Intelligent Investing #72 Glenn Leest, The Basics of Commodities Part 2

Gold and Silver and Lithium

1. Gold, its been around forever and we used to tie our currency to it. What role does it play in our lives today and in our portfolios?

·         Gold is one of the most valuable and sought-after metals in the world and has been used for thousands of years as a currency, a symbol of wealth, and in jewelry and decorative arts.

·         The use of gold has evolved over time, from its use as a currency and a symbol of wealth to its use in electronics, dentistry, and medical devices. Today, gold is still widely used in jewelry and decorative arts, as well as in investment products such as gold bars, coins, and exchange-traded funds (ETFs).

·         The price of gold is influenced by a variety of factors, including global economic conditions, political instability, inflation rates, and supply and demand dynamics. Gold is often seen as a safe-haven asset during times of economic uncertainty or geopolitical tensions, as it is considered a store of value that can preserve wealth even during times of market volatility.

2) What influences the price of Gold? 

·         Supply and Demand: The supply and demand of gold can also be manipulated, particularly in instances where there are fluctuations in the supply or demand of gold. For example, during periods of high demand, gold producers might withhold supply to increase prices, or during periods of low demand, gold producers might flood the market with supply to lower prices.

·         Geopolitical Events: Gold prices can also be affected by geopolitical events, such as political tensions or conflicts that can impact the supply and demand of gold. For example, a disruption in gold supply due to political tensions can cause prices to increase.

3) How has Gold performed over the last 50 years?

·         Its at $2009 an ounce now. 

·         In 1970 it was $36 an ounce.

4.Silver – How is that used and how is it compared to Gold?

• Silver has been used for thousands of years for currency, jewelry, and decorative arts, and is also widely used in industrial applications due to its high thermal and electrical conductivity.
• Silver is also widely used in the production of electronics, including batteries, solar panels, and computer components. It is also used in the production of mirrors, silverware, and photographic film.
• Industrial Applications:

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Transcript

 The following is paid programming brought to you by WT Wealth Management. Nothing we discuss should be considered as investment advice. This conversation is for informational purposes only. Please do your own research and speak to an investment advisor or financial planner before making any investment decisions.

All right, welcome. You're listening to Intelligent Investing with Glenn Le. Uh, if you want to talk with Glenn, give him a call anytime at (928) 225-2474. Email Intelligent investing@wtwealthmanagement.com. Um, last week, Glenn, we started our two-part series on commodities, hit Oil and Well Oil, and I was going to say oil and gold.

Oil and natural gas. Yep. Yep. And all its uses and, and what life would be like without that. Uh, go check that out by looking up intelligent investing, uh, with Glenn Leest on your favorite podcast provider. But we wanted to continue with commodities. And get into gold and silver and so precious metals and lithium.

Mm-hmm. So, lithium is like for, for the batteries? Yep. Lithium ion the component. Okay. Um, but let's start with gold. Spin around for a couple of years, whatever. I think of gold. I always think of pirates and, uh, the Goonies. I don't know why you think about Goonies. Yeah. Your goonies. Yeah. But no, gold's been around for a while.

Um, been a historically, um, Pretty, uh, effective store of, uh, of value. Um, you think about all the kings back in the day and all their gold storages, um, even the Roman Empire used precious metals for their coins. Um, you know, they'd have silver coins and then, you know, talk about inflation. They would disease it, meaning they would, instead of being a hundred percent silver, they'd be 98% and then 90 and then 85.

Flip it. So, yeah, so precious metals are spec, specifically. Gold has been around for a long time and, um, you know, it's a, it's somewhat rare. Um, metal. Um, it takes a lot of effort to find it and mine it, but, um, it's certainly not impossible to find. Um, like plutonium obviously, you know, or uranium. Those are ridiculously hard to find.

