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BFI Bullion
September 19, 2021

Investing in the post-covid era: Interview with Frank R. Suess

For nearly 2 years now, investors have been dealing with unprecedented challenges, extreme levels of uncertainty, and a chaotic and very often counterintuitive market environment. For Global Gold, as well as many precious metals investors in general, the landscape was a bit easier to navigate, as we recognized the red flags that were raised by the fiscal and monetary profligacy and anticipated much of what we are seeing today.

It has been important to adapt quickly to the new realities, both operationally and strategically, but it certainly wasn’t easy. We successfully navigated through this period, protecting our clients’ wealth, responding to their needs, and serving their interests despite the industry-wide disruptions we experienced. Today, as we enter a new era of fresh challenges and risks, it is more important than ever to think independently and to form strategies based on what the global economic and political realities really look like...and not on what we wish they were.

To discuss all this in detail and to share his own outlook and insights on what lies ahead, we interviewed our own Frank R. Suess, Founder and Executive Chairman of BFI Capital Group. His 30+ years of hands-on experience in wealth management and in the precious metals market provides a unique filter through which recent developments and the current state of the economy can be accurately assessed, unencumbered by mainstream biases and the consensus dogma.

In this interview, we examine the great shifts and catalysts introduced during the covid crisis, we take a closer look at the core challenges investors are set to face in the months and years to come, while Frank also shares some exciting news about Global Gold that have been in the making for some time.


GG: For a very long time, many conservative investors including us at Global Gold, have been concerned about monetary and fiscal excesses and the dangers of government overreach. What we witnessed during the covid crisis, how- ever, was arguably beyond anything we could have imagined. How do you evalu- ate the Western response to the crisis and the various “relief” policies?

Frank R. Suess (FRS): The health issues related to any pandemic need to be taken seriously. Initially, we didn’t really know what we were dealing with. That is no longer the case. With the current information and statistics available, the level at which measures were taken, and in some cases, continue to be implemented, appear somewhat questionable.

I’m concerned that the collateral damage resulting from the government response to the coronavirus will far exceed the illnesses and fatalities directly caused by it. Someday in the future, we may look back at this time with astonishment and, quite possibly, with great regret.

Future history books will describe this crisis as a turning point, as a sort of “black swan” event that pushed us into a new era, one that will be particularly difficult to navigate.

GG: In recent weeks, inflation fears have been steadily on the rise and making mainstream head- lines. This is a risk we’ve been warning about for years, but especially given the unprecedented spending of the last year, to any rational observer, it was clearly inevitable. Still, central bankers insist there’s nothing to worry about and they’re confident they can get inflation under control. Do you think that’s a realistic position at this point?

FRS: To some degree, central bankers find them- selves in an “Inflate-or-Die” type of scenario. Financial markets have been feeding off a never-ending supply of “cheap money” for a long time now. The monetary policies of central bankers were the main source of “growth”. During the pandemic, governments added the fiscal “money faucet” to the mix. Until recently, the consensus pointed to a disinflationary status quo (low interest and low inflation), very similar to the one we’ve seen in Japan for several decades.

In this context, a growing number of so-called experts – economists, politicians, investment profes- sionals – have been joining the hordes of Modern Monetary Theory (MMT) believers. We reached a point where questioning the validity of MMT is treated like a matter of blasphemy. And yet, when a theory is so spectacularly wrong, and when the implications of its wide adoption are so dangerous, rational people must stand up and point out the obvious, even if that goes against the grain.

In essence, MMT says that a government can finance any budget deficit by de facto monetization. This comes down to the proverbial “free lunch” for governments. And quite predictably, politicians love it. They no longer need to be concerned with the ramifications of out-of-whack budgets: they can just keep spending and keep accumulating debt. If they want to finance a gigantic and popular “green deal”, the money for that will be created. If it seems opportune to promise a universal basic income for everyone, MMT will take care of that too. If the government wants to offer maternity leave for 6 months, combined with perhaps another 3 months for fathers, let's do it. It’s all paid for.

However, back in the real world, limitless printing, borrowing, and spending has consequences. Of course, inflation is only one of many factors that influence the complex system of the global economy, so there’s no simple way to an accurate forecast. However, at this point, I consider it safe to pre- dict that inflation will continue to rise. And, the concern is that central bankers, particularly the US Federal Reserve, will not be able to reign it in when it gets out of hand.

