Being Short Your Government: The Real Case for Gold & Silver

Ned Nayland Leyland: This is about being short the behavior of your, of your government. I mean, if you think they're going to be disciplined and they're going to look after you and they're going to raise rates above inflation and give you a real return on your cash, then don't do it. But if you, like me, are less, uh, confident that that's the case, that the history of money tends to suggest one thing, which is you're better off owning gold and, or silver versus your local currency. And by the way, the producers have never been cheaper than they are today, ever. So while they have gone up, um, there has actually been negative flow to the space over that timeframe, as amazing as that may seem to you. So these are the most profitable companies in the world. 50% free cash flow margins making probably double and in some cases triple the free cash that tech is making. I think the Trump Fort Knox thing is related to.

Host: So expand on that for me.

Ned Nayland Leyland: Well, I mean, those of us in the gold community think that quite a long time ago, the gold was moved elsewhere anyway, um, and that Fort Knox is a bit of a shell game. There's not much going on there, hasn't been for a long time. So should he go there and open it up and be proven right, which I'm sure President Trump would quite like to be proven right, seems, um, to be one of his favorite things, then you would have the condition that the ECB warned about in their research note. And, and I've been inferring, which is people go, but wait a minute, where's my gold? And if you're a, uh, rich oligarch and you ring up your Swiss banker and go, uh, where's my gold? And they go, what do you mean? Um, you know, you have a sequence of events there which results in a much higher, uh, gold price.

Narrator: Welcome to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the

Host: world, giving you our, uh, listeners the the Edge.

Narrator: The Master Investor Podcast is sponsored by Elseg Interactive Brokers, the World Gold Council, and BNY Investments. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice, or a personal recommendation. More on that in the show notes.

Host: My guest today, Ned Naylon Leyland, is the manager of the Jupiter Gold and Silver Strategy, which sits with, uh, nearly $3 billion of assets under management.

Narrator: And just last week, he won the

Host: Investment Week Fund Manager of the Year award for Precious metals funds. Ned has Been consistently bullish on both gold and silver for a long time. Not just, uh, popping his head up now as both metals, uh, shine bright. Ned, it is a delight to welcome you to the podcast and congrats on the award last week.

Ned Nayland Leyland: Well, thank you very much. Um, it's always nice to be recognized, um, but moving on swiftly from the award, uh, thank you for having me on.

Host: Very convenient timing. This has been set up for ages. I didn't know the awards were last week. So it's really worked out, uh, well that we have this manager, uh, of the year with us freshly, uh, crowned. Um, let's get into the very simple specifics. First of all, what is the long term case for gold?

Ned Nayland Leyland: So the unfortunate thing Wilf, is this topic is not well explained to investors. Um, gold is the risk free of the system, always has been. But things changed dramatically, um, in the 70s and 80s. But I would tend to say more importantly, when Volcker took rates to 20%, we entered a system where US treasuries became the risk free of the financial system formally, while gold operates in parallel alongside that. But the true answer to your question is it's going to maintain your purchasing power. So the case for gold is you want to save and not lose purchasing power. You own physical gold. That's what that's for. That's why central banks have huge amounts of. It is intuitively the public recognize what gold is. They don't necessarily know how to explain it, but the central banks know exactly what it is, which is the true risk free of the, uh, of the system.

Host: Has that always been the case for gold? Or I guess, put another way, has that particular case to protect your purchasing power gotten a lot stronger in the last couple of decades?

Ned Nayland Leyland: No, no, it's always been. It's always been. That's why there's, that's why there's that phrase. An ounce of gold buys you a handmade suit and a handmade pair of shoes. It always has done. It's, it's the thing that's measuring everything else. Now, of course, what that also means is that if you're thinking about the gold price and you're watching it going up, and by the way, I still do that on my screen. But that's, that's just not how it works. Gold is measuring the loss of purchasing power of your, your local currency. I, uh, know that's not something new. I mean, that's, that's always been the case.

Host: So almost you're saying we should. The reverse of that is you should watch it against every single paper currency, not just against the dollar.

Ned Nayland Leyland: Well you should. So this is one of the difficulties here is that you should be thinking about your local currency in gold terms. And yes, you can sort of have gold at zero and watch all the different currencies going down. The problem with it is if you're, let's say you're a Turkish barber in Istanbul, you don't have much knowledge of the financial system and no interest in it. So you only think in Turkish lira terms. So you're, you're owning gold because you're worrying about the loss of purchasing power of the lira. But there's a secondary component here which of course is that the dollar is the local currency of the financial system. So people talk about the gold price, they're just talking about the cross rate between dollars and gold. But it's because the dollar is the local currency, is a financial system that people think about it that way. But yes, I mean gold just is measuring the speed at which you lose purchasing power. Um, the first gold that I ever bought was 2001 and on the basis I was coming to see you, I had an updated look and I think it's up 17 times since I bought it. And considering the footsie's doubled over that timeframe, almost all of which is in the last three years. To give you an idea of where I'm going with this topic, I wonder

Host: what the S&P 500 has done in that period.

Ned Nayland Leyland: It's done more but nothing like nothing.

Host: Nothing like gold.

Ned Nayland Leyland: Nothing like that. No.

Host: Um, what's the long term case for silver?