But gold is available. Um, we use it as a symbol of wealth. We use it for jewelry, we use it for, um, you know, aerospace and defense. We use it for our, some of our microprocessors on the, the chips, um, for conduction. So, there's quite a few uses for. Oh, uh, for gold. Um, now gold in ifs of itself is an interesting asset class because, um, one of the things I've heard a lot of people say is, um, I should just take all my money and put it in gold.

And, you know, what does that mean? How does gold work? What are the dynamics of what it does? Because it's definitely very different than say, owning a share of Amazon. So, I thought it would be a great show to talk about what gold is, some of the pros, some of the cons. Um, you know, from a currency perspective, the use of gold was really, um, effective because it was divisible, meaning you could divide up the gold.

Um, you know, so if you had a $10 gold piece, you could divide it up, you know, by melting it down and breaking it up into $1 gold pieces or gold dust. So that was an important part of any currencies that must be divisible, um, must have a, a stable store of value. So, gold met those criteria, but.

We're not in that same world today, you know? No, we don't. Um, you know, the US dollars we use as currency, we don't go around using gold to buy stuff from the store. So, I think gold is, um, an important asset class, but, um, understanding it I think is very important as well. Yeah. You used to put some restraints on government spending too.

I mean, when the dollar was backed by gold specifically, but it wasn't that long ago, Glenn. Yeah. Yes. So, it was backed, but you could trade it in and, you know, That, um, for any of the listeners out there, we just, I just watched a documentary, um, by PBS Frontline called The Age of Easy Money. Um, interesting talking about the Federal Reserve on monetary system, but then, I think it was the 1970s Nixon took us off the gold standard, um, and basically that allowed them to spend more than what they had.

That's exactly what Rome did, is they, they didn't have enough money to finance them. Wars or to, you know, do their elaborate coliseums and, and, and they found a way to, um, you know, devalue their currency to pay for things. And so, um, when we were on the gold standard, um, you could go in and take a dollar and exchange it out for a dollar's worth of gold.

And so, by taking us off that gold standard, well one, one of the factors that kind of caused that is all the other nations that we owed debt to, wanted to call in all their chips. Yeah. And would've wiped all our gold stores out completely as a nation. So, um, in the infinite wisdom at the time, we went off the gold standard, which just allows the printing press to run, um, without restraint.

Yeah. Um, and that we're seeing the problem of that today. It's just, you know, the dollar bill is. In essence, just funny money. Um, it, it is not funny to us because it means something, but it's like, what is that currency? You know? What does it represent? It just represents our, our faith in the government.

And trust. Trust and, and trust That has value because we believe it has value, but not that it's tied to any commodity. Yeah. And it, yeah, I remember, I've seen some documentaries on that as well. Glenn and, uh, France was coming into cash in. And forced the closure of the gold window because they're like, okay, here's your dollar bells back.

Can we get all the gold now? And uh, it didn't work out too well. So, what's, um, we talked about this quite a bit last week when it comes to, um, petroleum-based product products, Glenn, and what influences the price of gold? What really influences the price of any commodity? It's, it's all very similar, correct?

Yeah. So gold is interesting that there's a couple other, um, Things that factor into the price of gold. Not just supply and demand, but gold has traditionally been seen as a fear hedge, uh, or a p uh, instability hedge. So could you say Fear hedge. Fear hedge. Yeah. Yeah, yeah. Um, so when things are very scary or there's a lot of instability in our currency or in our government or around the world, people tend to flock toward, towards gold.

And, uh, to me, um, I don't 100% understand why they picked gold. I think it's just because of the history that it had. Um, but you know, there's a lot of other things that you could find that are effective stores of value aside from just gold. Um, but that is one dynamic of it that still seems to. Um, be recurring today.

So, supply and demand, um, is one of them. Um, the, um, inflation rates that also impact the price of gold as well. So, in times of high inflation rates, uh, gold tends to keep pace with inflation most of the time. Um, I think it's been said that. Announce of gold can buy a nice man's suit. Suit. Yeah.

