for investors. 

“The most common thing I see wrong is an oversimplification of the mechanics of the monetary system. It’s just not as simple as money printing, the coming hyperinflation (which never really comes) and 1-800 BUY GOLD NOW! so you can be protected and profit from the coming collapse,” he continued.  

“Unfortunately, this string of incoherencies still gets circulated in the gold community with vigor. And yes, even by some economists who really should know better. I’d like to think I’ve made a few inroads with my writings over the years, but suffice to say here, that’s just not how the monetary system works! It’s much more complicated, nuanced, non-linear and dynamic than what most people, even trained economists, think,” he said.

New member
His new colleague, Jeff Deist, clearly buys into the Monetary Metals philosophy. 

“Certainly, my previous work at the Mises Institute and with Dr Ron Paul dovetails nicely with Keith’s own ideas about monetary policy. I knew Keith from my previous work and we agree that gold is poised to regain a monetary role as the disastrous experiment with fiat currencies continues to wane. 

“There is a $12 trillion pile of gold out there essentially lying fallow. Monetary Metals is the only company gathering it up to fill a market need – financing gold-using businesses, while at the same time paying investors an attractive return on gold, in gold,” he said.  

“It’s important not to ignore the world of ideas. But persuasion is not nearly enough. After all, economic ignorance among the public allowed our government and central bank to install inflation as an express policy. Today, innovative companies drive societal change at the highest level. Did the taxicab monopoly lose ground because someone wrote a white paper explaining the economic harms of government sanctioned monopolies? Or did Uber demonstrate the better alternative?” he said.

Risks and rewards
This publication asked Weiner what mistakes should investors avoid with gold? 

“Broadly speaking, individuals should avoid numismatics or collectible products and stick to bullion only. Even with bullion, investors should be careful about how much over spot they’re paying. Premiums on certain products have ballooned in recent years and investors were paying way too much over spot, when they could have bought less expensive product. We were selling gold below 1 per cent over spot, when some investors were paying close to 10 per cent to buy similar gold product,” he replied. “For larger institutions, being mindful of the carry costs of gold while at the same time being wary of the hidden risks in owning ETF products or other `paper’ gold products like futures contracts. 

“Also, there is a notion in the industry that owning mining companies is like owning gold with leverage. This couldn’t be further from the truth. We’ve done the analysis and gold, the metal, has outperformed miners. Sure, you may be able to find exceptions with this company or that company, but as a sector, the track record is crystal clear. Unless you’re an expert stock picker, you’re better off owning the metal itself,” he said. 

FWR noted that Monetary Metals appears to take a more “mainstream” view that the wealth industry would be comfortable with than is sometimes the case. Is that a deliberate business strategy, as well as a conviction?

“It’s both. We think there’s plenty of rational, reasonable evidence for gold as an asset class. One need not resort to conspiracy theories or bombastic claims about this or that event (past, present, or future) to argue for gold. The reasonable arguments themselves are sufficient,” Weiner said. 

“That last remaining (valid) criticism of gold was that it didn’t produce a yield. We’ve clearly overcome this obstacle. It’s simply a matter of time before the rest of the world wakes up to the reality that gold can and does offer a yield,” he concluded.