Backgrounder

[00:01:11]Mike Philbrick: We are thrilled to welcome Mark Valek, partner at Incrementum AG and co-author of the highly respected In Gold We Trust Report, often called the Gold Investor’s Bible.

Mark brings decades of experience in macro investing asset allocation with a unique focus on the intersection of gold and monetary policy, as well as systemic risk. This year’s 2025 edition is entitled The Big Long, and it explores everything from fiscal dominance to Central Bank Trust to Gold’s evolving role as a reserve asset and even Bitcoin’s growing role here.

So there is also a re-imagining of the 60/40 portfolio with the role of gold and Bitcoin in the new regime playing an expanded role. Mark, it is great to have you with us, and from the perspective of the paper, can you elaborate on The Big Long?

[00:02:05]Mark Valek: Thanks for having me, gentlemen. It is a pleasure. As you already mentioned, we do the In Gold We Trust Report on an annual basis, and every year we have been giving the report a leitmotif. This year’s leitmotif, as you said, was The Big Long, which is obviously a little bit of a play on the movie, The Big Short, which basically showed a lot of the hedge fund managers back then, betting on the housing crisis.

This is a little bit of an inverse, the idea that actually a long position on gold is probably going to, in our view at least, be a very profitable trade, if you want to look at it like that. But it is actually, in our view, obviously much more than just a trade. It is like a systemic rediscovery of gold as a reserve asset.

I would put it in those terms, because of everything we have been seeing in the last years. The dollar-based system is being eroded. The trust in it is slowly being eroded with a lot of things which have been happening. This is really our message to investors, since we are also asked a lot of times, the gold price has risen so much, what should we do? It is probably at the end of its road.

If you look at our cover, the road is relatively long still, but it is also a little bit bumpy. It is not like a straight road. It is not a highway. It is nothing that we are expecting. But what we wanted to point out is we do think that this bull market has a lot of ways to go, because as I said, in our view, the re-monetization, which is a difficult term, we can talk about that perhaps, but the rediscovery of gold as an asset, in systemically, has started, in our view.

[00:04:17]Mike Philbrick: And how are you observing that?

[00:04:20]Mark Valek: I would say the most evident or obvious indication of that is if one looks at central banks. We know that central banks have been buying gold and accumulating gold actually already since 2009 at a relatively slower pace, when it comes to the years 2009-2022. I think the average accumulation was somewhere between 300-400 tons during these years, but in 2022, something was kicking in. If one looks at the purchases, they blew off to over 1000 tons a year, so basically, 3X. They have been in this ballpark consistently the last three years.

Probably the occurrence, what actually happened was, in our view at least, the sanctions, the sanctioning of Russian assets in this conflict, when it came to the war in Russia, obviously the world saw this, because if you take the standard wisdom, and even I think it is part of the Chartered Financial Analyst (CFA) body, if you take the CFA exam, you get to learn what is the riskiest asset and you have to actually tick off the box.

U.S. Treasuries are the riskiest asset. For a lot of people in the world, it became evident that they are not riskless anymore. So if you are politically perhaps not best friends with the U.S., then perhaps counterparty risks are, you should reevaluate your counterparty reasoning. I think the world has been doing this, and again, it shows up in central bank purchases, first and foremost.

[00:06:25]Rodrigo Gordillo: Mark, I just popped up one of your charts here, and so that is the kind of big jump since the Ukraine invasion that you are alluding to. Do we think that is basically because of the sanctions to Russia and the fiscal misuse of the United States and other central banks?

[00:06:47]Mark Valek: Yeah, I guess it is not the only factor, but I think that the jump does have to do with the sanctions. As one can see, I think the first moment of distrust was when the system was questioned around the Global Financial Crisis (GFC) or in the aftermath of the great financial crisis in 2009-2010. Back then, counterparty risk also became a topic since we had some banks failing, at first at least.

This was the first bigger dent into this dollar-centric monetary system, which has been going on since 1971 or 1973, wherever you want to put the date, but really coming from a very unique situation. If one goes back further, like if one looks at the end of the 1990s, the U.S. was the only game in town when it comes to geopolitics. It was also called the only superpower and there was basically no rivalry going on.

The Soviet Union had broken down in 1991, and the U.S. had a great run in the nineties, even had some surpluses from the fiscal side at the end of the nineties. So the dollar was really king at the end of the nineties, no competitor, and gold was flat. Nobody had interest in gold. That was also basically where you had the lowest gold price. A lot of things have changed since then, fiscally and geopolitically.

