Unfolding the Future


Investment Insights:
Precious Metals & Commodities

David J. Mitchell, Founding Partner of Auctus Metals Portfolios, on the pockets of opportunity to hedge your investments against uncertainty

by Jamie Nonis

In times of crisis, precious metals and gold, in particular, have long been regarded as safe haven investments. But in crisis also lies opportunity. Should investors therefore be prioritising wealth preservation? Or should you be looking to grow your portfolio with high-return investment products in this macroeconomic climate?

In this exclusive interview, David J. Mitchell, Founding Partner of Auctus Metals Portfolios and Managing Director of Indigo Precious Metals Group, provides rich insight into the asset classes investors should be including in their portfolios – and those to avoid – against the backdrop of rather lacklustre economic fundamentals.

According to Mitchell, a host of factors including seismic inflation in equity and housing markets, a growing global debt crisis (already 350% of global GDP) during an earnings recession and record US unemployment since the Great Depression, have pushed markets into “extreme overvaluation bubble territory”.

Coupled with continued and artificial support of asset markets through quantitative easing (QE) measures, Mitchell believes the world is heading into “the worst monetary debasement in recorded economic history”. The repercussions of diminishing confidence in the value of currency are immense, and a new monetary system may even be on the horizon, he predicts.

This could mean a greater move towards cryptocurrencies like bitcoin and with trades being increasingly performed via a mobile device, a feature like Samsung Knox becomes even more essential for a trader like Mitchell. “I’m a very active trader; I tend to trade the foreign exchange markets, various equities, the precious metals markets, and I use my mobile device,” he confirms.
Built into the phone’s hardware, the defence-grade security platform trusted by security experts and government agencies worldwide is designed to protect your data from theft and unauthorised access from the moment you turn on your device. It has its own security certification, which ensures that applications are always running on a trusted platform while biometric authentication provides an additional layer of security by restricting data access to you alone.

Many Samsung phones, including the Samsung Galaxy Z Fold2, are secured by Knox so you can have peace of mind making trades on-the-go with Samsung Knox.

Now, how much of your investment portfolio should cryptocurrencies and other asset classes including physical precious metals comprise?

Read on for David’s expert recommendations.
Given your economic analysis and investment outlook, which instruments and sectors should investors be looking at right now?
Stock markets will continue to rise, even though that doesn’t make any sense as far as valuation models are concerned. What I’m suggesting is to be very sector-specific.

Commodities are moving towards the start of a super-cycle – an extremely strong and very long upward swing in price over the next 10 to 12 years – as a result of new policy direction moving towards a massive fiscal debt driven increase in infrastructure spend globally. Europe, UK and the USA have already announced this policy direction, which requires commodities that are already facing structural supply – demand deficits and the price resolutions will instigate higher prices. Commodities will be required to build roads, bridges, telecommunications networks, power stations, electric grid expansion, new hydrogen energy grid systems, etc, and they’ll need raw materials including copper, aluminium, steel, etc. We’re probably six months away from the start of this but when it starts, it’s going to be like a juggernaut and it’s going to be unstoppable.

And because we’re in a monetary debasement event in which they’re actively destroying the value of currencies, the prices of the commodities complex will rise. So as far as sectors are concerned, my advice is to stick to agriculture and agricultural production – not the outlets that sell food to customers, but the actual guys who produce the stuff. Water; general commodity production; royalty streaming companies. Platinum, gold, silver; the full array of metals. There are also numerous opportunities in rare earths.

Stay out of the banking sector entirely. Technology stocks are way overvalued at the moment. Don’t get me wrong, I’m a big fan of technology and I love the latest gadgets but the technology sector is very overvalued at the moment.

I would stay well clear of property markets. Again, do not mistake me, everyone’s got to live somewhere. There’s been a huge global infrastructure overbuild in housing driven by overzealous developers and extreme debt leverage, and this is unsupported by the present debt dynamics within a major earnings recession.

So the investment strategy right now should be all about wealth preservation, and I would suggest that precious metals are leading the way; they are what we describe as the pointy-end of the spear indicating the direction of where the global monetary system is going, and clearly moving into the next super-cycle in commodities.

Should investors go overweight on precious metals right now?
Yes. Wealth and hedge fund managers typically advise a 5-10% allocation in precious metals, but that advice relates to a normal economic cycle. We’re not in the normal part of the cycle any longer. The investment case for the bond markets is a disaster. Corporate and sovereign debt issuance is at an all-time highs and rising; we’ve never seen it this high as a percentage of GDP. We’ve got debt dynamics that are unsupportable in an earnings recession (a severe global debt crisis); overvaluations in the stock markets; the housing market is heading sharply down; currencies are being debased, and the banks’ balance sheets are recognised as severely at risk or in a great many cases insolvent when applying good accounting.

That doesn’t leave that many options. I’m not saying to go 80-90% in metals, though my family trust is. Within your individual portfolio, calculate what you feel comfortable with and remember the importance of preserving your wealth at this stage of the cycle.

You’ve got the likes of Bank of America saying gold is going to be US$3,500 within the next 18 months. That’s a very easy call to make. I don’t know if gold is going to be US$3,500 in 18 months’ time exactly, but gold is definitely going to be US$3,500 in the near future [a doubling from where it is today]; be it 20 months or two-and-a-half years from now. It’s definitely going in that direction. It’s unavoidable. I’ve been in this game as a professional money manager, investor, trader and head of the proprietary risk desks for some of the world's largest investment banks for 35 years now, and this is the easiest investment trade I’ve ever seen. Because we’re walking into a direct global monetary debasement of the currency system.
What percentage of an investor’s portfolio should precious metals then comprise?
At Auctus Metal Portfolios, we’ve built up a number of algorithms to process an enormous amount of data and it’s an active and diversified investment portfolio across gold, silver, platinum, palladium and rhodium – we don’t just buy a pile of physical gold, stick it in the vault and forget about it – we actively re-weight the client's physical metals within their own wholly segregated and fully allocated vaults recognising pricing anomalies and trend changes to generate a clear outperformance (alpha return) over and above gold.