Ned Nayland Leyland: So look, gold and silver are both foreign exchange. So they trade together, they'll move together. The, the directional correlation is perfect. Silver uh, has high beta. So if you, if you like, if you want to be short governments, short politicians, short um, their ability to defend your purchasing power. Silver is a way to do this with more, more beta. But the way I like to describe it is silver is like gold. So you're short politicians, um, but you're also long future because it's in very, very short supply. There's a big problem with the supply demand structure ah of silver. So you're long green tech, tech, the military, everything really that's running the modern economy. But you're also short politicians. So silver has a nice dual feel to it.

Host: Why do you stop at ah, those two precious metals and not the others?

Ned Nayland Leyland: Because the precious metals nomenclature on its is completely unhelpful. Is a really completely unhelpful uh, terminology. Because you have monetary metals which are gold and silver. They trade in the foreign exchange market. They're money, they are foreign exchange. These other things are not the idea that platinum and they have no relationship whatsoever to the monetary system. Gold and silver are money, they are foreign exchange. Whereas these other things are industrial, expensive industrial metals.

Host: With silver, obviously you were alluding to it being a metal of the future. It has a, it has a use. So. So why not other non precious metals?

Ned Nayland Leyland: Well, because, like copper or. Yeah, because the bullion banking system is, is um, is very short gold and silver. So in other words there's a fractional reserve, uh, structure to the gold market and the silver market the same way there is for your cash which, which is sort of reinforcing this point that their money know. I'm not saying that these other things aren't interesting and I'm sure that there's lots of bull cases and some metals in particular look very interesting, nickel being one of them. But these things are tied to the economic cycle. So if you're long any kind of raw material or commodity, the price you're paying today assumes an optimistic and linear outcome for the global economy. In fact growth, you're paying for that already. Whereas with gold and silver, it's not like that, you're kind of the other way around. Particularly as the price of gold and silver are principally um, driven by real interest rates that when things start to go wrong generally uh, the market gets more dovish. So that's your driver. It's not the same as being really, you're kind of short rather than long, whereas you're long with commodities.

Host: And obviously your strategy focuses on both gold and silver, not the others and it earns the underlying plus uh, equities. And we'll come to that strategy in a moment.

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Host: I mean you mentioned real interest rates. There is a uh, driver behind the scenes for all of this. But what drove the enormous gains of 2025?

Ned Nayland Leyland: Yeah, so not what people think. Um, so what people will say to you is central banks, um, and, or some Kind of geopolitical premium. This is just not how it works at all. It literally has nothing to do with that. And we can go into depth into that if you want. It was trend following. It was, it was absolutely trend following. The uh, dollar gold price broke out to an all time high in April two years ago and it just entered a massive trend following move. So this is uh, leveraged capital, this is traders, um, CTAs, hedge funds all jumping in and going long. The number one way to play debasement. So you know it's been a year and a half or two years where your macro trader is being focused on debasement. Of course they ended up getting it quite badly wrong in Q1 because we entered a um, strange tightening in real rates environments through the Iranian crisis. But yeah, it's been trend following and not investors. In fact, um, long only investment capital has been entirely absent the entire way through the rally. It's just been parked in tech, double tech and triple tech as I like to call it, um, and has not participated. And you can see that in lots of ways it's yet join in. I think that will change at some point. Um, probably when your traditional portfolio doesn't look quite as rosy as it does at the moment, there'll be more incentive to want to switch. But yes, it was a trend following move.

Host: That's really interesting. So does that in any way undermine the argument that these two assets are there to protect your long term purchasing power if it ends up being more of a trading volatile asset in that regard?

Ned Nayland Leyland: No. I would push you back to think about your Turkish friend, uh, what would he say you're thinking about again? You're thinking about a return in dollars. Uh, whereas for the average person around the world they're thinking about local currency terms, there's no trend following there. It's the US dollar gold price that's caught up with gold in sterling and yen and Turkish lira. And yes, that was accelerated using, using leverage. But no, that doesn't undermine the case at all. And the bigger picture here of course as well is, and there's a quite interesting ECB research note about this actually last year that there is a, um, a point to be made with regard to where is the gold, who has the gold. I'm super interested in that topic. I think that people don't spend enough time thinking about um, um, unpriced risk. Uh, and frankly if you become a gold bug, that's kind of what you, where you park yourself anyway. But all of that still lays undiscovered by the investing public. So no, I don't think the trend following point is a problem. And by the way, it's all come out. So now you don't have either in, you don't have either cohort actually in at the moment, neither the trend follower nor the investor.

Host: Um, I want to come to that. Where is the gold? In a moment. But just dwelling again on this big surge that we saw last year, you know, 5,400 or so that we got to in the US dollar price of gold, as you'd put it. Fair to say then that that was a short term, um, exaggeration to the upside and we've obviously pulled back significantly to the low 4 thousands from it.

