Joe Cavatoni on Gold's Volatility, Bull Case in Metal Digitization

0:00But it's now time to spotlight gold as a service. Enjoying us now to explain a bit more is Joe Kavatoni, senior market strategist of the Americas of the World Gold Council. Thank you so much for being with us on this Friday. Unfortunately, not seeing the most favorable price activity today in some of the broader metals. But we know gold is pulled back, of course, as we've seen the markets weigh in really higher rates. And of course, some stronger dollar and just inflationary concerns. So in your view right now, is this move mostly about some of the geopolitical turbulence about rates? Or are we seeing something gold specific perhaps that's been amplifying some of this downside? So I think it's actually a really interesting time. And I'm really glad we have the opportunity to connect. The first thing I'd say is the geopolitical tone, the actual moments in the market, the systemic moments that continue to push gold higher are definitely playing in. And there's many, many that are entering the market and feeding into that momentum that's pushing the gold higher and pushing it and pulling it back

1:01with higher level of volatility. But what I think is important to understand and underpin everything, the move by the Fed this week to specifically say, don't expect a rate cut over the course of the year. That's actually going to be the one factor we're going to look at and see how it will play out as we look at the broader underlying conditions of economic sentiment that's going to move gold over the longer, more structural move over the course of the year. We need to let the momentum of the short-term impact of the war in Iran and conflict in the Middle East measure against the structural shift that we're hearing and seeing as it relates to inflation and those big kind of structural issues that are actually giving gold that upward trajectory over time. So we're not surprised by the pullback, but actually are just letting people understand we're going to have a higher level of volatility and more movement in the price as we settle in around tactical and structural impact on the price. Okay, that really speaks to my next question as we know that right now does seem like investors appear

2:02to be rotating towards more yield bearing assets as rates perhaps rise. And so what signals right now tell you that this is more of that tactical rotation rather than say a lasting shift away from gold? Well, it's the opportunity cost of looking at those yields right now and people saying, hey, look, I need to take advantage of that. And gold being a liquid instrument in a portfolio often is used as a source of liquidity when you need to make a rotation. That plus the fact that we're up over about 135% over the last 18 to 24 months, those factors are saying, hey, look, let's take a little money on the table. Let's rotate into these yielding assets. But again, I would emphasize the fact that structurally we're not seeing people pulling away from positions in gold. What we're seeing is this overall use of gold in a tactical way to see what they can do to get out of a position and rotate but also hold on to it because again structurally, when we look out, is it going to be more inflation or more of a stack-flation environment that we start to see as issues and impact

3:03that comes from the conflict in the Middle East weigh in on the economic conditions globally. Okay, and so turning to gold, of course, as a service, what are some of the biggest structural problems in your opinion that with today's digital gold market that right now could perhaps be fixed by some of the overall improved infrastructure as well as just hopefully some continual design fixes? I think that right there actually amplifies exactly what our opportunity is for the gold market. There have been a lot of attempts and some are actually making some progress, but the key thing that's missing right now is some sort of organization around the infrastructure for gold, not necessarily the technical side, the infrastructure for gold to better facilitate the gold market for easier access through the digital channels. The fragmentation that is currently in place today, linking one token to one process in one market isn't creating the opportunity for scale. So our white paper that we released today with the Boston Consulting Group

4:04is a call to action for the industry to say, hey, look, we have the expertise in the gold market. Let us help the industry get better connected, better cohesion around these physical elements of the gold market that need to be working efficiently to then really let others in a competitive way, digitize gold in a much more effective way. The efforts today are good, but they're really very narrow in terms of their use case and their success stories so far. And we want to bring the gold markets heft and consolidation of it into the industry so that the tech can really help us bring more digitization to the market. Okay, so if gold as a service is successfully adopted, how does this really change the role then of gold for investors, especially when it comes to things like liquidity? And of course, the potential uses collateral in these digital markets. I think the world is wide open for much broader adoption of gold. I think it opens the door for, like you've said, collateral. That and the work we're doing around wholesale

5:06digitization of gold will mean that institutions wanting to trade it can use it in much more effective ways while they carry it on their balance sheet in the form of collateral for futures and other trading activities. But really what we're looking at is this big opportunity to say let's unleash the next wave of consumer in a modern way to access the gold market but getting that holistic effect of the gold market really fueling it. So not one token, one place really saying the market's ready. So if you want to have a token that can actually tap into it, bring it and we'll help you get that done. So it brings new users to the table and then the world's wide open for adoption of investing, trading, sharing, even using it in the form of potentially payments over time. But that's a long way down the road. The key thing for us today is to really get the infrastructure connected and organized so that we can actually come to the market in a much more meaningful way in terms of the overall heft of the gold market.

6:07Okay, and I have to ask because of course, we mean gold has been read for so long as more of this, the safe haven, the slight to safety type of asset. But then of course we have those that follow very much the crypto and digital world that argue that that is its own form of gold. So I'm just curious how you make out that relationship considering we've seen, I mean, a continual really pullback away from some of the highs of brick wine but also gold has remained fairly resilient as well as a lot of these other precious metals. There's a couple of key elements to the gold market that make it quite unique. Even amongst commodities let alone cryptocurrencies. It's the fact that wealth creation and wealth saving while also market risk and uncertainty are the key driving factors of it. It's hard for you to understand how Bitcoin or cryptocurrencies have that kind of dynamic just yet. There's a definite interest and we actually think it's an interesting space in the market but it's different. When you want to save or use gold as a reserve asset at a central bank, it's accepted, it's proved, it's acknowledged.

7:07That's actually a unique asset at a unique place that we play in the investment landscape. It's not the case in Bitcoin but what we like about the technological landscape of digital assets is that there's room for us and there's room for cryptocurrencies. Different use cases, different drivers, we have a place in the digital world, that's what our work with gold as a service is all about like saying, hey, we really need to be much more present in the space and actually once we have that moving you'll see crypto and gold in a completely different light. You'll see those assets being talked about in the digital landscape. And I like that that both can obviously be successful and of course it does seem like we want to so much compare the two but obviously there's space for both and right now we need both of them to come back here a bit but so appreciate it, Joe Kavitoni, senior market strategist of America's of World Gold Council. Thanks so much for your time on this Friday.