Yeah. And it’s always kind of held that way. Yeah. So right now, golds at 1900 bucks, uh, I think you'd probably buy a nice suit for $1,900. So, it'd be pretty good. Yeah, it'd be nice. So, we’ll go back a hundred years ago, same thing. Yeah, you can. Yeah. And, and interesting. I looked at the price of gold from 1975 till now.

In 1975 was about a hundred dollars an ounce. Right now, it's around 1900. And so, some people have told me, oh, well gold will do. So much gold has done better than the s and p in the last 50 or 60 years. And, um, I mean, you can find a, a chart, or a graph at any point in time and make that true. But, um, just because of the dynamics of maybe where the market was and gold.

But if I looked at 1975 till now, For the s and p. Um, in 1975, the s and p was around a hundred bucks or so in that range, and now it's at 4,200 versus, um, same timeframe for gold, a hundred to 1900. So more than double its performance. Um, but gold doesn’t, the downside of gold is it. Um, it doesn't produce anything.

It's not like a, um, this piece of metal goes out and innovates or corrects the ne or, you know, um, creates the next Snapchat or the next good or service that's going to revolutionize our world. It's just a piece of metal. So it does have limited applications as far as that goes. Okay. Um, how about silver? because they're always kind of paired together there.

Um, how's it used, how's it compared to gold when you, when you've been looking at that historically? I should know it. I really like silver. Yeah, it's kind of fun. Silver's. Um, like gold, um, still kind of a fear hedge, but silver has a lot more applications mm-hmm. Then gold. Um, like, like gold, pretty much.

It's jewelry. Well can't you don't we don't use it in teeth anymore. I was going to say teeth filling, but we don't use, I got my big gold. Bling here. Yeah, it is. If everything's ever gets hard, you can go in and cash in your fillings. It's actually a pretty good savings program. It's like, here, just popped this out.

Uh, yeah. Used to do that. Right? Um, so yeah, jewelry, uh, gold is used for some aerospace and defense. Um, and then also maybe a little bit of microchips. It's used, but it's not, it's a great conduit. I mean, you can, you can stretch that gold thin, but that's costly wire. Yeah. Uh, copper might be better.

It might be better. Copper silver is like, you know, the, uh, the redheaded stepchild of so much SPR and stuff is effective. But yeah, so silver, some of the um, uh, applications that silver has that's different is, um, the industrial application. So, um, you know, silver is a very good connection. Activity, electrical connect, conductive material.

Um, it also has a lot of reflection too. So, um, that's an important aspect. It also has antimicrobial purposes too. Um, so some people, um, use silver as medicinal applications. You've heard of Colo, cello, colonial Silver. Mm-hmm. Um, I think I mispronounce that, but yeah, silver has applications there. Um, batteries, solar panels, medical imaging devices, and a whole lot more.

So, I think silver as far as an application, um, of how that commodity is used as much broader than gold. Um, and I look for commodities that have a lot of real-world application, and if anything is on top of that, like it responds well and, and. In fear times or instability. That's great. That's icing on the cake, but I don't want that to be, my only thing that I look at when I'm looking at commodity is just, it only does well when things are scary.

Okay. I want it to also have a real-world application, which is why as a firm, you know, we still have gold in our portfolio. Um, we also have silver, but we, we tend to lean more towards other areas like lithium, which we'll cover next because that has huge, um, you know, applications for our lives today. But yeah, kind of going back to go, uh, silver, um, silver has also been a currency over the years too.

We talked about, uh, Rome and the Den, the denarius, is that what it was? Yeah, I think so. Yeah. Yeah. And so, they made that out of silver. So yeah, in the beginning it was a hundred percent silver. And then, And the governments, uh, wanted more money, so they debar it and made it only 98% sober. And then that kept going on.