Ned Nayland Leyland: Um, so look, I go back and say, remember what you're doing really is we're talking about what happened to the dollar versus gold. So was it an overreaction to the downside for the dollar versus the risk free? I'd say no. Um, but I would say that leverage was the overarching driver in both directions. This is also why you had a 10% sell off for the US dollar gold price in one day. People still talk about it being something to do with central banks. And my comment is, so that was central bank selling 10% in a day. What we have to accept is that um, almost everything in the financial system now is financialized in one way or another. And derivatives and leverage are a very important part of price discovery. So did the dollar get a bit oversold? Maybe? Um, I'm not sure though. I think that one of the things to accept why hedge funds and why macro investors are thinking about debasement is because while the curve is giving you an idea of what the bond market feels about the Fed's behavior and guidance, they also know that there's extra weaponry. Think about it like American, uh, football team with a whole bunch of very large linebackers still on the bench and they haven't come off yet. They're all dovish and the market knows that. So sure, you could say it was a bit overextended. But it's this additional dovish weaponry which is available to policymakers, which makes the sort of the thoughtful macro investor go, guys, this is coming at some point. So whether that's more qe, whether it's yield curve control, whether it's intervention at the Fed, all of this is not in the price. Just like this problem of where is the gold is not in the price. So it's a layered topic, but just

Host: uh, we'll talk about The Fed in a second. But in terms of it not being in the price, I guess you've acknowledged that the institutional investor is priced in the fear of debasement already, if that's what was driving it last year. But you're saying that the retail investor or the average portfolio hasn't yet done so. Is that fair?

Ned Nayland Leyland: Yeah. I'm not sure how we pick up our institutional, but, um, I think that. The leveraged investor, whether it's a hedge fund or an individual trader, they like to have a run at Thematics. Now, yes, for a period there it was in the price. And then through a process of deleveraging, there were sort of two deleveraging events in January and late January and March. Um, they're out now. So like I said you earlier, what the interesting point now is there was no long only capital in at all. And there really hasn't been, in fact, the total amount of physical gold held by the exchange traded bullion products is below where we were at $1,900 an hour six years ago. There's just no participation at all from long only. They're not doing it, they're off doing other things. Um, and yes, it was your trader that ran that, but they've been thrown out of that due to the fact that obviously we had this rather odd situation where the cuts, I mean, it's not that long ago that maybe nine months ago that we had seven cuts priced in and now we're at a hike and meanwhile, one year forward, inflation expectations have barely moved at all. I mean, they're almost exactly the same. So you've deleted seven cuts, now the hike, and yet forward inflation expectations haven't moved. And this explains how and why those leveraged, um, positions got blown out. Um, because they were very much on the cutting, the dovish view of the world, and now they're not.

Host: So let's talk a little bit then about central bank action and start with the Fed, for obvious reasons. What did you make of Kevin Walsh's first press conference last week? And how much of a change are we looking at?

Ned Nayland Leyland: Look, I'm not an expert on that. I did watch it. Um, I thought that he did a good job of speaking out of both sides of his mouth, which is the job of the Fed chair. Um, I tend to think that he is more dovish than the market has accepted so far, or is positing. I think that he already discussed how the inflation metrics are constructed and there was an inference of, uh, potentially that the neutral rate is higher than where we Are now all of that is structurally dovish. Um, so look, I think one presser probably isn't enough to tie oneself onto that. Uh, I think he's an interesting character. But the Fed chair's job is to keep people in the water, um, maintain a nice bath temperature.

Host: What do you watch more in terms of say the next year of his actions? Is it the interest rate, is it the balance sheet? And how big a swing factor do you think either could make to gold?

Ned Nayland Leyland: I don't think that the balance sheet um, is something that the wider investment market looks at or cares about very much. People like me do, but I don't think that's really um, something which the average investor pays that much attention to. I think rates obviously is extremely important. You've got this problem of this monumental interest bill which which would tend to require a lot of cuts which I think is why your macro investor was positioning for that for so long. So look, I think it's about the

Host: rate side, um, on the balance sheet. If you, if we listen to what he said, M, you know, clearly had to say what he needed to say to get nominated and that might imply more rate cuts than hikes. But it's pretty clear throughout on the balance sheet, him and Scott Bessant that long term structurally they want to reduce the balance sheet.

Ned Nayland Leyland: Sure. I mean, I suppose then you can ask yourself, uh, um, is the Treasury Secretary and the Fed chair, are they politicians? I mean in my view, absolutely. I mean the idea of independence in my view is rather fanciful. These people say one thing and do another. I mean I think the history of the monetary system tells you that when you get to where we are now, the idea that you're contracting anything is um, I mean it could happen, but I think it would be strange.

Host: Mhm.

Ned Nayland Leyland: Um, and an improbable outcome. We are very, very late stage of this monetary cycle and the central bank's balance sheets are the thing that are not priced into anything. So when I look at uh, when I talk about academic studies about gold because of course investors love looking at backward looking data. Ooh, you know, this period, this and whatever. There are lots of studies that suggest you have 25% in gold in your portfolio for the best, uh, adjusted return over backward looking periods. But of course central bank balance sheet expansion is not in there. And that's the whole thing you're trying to hedge through this function. So look, I think that um. Let's wait and see, let's wait and see. But the idea that there'll be a Genuine pullback in the scale of central bank balance sheets is uh, in my view, unlikely.

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Host: Let's talk a little bit about its correlations with other assets. What correlations do you watch? What matters to you about how gold is trading?

Ned Nayland Leyland: I don't look at gold in that way. Um, I think like I said to you, it's the risk free, it's the thing that's measuring other things. So I don't really look at it in terms of that kind of correlation. Uh, I think it's clear that people get overly um, uh, focused on the concept of risk on risk off or what's a risk asset, what isn't. And um, then they sort of say, oh, gold's not behaving the way and it's because they're not understanding that it's real rates and the changes in real rates expectations that's driving the change in price in your local currency. So I'm not that focused on correlation. The other thing of course remember is well, if I'm long only. So while I love all the macro stuff and I spend lots of time thinking and talking about it, it's not really driving my behavior on a day to day basis.