The underlying problem of all this is of course the huge mountain of debt. In this regard, the Economist’s debt clock is fascinating to watch. We currently have rock-bottom interest rates. With inflation on the rise, you can expect to see interest rates on the rise as well. Rising interest rates in an overly indebted and leveraged world spells serious trouble for the economy and for financial markets.

All those wonderful, MMT-inspired government spending programs need to be financed. Until now, that could be done at a very low cost. However, when interest rates rise, these costs will increase dramatically – they will double, triple and quadruple.

That is when excessive indebtedness increasingly amplifies the risk of insolvency.

GG: For investors, pensioners, and ordinary sav- ers, entering an inflationary era would be very painful. Given that precious metals offer the most reliable haven under these conditions, do you expect to see a new wave of interest in gold and silver in the coming months, especially coming from first-time investors?

FRS: Gold, in particular, is a good choice for hedging your wealth against an inflationary era. Inflation is not a bad thing when it’s under control, but the question is whether this will be the case or not. With a world drowning in debt, all kinds of policies will be initiated to keep both interest rates and inflation in check. It’s a tall order. Therefore, planning ahead and protecting your wealth will be critical.

We are coming out of about 4 decades during which interest rates have been in decline. During this period, financial assets were the primary beneficiary, while tangibles were less attractive. As the tide turns, tangible assets will be on the winning side. Thus, investors need to start adjusting the allocation of their wealth.A greater share will need to be allocated toward alter- native investment opportunities. Amongst those alternatives, gold clearly stands out as one of the best and most reliable medium- to long-term investments.

GG: Back in September 2020, the BFI group pub- lished a Special Report, "On the Brink of a New Era – Are You Prepared?" , that predicted a lot of what we’re seeing now. Most notably, the Report outlined the dangers of excessive debt and the most likely methods that governments would resort to in order to reduce it. Among them was financial repression, already a growing trend in the US and in Europe. Do you expect this to per- sist and what could individual investors do to pro- tect their wealth?

"The debt, the wealth gap, the social tensions, and the political polarization

we are currently witnessing, in my view, are largely an outcomeof politicians using cheap money to solve any and all problems."

FRS: I do expect various kinds of financial repression to continue to gain popularity among policy makers. Politicians and central bankers will be looking for scapegoats and ways to divert attention from the mess they have made. To protect your wealth, I recommend considering both structural planning measures, as well as adjustments to your asset allocation.

In western economies, the wealth gap has been growing. It is widely accepted that this is primarily a result of the monetary policies we have been dis- cussing here. While politicians the world over always pretend they are doing it all to help their voters, the impact of their intrusions and bad decisions is tearing the fabric of our society apart. The debt, the wealth gap, the social tensions, and the political polarization we are currently witnessing, in my view, are largely an outcome of politicians using cheap money to solve any and all problems.

Clearly, the policy direction we can now expect to see going forward will revolve around various forms of wealth transfer, ranging from higher and new forms of taxation, more bureaucracy, and regulations, possibly all the way to confiscatory policies, bail-in scenarios, and capital controls.

GG: The world has dramatically changed since the start of the pandemic and so did the reach and the power of the state over the average western citizen. How did Switzerland handle this crisis, especially compared to its EU neighbors?

FRS: While the style of implementation and enforcement was possibly more balanced and less dogmatic than in some other countries, I do not think Switzerland stands out as particularly exceptional or successful. The damage done is significant and the government measures implemented, in my view, have been a mishmash of decisions and communications that at times appeared to lack coherence, a clear strategy and even common sense.

However, what is different and unique about Switzerland is its system of direct democracy. I think most people, even many of us Swiss, do not fully appreciate how different our democratic system is from the parliamentary / representative democracies that you find in the rest of Europe.

To give you an example, there is a movement in Swit- zerland called “Friends of the Constitution”. They are fiercely opposed to the restrictions and the measures adopted during the pandemic and they denounced the government’s actions as unconstitutional. They have just submitted, in record time and numbers, a petition for a referendum against laws passed during the pandemic. They want the government’s powers to be more limited and individual liberties to be respected.

