The Case for Buying Precious Metals

Maurice Jackson: Joining us for a conversation is Andy Schectman, the president of Miles Franklin Precious Metals Investments. Recently we discussed the prudence of implementing ratios as an effective strategy for readers in identifying buy and sale signals for their precious metals portfolio. Today we're going to expand the narrative further on buy signals and discuss the best values right now, what to buy should we experience a broken-down system, and a very important topic protecting your financial legacy. Before we begin, Mr. Schectman, for first time readers, who is Miles Franklin Precious Metals Investments?

Andy Schectman: This month Miles Franklin is celebrating our 30th year in business in Minneapolis. We're a family owned company. We have eclipsed $6 billion in transactions without ever having a customer complaint, ever. We maintain an A+ rating with the Better Business Bureau. We're one of fewer than 25 companies ever approved by the United States Mint as an authorized reseller of their product and in a federally non-regulated industry and we're very proud of that reputation. We really are an association with people like yourself and Rick Rule and other icons in the industry. We're very proud of all of our accolades and of our reputation, but the state of Minnesota where we're located could care less about our reputation.

That's the only state in the industry in the United States that regulates the precious metals industry. We are licensed, we are bonded, and we are background checked. Everyone in the company from clerical staff to salespeople to principals like myself. Background checked every single year, continuing education and compliance that's mandatory, and a surety bond that has made most of the competition throughout the United States boycott Minnesota. What it means in essence, we have a great reputation, but the state of Minnesota puts an exclamation point on that basically guaranteeing the safest transaction in the precious metals industry.

Maurice Jackson: Andy, before our interview you made a valid point there, that really should be the theme for today's interview and that was the central banks are preparing and so should we. That really resonated with me because all too often I find many investors focus on the Federal Reserve and what their next move is on interest rates and how the secondary market will respond. Just what exactly are central banks doing and why?

Andy Schectman: In the 1990s all the central banks signed on to what was called the Washington Agreement, and I could never understand why they all wanted to sell their gold and so fast, and the central banks with the Washington Agreement were limited to 500 metric tons per year, the amount that they could sell, so as to not completely destabilize the precious metals market. I remember that's when Gordon Brown and the Bank of England finished selling all of their gold as it approached $280 an ounce. Didn't make a whole lot of sense to me. To this day it still doesn't. There were four reasons that would've pushed them into doing that. Number one, gold doesn't pay interest. Number two, gold costs money to store. Number three, the return is not predictable. There's volatility, but the biggest reason, the fourth reason, was the tier three asset status where the amount calculated on a balance sheet was only equal to 50% of the value.

So the denigration of the balance sheet, the inability to sell bonds and to transact international business by a factor of 50% would have made the central banks want to line up to sell their gold. As of April 1 of last year, as you know, the reclassification of gold through the Basel III agreement to the only other tier one asset on the planet next to U.S. dollars and Treasuries has made these central banks run from selling gold, run to accumulating it. In 2018, they bought more gold than at any time in the previous 60 years. Last year that number was up almost 90% and this year, every small central bank from Central America to Eastern Europe is loading up on gold. They are de-dollarizing quietly and accumulating gold unlike any time I have ever seen in 30 years in this industry.

Maurice Jackson: When I think about the Federal Reserve, one of their claims to fame is that they'd like to be transparent. I cannot recall the Federal Reserve sharing the information you just shared with us with the citizens of the United States. Am I incorrect in that?

Andy Schectman: No, they don't. Absolutely not. In fact, when I was a financial advisor a long time ago, I was Series 7 licensed, which is the ability to sell stocks. That's back when people who sold stocks were called stockbrokers instead of financial advisors. That all changed with the internet and free trades or $9 trades by Scottrade. Everyone all of a sudden became a financial advisor instead of a trader because traders made their money per trade instead of money under management as an advisor. That's a topic for a different day. To this day, one of the most impactful things I ever saw in 30 years in this industry was page one of the Series 7 Manual. It's about a 300 page book. Page one, you open it up and it says, and this was the only writing on the page, it said the little man rule. The little man rule is that the little man never wins because the big investor is always ahead of the curve.

So I believe that the central banks were alerted at probably 2017 at the meeting in Basel, Switzerland. They probably were told that in 2019 this was going to go into effect. That's why they have been accumulating gold so voraciously since 2018 and no one's talking about it. Until the central banks have properly positioned themselves, then it'll become front and center news. The old saying about it's less what you know and more who you know in life really is true all too often. I think they take care of themselves. They being the central banks and the central banks by their movements are de-dollarizing and they're taking this very seriously. Let me put it to you this way. Gold was up 18% last year. That's one of the biggest movements that I can ever remember in a year, and no one even notices it because the stock market was up even more.