Host: So just dwell on real rates then in the start of this year because based on that sort of risk on risk off sentiment, some people thought oh, a war's broken out, why is gold falling back? Talk us through.

Ned Nayland Leyland: Well, it's what I said to you, which is that um, one year forward inflation expectations, which is half of your real rates picture didn't move yet. We lost the cuts and trended into a hiking environment. So that is a dramatic change in real interest rate expectations in a negative sense for gold. Really though, what that is is a kind of bounce and a breather for the dollar relative to the risk free. That's really what it is. It's just a pullback in an air pocket. Now look it should that continue. So it's all over in the Middle East. Um, whether it is or it isn't is a totally different point. But if it is all over in the Middle east and then the market continues to price in more hikes, that would tend to infer further weakness for the US Dollar, gold price short term. But of course, for lots of structural reasons, this is very difficult to keep that position. Um, not least of which that interest

Host: bill that we discussed, um, in terms of the comparisons, and it's interesting you don't look at this, but at the start of the year, a lot of people were pointing to the relationship between gold and Bitcoin and the ratio between the two, which can indicate buy moments or sell moments, got very stretched. Do you think gold and bitcoin can be compared as alternatives for each other or not?

Ned Nayland Leyland: No, um, Bitcoin is now, um, a sort of part of the leveraged tech sphere. It's, it's a, it's a traded asset. It's very full of speculative capital. The golden silver mine is completely empty of that. Uh, and it, while, you know, you know, you'll see some correlations here and there, there's no causation within it whatsoever. It's not a, um, they're not, it's not a foreign exchange instrument in a practical way. It's not used as money. I think that Bitcoin is extremely helpful at the margin of, of getting people to think about what money is, how we use money and where it's going to go, which is again, a sort of separate topic. Um, and indeed I kind of see it that way. I think it's your training wheels for the, the central bank digital currency system which lies ahead of us. So I just don't think there's any relationship really at all in terms of price action.

Host: Have you ever owned any crypto yourself?

Ned Nayland Leyland: A long time ago.

Host: And you sold it? Yes. Why?

Ned Nayland Leyland: Because I don't like to be. My personal investment style is I want to be early. Uh, and I don't want to be there for the last two months of the pregnancy. I'd rather be there right at the beginning. Um, and then once, once I reach the point where other people are starting to get excited and jump in and there's a kind of critical mass feel that doesn't make me feel comfortable. This is a genuine contrarian thing where I don't want to be.

Host: But that's really interesting. I mean, is that not where we're not late stage in gold? I mean, again, the very fact that

Ned Nayland Leyland: everyone has or late stage from several thousand years ago or. What do we mean by that?

Host: Okay, well, on, on a decade time horizon, for example, um, haven't we just had a phenomenal surge or more to the point, haven't we just had a phenomenal four years where a lot of People, they might not have got to 25% of their portfolio in gold, but a lot of people are now aware of the need to have hard assets. They're aware of the debasement conversation, so much so they've driven crypto assets much higher.

Ned Nayland Leyland: Uh, but you're right to use the word aware. So there is a change in awareness about gold and silver price action. I have seen that there is definitely that, but there's been no fomo, no one has been dragged in or anything like that. In fact, while other assets have been going up, there's been a sort of look across from this sort of pat on the shoulder and good for you, that that's, that that's going up. But crypto is used as a speculative instrument to make short term gains, whereas gold, you know, talking about late cycle, I mean gold is simply there to protect your purchasing power. Now, unless we're suggesting that the Turkish government, sorry to keep going on about the Turks, um, or, or ours more salient in light of, of where we are today, or that the Americans, they are going to protect your purchasing power on a 1, 2, 5 and 10 year basis. Looking forwards, there's no cyclical components to that. Governments always do that. They debase your purchasing power. It's the nature of the state and the way it grows and the way it wants more involvement that really your local currency goes down. There are breathers on the way, but the direction is always the same.

Host: So what is your argument to a young person who is aware of the debasement argument and inclined to buy Bitcoin?

Ned Nayland Leyland: Uh, what would be my argument to stop them doing that and make them gold?

Narrator: Silver.

Host: To buy gold and silver.

Ned Nayland Leyland: Look, um, I think it's just a trader versus an investor mentality. I mean you own gold and silver because you're thinking about this over the long term, whereas you might want to trade Bitcoin as a way to fund your holiday. I mean, I just don't think they're the same.

Host: Um, let's touch a little bit more then on how you position your strategies because we touched on this at the top. You have physical and you have equities and obviously you have gold and you have silver. Is the balance between those always the same? Does it change with the moment in time? And how are you thinking between the two at the moment?

