David McAlvany would never be so crass as to tell you he told you so, but the CEO of McAlvany Wealth Management, figured years ago gold was set to catch fire – but if you’re worried you’ve missed the escalator up, breathe easy.
McAlvany, whose father, Don McAlvany, brought the firm with a historical tie to investing in the gold market from Denver to Durango in 1991, thinks the rise in gold prices is only in its middle stages.
“Are we at the beginning, the middle or the end of this movement? I’d say we’re somewhere in the middle. We’re not at the end because you need positive real rates of return. And arguably, you have that in the stock market. I think the stock market is priced to reflect the illusion that the Fed’s liquidity machinery will be sufficient in this period of time. And I think it’s an illusion. It’s a confidence game, and it works until it doesn’t,” said McAlvany, who sees a rockier ride ahead in stock markets priced for perfection.
The declining value of the dollar as the Federal Reserve Bank prints more and more money, he said, also supports higher gold prices.
“August was the worst performance for the U.S. dollar since August of 2005,” he said. “So you’ve got the skeptical investor buying gold to protect against the dollar decline and now actual pronouncement from the Fed that they’re going to run inflation hot.”
The tell-tale sign that the rise in gold is topping out, McAlvany said, will only come when there’s “panic buying” of gold.
“What we know from history is that gold bull markets end with panic buying,” he said. “Panic buying where people are buying not because they want to make money but because they’re desperately trying to avoid additional losses in their other assets. It’s panic buying solely based on fear, and it’s 100% irrational, and we are not there yet.”
Instead, McAlvany’s firm is now hearing from investors who are looking to buy gold as a hedge against the next inevitable pull back in the stock market – traditional hedge investing, something McAlvany called the opposite of panic buying but the behavior of a rational investor.
“Every day we have reasonable conversations with people who are trying to do the math and make the math work,” he said. “These are people who are reasonably engaged and just saying, ‘I think I need to hedge my bets.’”
McAlvany was ready for the 2019-20 appreciation in the value of gold. About 1½ years ago, his firm created Vaulted, an app designed to make investing in gold affordable and easy for small and large investors.
Investors are charged 1.8% of the initial transaction cost to make an investment through Vaulted and they are charged 0.4% of their investment annually to cover storage and security costs of keeping the gold at the Royal Canadian Mint.
Vaulted is designed to allow people to make investments as small as $5 in gold and to keep track of their gold investments as they gradually add more.
Vaulted is a partnership with the Royal Canadian Mint in Ottawa, Canada, where the gold bought through Vaulted is stored, unless the owner wants personal delivery of the precious metal.
McAlvany estimated about $30 million has been invested in gold through Vaulted since it was unveiled.
“It doesn’t hurt that we know the gold business well, and I’ve been doing this for 50 years,” McAlvany said. “So this is not sort of a brand new startup, although it is a new offering. It just marries up the market expectations with 21st century technology. With five millennia of market expectations for market security, gold represents security, but for a lot of people who are young and tech savvy, they would prefer an interface that is designed to be 21st century.”
Vaulted, which is under the umbrella of McAlvany Financial Group, is not the only or even the bulk of McAlvany’s firms’ management of gold investments.
McAlvany’s financial firms pioneered creating the ability to invest in gold through IRAs, individual retirement accounts and Roth IRAs.
Gold investments managed by McAlvany’s financial firms are well over $400 million.
The popular exchange-traded funds GLD and SLV, McAlvany noted, have hundreds of billions of dollars invested.
McAlvany sees some of the money going to GLD and SLV as an opportunity for his firms to lure investors from those well-known products.
“Four hundred million, that’s actually a very small number when you think about the kind of money that is moving into gold and silver exchange traded funds, like things like GLD and SLV,” he said.
He said most gold investors don’t actually take delivery of the precious metal, instead electing to keep it secured in places like the Royal Canadian Mint, but he said the fact that you can take personal delivery of gold through Vaulted does give small investors something that can be replicated by GLD or SLV, which can only offer personal delivery of gold on contracts of $10 million or higher.
“The majority of the people, including people who are in the Vaulted program, don’t intend to take delivery. They want ease of investment,” he said. “But one of the things that the ability to have personal delivery shows them is that it is deliverable. It means there’s no games being played. It’s gold that’s sitting there in the mint in Ottawa, collecting dust, and it’s their gold sitting there.”