And was probably the reason why the Roman Empire collapsed is just inflation was just through the roof. No one could afford anything because they devalued their currency so much. So, um, so silver does have some, um, currency applications too. And we, I should note that the pre-1965, uh, quarters, um, Dimes, uh, here in the US if you've, you won't find them anymore.

It's rare in circulation. You can buy them on the secondary market, you know, Glenn. Um, but they had, um, like 90% silver in them. Mm-hmm. Yeah. And now you look at it in Scott, is it zinc or? Copper, whatever they got in there. Mm-hmm. They've taken a copper out the pennies. So, we've kind of seen that happen.

Yeah. Yeah. Over the past 50 plus years, what has it? Uh, the penny, um, is worth 2 cents an actual, the old ones, if you can get old ones. Yeah. Because now they, they kind of took out that, they replaced them, what are we doing here? We should be going. Finding pennies. Finding pennies. When people did that in the sixties with the silver coins as they were, coming out circulation and um, you know, a quarter was a quarter and now it's what's announced of silver.

Yeah. Um, wow. It's 25, 25 bucks, you know, so you get a few quarters. You, you're pretty good. Uh, alright, let's get into, you want to hit on lithium when we come back, which is, uh, yeah, I was going to just, uh, give you one last, uh, snippet on the Yeah, go ahead. Um, Price this over too. Okay. Cause you did mention that.

So, 1960 or 1970, sorry, is about a dollar 67 an ounce, and then right now it's around $25 an ounce. So over that same time have seen, um, a lot of growth. Yeah. Much more than gold has. Um, and. You know, silver, um, again, it's uh, it's still just a metal, so, um, it doesn't innovate, but it certainly has a lot of applications.

So, I kind of lean more towards silver and a lot of applications than gold is both, both are great, uh, commodities. Yeah, and I think it'll, um, when we get into lithium, because the, um, aspects of that when it comes to the technology and the batteries and all that. And you hit it with silver. There's so many. Last week we talked about getting, um, elect, people wanting to electrify.

Mm-hmm. That's going to take a lot of silver. Oh, the other thing is silver, uh, used as, as, um, no, I'm thinking lithium. Lithium, uh, okay. We'll get into lithium bicarbonate. So, it's, uh, depression meds, so. Oh, okay. All right. Let's get into it, let's do that next. Let's get into lithium when we get back. Uh, email Glenn Intelligent Investing, WT wealth management.com or give me a call at nine two eight.

9 2 8 2 2 5 24 74. That's 9 2 8 2 2 5 24 74 back in just a minute.

You're listening to Intelligent Investing with Glenn LEAs. Give Glenn a call right now at (928) 225-2474. That's 9 2 8 2 2 5 24 74. More intelligent investing with Glenn LEAs when we come back.

Welcome back to Intelligent Investing with Glenn Lease to give Glenn a call 9 2 8 2 2 5 24 74. Email Intelligent investing@wtwealthmanagement.com. Going over commodities. Uh, hit cold and silver. We hit oil and natural gas last week. Moving on to, I don't know, a lot of people didn't really think about this one till the past few years or decade or so.

Mm-hmm. Um, lithium, I guess. Because it's, it's growing in its importance. Why? Yeah. Yeah. So, lithium, um, is used in a lot of, um, battery storages, so battery storage technologies. So, um, if you look at any of your batteries and any of your electronic devices, um, usually they're lithium-ion batteries, especially if it's rechargeable.

Um, I mean, the. Laptop, the cell phone, your, um, you know, EV car or if you have a renewable energy plant, they're storing the energy in those battery systems. And so, um, it's becoming more and more of a thing. I mean, think about every electronic device you have on your house and how many of those have lithium batteries and.

Um, you know, they need to be replaced after a certain amount of time too, so they're not like, uh, one, you have a lithium battery, you, it'll always, you know, be good. Um, after a couple years you usually need to recharge it, uh, or not recharge it, but replace it. Mm-hmm. Um, as evidenced by some of the iPhones, you have had an iPhone for more than like three years and it just doesn't hold a charge as much.