[00:08:48]Rodrigo Gordillo: Yeah, it is incredible to see that in post-2008 you get the rise in demand for central bank purchases. It is around the same time that Bitcoin launches as well as part of that mistrust. There is big jump, consistent growth in purchases, and then another massive jump in the last three years.

[00:09:09]Mike Philbrick: It really was a watershed moment. We have had conflicts globally, but no one has ever seized the reserve asset of another nation during a conflict. That moment in time caused everyone to stop and say, if the U.S. Treasuries, the reserve asset, they know where all the Treasuries are held, because they are the issuer of those assets. If we do something that is not agreed to or isn’t liked by the U.S., then all of a sudden our Treasury becomes at risk for confiscation.

Gold has that one asset where it is not a counterparty risk to anybody else. When you hold a bar of gold that is yours. Now, paper gold is another topic, but a pretty significant watershed moment.

Then you have fiscal dominance following that up, Mark, and I wonder if you have some comments on that or thinking into how this bleeds into other areas for demands for gold. I would love you to touch on the initial conditions we have, i.e., where are we starting from, an allocation perspective across portfolios generally.

[00:10:18]Mark Valek: I would like to add to the counterparty aspect. This is not as relevant for every investor, as I said. Probably, the 800-pound gorilla in the room is China, right? It is no secret that China and the U.S. have this geopolitical rivalry, and China has huge surpluses. This is a big topic, which I am, very lively debated today in policy efforts by the Trump administration, but that is nothing new. For U.S. based investors, the counterparty risk has not been imminent and I would argue it is still not imminent. It is very crucial to whom you speak.

I think also as a part of this reality, U.S. financial institutions still own the largest pools of capital and therefore are very important for price discovery for all kinds of markets, but gold being one of them. They have not been participating in this rally.

I think this is also very important to explain, and that is a very good chart that you are pulling up, to explain this discrepancy between all kinds of performance, of performance, gold. We include gold miners, but also silver. Both of these assets were relatively not performing that well in the recent bull market.

Why? Because that bull market has been a central bank-driven bull market, and typically silver, but also mining equities, are marginally bought by western financial investors. Again, they have not participated yet. I think it is just noteworthy and referring to this graph, this is the new Gold Playbook, what we called it last year, our last year’s leitmotif.

We wanted to highlight that the relationship between the real interest rates, in this case it is also the exchange-traded fund (ETF) holdings, the charts look very similar, has broken, right? ETF holders, which are, ETF purchases are typically, in the west are typically Western financial institutions. They always were, the last two decades at least, have been the marginal buyer of gold.

I think this correlation is quite evidently seen here, even though the total amount of gold they hold, and we see this on the left-hand scale, is not that big because we have estimated the amount of total above-ground stock of 220,000 tons and they have been holding something like 2000 tons. That is not a huge amount, but at the margin, it was enough, obviously, to move the price.

Again, this goes back to my argument, they did not see any need, if you look at the right-hand of the chart, any need to increase their gold holdings. Actually, they sold when the interest rates started to rise again, whereas the price just started to soar.

Then, and so again, I think this is quite a good confirmation of our argument, why what has happened. It has been a central bank-induced bull market, which I think explains why performance-called gold, as we call it, has lagged, and which also I think one can conclude if Western investors join the party, then we are going to see performance gold to make up some underperformance. I think this may have started during the last weeks.

[00:14:47]Rodrigo Gordillo: When you look at the pie chart that I want to present quickly, when you look at the existing holdings for gold, I thought this chart was illuminating, since the beginning of my career, when we walk into a room of financial professionals, we ask how much of their holdings for clients are in gold, and it is a shocking amount, like zero. This chart just shows it.

Here you got gold and precious metals at around one percent versus all other asset classes, so that cohort has not woken up to the utility of gold so far. It is fascinating to me, but you are starting to see some pick-up.

[00:15:35]Mike Philbrick: I would say that we are starting to see a pick-up in just evidenced by the way the underlying gold equities have been playing. As Mark mentioned, that tends to be a lot of North American participants who will jump into that, and it flows down. The price of gold is up and then it stays up. Then you have to go through the discounted cash flow analysis for gold mines, see how much they have sold forward, where they are flat on it.