While I don’t agree with their positions entirely, it is worth noting here that the “Friends of the Constitution” are not even a party. The people of Switzerland have constitutional rights and political tools that allow them to express their discontent, initiate political discourse and bring about real changes far more quickly and directly than under any other system. I believe this is one of the factors that results in the level of peace, prosperity, and cohesion we enjoy in Switzerland.

Being able to make yourself heard through the political process, not just through demonstrations, riots, and digital campaigns, is just one element of a democracy that is lived and felt by the people. In most other European countries, the politicians and the elite are far more removed and distant from the voters. Once they have formed their coalitions, parties, and strategies, it is next to impossible for vot- ers to affect change in a meaningful way.

The worst example of this of course is the EU. The European Commission and its policies and political programs have little to do with what the average French or German citizen wants. That is probably why the tensions and unrest in France or Germany have been far more intense during the pandemic than what we saw in Switzerland.

GG: When one looks closely at the state of the real economy, the picture painted by stock markets and by politicians celebrating the “Great Recovery” seems increasingly absurd and at odds with the reality on the ground. Do you believe this divergence is sustainable or should we expect a serious correction going forward?

FRS: The biggest enemy today, in my view, is the growing burden of public debt and deficits. The dangers of this kind of fiscal irresponsibility and recklessness are well documented. History has shown again and again that continually piling up more debt, under the pretense of fixing economic and social problems, always backfires.

In fact, an argument might be made that the arrival of the virus was merely the straw that broke the camel’s back, or even possibly served as an unexpected but opportune scapegoat. Governments and central banks have been handed a legitimate “culprit”, a welcome and plausible excuse, to extend and ramp up their quantitative easing strategy, a “carte blanche” of sorts to open their money spigots at will, for just a little longer.

At this point, the world economy is in the early stage of a kind of crack-up boom. The pandemic makes economic data hard to interpret, as most of them are highly distorted. For instance, the media likes to tout growth numbers, compared to last year, that seem highly encouraging and supportive of the “Great Recovery” narrative. However, in any statistic, you need to look at the longer-term trends and at the basis from which a quantitative delta was calculated.

In any case, we expect that fiscal stimuli will carry over into the second half of the year and make the world economy look stronger than it actually is. Later in the year, and in the beginning of next year, I expect disappointment to kick in. For instance, while policies in the Western world remain highly stimulative, China is tightening and forcing its econ- omy to slow and restructure. That alone will have a sobering effect on the world economy. What is seen as a bit puzzling at this point, is that bond yields are declining amid sharply higher inflation rates and a “booming world economy”. We expect another medium-term rise in yields worldwide in the coming months.

Our friend, Felix Zulauf, compares financial markets and real economy to a dog and its master. The dog (the financial markets) will run ahead or fall behind, changing directions swiftly at times. However, ulti- mately, the master will discipline the dog and call him back to his side.

Global equity markets may keep inching higher, but with slowing momentum and decreasing volume. I believe that markets are in the latter stage of the bull cycle from the 2009 lows. But, based on the big pic- ture realities, at BFI, we see rising risks of a medium- term correction. The global economy has too many big picture issues to deal with, among them massive debt, geo-political tensions, negative demographic pressures, etc. And then, I expect next winter to potentially serve us up yet another round of pan- demic measures and lockdowns – who knows, maybe due to the Omega variant?

GG: The last year and a half was an intense and often stressful time for many businesses in the precious metals industry; from supply and logis- tics issues during the first round of border clo- sures, to a large wave of new orders and renewed investor interest that led to significant delays. What were your main concerns during this time and what was it like at Global Gold under these extreme conditions?

FRS: For Global Gold, the last few years have been excellent. We have not been negatively affected by the pandemic at all. In fact, we have benefitted from the fact that a lot of international investors, in a time of political and economic uncertainty, are looking for a safe and stable jurisdiction and a reliable partner to keep their precious metals.

The only serious concern we had for a while was the fact that some of our providers, particularly the refiners, were hit by the pandemic restrictions for a while, when they had to shut down their production for several weeks. We were concerned about supply shortages and, in fact, had to deal with them. Fortunately, our team at Global Gold was always able to find good solutions for our clients, by finding and recommending alternate formats when others were scarce.