The movement in gold, I can tell you as someone who owns a precious metals company, was not due to retail investment. We had a good year last year, but our year was characterized much more by large orders by accredited and institutional size investors and less by the average person. In 2011, we were getting 200 orders per day. Last year we were down to 10% of that, but the volume we did was probably greater than 2011. All I can simply tell you is this, is that the 18% movement in gold last year if I had a gun to my head, I would say is 99% attributed to central banks accumulating it on the quiet. They've been doing it since 2018 and they did it in 2019 and that trend continues unabated now. At some point when the central banks have properly de-dollarized and repositioned, maybe it'll be more front and center news, but until then that would crowd them out of their own trade. So it's the old saying, don't do as I say, do as I do. Well, that's a prime example of it.

Maurice Jackson: On behalf of all of our listeners, the retail investor, the little investor, the little guy that you were referring to, thank you for sharing your words of wisdom with us because, again, this is the narrative that we don't hear. We see price movements, but we don't understand why and the rationale behind it. We're truly experiencing a financial system that is breaking down and we have bubbles surrounding us. It's not a matter of if. What everyone should consider is when and how to prepare. Can a single individual take the same actions as the central banks are taking?

Andy Schectman: Absolutely, the United States by its own admission is north of $120 trillion in debt. Just between the national debt of $22 trillion and the $53 trillion shortfall in Social Security, we're $75 trillion in the hole. Why is that not front and center news, Maurice, everywhere? You know a trillion seconds ago was 31,688 years ago. So why the hell is that not front and center news, just like the reclassification of gold? The things that matter about the future of our country are being glossed over in favor of trying to impeach Donald Trump for trying to have Joe Biden's son investigated. The bottom line is it's a misappropriation of efforts and of energy and of money. The things that really matter are being completely and totally glossed over. When you look at a country that is just between those two things, $75 trillion in the hole, north of a $100 trillion in the hole in unfunded liabilities and things like Medicare and Medicaid and government, military, and pensions, and entitlements.

The U.S. is broke. As we talked about before and I heard on your interview with Bob Moriarty (click here), he mentioned the same thing I did. The largest single asset in the United States is student debt. We have $2 trillion in assets, of which $1.8 trillion is in student debt, which as he eloquently said that people like Elizabeth Warren want the taxpayer to pay for it. The biggest issue is we are a country that's financially insolvent with nothing in the way of assets. So the most important thing is to ask yourself not how much gold and silver should I own, but what exposure do you want in a currency that is effectively broke and the most sophisticated, well-funded, and influential traders on the globe are quietly exiting stage left. That's the most important thing. So you do what you can. You mitigate your exposure to the dollar.

One of the slides that I showed at the Sprott show last year was a slide from JP Morgan Private Wealth. This is the division of their company that works with the wealthiest investors in the world, the centi-millionaires and the billionaires and they sent a letter out to all of their clients in this division that's created quite a stir in the industry, and it basically said that we want you to mitigate your exposure to the U.S. dollar through foreign currencies and precious metals because we believe it is inevitable that the dollar will be challenged at some point for singular world reserve status. Well, there you go. It's about mitigating your exposure to the dollar. It's about trying to take some of that dollar risk off the table in a non-dollar denominated asset with no counter party risk. As Doug Casey so eloquently says, gold is the only asset that is not simultaneously someone else's liability.

When I say gold, I mean silver, platinum, and palladium, too. The bottom line is that you remove counterparty risk when you take possession of it. You remove the dollar risk. Then there's our friends at Morningstar through Ibbotson have reminded us recently that because of the interest rates being so low, the inverse relationship between stocks and bonds used to be called risk-on risk-off. Well, that's gone because as interest rates rise, it kills both markets. What they basically said was the only asset left on the planet that has an inverse correlation to the United States stock market are precious metals. So you have inversely correlated assets or an inversely correlated relationship between the U.S. stock market and the U.S. dollar.

You see the most sophisticated traders on the globe doing de-dollarizing. To not recognize this because of price and price alone is a huge mistake because that is the greatest tool of misdirection is price. Bottom line, how do you do it? You just simply buy what you can when you can and slowly de-dollarize. Do as the biggest and most in the know and sophisticated traders on the planet are doing. You de-dollarize best you can as often as you can.