Ned Nayland Leyland: Yeah, no. So look, um, I think that uh, the first thing to say is that I don't like being style fixed. So I think there's always moments where you want more of something and less of something. Else, which isn't necessarily always the way that people in my industry think they tend. Quite a lot of people are quite style fixed. So I think there's moments for more physical. That's generally when real interest rates are trending higher and your local currency is doing well and having a bounce. You don't want as much beta, don't necessarily need to own mining stocks, uh, and likewise silver because that's a higher beta version um, of it. But the way I think about this is de risk. Think about the risks and think about the non obvious risks. Deal with those and then start to add in to the portfolio what you think are optimal instruments. So for me, um, when I think about mining companies, you've got a whole suite of different options. But where are the non obvious risks? And the first one is geography. It's not really to do with geopolitics by the way. This is much more to do with operating risks. Do they have good roads, services, logistics, equipment, trained labor? Uh, are the regulations clear? Can one operate having one's arms around the risks? Um, so my first thing is I really only want to be in tier one and tier two mining jurisdictions. But I do want to add return using silver and I particularly like silver development assets because we have a very big structural problem with silver. If you want more TV screens and green tech and all the stuff that's assumed to be coming, we need a lot more silver. Not a bit. When you've heard about copper, the problem is way bigger in silver is a much, much bigger problem than in copper. It's not spoken about as much but it's a bigger problem. So if I can invest in a uh, silver development asset, so not making any money at the moment, have a large stake in a good jurisdiction where I feel confident that this will become a mine, I'm able to invest in that on a heavy discount to a producer. Uh, and by the way, the producers have never been cheaper than they are today ever. So we're already talking about the cheapest entry point on a valuation basis. And then with a development company people really don't want to own those because they're not making money yet.

Host: So just explain that to me because obviously the producers had a great run up over the last 18 months, uh, as did the underlying gold price and silver price. They are so cheap on a PEB basis simply because the price of the underlying has risen much further than than their share prices.

Narrator: Exactly.

Host: Exactly right.

Ned Nayland Leyland: So while they have gone up, um, there has been actually been negative flow to the space over that Timeframe, as amazing as that may seem to you. So these are the most profitable companies in the world. 50% free cash flow margins making, making probably double and in some cases triple the free cash that tech is making. But not only are people not investing, they're divesting. So what happens is your valuation measures just go down while they're going up nominally and the stocks are doing well. What you haven't had is that participation, that flow from the wider market.

Host: So just how tied are they to the price of the underlying? So if you're wrong?

Ned Nayland Leyland: Oh, completely. They're completely tied to it. Yeah. No, so, so look, so let's say we go into a deflationary bust for three months. That's real interest rate positive, that's bad for gold in dollars, that will lead to a sell off. Even though these things are as cheap as they've ever been and um, more profitable than ever been, they're still going to go straight down because ultimately your marginal user of those instruments at the moment is a leveraged player. Not long only. So if I'm a hedge fund and I'm thinking, right, we've gone into a short term deflationary bust, am I going to short gdx? Maybe. I mean I wouldn't. But um, would they do that? Yes, probably. Because you're going to get a beta version of that trade and just give me.

Host: So blended average of the producers in your portfolio, what is the PE multiple or whichever multiple you care about most.

Ned Nayland Leyland: So yeah, net asset value metrics are the ones that matter most. And gold producers are trading at uh, 0.7 times NAV now, eight years ago with free cash flow margins of 10, 15% they were already cheap and trading 1.5 times, uh, they're now 50% cheaper with triple the free cash flow margin that they had back then.

Host: And how quickly does that change if prices are 20% lower than you expect?

Ned Nayland Leyland: Well, I mean again, it depends on flow, I mean it depends on flow dynamics. But it's just been a very slow grind. And a lot of this is to do with how um, long only investors use the um, the extra budget in their portfolio that lives outside of benchmarking. Because of course, you know, most portfolios are the same and then you've got your extra and, and this is so trending. You know, it's all about what is the hot thing at the moment. And it is still AI tech, double tech, triple tech. That's where that capital sits. You know, it makes me excited because I think that at some point that will Want a new home, particularly if that starts to not do as well. Uh, at which point I think the fundamental case and the fundamental story for gold and silver miners becomes very compelling very quickly because it's very likely that if the equity market does go lower then that creates a more dovish background which is the fuel for the space I invest in. So you see a very big decoupling then of performance between the wider equity market and this particular part of it.

Host: Um, just dwell for me then on rough splits of the underlying commodity, the producers as you say, the sort of safer equity and the sort of more.

Ned Nayland Leyland: Well look the way I like to think about it is broadly you have your cash bucket which is for me is bullion is cash, um, and sort of 15, 20% there other end of the portfolio is similar amount in what you would called development and maybe even a little bit of exploration. And then the body of the portfolio should be these, these heavy free cash flow producing um, companies. But for me always a split between gold and silver because I think that silver has kind of open ended optionality uh, to the upside. Now while I have seen periods of sell offs where silver has a beta of sort of two, two and a half to gold, I've never seen it more than that on the way down. But on the way up it can really open up and go to 4 and 5. So I like that um, spread.

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Host: There's often a big picture point to commodities, which is, you know, the cure for high commodity prices is high commodity prices. You draw more money into the mining assets and more is discovered.

Narrator: Does that apply to gold and silver

Host: as much as to other commodities? And do you understand the argument for Bitcoin over gold and silver when that argument comes up?