There is this lag period between where you actually get some interesting cash flows, and now you are seeing those growth numbers in some gold stocks too that are pretty substantial, largely based on the gold price coming through in their profits. You are seeing the capital flow that way too. Just if you look at the VanEck Gold Miners ETF (GDX) or the VanEck Junior Gold Miners ETF (GDXJ), the ETFs in North America that represent them. You see some outperformance finally in the last month or two.

It does seem like your thesis is on point Mark, that the North Americans are joining the party slowly but surely, and I think you mentioned in the report, you feel we are in middle innings on this in the sense of a baseball analogy.

[00:16:46]Mark Valek: This is obviously always a very tricky thing to estimate, bull markets evolution, but I think one can make the argument that this is obviously, we know at the beginning that this is also clear. If we don’t think that we are at the answer, I guess that leaves us that we are somewhere in the middle.

Obviously, we have been talking about this rediscovery of gold as an asset class, which has been much more prominent at the level of central banks. Now it is slowly perhaps starting in the West of financial scenes again. What is still unknown and you actually asked me about that, Mike, just before the question before, what is going to happen with the fiscal situation, fiscally dominance?

We really do not know where this is heading. It doesn’t really look as if it would change anytime soon. We had a brief moment of reconsideration of looking at what is going to happen with DOGE.

You have already put up the slide here. One can say one thing about the administration, but what they did do for the first time, I think ever, at least the last 50 years, they actually addressed the point of the unsustainability of the fiscal situation, and that is quite significant.

If you just think, last, Treasury Secretary Janet Yellen just said everything is fine and no problems, nothing to see here. The officials actually pointed out very clearly, or at least they did. That was quite an interesting moment.

At the end of the day, one has to think about why is the gold price rising at all? The gold price is rising because there is more inflation being produced in terms of more monetary units, monetary inflation in order to basically reflate the economy or inflate away the debt. This is the typical structure of this step-based monetary system.

The really fundamental question which one has to ask oneself is, is the fiscal path sustainable or not? Obviously it has not been sustainable for the last decades, but as I just said, they were at least addressing this point and talking about changing the path, but it does not look like as if there would be close to substantially changing the path. As long as we do not see a change in this momentum, we really do not know how long the bull market for gold can last.

There are a lot of factors which we do not know about the future, but we can say these factors are steady right now, and that is why we assume that there is still a lot of upset.

[00:20:34]Rodrigo Gordillo: It is fascinating to have watched the ups and downs of the promises, the hope. Now with the Big Beautiful Bill, seeing how much more spending and continuation of the past there has been, Elon’s line, “the bill can be big, it can be beautiful, but it cannot be both”. It is a very big bill. The hope for the administration is really unlocking efficiency and unlocking efficiency through cheap energy.

Even as you look at the bill and explore what they have done in terms of solar and the like, they are making it more difficult to have cheap energy in the United States with the exception of trying to drill, baby drill, which is yet to be seen how they are going to accomplish that. If they are able to unlock that, then all bets are off, and who knows what is going to happen to gold, right?

If they unlock a ton of efficiency and I think everything has to be, most of efficiencies can be driven by cheap energy costs, but that is an unlikely scenario in my view. Certainly going, austerity is not going to be something that the administration is going to do.

[00:21:52]Mike Philbrick: We have to print. Quantitative Tightening (QT) has been ongoing of late. They have not even started to start to roll some of the debt and quantitatively ease. We have this in the face of QT.

We have a very strong gold price. The other thing in the real current domain is people will say, or have said, it is up a lot. That is fair, but we are going through a moment of consolidation. It is consolidating those gains. If you are someone who has been thinking about allocating, this is the time to start actually giving yourself some time to allocate to an asset, as it digests a little bit of the gains it has had over the last year or so.

I just think it is a bit of a sweet spot where you are still early enough, where you can garner the gains. We often approach it, Mark, from the perspective of the unique asset class to the portfolio. Gold just brings such a unique orthogonal angle to a portfolio of more commonly accepted assets. It always makes a lot of sense and how you accommodate it and get into the portfolio, that is a bit of a long story, but it generally always makes sense to have some gold.

I just feel like we are going through those three phases of truth. If you go back to Gandhi, truth passes through three stages. First it is ridiculed. Second, it is violently opposed, and then third, it is self-evident. The ridicule was back away where people, why would you ever buy gold in that period where the U.S. dominance was so strong, the U.S. dollar was very worthwhile.