Maurice Jackson: You referenced some household names here. One I'd like to interject, it is Rick Rule. When he makes his reference to precious metals that they are payment in full. That's something we all should consider there. Precious metals don't have the word note on them. They're not an IOU. They are payment in full. Let's switch the narrative from rhetoric to arithmetic and talk to the person listening right now and share some specific buying opportunities that you've identified that will maximize their precious metals portfolio because I find that all too often, most buyers don't take advantage of the premium fluctuations within their metal of choice. What are you and your most successful clients buying right now?

Andy Schectman: First of all, let's just talk about the pink elephant in the room and that is the silver price. There's no question that silver is, in my opinion anyway, that silver is the most undervalued commodity on the planet. While we're still able to get it, there's very little that you can think of buying that is as undervalued as silver. What commodity can you buy that's trading at a third of its peak 1980 peak? I mean you can't think of anything that you can buy today. Any commodity from food to energy to precious metals that trade at a fraction of what they were trading for in 1980. Silver with the 86 to 1 ratio. The relative relationship between gold and silver is screaming to buy silver. So let's just say that silver is the best buy period.

With that being said, you could also say the same thing about platinum, I guess, too because the relation between platinum and gold is at its all-time high. I think silver has more utility not only as an industrial metal, but also as money than platinum does. Platinum doesn't have the history as money, but it's a great value too. If I'm buying gold, I'm buying the $20 gold pieces. The numismatic gold coins are as inexpensive or on par with or only slightly higher than gold bullion coins and that is a price anomaly. If I'm buying gold on my low grade certified mint state $20 gold pieces for basically the same price as a gold eagle, that is in my career almost unheard of in terms of premium as you mentioned. It's nonexistent and in 2007–2009 those coins were trading at 60+%, 70+% premium to a $1000 gold price. But even in the 1990s when gold was in the midst of a 25-year bear market, those coins traded at a 20% to 25% premium to gold spot. Now they're 4% to 5%. It's as good of a value in gold as I've ever seen.

If I'm buying silver, I think it's very difficult to ignore the value that we find in junk silver bags, 90% by weight, dimes, quarters, and half dollars. Right now as far as their price, I remember when they were $4–$6 an ounce over the price of silver and today you can get them for roughly $0.69 over silver. It's an incredible value, an incredible bargain. Bottom line is that when you're buying gold and silver, it's just most important to focus on maximizing what you get, but not crossing over the penny wise pound foolish threshold by buying too large of a piece.

You always want to maintain good liquidity and flexibility. Typically I don't go any bigger than one ounce in anything I recommend typically. Whether you're playing poker or driving on a crowded highway or just investing, you can never have too many exits or too many outs or too many options and so I guess you could easily say in this industry by going big, by buying 100 ounce bars of silver or 10 ounce bars of gold in lieu of a one ounce piece, the savings that you get is not commensurate with the loss of flexibility. If I'm buying platinum, I'm buying one ounce platinum maple leafs. They're probably the best buy. If I'm buying silver right now, my first choice is going to be 90% junk silver bags. If I'm buying gold, my number one choice is going to be MS61, MS62, or MS63 $20 gold pieces, which are amongst the cheapest I've ever seen in 30 years in this industry.

Maurice Jackson: Switching gears, let's discuss storage and protecting your financial legacy because I believe a number of precious metals investors make a critical error right here. The biggest one in my experience is using safe deposit boxes at their banks. Andy, why would storing your precious metals in a safe deposit box not be in their best interest?

Andy Schectman: Well, there've been a couple of banks. I think Morgan Chase came out and said you're not allowed to store coins or cash in a safe deposit box. Safe deposit boxes are not insured. The contents are not insured. They have nothing to do with FDIC. Furthermore, if you were to have a bank run into problems or there were a banking holiday, they'd close it down on a Friday night and you wouldn't get into that box until they reopened. Not a good idea. Also, the banks have programs that scour the obituaries and if someone dies and it's in the obituary, those boxes are sealed until they are opened for probate. So it would be the last place I would store my precious metals.

A safe deposit box in a major institution, a banking institution in the United States, would be the last place I would store my precious metals. I would dig a hole in the backyard and become a midnight gardener before I would do that.

Maurice Jackson: All right. Does Miles Franklin offer a more efficient, safer storage alternative?

Andy Schectman: Yes, we do. We offer several. Both domestic and international, but I would like to talk about the international storage and we actually do have a safe deposit box program in Canada, in Toronto and in Vancouver. We have been given North American exclusive on this program. We're the only ones who have access to it. These are brand new, state of the art safe deposit boxes where there's only one key. You as the depositor hold the one key and the only spare. Most people who have used the safe deposit box before will remember the experience of going into the facility, opening up the box with a key. At the same time, the bank administrator will put a key in. You put them in together. That's the master key and then the box opens. With these they're just one key. You hold the only key and the only spare.