GG: Let’s close by taking this opportunity to announce some big news about Global Gold ... It’s something we’ve been considering for a long time,but Global Gold is going to be changing its name. What is going to be the new name and what were the reasons behind the decision to change it?

FRS: We will be rebranding Global Gold AG to “BFI Bullion AG”. We are doing this to more clearly reflect the firm’s association with the BFI Capital Group. As we enter a new era, a comprehensive and coordinated package of wealth management services will be increasingly critical. That is precisely what BFI offers as a group. We want to make sure our pre- cious metals clients don’t miss out on the full range of our services.Also, we are doing this to protect our reputation. Unfortunately, a German firm has copied our brand and firm name. We took legal action over this issue, but we decided it was time for a more direct and effective solution to safeguard our company’s name and reputation. That firm is doing business that we consider unethical and risky. We do not want to be mistakenly associated with anything they do.

Moreover, there are a few other service innovations in the pipeline that our clients will love. I can’t wait for us to launch them and see the reaction of our clients and the market.

For example, let me share one that I’m particularly excited about. We have been working on several initiatives at Global Gold, one of them being in close cooperation with its sister company aXedras. As a result, Global Gold will soon be able to add some very interesting and digitally improved services, among them allowing our clients to directly access the detailed digital certificate of each gold bar they have in storage with us.


Frank R. Suess is the CEO & Chairman of Global Gold AG (BFI Bullion since 2021), as well as of the BFI Capital Group. Frank heads up the group's overall business and strategy. He per- sonally advises a select group of wealthy interna- tional investors and families with a focus on cross- border planning and prudent wealth management.

Inflation: Back with a vengeance?

Over the last few weeks, inflation has been dominating headlines in the financial press and mainstream media. In many advanced economies, significant upticks have materialized in official data, seemingly catching every mainstream economist and analyst by surprise. Of course, for most precious metals’ owners and conservative investors, this was entirely predictable. If anything, it was long overdue, given the unprecedented monetary and fiscal policy excesses we have been witnessing, particularly since the beginning of the covid crisis.

Equally predictable was the reaction of central bankers and political figures in the US and in Europe who rushed to reassure investors and the public by insisting that the spike in prices is just a temporary“glitch”. Through official statements and interviews, they repeatedly dismissed inflation fears and maintained that it is entirely under control. And yet, that confident stance was contradicted by the results of the Annual Reserve Manager Survey, published by UBS in early July.

The majority of the participants, reserve managers from nearly 30 central banks, flagged inflation and out-of-control rises in long-term yields as one of their top concerns, a risk that wasn’t raised at all in last year’s survey.

“Old news”

For those of us who have been keeping a close eye on monetary policy and its impact on the economy and on financial markets for a long time, it has been clear for years that inflationary forces have been at work long before the virus ever emerged. In fact, they’ve been at work for many decades, as fiat currencies the world over have steadily been losing purchasing power. This value erosion is a slow, incre- mental process that often goes unnoticed by the public, but over time, all the wages and savings lost to this “hidden tax” can really add up. We often get a sense of the scale of the problem when we think back and recall how much everyday necessities or food staples used to cost, but the effect is even more striking when we look at the loss of value of fiat currencies against gold.

Over the last few years, however, we’ve also been seeing a much more noticeable manifestation of this phenomenon. Asset price inflation, triggered and fueled by a decade of aggressive expansionist polices by central banks, has created extreme distortions in the markets and brought about the significant divergence we see today between the real economy and financial market performance. Especially in the US, countless companies, and even entire sectors, reached valuation levels that simply make no sense, as policies like QE and ultra-low interest rates artificially fueled demand and propped up stock prices.

Thus, examined in this light, inflation is far from a new problem. However, what is different this time is that these value-destroying forces broke out of financial markets and began impacting the average consumer in a direct way. As we foresaw in our last issue of the Digger and in our Special Report, the trillions that were injected into the economy in 2020 through “relief” packages, “emergency support” measures, and direct checks to citizens created formidable inflationary forces that, unlike what we had seen up to that point, would inevitably affect ordinary citi- zens, consumers and savers.