It has been through this opposition. Why would I hold it? What are the reasons? Then eventually it is going to be self-evident. When it is self-evident that it should be 10, 15, or 20 percent of your portfolio, the price is going to be pretty high.

[00:23:55]Mark Valek: Yeah.

[00:23:56]Rodrigo Gordillo: Sorry to interrupt, but I did want to take a quick second to remind listeners that while we absolutely love providing our audience with world-class guests and weekly investment insights, we wanted to remind you that we actually do our best work outside of this podcast. We try to do this by providing cutting-edge, globally diversified, and systematic investment strategies that are designed to be broadly non-correlated to traditional equity and bond portfolios. We manage private and public funds, as well as bespoke separately managed accounts for investors that seek the potential to smooth out portfolio returns in the long run. If you do want to see that theory that we have been talking about put into practice, please do go ahead and check us out at www.investresolve.com. Now back to the podcast.

Mark, why don’t you walk us through this chart here? There is this chart and the one next that talks about the path dependency, but tell us about how you guys are thinking about the different scenarios.

[00:24:53]Mark Valek: From our conversation, what we do is thinking in longer terms because I think it is very difficult to evaluate something in the short term. Especially, everybody wants to know where will the gold price go tomorrow, on to the end of the year, but I think it is more realistic to get some kind of a feeling in the longer term because these longer-term trends, as we already discussed a little bit, seem very firmly be in place.

Therefore, we made some kind of long-term predictions, or at least we tried to quantify a model where we calculated different scenarios and then the weighting of these scenarios, we assessed how likely are each of those scenarios.

Our average scenario brought us for a 10-year time horizon, for the year 2030, at the end of the decade, to a probable gold price of $4,800. That was, as I said, five years ago, when the gold price was at $1700. Back then it sounded quite outrageous for some people, even though the average return, the compounded rate of return wasn’t extremely high. What we looked at for these calculations was the decades, the historically decades of the gold price. We only have from 1970 to see these different decades.

We had two good decades, which were the 70s and the 2000s, which were quite good decades for the gold price. During the other decades, it basically had sideworld markets or bear market in the case of the 80s.

In the long term, we estimated the rate of the monetary supply growth. That was one factor. The other factor was the implicit coverage ratio of gold, so how high basically, or to what extent will gold be basically covering the monetary base. That is a function of two things, again, of the amount of gold the central bank has, and the gold price if you mark it to market. That is how we calculated it at least.

We had different scenarios and the one thing, the average scenario was $4,800. We are now above basically the path to $4,800. We were below the path, but now we are above the path. This is the dark blue line, which you can see this is the path which it would need to take to get there. One of these scenarios was an inflationary scenario, like the 70s, a very good environment for the gold price, due to inflation/stag-inflation.

If we see such a scenario once more in this decade, we said back then that the target will be considered considerably higher, something like $8,900, in that range. What has been interesting in that regard is we saw quite significant inflation in the first half of this decade, but the problem, at least statistically speaking, became resolved or was not so bad in the last year, so inflation rates at least came down. Obviously that doesn’t mean that prices came down, just the rate of increase of these prices came down.

It was at one point quite significant, close to 10 percent, even in the U.S. something like eight or nine percent or so in this range, but it came down to three percentage range again.

In our view to really, and a similar thing actually happened in the 70s. We had the one wave in the big, in the first half, and the second inflation wave in the second half of the 70s. In order to qualify as an inflationary decade, we would need a second wave of inflation. I think that is totally possible.

In fact, it is quite likely, in our view. If we will have a second wave of inflation in the second half of this decade, I think this decade will go down as an inflationary decade, even though right now it is not perceived as this yet, and then we feel very confident with our bullish price scenario at close to $9,000.

End miniriff here

[00:30:46]Rodrigo Gordillo: Whether that scenario ends up happening, I think it is important for people to recognize that predicting the near future is really tough. A lot of people see these lofty predictions, and then they invest, and then a month later when there is a 20 percent correction, they say, I told you, or you got me into this at the wrong time. So I think it is important to show this chart here where you describe what the different kind of corrections might be along the way. It is not a straight shot. Walk us through this chart.

[00:31:27]Mark Valek: We also looked at the max drawdowns during each of these decades, especially during the bullish decades, because our premise is that we are in a bull market, obviously, and even bull markets have drawdowns. During the last two bullish decades, we had drawdowns between 20-30 percentage points, more than 20 percent, and in one case in the 70s, at one point actually 50 percent drawdown, which is quite severe.