Ned Nayland Leyland: Yeah, I mean it's just not how it works for gold and silver. Gold and silver are uh, there's lots of reasons why it's not the same. But firstly, yes, silver is a commodity, but it's an FX instrument. These things are fx, uh, instruments. And what's more is they also have a GIF in good style um, behavioral component. So just to sort of go back and look at that, what that means is the more it goes up, the more people want it. So it's not like, it's not like commodities, um, really at all in that way. And particularly in Asia, the price point starts to go higher and it drags in more and more because really there is a, that it is something that you own out of desire to be out rather than the desire to be in. Now, if gold and silver still traded like they used to do before everything changed really in the system in, in the early 1980s, they were more like open outcry commodity markets. They're not now. They became entirely financialized in the early 1980s, created this massive and entirely opaque wealth, uh, over the counter foreign exchange version of gold and silver. It's like I mentioned earlier, that creates sort of, um, pressure that way, where as people start to become interested, they start to question the nature of their exposure, going, do I own real gold? Do I own the promise of gold? Or do I own nothing at all? Um, and that, that. So that's why behaviorally they're not like commodities. Now go back on bitcoin. Look, Bitcoin, um, investors have done extremely well. And I remember going, uh, um, on a TV show 15 years ago when silver hit 50 and talking about how silver was great at 50 and there was another guy that went on with bitcoin at a dollar, um, uh, I mean adjusted for inflation, silver now is down like 70% from that moment. Um, and Bitcoin's up sort of 50,000% or something. So bitcoin investors have done very well. But for me, like I said, it's so full of speculative capital already. It's just not my thing.

Host: Um, you mentioned, we talked there a little bit about where is the gold for the miners looking to find new gold. Let's talk about the other question. Whereas the gold that's already in mind that you raised earlier set up the sort of conspiracy theory here a little bit for us.

Ned Nayland Leyland: So there's no conspiracy theory. It's just the nature of the. Of. Of.

Host: Of.

Ned Nayland Leyland: I mean, so I'm going to, I'm going to throw that back at you and go, it's called banking wealth. I mean, you know, is banking a conspiracy theory? It's just banking. That's just, that's just what it is. The problem is people don't understand banking. They don't, they think they do, but they don't. You know, it's a fractional reserve system. There is a massive amount we don't know how much because we don't get the data. The golden silver market is so sensitive um, to central bankers and policymakers, always has been that this is the one area you don't get good data. But we do know there is a monumental over the counter daily market which is unallocated. And um, that creates a situation whereby could there be a run where people turn around and go I want my goal. Well the ecb, as I told you, have even written a research note saying this carries systemic risk because of course it does. It's not like government issued money which apparently you can just print and tip in the top. You know, it's a structural point but there's nothing new here. That's how everything around us was built. The model of I have an ounce of gold, I walk around the block and the banker says I have 20 ounces of gold is how everything was built in the first place. It's the relationship between the 1 and the 20 or the 200 and the depositor and the system M and people's vigilance thereof, you know. And in fact I'll tell you everything you see around you is a reflection of the lack of vigilance on this point.

Host: So just expand on that for me a little bit. That the bull case or what could suddenly drive a squeeze higher in the price is what?

Narrator: It's central banks around the world saying

Host: do you know what, London or Fort Knox or whatever, I actually want to take delivery of mine. Or is it or it's the owner of the ETF somehow claiming that they want it.

Ned Nayland Leyland: So look, I'm chuckling here because um, central banks and the way that investors think about central banks is a classic example of do as I say and not as I do. They've been doing that wilf ever since QE started. They've been getting their gold back from each other and going I think I'll keep that at home now because they recognize where we are in the long cycle. So they've all done it already. They're already there. They've already repatriated their physical reserves. They don't own paper, they own the real stuff and they've already moved it home. It's the financial system. Think about it like um, the modern system is like a golden Range Rover with a huge sort of trailer, um, caravan. Behind the financial system is the caravan. It's been pulled along by the golden Range Rover but they unhooked it a while ago and drove off. The financial system is completely unaware of this point or uninterested um, in it or both and continue to operate as though US Treasuries are the risk free when the central bankers have shown you full well that's not the case.

Host: But is the comparison you made earlier to a potential bank run legitimate? Because for example an etf, lots of the products, the ones you own or potentially own, they are physically backed. So it does exist one for one.

Ned Nayland Leyland: Look, the ETF market is a sort of one component of a much, much bigger uh, problem. Um, the issue here are obligations of gold. The ETF market um, is not my favorite with respect to this particular topic and the reason is because I think we're talking about risk free and in my view the, the very limited amount of risk free collateral in the modern system and then an exchange traded product that's oil and water, they're not suitable in my view to be blended together. I think that you should be taking more of a um, ruthless approach towards counterparty risk and the way you go about this. But remember that the physical market is like 3% of daily turnover. This is the point I haven't made yet so far, sorry. The, the gold market as best we know it within the London Bullion market Association system is about a half a trillion a day. It's a massive, massive global foreign exchange market that does not capture a huge amount of gold business. That happens in Asia outside of that where they willingly buy and sell paper gold. The interesting thing about in Asia is they actually call it that. So which I always find fascinating with them. I find it very amazing. I go so you actually call it paper gold? They're like of course, um, and then I go well we call it gold. And this is the point, you know, the entire physical market is just a tiny component of the overall market. Now the ETF market is within that small bit, as are the central banks, as are you. When you go to the bullion dealer. It's this monstrous derivative wrapper around it that's the issue.

Host: In light of all of that, if I want to protect my wealth for the long run.

Ned Nayland Leyland: Yes.

Host: Why shouldn't I just buy a physical gold bar rather than your phone?