CPI data vs real inflation

After nearly a decade of complacency about inflation, consumer prices climbed 5% in May in the US, reaching their highest level since August 2008 and well above the Fed’s official target of 2%. That sudden surge gave rise to widespread fears about the start of a sustained inflationary trend and a potential U-turn in central bank policy in order to prevent that scenario. The possibility of earlier-than-expected tapering and tightening triggered significant volatility in the markets, with investors fearing that the era of easy money might be coming to an end. Of course, this was all very short lived, as the Fed was quick to offer assurances that the inflation spike was only“transitory” and didn’t affect its policy stance in any significant way.

And yet, this “surprise” spike in consumer prices appears to be part of the bigger picture we outlined above; there’s no reason to believe it can be reversed, particularly without any policy changes. In fact, the reported 5% increase in the official CPI figures is quite misleading itself, as the actual inflation rate could arguably be considerably higher.

The CPI is supposed to be quite a simple and straight- forward inflation indicator, tracking the purchase cost of a pre-determined basket of goods. However, as John Williams of explains, the many changes in the definition and the calculation methods of CPI have led to distorted and skewed estimates. Specifically, the important changes made in the 80s and particularly in the 90s, “reflected theoretical constructs offered by academia that have little relevance to the real-world use of the CPI by the general public”. Home prices were replaced with “owner occupied equivalent rent”, a theoretical and ambiguous estimate of how much homeowners would charge themselves to rent their own property to themselves. “Hedonic adjustments” massively discounted price increases by simply positing that the quality of various products gets better over time. At the same time, the “substitutions” change allowed the Bureau of Labor Statistics (BLS) to completely exclude products that saw drastic price spikes from its calculations, by merely assuming that consumers would opt for cheaper alternatives (for example, by substituting ground beef for steak).

As might be expected, all these glaringly biased tweaks in the CPI formula created astounding discrepancies between today’s inflation estimates and those calculated using the pre-1990 official methodology. In fact, that 5% increase that was reported in May, would be well above 8% if we used the 1990 method and close to 14% if we used the 1980 method.


While the debate rages on among economists and analysts about how to accurately capture and track price changes, it is important to remember that inflation can also manifest itself in stealthier ways that can be hard to measure or even detect. A great example of this is the phenomenon known as “shrinkflation”, which describes the practice of selling a certain product at the same price as before, but offering less of it, by changing the packaging or lowering the net weight of its contents.

While it has been recently on the rise, this is by no means a new strategy by companies to counter inflationary pressures and to respond to climbing labor and materials costs. “Downsizing”, as it used to be known in previous decades, is based on the idea that consumers are a lot more price conscious than they are net-weight conscious, especially when it comes to products they buy frequently. For instance, they might switch to a competitive brand if their favorite cereal suddenly gets 20% more expensive, but they are less likely to notice if the same box they’ve been buying for years, at the same price, gets a little lighter. Shrinkflation is more commonly detected in packaged food products, but it also appears very often in personal care items, as well as household cleaning supplies. And while different companies might resort to it at different times if they’re struggling with their bottom line, this practice does turn into a wider and much more pronounced trend during periods of inflation.

Inflation as a humanitarian crisis

For most of us who are fortunate enough to be living and working in an advanced economy, the effect of rising inflation is now becoming apparent at the gas pump or in new home prices. We’re also seeing our grocery bill get bigger, while our favorite chocolate bar gets smaller. So far, these price hikes might be straining many consumers’ budgets, but they are still not prohibitive for most people. Of course, this will eventually change if inflation keeps climbing at its present rate, but for the moment, by and large, essential products and basic supplies are still afford- able and readily accessible.However, hundreds of millions of people around the world are already feeling the full impact of these inflationary forces in a much more direct, and often life-threatening, way. According to a recent report published by the World Food Programme, a record 270 million people are estimated to be acutely food insecure or at high risk in 2021, a shocking a 74% jump from 2020. As Arif Husain, Chief Economist at the UN agency, highlighted, “high food prices are hunger’s new best friend. We already have conflict, climate and COVID-19 working together to push more people into hunger and misery. Now food prices have joined the deadly trio”.