If that ended the bull market and the new one started in the second half, that is statistically question how you want to define the bull market. The point being 20 percentage points of drawdown, definitely something which one should expect, even if one is bullish.

Just to give investors some kind of an overview, where that would put us, from the last all-time high, that would be $2,800 basically if we fall 20 percentage points from the last all-time high, which is totally possible. We do not know if it does fall that low.

The one strategy which I think in any case makes sense probably, is to average-in and to average-out by the way, as well. Averaging-in will help you to get a little bit of a better average price. The other help is psychologically, because if you pinpoint your entry point on one specific point in time. you always, if it doesn’t, if the market doesn’t go the way you want, you will question this decision.

If you kept some power and average-in, you have a lot of power in both cases. If it rises, you didn’t do it wrong, because you put something in already. If it falls, you have enough power to average down your price. That really helps you to be more comfortable with the position, to some extent.

[00:33:57]Mike Philbrick: I think it helps build intuition for allocators and investors who may not have had an allocation to gold, which is not, given the facts we know from the report, 1 percent of assets held by asset owners are in gold.

Not a lot of people have intuition for how this asset class functions in different ways when compared to, let us say, stocks and bonds and how it responds to inflation and potentially deflation. As an allocator, I think I echo Mark’s advice there. Take your time, make an allocation and then rebalance that allocation.

Also maybe you sin a little because you feel you are in a bit more of a bull market and you let that allocation run up, gives you a profit cushion and allows you to add more at a potential time down the road to continue to complement those traditional asset classes that people are so over invested in, from stocks and bonds to even private equity, private credit to some degree.

[00:35:01]Rodrigo Gordillo: One of the things that with regard to allocating and speaking with allocators, and contemplating gold versus other traditional asset classes, is the lack of yield that gold has, from a fundamental perspective. Professional allocators like the dividend yield.

We have learned the discount value mechanism. We are getting yields on bonds and cash, but gold doesn’t offer any of that. How should we help allocators think about gold as a diversifier, gold as an asset class, given that it doesn’t offer much on cash flows? In fact, it probably costs a little in terms of storing and carry costs.

[00:35:46]Mark Valek: This is an essential question. To understand at least our view, one really needs to dive into the monetary system and at the end of the day, answer the question, what is money? This is a simple question, but I think it has no simple answer.

If one looks at the Austrian School of Economics perspective, money basically evolves in an economy where you have the division of labor. The demand for a medium of exchange occurs once the economy produces supply, output which is greater than its consumption. You need to store some of your excess production and you need a medium of exchange, which keeps account of these excess production accesses.

Depending, it is really interesting and I can encourage everybody to read Alan Greenspan’s essay, which is short, but very to the point, Gold and Economic Freedom, can just Google it. It is a great essay from Alan Greenspan, which he wrote in 1967. where he basically describes also this evolution of money, in different stages. Depends how much surplus you produce as an economy, you need more durable money. In the decentral evolutionary market process, all over the world, the more sophisticated the economies became, the more excess savings they produced. They had the demand for more durable medium of exchange. You had all kinds of monies, all the time, with nobody legislating it that way.

In a market, in a competition process, precious metals won the race due to their characteristics. Perhaps the most important and oftentimes underlooked factor is the stable stock-to-flow ratio, especially for gold. The stock-to-flow ratio is the inverse of the inflation rate, or the growth rate of the gold. The stock is all gold stock, above ground stock. That would be the 220,000 tons of gold, which I refer to. The flow would be 3000-3,500 tons roughly, which is being produced every year. If you divide these two numbers, you get 1.5 percentage points inflation rate.

As a gold holder, I think the main advantage is you can be very certain that you are not going to be diluted by new gold which is coming into circulation. This gives gold a high stock to flow ratio or a low inflation rate. However you want to put it, the one is just the inverse of the other. In other words, gold is not available because there is necessarily such a limited amount of it, such a small amount of it, I should say.

There are rare earths, which are, much less of them are available, but that does not mean necessarily that they are worth more. But gold is so interesting as a store of value because its amount is so constant, so you can really know it is basically the same amount going around this year than as it will be next year. Not 100 percent, but one, one and a half percentage points.

This rate was very, it has been extremely stable over the last 150 years, where we have the data. Going back further, it is a little bit difficult to assess the exact data. Most of the gold has been produced recently, basically in the last hundred years because, even one and a half percentage points adds up.