So, um, but that's the most efficient way we have of energy storage right now for electric energy storage, lithium. So, as we move more towards electric, Everything, you know, it's going to be more and more of an issue or not more, more and more important. Yeah. Um, and, and I'm noticing this myself too.

Um, I was at the Home Depot the other day and I was cutting some trees down at my house and I had a gas-powered chainsaw, and then I went to go get another one, which is like a pole saw, you know, a little bit higher to get the high branches and they didn't have any gas powered anything there. There was only one brand that made gas power and all the other seven or eight major brands, everything was electric.

So, mm. Um, and I was a little bit hesitant. I'm like, well, I've got some other Ryobi electric tools and so I got this Ryobi um, P saw drill and I was kind of in my mind thinking, ah, this is not going to be as good. But to my surprise, it was effective, um, especially because of the difference between a combustion engine and an electric engine.

The electric engine can spool up a lot faster. Um, I mean if you've ever had like a remote-controlled car, like a nice one. Yeah. A motor twerks. Yeah. Yeah. Then, the torque is unbelievable, which is why some of those Tesla’s are so quick. Um, so, um, EV and Lithium, uh, has grown over the years and so, uh, I'm not opposed to it.

Um, and I think it could be a good thing there. There are certain applications where, you know, lithium is just not appropriate. Um, so one might be I, I have a client of mine who has a landscaping company and they've got big mowers of grass. Right. And, uh, they're all, um, either diesel or gasoline.

Mm-hmm. They can make an entire football field and they're good to go. Whereas if they went to electric, they could only use that thing for maybe two hours and then they must go offline and recharge it. And each one of those batteries. Cause it's a huge industrial. Yeah, yeah. It's going to be pricey. So. There are limitations with electricity as far as that goes.

So, if you're doing long, prolonged, um, either travel or use the device, um, you would have to either have multiple batteries or kind of pause and, and uh, let it recharge. Whereas gasoline, um, applications just don't have the same issue. You just fill it up with gas and keep going. So, I have a ton of power tools and equipment, and I have a lot of electric stuff for drills and this and that.

Mm-hmm. Um, a prime example would be weed whackers. Yep. I have a gas-powered weed whacker and a steel, and then a steel be uh, battery powered one. Batteries are really good just to get out real quick and you have got to do a little bit of work. Mm-hmm. Where I give it to my son to do work. Yeah. Um, but if I must really get into it and I'm really hacking down a lot of stuff.

I get out the gas one, it's still, yeah, it's still more efficient and easier. I'm in ease, the exact same boat. I got the electric, uh, weed whacker and it's okay for like little bit of jobs here and there. Or I mean, if I've got lots of batteries, then it's like, okay, fine. But those batteries are pricey. A hundred, 200 bucks, depending on the, how long you want it to go for.

Exactly. So, um, now, um, the flip side is, you know, I'm getting solar installed, so, you know, hopefully I'll be able to, um, make electricity a lot cheaper for me. Mm-hmm. So, you know, some of these electric things, you know, will become cheaper to operate. Charge for free. Yeah, charge for free. So, um, but the other applications for lithium, um, not just, Energy storage and batteries and electric vehicles.

Um, but we, we said pharmaceuticals last, uh, you know, before it took a break, I talked about lithium bicarbonates. Um, you know, so, so that has a very popular mood stabilizer. Um, and so there's a lot of, uh, applications in those realms. So, and that is, you know, lithium. Um, and so, um, pharmaceuticals are one aspect of it.

Aerospace and defense are another one. Mm-hmm. Um, because it's, uh, very light and has a high energy density. So, uh, lithium is very, um, you know, useful in that aspect. Um, how much, how much lithium do you think that rocket used? Did you see that rocket? That Elon Musk launch that blew up? I was like a monster. I was confused.