The countries that usually succumb to runaway food price inflation are those that are import-dependent and those that are already suffering internal turmoil and disruptions to their local food supply. Additionally, spikes in food insecurity, while they represent a severe humanitarian crisis in and of themselves, they’re also known to act as triggers for social unrest, conflict and violence. In the aftermath of the last global economic recession, as well as during previ- ous downturns, acute food price increases sparked riots in numerous developing nations and there are serious concerns that history will repeat itself once more. Currently, the Middle East is witnessing some of the sharpest price increases, while Zimbabwe, Ethiopia and Venezuela are also among the hardest hit.

What lies ahead?

Given the gravity of the threat that inflation poses to investors, savers, and ordinary citizens around the world, it appears increasingly difficult to reconcile the facts on the ground with the mainstream media analysis and the dismissive confidence projected by central bank and government officials. Figures like US Treasury Secretary Janet Yellen keep insisting that the current price increases have nothing to do with the record-breaking money printing and spending operations we saw over the last year. They are instead caused by “transitory anomalies” that will basically resolve themselves as the world economy recovers.However, it only takes a rudimentary understanding of basic economic principles to see that, even if that were true, even if the severely damaged supply chains and global logistics operations were magically reset tomorrow, the trillions that were injected into the economy would still be there, ensuring that inflation would not go away anytime soon. The average American consumer seems to agree with that assessment too, as consumer inflation expectations jumped to an 8-year high in May, according to a New York Fed survey.

"Under these conditions, there is no asset class

that is safe from the corrosive effects of inflation

other than precious metals."

In fact, if we look past their public statements and focus on their actions instead, central bank officials also appear to share those expectations. Last year, the Fed formally shifted to a flexible average inflation target, which means that the central bank will aim for price growth to overshoot its target to compensate for a period of running below it. On the other side of the Atlantic, ECB officials also appear to concur. Despite their reassuring rhetoric about inflation being under control, mirroring that of their Federal Reserve colleagues, their recent actions betrayed an implicit admission of a very different version of reality. In early July, the central bank set itself a new 2% inflation target and announced it will tolerate temporarily exceeding this when needed. After years of sticking to its target of “close to, but below, 2%”, and consistently failing to reach it, the ECB seems to have recognized that the economic challenges and inflationary forces are drastically different this time.

At this point, it is impossible to predict how steep the price increases will be over the short term, as too many questions remain open regarding the reopen- ing of the global economy. We’re already seeing a number of governments in Asia tighten covid restric- tions again and it is entirely possible that we could witness yet another round of lockdowns in the West too this fall, as new covid variants trigger a “fourth wave” of infections.

Nevertheless, the longer-term outlook is much clearer. Without a monetary and fiscal policy U-turn, which is both politically and economically untenable, the inflationary pressures that have already built up will be next to impossible to contain. And in this sce- nario, that looks increasingly probable, the only winners are governments. Inflation depreciates their huge debt, while it eats away at everyone else’s investments, savings and wages, effectively creat- ing a giant wealth transfer from savers to borrowers.

Under these conditions, there is no asset class that is safe from the corrosive effects of inflation other than precious metals. Gold and silver are the only reliable and time-tested safe haven for investors and the only way to protect and preserve purchasing power.

Behind the Scenes: Global Gold’s Physical Metals Audit

Companies that offer similar services like we do at Global Gold - storage of physical metals, outside of the banking system – always like to highlight that they undergo regular audits to ensure their clients’ metals are there. Of course, this can be reassuring for many inves- tors and it promotes transparency. However, we found it interesting that it is nearly impossible to find information on what actually goes on in the physical audit of your metals from any company. We know...we checked!

We are always looking for ways to help our clients feel as comfortable as possible about the investments they make and the physical storage they utilize Global Gold for; we take the trust our clients put in us very seriously. So, it’s about time we take you behind the scenes of our annual, physical audit of our clients’ precious metals.

Before we dive in, you need to know that at Global Gold, we do monthly audits to compare and ensure that the metals we have in our own system match up with our storage providers. But then, one time per year, we bring in auditors from one of the big-four auditing firms to physically count all bars and coins. A financial audit by the same firm is normally done at the same time as the physical audit, so all our i’s are being dotted, and t’s are being crossed. This comprehensive audit this year came in the beginning of April 2021.