We had 30,000 tons, the turn of last century, 1900, and now we have got 200,000 tons. Most of the tons, gold has been produced now, but still, it is a constant amount. This is the unique thing. This makes it a good store of value, and this makes it the good money, basically. That is why it ascended to money.

It is no one else’s liability. We talked about that as well. This again, I think is a very important prerequisite for real money. You want money to be an asset. You want the money not to be in another man’s liability.

This is why gold has such great characteristics for money, and this is also the reason going back to your initial question, why it actually doesn’t have to pay interest. If you think about the alternative investments, and one shouldn’t, in our view at least, directly compare gold as money or as a non-fire money store of value with productive assets like bonds or stocks.

In these cases, if you lend money to a government, as we also discussed already, there is always risk involved. There is a counterparty risk involved if you give some money to an entrepreneur. If you invest in a stock, there is a risk involved. That is why there is a justification for a compensation for this kind of risk. If you do not have any counterparty risks, you can make the argument, you are not entitled for yield.

If you have the cash in your pocket, you also do not get any interest. You only get it if you put it in the banks and then you are already taking risk again, right?

[00:42:58]Rodrigo Gordillo: A lower yield most of the time if you just…

[00:43:00]Mark Valek: Correct. Gold is money. I think gold is the natural money or it has very good characteristics of money. That is the reason why central banks hold it. At the end of the day, and it is a great Greenspan quote, “in times of extremists, gold will always be accepted”. They know to recapitalize the system, they need an asset, which is no one else’s liability, which is not inflatable. That is why they hold it, because it is the real money.

[00:43:33]Rodrigo Gordillo: Shifting a little bit to the new gold, Bitcoin, I know you guys did some work on that. Can you tell us what you guys think about Bitcoin and how it relates to the characteristics of gold and how it doesn’t?

[00:43:50]Mark Valek: It is funny because gold is an emotional topic because of these topics which we already have been talking about, which these concepts are not so widely thought of in the financial world and the monetary system also not such a big topic of the typical investor.

With Bitcoin, this is even in my experience, more controversial, more emotional when it comes to Bitcoin, relative to gold even. That is a good transition to Bitcoin because, building on what I just laid out, Bitcoin was designed obviously with a lot of knowledge about the evolution of money.

They were very conscious of the problem of this debt-based monetary system. They also knew about the gold advantages, but they actually try to improve gold, even in the sense that there is not even this 1.5 percentage points inflation, but at the end of the day, zero inflation. This is a big part of Bitcoin’s appeal, its absolute scarcity.

That is a concept which one has to think about harder than one may think initially, because it is really a new concept for humans. There hasn’t been an asset which has been absolute scarce, at least not the fungible one.

Obviously we have art pieces, unique art pieces. There is only one Mona Lisa and so on. You cannot, definitely can use Mona Lisa as money because there is only one, right? You need fungible money to tick off all the boxes for the requirement of money. Bitcoin brings along fungibility, but it brings along absolute scarcity also.

This is the first time that we have been confronted with such an asset, which in digital asset, which again, makes it difficult for a lot of people to wrap their heads around it. You cannot touch it, so it is perhaps less intuitive as gold because if you touch this gold, you get some kind of a sense of value. It has something mystically to it. I think for most people that is the case, but you have none of that with Bitcoin.

It is really the scarcity argument which is important. We have done all kind of comparisons between gold and Bitcoin. Bitcoin has advantages relative to gold as money. I would definitely say that, but it also has disadvantages. It has been discovered also as an alternative store of value. One can best compare it with gold. It is not the perfect comparison, but it, people who invest in Bitcoin have similar motivations, as people who invest in gold.

[00:47:28]Rodrigo Gordillo: The design of Bitcoin has similar design features as gold. I think that is the idea, was to make it a gold alternative, simply by how the stock-to-flow works, how the fact that it is going to be scarce, and then after that it was a network effect, whether it was going to be adoption. Why gold versus any other metal historically, we can talk about that.

The reality is that society has accepted gold is a medium of exchange, is a store of value. Every major economy has some gold. Most individuals, in one way or another are backed to buy gold because they live in the country that owns gold. Now we have Bitcoin that has a similar characteristic.

The question is, what are the blind spots of both gold and Bitcoin? I think they generally tend to complement each other. It is an interesting use case here. As Bitcoin becomes more and more adoptive though, what are you guys trying to tell us here with this chart?