Cause it blew it, it blew up. But they're like, this was a success. They said, I think they just said if it got off the launch launchpad, it was a success. So, um, imagine if that was your metric. Multi-billion dollar. I just wanted to go up a little bit. Yeah. Um, y yeah, so there's a lot of, uh, lithium used in there.

Yep. Um, y you know, and they're also using nuclear re reactors as coolant. So, um, lithium has applications there, um, also as a lubricant. And so, um, they use it in some of the production of grease and lubricants as lithium. So, it's an additive there. Um, and then glass and ceramics surprisingly enough. So, lithium has applications there.

Um, so it, it, it helps lower the melting points of those materials, and so it helps improve their properties. So, if you've ever had anything that's gold, it's not 100% gold, it's a gold mixture, you know, because gold is such a brittle material that they must, you know, lace it with some other things. And so, lithium is kind of on the opposite side where they can add it in.

To, uh, glass and ceramics and make that ceramic or glass easier to produce and more efficient as a product. Cause, uh, think about those, um, Pyrex, um, glass, um, pans that you have, that you put in the oven. Mm-hmm. Those things can, like, you can hear them up to like. Five, 600 degrees and they just hold steady.

And I don't know if all regular glass has that same property. So, I think that that, um, application might have used something like lithium to increase its, uh, melting point, if you will. So, um, Uh, that, that's important too. Bottom line, just tons of applications and then also some research.

Um, yeah, you know, scientific research and, uh, you know, experimentation. Um, they use a lot of lithium in that aspect, but I'd say the main ones are going to be, um, your, your batteries, um, aerospace and defense. And then the, um, lubricants are probably the most common applications of, of lithium. A couple more questions here, Glenn, as I'm going to end here in just a second.

How, how do you get into this type of thing and, you know, what should people do, but. Um, I think one of them is one of the challenges with lithium, a lot of it comes from overseas. Yep. I believe a lot of its China and other places. Correct. I think like 80% of the lithium mines are owned by China. Yeah. So that creates some big hurdles going forward for a nation that's saying, hey, let's.

Electrify everything. Um, yeah. And we don't have of, uh, you know, China in that aspect. Yeah. It is a challenge for sure. Um, I don't know what the solution is though, to be honest. With that said though, is when you're looking at where to invest and things like that mm-hmm. And portfolios, uh, I mean, well and people in general, how do they explore this?

How do they move forward if they want to incorporate this into your portfolio? What are you looking for as well? So, we have, um, so we have our, our gas, you know, our, our oil and gas, natural gas exposure. We've got our gold and silver exposure. Um, and then our lithium exposure is much higher than the other two combined.

And so, our lithium exposure is usually one and a half to 2% of our portfolio. Because we see it has so much growth potential over the years. So, we bought a fund that owns the top 15 or 20 lithium mining companies. So that's our way of it, getting exposure there. Um, and sometimes when we look at, um, investments, we can pick out the individual winners in that industry, like the dominant players.

But with lithium, um, we just decided to own the top. 15 or 20, you know, whatever the case may be. Um, because there's no standout one winner that, you know, dominates the entire industry. So unfortunately, um, a lot of them are overseas. We try to get, ones are not China-based, but, um, we are kind of limited that sometimes we must have a little bit of exposure in those, uh, areas to do it.

Alright, if you want to learn more and you want to talk with Glenn one-on-one, um, well, Couple things you can do. You can email intelligent investing@wtwealthmanagement.com. Yep. Also, uh, call 9 2 8 2 2 5 24 74 and we encourage you to look up the podcast, last episodes as well, past episodes. Mm-hmm. Uh, intelligent Investing with Glenn LEAs, and we'll be back next week.

Hit it once again. All right. Sounds good. All right sounds good. Good information. Take care everyone. We'll see you soon.

The following has been paid programming brought to you by WT Wealth Management. Nothing we've discussed should be considered as investment advice, as conversations for informational purposes only, please. Your own research and speak to an investment advisor, a financial planner, before making any investment decisions.