The annual audit starts some 4-5 months before it actually happens: we must coordinate with our storage provider and the auditing team to make sure they can both allocate the 2 full days needed. The major- ity of our clients’ storage is in Switzerland, but we also have to coordinate with auditors visiting our other storage locations in Singapore and Hong Kong.

It is important too that our own team gets the chance to be part of the audit as well, so in the weeks leading up to it, we coor- dinate internally to ensure that each of our team members gets to experience the audit, to help if needed, and to have someone on the spot if any discrepancies should arise. Additionally, we prepare for the fact that during the audit, it is good that no new metals arrive, or that any leave, over the auditing period. Finally, the vault team always prepares our metals for inspection, which helps the process move more fluidly and efficiently.

On the day of the audit, the auditors and Global Gold team members arrive early to start the process. We believe in having a “twelve-eye” auditing principle: two auditors, two or more vault staff members, and two of our Global Gold team mem- bers are all on hand to ensure precision and accu- racy. The auditing and Global Gold teams are not allowed directly into the vault itself. We work in a room, and each pallet of physical metals is inspected and counted. The entire process is captured on CCTV and those recordings are stored for a long time.

Normally, we start with our collective storage and with the gold bars. This is our most popular stor- age option and takes up quite a bit of time in the audit process. Each bar is physically counted and confirmed against the Global Gold and storage provider stock lists. While the auditors check the formats and quantities, we check right away to see that the correct certificates are with the bars and that they are being stored correctly.

In some cases, we are able to store bars as received, in the boxes of the refineries they come from. In these cases, if the seal is in pristine shape and untouched, we weigh these boxes to check the quantities rather than break the seals. This keeps the bars in mint condition and free of scratches, dust, etc., while also minimizing the number of hands that the bars pass through. It also requires a bit of heavy lifting...let’s call it the Global Gold workout!

As an example, we recently received an order of 1100 x 1oz gold bars directly from Valcambi in southern Switzerland that were purchased for a client. The 1oz bars come in boxes of 25, which is very helpful for the storage. While some bars are neatly packaged yet from the mints, there are many that are stored on pallets. Seeing a pallet with over 100, 1kg gold bars, each to be counted, is quite a sight to behold.

Next up are the gold and silver coins in our collec- tive storage. The coins we purchase for our clients arrive at the vault sealed in the respective mint’s tubes: for gold, generally in tubes of 10, while for silver, in the monster boxes of 500 (which is why we have the lot sizes we do for purchases and sales). Just like with the gold bars, if the coin tube or box still has the original seals from the mint, we do not open them but again weigh them and compare them to other tubes/boxes.

You might be interested to know that some of the mints, regarding silver coins, now use a special colorless, inert gas which they pump into the tubes to protect against discoloration, which is again why we try to refrain from touching the silver too much. Nonetheless, if there is any doubt raised regarding the packaging that any metal is stored in, the auditors will open the tube or box to count the number of coins inside. They will also use weight as a meas- urement to check that each volume is correct.

All the bars and coins we purchase are from a select network of reputable dealers, and in many cases, directly from the refinery and/or mints themselves. Global Gold does allow for clients to bring in their own metals into our storage, but then those metals are always checked and verified by a registered external assayer. In any case, we would not put anything through the system of our metals providers we aren’t completely comfortable with and that was not verified.

The last metals to be checked from our collective storage are the silver bars, as well as the platinum and palladium bars. This takes the most time to count, because as with the silver bars, we have row upon row of bars stacked on pallets, and several pal- lets high. There can be up to 400 bars on one pallet! The auditors have to remove a stack of the bars to check that each level of bars on the pallet is the same before calculating the total amount. Don’t for- get, while most of our white metals were purchased VAT-tax-free for our clients, there are some clients that paid the VAT on their silver. Thus, we have a bonded (tax-free) storage, as well as inland storage, all of which must be counted, being careful they remain with their status.

Moving on to our segregated storage, the process remains the same, but the quantity of each client’s metals is checked against the stock list to make sure everything is present and correct. The auditors check the quantity, while we take a bar list with us cross-referencing the bar numbers to make sure that the bars match what we have on file. This can be time-consuming, since each client has their own box, area, or pallet that their metals are kept in, so it requires more fine work by the vault team to pre- pare and move those metals into the auditing area.