[00:48:32]Mark Valek: How to measure gold, and we measure that in a monetary sense. Building of our gold prediction, gold model this year for the first time integrated to evaluation model relative to gold, because both assets are used for similar use cases, obviously as a store of value or speculation, however you want to put it. What we are seeing here is the market capitalization of all global above-ground stock, gold, these 220,000 tons, priced at market. We are somewhere at 19 trillion. About 22 trillion dollars currently market cap. That would be the golden area, representing the market capitalization on the left.

We are somewhere at over 2 trillion dollars, all the Bitcoin market capitalization, so roughly a ratio of one to 10, or in other words all world’s gold is worth 10 times as much as all Bitcoin, which are currently produced. In both cases, we know more exactly how the exact supply will be in the future. In gold’s case, we know it pretty good.

We estimate that the gold exploration in, of the next five years plus our price targets of $4,900, let us call it $5,000. That would bring gold’s market cap up to $38 trillion, almost 2X still from here, not quite.

Bitcoin, if one looks at the relative ratio, we can see that the market cap has been growing much faster in Bitcoin, but it also has been growing much more volatile. The ratio has been going from coming from zero basically, and moving up two percentage points, roughly, with a lot of drawdowns, and I want to point out that the right-hand scale is logarithmic, which the drawdowns don’t seem so significant, but there was quite significant obviously. The logarithmic scale shows this increase nicely.

Also it shows a small decrease of this increase, the rate of return being far greater with Bitcoin, but it has been coming down slightly over the years. We basically extrapolated this trend. Our estimation is Bitcoin will keep growing faster than gold. We think gold will keep growing, Bitcoin will keep growing faster.

This is a numbers game to be honest, but we picked a number of 50 percentage points. We could imagine that at the end of the decade, coming from 10 percentage points market cap, where we are currently roughly, we may end at 50 percentage points market cap, in terms of Bitcoin to gold market cap ratio.

That brings you to quite high numbers. This is also this table we included for everybody to plug in their own expectations, but with these two numbers, so 50 percentage points market cap and a price of $5,000 at the end of the decade, that leads you to very high six-digit prices, in five years’ time, which is bullish, which is optimistic.

[00:53:28]Rodrigo Gordillo: It is certainly, if there is continued debasement, again, because of the way that Bitcoin has been designed, it also makes sense that we are going to get more and more adoption. We are seeing institutional adoption now. BlackRock has something that is investable for the traditional finance individual, so it is becoming easier to accept. It almost feels like people are talking about Bitcoin more than they are talking about gold.

[00:54:02]Mark Valek: When, I always witness that these two assets are nearly all the time being mentioned in the same discussion. That is also what we do as an asset management company.

In 2020, we launched our combined gold and Bitcoin product because we were of the opinion that in combination, these two assets have a better risk/return profile. So far we have been spot on with that idea and also with the track record of the assets and of the combination, I think, also confirms this thesis so far. We have now a hard asset or sound money bucket, which I think, will become a building block of people’s portfolio.

You can do it on a single level where you can basically adjust the composing of this hard asset block as you see fit, or you can do it in a combined way. That is what we offer basically, where we do the rebalancing for our clients where one can also have the advantage of a derivative overlay, which then by the way, makes it possible to earn some yield. We solve the yield problem also in that regard.

This is going into this direction of the last sentence. People like Ray Dalio who are very highly regarded, especially among asset management managers, he represents the king of strategic asset allocation. He is referred as a hedge fund manager, but I think the real USP was the combination, the structuring of the portfolios at Bridgewater, what they do. Anyway, he also said, “I like my gold with sprinkles of Bitcoin on it”. He also sees these two assets as in one bucket. That is what I took away from that comment. Slowly but steadily moving into this kind of direction.

[00:56:50]Rodrigo Gordillo: Very…

[00:56:51]Mike Philbrick: We have got maybe five minutes left. Do you want to talk a little bit about how you guys reimagined the 60/40 through the context of a new regime and gold and silver stocks, or is there another topic that you would like to hit?

[00:57:06]Mark Valek: The new 60/40 portfolio is something we presented last year in 2024. You know about the classically 60/40 portfolio, multi-asset portfolio where you have 60 percent equity, 40 percent bonds, or some kind of variation thereof.

That makes sense from a risk adjusted perspective, but especially during a time horizon where you have falling interest rates or disinflation, which basically comes with each other, because you have typically the bond part of the location which profits when you go into recession, and the equities when you have growth. You have slightly negative correlation between these assets in general, and both of them produce yields.

