With over three decades of experience in the financial markets, David J Mitchell’s passion for market analysis got him to senior managerial roles early on in his career. Some of his most notable roles have been the Head of Proprietary Trading Europe and Head of Spot Trading Asia-Pacific at HypoVereinsbank AG, Chief Dealer and Manager of the G10 Desk at HSBC, and Chief Dealer of the forex Desk at NationsBank Group Singapore.
For the last 15 years and following ever-increasing client demand for his financial market reports on the global macroeconomic backdrop, David founded Indigo Precious Metals and Auctus Metals and has expanded a client base with private and family office investors.
We speak to David to know more about investing in precious metals.
Vanilla Luxury: What is your advice when it comes to investing in precious metals?
David J Mitchell: My first advice to clients is to understand not just the buy-side, but more importantly the sell-side of the investment. To understand the liquidity of each precious metal and how they are going to garner the highest pricing for when they require conversion back into currency.
Secondly, we need to look at the safe storages. The costs applicable and the whole structure surrounding precious metals vaulting can affect the immediacy of liquidity when demanded, on the metals in question.
Thirdly, every asset class has its cycle - precious metals are at the start of a major cyclical revaluation but there will come a time to sell down and rebalance the portfolio into other asset classes in the years ahead.
Another very relevant point is the ‘essential’ importance of physical metal capital with ‘no’ third party liabilities over and above paper instruments that claim to represent physical capital that is actually layered with third party liabilities. This is exceptionally important considering the global insolvency crisis cycle we have now firmly entered, driven by the global debt crisis.
We also spend a great deal of time educating our clients on the global financial system across all asset classes, this is vitally important to understand 'why precious metals?’ at this juncture.
Vanilla Luxury: How can someone benefit by investing in precious metals during this time of great uncertainty?
David J Mitchell: This is solely to do with wealth preservation. An overall portfolio weighting into precious metals as a non-correlated asset will enable losses elsewhere in the portfolio to be covered by the revaluation in metals over time.
Fine-tuning the metal percentage exposure of your overall portfolio is of paramount importance. Most pundits and financial advisors will stipulate that a 5 to 10% holding is adequate, but that is just not the case and entirely inaccurate when analysing the macro conditions.
In a normal balanced macro-environment then yes 5 to 10% is adequate, but in these unprecedented times, precious metal holdings have to be a much higher portfolio percentage of a client's portfolio and hence macro analysis is paramount.
In my historical research, a zero holding of metals severely underperforms portfolios with an active diversification into metals.
Our financial system is at the start of a major re-balancing event. This can be clearly assessed and viewed with an expert view and analysis on how the global financial system actually works. This has been driven by a catastrophic build-up of not only sovereign, corporate and personal debt, but also the truly enormous global unfunded liabilities of pensions, welfare and medical insurance systems.
Physical precious metals are a crisis hedge and not an inflation hedge as most people are led to believe. Global central banks have been on the largest historical net-buying spree of physical gold every single year since 2010 to today, actively diversifying their balance sheets.
On March 29th 2019, gold was re-configured as a ‘tier-1 asset’ class. The Bank of International Settlement (BIS) will recognise central banks holdings of physical gold as a reserve asset equal to cash, which also affects the western banking system as a whole.
Vanilla Luxury: What are the tools and exchanges one can refer to in order to assess the rates and volatility of precious metals?
David J Mitchell: Again in a normal environment, finding the paper spot price of metal and viewing its long term chart performance is very easy using any google search parameter. But we have seen a breakdown of the correlation between ‘paper’ markets and the ‘actual physical ownership’ market.
Physical premiums have exploded due to, one, enormous global demand for the real stuff, and two, global stockpiles of investment-grade metals practically disappearing. This being exacerbated by the global shutdown of the entire logistics chain due to the COVID-19 virus. I do not believe that the large physical premiums are going away any time soon.
Even when the world returns back to normal the backlog of physical orders is enormous and will have to be filled first. This is then combined with the fact that world global demand will be dramatically higher than just a few short months ago (due to colossal increases in QE ‘money printing’ and government fiscal expansion).
Vanilla Luxury: When is a good time to sell precious metals?
David J Mitchell: It is so important to recognise the cycle we are in; right now the world is in the throes of a re-balancing event that's truly historic. There are recognised cycle time frames and price evaluation models that we research constantly.
I have clearly indicated the year 2024 is the first major cycle point to look for a considerable increase in the price of metals, then re-evaluate the macro landscape at that point and take your re-valued metals and re-balance your portfolio into other asset classes.
However, this cycle is not only a much more dynamic event than the Global Financial Crisis between 2007 to 2009 but also much longer, so selling down your metals into the year 2024 may still not be the advised time frame.
Vanilla Luxury: What other precious metals would you recommend investing in apart from gold?
David J Mitchell: Platinum especially has a truly wonderful investment thesis building, alongside silver and also some of the rare earth metals. We believe that platinum and silver will outperform gold from here in terms of percentage performances. It is best to consult our sales team for more details as we have extensive research and analysis to share.
For a complimentary consultation and more information about investing in precious metals, please contact [email protected].