Ned Nayland Leyland: You should, you should absolutely do that. Indeed. Not only what, you shouldn't do that. Actually what you said is not the right way to do it. But, but you, but physical gold is absolutely right. So I always say this, which is you want to, if you want to approach this topic, think of it like a cake. Now I reckon that my, the way I think about cooking um, and my particular cake is quite eccentric and Way better. And I use the best ingredients and la la. And it has the nice sparklers on it and, and whatnot. But in order to have a cake, you have to something to put it on. What are you going to do, hold it? It needs to be on something. And that for me is direct physical gold and silver investing. Now, actually, bars are, uh, uh, taxable, whereas depending on where you are in the world, you should investigate your local, your local coin. So in the case of a UK investor, we have Britannias and sovereigns and they carry special tax treatment due to their monetary nature. Whereas when you go buying bars or investment products, you're being treated in a different way, um, in terms of what that means on disposal.

Host: Another sort of confusing but fascinating topic I wanted to touch on is the gold that the US Government has. And so just explain this to me. This is priced at what level?

Ned Nayland Leyland: Uh, I think it's $42 an ounce

Host: compared to the, what, 4200 or thereabouts that we're at today. So why is it still priced at that level?

Ned Nayland Leyland: Well, it's a legacy of. I, um, mean, this is now sort of history lesson time. But, um, look, everybody came together after World War II at Bretton woods to discuss the loans that had been made during the war, um, and what the system would look like after that. The first thing to say is, during the war, an enormous amount of gold ended up in the US out of, out of flight. So a lot of gold crossed the Atlantic to go to America to be looked after. Um, and as Donald Trump tweeted not so long ago, well, it was quite a long time ago. A couple of years ago, he who has the gold makes the rules. We all turned up, uh, in New Hampshire, went around the table, and the Americans cracked their knuckles and went, now then, lads, um, we seem to have all of your gold. So the Bretton woods agreement was of course, that the, the dollar would be used in international trade clearing, but that it would be backed and redeemable at, uh, $35 an ounce. Now that I got adjusted up to, I think it's 42. Forgive me if I've got that slightly wrong. Learn you be by a little bit. Um, and then in 1971, Nixon closed the gold window. So he went on television and said, we are temporarily suspending the convertibility of the dollar. We are still in a temporary suspension of Bretton Woods. Now, should the US do what I think they will do, which, and I note you did ask him, and they mark their gold reserves to market the way I would interpret, that is, that is finally the end of the post World War II system. We are still in it. That one point, which is it's a temporary suspension of the agreement, is what keeps the whole thing together. Uh, if they do mark their gold to market, then all governments and central banks are on the same page. They're on the same level. So in other words, movements higher for the gold price on the reserve side of government central bank balance sheets is beneficial. If gold was twice where it is now, the US Is not getting the benefit and other central banks are. It's a very big topic, but there's a lot more going on here than people realize.

Host: But I guess the short question is, what's the incentive to Scott Bessant, who as you said, I asked about this and he dodged it, or Kevin Walsh

Ned Nayland Leyland: to do that revaluation, um, insolvency. The point is there comes a moment where it benefits all governments to have a massive check through the post surprise check through the email going, oh, you just got 10 trillion on the asset side of the balance sheet. Because that resolves the, well, resolve, uh, it, but it massively mitigates the insolvency problem that governments have got. But that can't happen until the Americans are on the same page as everyone else. Now you might ask, but how would that happen? And the answer is what we've been discussing, which is when people start to go, where's the gold? Of course governments have got it all, they're fine. So if there's a scramble, they're sat there like Austin Powers going like this, as that side of the bank should just go straight up. So I think the Trump Fort Knox thing is related. The idea that the President and all these other people would question the existence of their own reserves is quite bizarre.

Host: So expand on that for me.

Ned Nayland Leyland: Well, I mean, those of us in the gold community think that quite a long time ago the gold was moved elsewhere anyway, um, and that Port Knox is a bit of a shell game. There's not much going on there, hasn't been for a long time. So should he go there and open it up and be proven right, which I'm sure President Trump would quite like to be proven right, um, seems to be one of his favorite things. Then you would have the condition that the ECB warned about in their research note. And, and I've been inferring, which is people go, but wait a minute, where's my gold? And if you're a rich oligarch and you ring up your Swiss banker and go, uh, where's my gold? And they go, what do you mean? Um, you know, you have a sequence of events there which results in a much higher gold price. Now of course that's not really what's happening because gold is the thing that's pricing everything else, but it's the only way. Gold is a far extinguisher of government balance sheets. It always has been. But there has to be, it has to happen at the right moment. Uh, it can't just happen forthwith. There needs to be a catalyst for it.

Host: Why do you think that there's nothing in Fort Knox already?

Ned Nayland Leyland: Because there's very few people work there and there's. It's been a long, it's been a lot. An off discussed topic that the gold got moved from Fort Knox to West Point military facility several decades ago. Um, I don't know whether that's right or not. Certainly there are plenty of people who are closer to the story and over in America that say that's the case. I don't think it makes much difference whether it's in Fort Knox or West Point. That's not it. But should there be an audit? Judy Shelton's very interesting on this by the way, because she not only she wanted it, you know Judy, not only does she want it, but she speaks the most important language surrounding this topic which is not only should these bars be audited, do they exist? But they should also be checked for encumbrances, which is really the more important point. Presuming they're all there, who owns them? How many times over have they been leased, loans swapped into the system? This is one thing that is there. The other thing is who's how many post it notes on each bar. They'll never do this by the way. Governments are not, it's not in the interest of any governments to do this. Far more in the interest of governments for them all to agree that each other have the gold at a much fancier price and they get their balance sheets resolved.