Our safe deposit box program is fully insured. There are a few things unique about it. Number one, if you Google basic questions and answers Form 8938 you go right to the IRS website and they will say on that website that precious metals held outside the United States in a directly held fashion in a non-financial institution are not reportable. Well, the only example the IRS has ever given as to what they mean by directly held is a safe deposit box in a non-financial institution. So what differentiates our program? Number one, state of the art one key boxes instead of two. The bank does not or Brinks in this case does not hold the master key. Number two, it's held in a non-financial institution. Brinks is not a financial institution like a bank.

Number three, it's fully insured whereas stuff held in a safe deposit box in a bank is not insured. Lastly, the way that we bill for this is by the ounce. We're the only one in the industry that I know of that bills by the ounce instead of by the value. In other words, if you believe gold can only go higher from here, you have a fixed rate with our storage program. So it's not reportable to the federal government in both FACTA and FBAR because of the fact that it's directly held in a non-financial institution. The client holds the only key and the only spare. It is fully insured.

I think maybe the biggest reason to consider owning metal outside the United States is look at what the central banks are doing. We started out this conversation by saying the central banks are preparing, so should we, but what are they preparing for?

They appear to be preparing for a dollar that runs into trouble. If the dollar runs into trouble, the first thing that the U.S. government will do, in my opinion, is create or impose currency controls because the inclination of the wealthy if the dollar starts to slide, let's just say as we've talked about before, OPEC says we're going to accept payment for oil in yuan and ruble, or let's say the BRICS nations issue a new currency backed by gold. Or maybe it comes right out of China or whatever it is that creates panic selling in the dollar. The very first thing that the U.S. would do would be to close the window of getting money out of the country because the first inclination of wealthy people in the United States would be to buy something from another currency. They would buy Swiss denominated bonds or real estate in another currency, but in order to do that you have to first sell dollars to buy a Swiss bond or to buy a condo in Vancouver.

By doing that, you exacerbate the inflation. You increase the velocity at which things happen. So currency controls if things get bad with the dollar will be the first thing that will happen. Having money outside the country, non-reportable, fully insured, in a fixed rate structure in my opinion makes our storage program the envy of the industry and non-comparable. There is nothing like it. To be able to have money outside the country that fully is legal and no one knows about and won't go higher in terms of its value no matter how high gold goes based upon the falling dollar, to me is much more than just storing your gold outside the country.

Maurice Jackson: Andy, last question. What did I forget to ask?

Andy Schectman: I don't think you've forgotten really to ask anything, Maurice. You're thorough as can be. The bottom line is simply this, that I think if people are concerned about things going upside down in this country and you want to buy some metal to protect at home, to me, junk silver dimes and quarters are the best choice in silver and one tenth ounce gold American Eagles are the best in gold. They're the size of a dime. They're clearly marked one 10th of an ounce. From a barter standpoint if people are concerned about that, those are the two things to own.

For me, my main consideration when I am either buying gold and silver for myself or recommending it to others is to maximize what we're getting without decreasing my flexibility. Never ever compromising my liquidity. The things that we've talked about today. Junk silver, one 10th ounce Eagles, low-grade certified $20 gold pieces, one ounce platinum coins. These are all as liquid and vanilla as anything you could ever buy. They will maximize your liquidity and your flexibility, never compromising them. I think that if you follow that rule, you'll never go wrong in this industry whatever you're doing.

Maurice Jackson: Andy, for the person listening that wants to get more information regarding the safe deposit boxes, what's the website address?

Andy Schectman:www.Privatesafedepositboxes.net.

Maurice Jackson: Mr. Schectman, thank you as always for sharing your valuable insights today. For someone listening that wants to speak with you, please share your contact details.

Andy Schectman: My direct dial is 1 (800) 255-1129 or email andy@milesfranklin.com.

Maurice Jackson: As a reminder, I'm a proud licensed representative for Miles Franklin Precious Metals Investments where we provide a number of options to expand your precious metals portfolio from physical delivery, offshore depositories, precious metal IRAs, and private blockchain distributed ledger technology. Call me 7 days a week directly at (855) 505-1900 or you may email maurice@milesfranklin.com. Finally, we invite you to subscribe to www.provenandprobable.com. We provide mining insights and bullion sales.

Mr. Schectman, thank you for joining us today on Proven and Probable.

Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.

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