If you add them up, you have a superior risk adjusted return profile, and that is what is mostly about in asset management, right? We see that interest rate trajectory has hit zero. Now we are rather seeing a bull market in interest rates, in other words, a bear market in bonds, something similar to the 70s, and that is awful for this combination.

We saw that in 2022 when you had a year where stocks and bonds combined, actually had a bad performance because both assets fell. You had a positive correlation, in a falling market. That is not what you want to have. That was an indication for more of those or similar years to come potentially, especially again, if we see a second inflation wave.

These kind of portfolios are very much endangered. That makes an argument to reconsider especially the bond component of this portfolio, which we did, and find substitutes for bonds. This is going on especially with gold. Gold, I think to some extent has been substituted and we see this as a trend.

Also another argument in favor of gold, I think, typically if you have a few percentage points at all at maximum in your conventional multi-asset portfolio, one can make the argument also from a risk point of view, since it is so unique, the asset, and it doesn’t have a counterparty risk.

If one takes into consideration the whole return distribution, you do not have a black swan event with gold. Obviously the price can fall, but you do not have a sanctioning event where you are something that, and there, I also think it is advantageous to Bitcoin. You have potentially some technical problems, which I think the risk is pretty low also. I would say it is not zero, right?

You have different asset classes, but especially in bonds, you have left end probability, which would be very bad if that happens, and you do not have that with gold. That perspective gives you a great argument to increase your gold portfolio significantly because you do not incur some kind of a black swan event with gold generally.

We tried to structure a new 60/40 portfolio accordingly. We increased the 60 percent, what is typically the equity portion. We put in all the bonds and all the equities in 60 percent so that we ended up with 45 percent equities and only 15 percent bonds, which brings it to 60. The 40 percent in our new 60/40 portfolio is a hard asset, basically non-inflatable assets.

We have got a chunk of security gold in there, but we have got some performance gold, mining equities in there. We have got a small slice of commodities in there, and also a small slice of Bitcoin in there. We come up with a hard asset block of 40 percent. We are of the opinion that this is going to outperform the conventional 60/40 portfolio.

So this, I think is an unconventional allocation currently, but it is not so far from my personal allocation. We practice what we preach and so far for this decade, this has been doing very well. I think the dynamics are in place for this portfolio to keep up performing. There are risks with every asset class, with every strategy, but we are convinced that is a good way to go.

[01:02:41]Rodrigo Gordillo: Here you have 45 percent stocks, 15 percent bonds, 15 percent of safe haven gold, 10 percent of performance gold. So again, performance gold is the idea of miners, silver, et cetera, right? Ten percent of traditional commodities and 5 percent Bitcoin.

[01:03:49]Mike Philbrick: Given the regime, sounds like a sound plan.

[01:03:52]Rodrigo Gordillo: Thank you, Mark. Really appreciate your insights today. Very insightful. This is the first time I have read this report, so it provides a lot of insight on all things precious metals and Bitcoin. I recommend everybody download the chart book or read the paper. Just before we sign off, tell the audience where people can find you, what you guys do and offer. You mentioned fund and investment opportunities, so tell us a little bit more about that.

[01:04:29]Mark Valek: Our fund business can be found at Incrementum.lI. That is our homepage here in Liechtenstein.

We have our In Gold We Trust Report at ingoldwetrust.report, and everybody can subscribe, can download, without subscription. We keep it very open.

Personally, we have a Twitter feed InGoldWeTrust, which is quite active. We can be found on these sources. If anybody has a question can drop me an email.

[01:05:15]Mike Philbrick: Fantastic.

[01:05:16]Rodrigo Gordillo: Thank you Mark. Really appreciate your time and the hard work that you guys put in on this. We will hopefully have you back again when gold hits $5,000. If anybody has any questions, you can go to those two websites and contact Mark and team directly. Thanks again for your time.

[01:05:40]Mark Valek: Thank you. Thanks for the invitation. Have a great day.

[01:05:42]Mike Philbrick: Thanks all.

[01:05:43]Rodrigo Gordillo: The team works really hard on these podcasts. We spend a lot of hours trying to get the right guests and we do a lot of prep work to make sure that we are asking the right questions. If you have a second, just do hit that Subscribe button, hit that Like button, and Share with friends if you find what we are doing useful.