Host: Really fascinating, fascinating stuff. Be fun to visit Fort Knox.

Ned Nayland Leyland: Yeah, no, agreed. I'm not sure we're going to get. You might get invited actually, but I'm pretty sure I won't.

Host: Um, yeah, maybe we'll see what we can do to start to round things off. Um, as we race through time, as ever is the case for those that haven't bought your fund physical gold, physical silver yet and they look at the market. I mean we are essentially. I know you probably don't like these definitions in a bear market for gold, right? We're down 20%. The momentum hasn't been great of late. Why is now the time to buy?

Ned Nayland Leyland: Well, I'm definitely not, um. I'm not here to give specific timing advice, but what I would say to you is that the depth and time of this correction is exactly in line with the two biggest previous moves you've seen into the space. So one was in the 1970s and the other was 2006. And in both cases, you had a very big initial move and then a correction of exactly this depth. And, um, and then on they went from there. But I would say, to answer the question in a more, um, helpful way, this is, this is about being short. The behavior of your, of your government. I mean, if you think they're going to be disciplined and they're going to look after you and they're going to raise rates above inflation and give you a real return on your cash, then don't do it. But if you, like me, are on

Host: the day that Keir Starmer resigns, less

Ned Nayland Leyland: confident that that's the case, that the history of money tends to suggest one thing, which is you're better off owning gold and. Or silver versus your local currency.

Host: So just, uh, on the government point, I mean, clearly here it looks like Keir Starmer will be replaced by Andy Burnham. Either way, someone who's not more fiscally conservative than him, that seems reasonable. What if the next election comes around for a relatively small country like ours now and a very fiscally conservative government wins an election? Is that enough to change your view on the direction of travel or not?

Ned Nayland Leyland: Well, the difficult point is we're talking about two different things. Because you're now asking me about the sterling gold price, which I'm exposed to personally because I own gold coins, which are relevant to me in sterling. But the.

Host: Okay, so that happened in the US Too.

Ned Nayland Leyland: Okay, so in the US it's more because. Because everybody obsesses over the US dollar gold price because of its importance within the financial structure. So let's say, yes, you get a. A. A very conservative and disciplined president suddenly comes in. Um, M. My. My observation to you would be the way that things are now and the way everything within the financial architecture is now, this would create an ugly deflationary problem which would be responded to the other direction very quickly. And the best couple of examples of this would be 08 and then Covid. So the half life of policy response is collapsing. In 2008, we went off the cliff. We went. And it took, I think it was nine months before we Got the policy response. We were in a deflationary whole and gold and silver did poorly during that period for that same reason. Real interest rates were up, uh, gold and silver went down, and then you got your policy response, which is dovish. And the reverse. And in Covid, exactly the same thing happened, except it was a two weeks before the policy response. My sense is that if you got a deflationary outcome, whether it's through markets or a politician, the implications are very, very bad for a lot of assets. I don't think you would even need a policy response. I think the market will deliver the response anyway. I think the bond market will assume a response immediately. You might get a one or two day air pocket. But the idea that policymakers and those in charge of the monetary system will just sit back and allow a huge liquidity problem, I just don't see that.

Host: Quick, um, final question on this, on timing. If we do see a big equity market correction led by the triple tax as you described them, short term gold and silver correlated with that or not.

Ned Nayland Leyland: Well, so, no, my view is that as soon as that happens, you'll see the cash and bond market go dovish. It will go back. So those seven cuts that disappeared to a hike, you'll start to see that collapsing back the other direction again, which is fuel to the upside rather than the other way around.

Host: And final question, Ed, I flagged this to you in advance. We're, uh, really out of time now, but, uh, what is your overriding piece of investment advice for our listeners?

Ned Nayland Leyland: I think that my overriding piece of investment advice is don't ignore the importance of the monetary system. I don't think that people think about this very much. They think about assets, um, and increasingly in the world we live in with a momentum bias. But just have in mind that flow, monetary flow, in and out, liquidity is your friend a lot of the time, particularly the way things work now. But, you know, it needs hedging, um, or you should consider hedging the risks of that point.

Host: Uh, Ned, it's been an absolute pleasure, uh, to catch up with you today. Thank you for joining us here on the Masters.

Ned Nayland Leyland: Thank you for having me on Ned

Host: Leyland of the Jupiter Gold and Silver strategy with us there.

Narrator: Make sure to hit, follow or subscribe

Host: if you haven't done so already, uh, to receive our next episode, which will be with Anthony Scaramucci, uh, of Skybridge Capital. That's coming up next week here on the Master Investor podcast.

Narrator: For now though, our thanks again to Ned Nehen. Thanks, Wil The Master Investor Podcast is sponsored by Elseg Interactive Brokers, the World Gold Council, and BNY Investments. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice, or a personal recommendation. More on that in the show. Notes this podcast is produced by Paradine Productions and Master Investor, UH limited in association with birdlime Media. If you've enjoyed the show, please do subscribe on YouTube or click follow on your podcast platform and you'll be automatically notified each time a new episode drops.