Our clients are currently weighted in just under 2% of gold currently even though we are expecting gold to double within the next two to three years. Why? Because the other metals have a much higher prognosis for price appreciation; and we’re calling for roughly 500% revaluation in platinum and 350% in silver from here.

What I would suggest for a liquid and defensive or conservative portfolio is to hold at least 30% of your wealth in physical precious metals. For a static holding of metals, we'd recommend to weight your portfolio as possible: 10% gold, 35% silver and 55% platinum.

The minimum investment in Auctus Metal Portfolios is SGD$250,000 however with Indigo Precious Metals Group there is no minimum at all, and we have many first-time investors in metals coming to us now.

What are your thoughts on gold-backed exchange traded funds (ETFs) that are more accessible to retail investors?
We’re walking into a global solvency event so physical asset ownership is going to be critical. Within this historically important period, I personally would not invest in an ETF. An ETF is a financial derivative product with no physical backing per se as the metals are predominantly held with sub-custodians who are involved in re-hypothecation policies with no physical audit requirements. I’ve read the prospectuses of these instruments in great detail and written into them is a force majeure clause; so they can basically close it down at any time and simply say, “This is the settling closed price, so we will settle your account in full at these prices” even though gold has and continues to go up. Meanwhile, everyone’s missed that huge [upwards] move.

ETFs are a trading vehicle only and this is how they have been predominantly designed; they are not a wealth preservation asset class. So a clear distinction needs to be made.

How about cryptocurrencies at this stage of the game?
I think a diversification to bitcoin is probably wise. Personally, I would suggest not more than a 5% allocation to bitcoin, but that really depends on your own personal belief system and understanding of the legal frameworks and risks involved. Do not hold currency in the bank. Whilst that used to be considered risk-averse, it is now quite the opposite.
What is the timeframe in which you see this entire cycle playing out?
As far as when you’re going to see these spectacular moves, they tend to move very, very slowly [at first] and then all at once. The old rule of thumb is that you will see 80% of the move in the last 20% of the timeframe.

For example, if you look at gold between 1971 and 1980, it started off at around $35. In 1974, it went up to $200. In 1976, it went back down to $100 again. Then from the latter part of 1976 to 1980, it went from $100 to $850; a very big move in a very short period of time. Same with silver.

If you look at the property market, it’s approximately a 52-year cycle. There are a lot of ups and downs as no market goes in a straight line, but if you look at the last 20% of the past 52 years, you can see that property markets from Singapore to New York, Sydney and London have gone completely parabolic.

The US, for example, has unemployment levels today matching the 1930s and double the levels seen in the peak of the Global Financial Crisis of 2007 to 2009, obviously triggered by Covid-19. They’ve also got a catastrophic debt picture, although I have to say Europe looks very much in worse condition and the UK is not far behind. This is very much a global phenomenon.

Their last yearly recorded budget deficit in the USA was US$3.1 trillion. At the height of the Global Financial Crisis under President Obama, the budget deficit blew out to US$1.4 trillion. It has recently been doubled so debt trajectories are very clear here, and this is before the new and truly gargantuan fiscal expenditure policies have been fully announced.

China meanwhile, has a US$1.5 trillion equivalent shadow banking crisis of non-performing loans. That’s truly enormous. It’s building bridges everywhere, it’s building whole towns and cities which are ghost towns. The bubble is already bursting. But these things tend to stretch out much longer than ever anticipated.

We are in a global monetary debasement event and 2022 to 2024 will be the epicentre of this. Based on a number of different technical analyses; bond market analysis, capital flow analysis and debt dynamic analysis, etc.

It's very much now looking like a new monetary system will materialise soon. People may think that’s rather dramatic but if we look at the last 300 to 400 years, the average life of a monetary system is only 40 years. This current monetary system started in 1971 and it’s nearly 2021 now; it is already 50 years old. It’s very dated and you can see the many cracks aggressively developing in the dam. The cracks are literally everywhere to be seen.

If we have not moved into a new monetary system [by 2024], that means our global policy leaders will have once again kicked the proverbial can down the road. That, in my opinion, is going to be truly horrific. We don’t want to see that happen because that means a global depression, although my analysis is more accurately pointing to stagflation. That leads to severe repercussions for everybody, especially the middle classes and pensioners who will see the most negative feedback loop in balancing their budgets. I’m afraid that’s all rather doom and gloom and I apologise, but it is what it is.

Find out more about Knox here.
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About David J. Mitchell
David J. Mitchell is the Founding Partner of Auctus Metals Portfolios and Managing Director of Indigo Precious Metals Group with 35 years experience working for some of the world’s largest and most renowned banks. Connect with David on LinkedIn.

About Jamie Nonis
Jamie Nonis is an independent journalist with two decades of experience interviewing esteemed artistes, world-class athletes and influential captains of industry including Olympic champion Joseph Schooling and Singapore President Mdm Halimah Yacob. Jamie’s work has been published in Channel NewsAsia Luxury and Tatler Singapore amongst other top-tier luxury lifestyle publications. Connect with Jamie on LinkedIn.