Finally, with our KBS, or Key Box storage, the process works quite a bit differently, since we do not have access to the keys to open each box; the client is the only one that can access it.However, after each movement in or out of a Key Box, the box is re-sealed by the vault. This seal number is what is used by the auditors to check against the list from the vault, while the box number is checked against our records. Accurate information is kept on the contents of the box in any case to ensure the proper weight is used for fixing the annual storage fees, as well as to ensure the insurance always fully covers the contents.

Furthermore, being at the vault gives us the opportunity to check on the quality and storage conditions of all the metals, while it always helps in retaining the trust and camaraderie of working with our storage vault operators. Also, there’s always something to be learned by simply being around gold, silver, platinum, and palladium.

After the 2-day audit, we are normally a bit exhausted from lifting bars, counting, standing on the cement floor of the vault, and handling thousands upon thousands of bars and coins (even though, admittedly, that part is quite fun!). With 10 years of successful external audits – including this one in April - and monthly internal ones, we continue to refine and make the process more efficient for all involved.

And, while the processes, the auditors, or even the number of metals may change from year to year, the goal remains the same: making sure that your metals are in storage like we say they are! That is why the expense and work are worth it.

Basel III: What does it mean for gold investors?

Basel III, a set of international banking regulations, that came into effect at the end of June has caused a lot of debate and speculation among goldinvestors and industry experts.

The new rules have the potential to drastically reshape the dynamics of the gold market, especially affecting the demand for physical gold, and certainly support the bullish case for the metal in the months and years to come.

Key changes

The Basel III agreement, developed by the Basel Committee on Banking Supervision, is a sweeping set of international banking rules that were originally created in response to the last financial crisis in 2008, encompassing bank capital ade- quacy, stress testing, and market liquidity.

One of most important regulatory changes was the re-classification of allocated, physical gold as a “Tier 1”, or risk- free asset, equivalent to cash and currencies, with unallocated or “paper” gold remaining in “Tier 3”, the riskiest asset class. Furthermore, according to Basel III, European banks will now have to comply with new liquidity requirements, known as the Net Stable Funding Requirement (NSFR).

The aim of the NSFR is to “oblige banks to finance long-term assets with long- term money”, according to the LBMA, in order to avoid liquidity failures and to minimize systemic risk. Under the new rules, banks will have to hold 85% Required Stable Funding (RSF) against the clearing and settling of precious metals trades.

These two changes will very likely trans- late into a significant overhaul in the way banks handle gold. Until now, unallocated gold was the industry standard, as it represented the most convenient and cheapest way for banks and professional investors to trade the metal. However, after this regulatory shift, many banks will have to buy and hold a lot more physical gold, as relying on paper contracts will become a lot more complicated and expensive.

Investment implications

At this point, it is still difficult to estimate the precise impact of Basel III on the gold market. Nevertheless, it is clear that the overall effect of these new incentives will be positive. We already saw some solid evidence to support this scenario: these regulatory changes have been discussed for years and the reclassification of physi- cal gold as a Tier 1 asset was announced in 2017. Shortly after that, we witnessed a dramatic acceleration in central bank pur- chases and a record-setting increase in gold reserves.

The timing of the rule change is also very interesting. It coincides with a noticeable uptick in inflation data across many advanced economies, as well as an increase in equity market volatility. Both factors are already reliably supportive of gold prices, and the addition of regulatory pressures to that mix can clearly contribute to higher demand levels from the institutional side too.

At Global Gold, while we do share in the optimism and we see the introduction of Basel III as bullish for gold, we also recognize that it is possible for many banks to sidestep the new requirements to some extent and there are ways to comply without a full shift to physical gold. Therefore, the new rules do not mean that we’re about to see the end of gold contract trading or a mass conversion of all paper gold into allocated bullion within the banking system. Such a scenario is not just unlikely, but physically impossible, given that there is more paper gold traded in a single day than all the phys- ical reserves in the world.

What we can say for sure, however, is that the new rules can definitely be seen as yet another reason for gold investors to be optimistic and as a contributing factor to higher prices going forward.

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