Eoin Treacy Interview Transcript

Speaker key:

ET              Eoin Treacy

BS              Boaz Shoshan

BS              Hello, and welcome to Our Silver Symposium. Today’s video, you’ll be seeing an interview I conducted with Eoin Treacy recently. Eoin is a good friend and colleague. He is a trader, a market commentator, and a wealth manager on top of that as well. But he has a huge amount of expertise when it comes to the monetary metals and the manner in which they behave and the manner in which they can be traded.

                   So, in this interview, we go over a few of the things that get forgotten by precious metals investors, and the manner in which we can expect silver to behave in the future. I hope you enjoy it.

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                   Now, Eoin, thank you very much for joining me. Could you explain to me how you first got started when it came to silver? Because it wasn’t where you began with markets, but it was an interest that you developed over time.

ET              I think when I first started working with David Fuller, he was an active silver trader, because he thought it was high-beta gold. And he was really anticipating that it would break out, so he was swing trading, because he was playing with futures, and it was a very involved process. Because when you trade futures, then you have to manage contango costs.

                   This was completely new to me. I started off selling Bloomberg terminals. So, when I started listening to him talking about losing money at expiries, even though the price had gone up, I was really flabbergasted. It took me quite a while to figure out what was going on. But then, silver broke out, and it broke out in probably about 2004. And it went wild.

                   And when you see a bull market evolve like that, and you see money being made in such a short period of time, and you’re making a lot of it, and he donated a lot of that money to the LPO.

                   And I thought, golly, that’s a nice thing, that you can set up the chess pieces on the board, then everything happens exactly as you like. And then, you come back with a big wad of cash, and you can do with it whatever you want. And I thought, yes, I think I like silver.

BS              It sounds like quite an introduction to get it when it’s cheap, and then to see such a spectacular rally. On that, when you’re looking back to that, mid-200s, where the conditions ended up being just right for silver, can you paint a picture of what it was like at the time, and what the catalysts were that really set the fire under the silver price at the time?

ET              The one thing that I particularly like about today is how similar it is to what it was like in the early 2000s. I really look in the mirror and I think, I can’t believe it was 20 years ago, but it was. And back then, the buzzword in the precious metals market was financial repression.

                   And financial repression is where the central bank holds down interest rates in order to create inflation. That’s exactly what was happening in the aftermath of the TMT bubble. There was this massive tech boom, and then there was a massive tech crash. And central banks panicked, and they cut interest rates aggressively, and they held them down for years.

                   They didn’t raise rates for about three years. And that was the causal factor behind the bubble that came in the US housing market. But it also created a bull market in gold, because people started losing faith in the purchasing power of the dollar. So, people started looking at precious metals, and they started looking at emerging markets. Anything to get them out of the dollar, and into global economic growth.

                   Because with a weak dollar and lots of cash being produced, and then low interest rates, it was an ideal scenario for investing in both the precious metals and emerging markets. And you will often see that they tend to rally together.

BS              Yes, it’s an interesting correlation there. Do you think that relationship still holds today, when you consider the strains that are facing emerging markets, when you’ve got this Cold War Two dynamic playing out, and the rivalry? It’s almost anti-globalisation to some degree, between US and the developed world, with emerging markets. Do you think precious metals and EMs can still rally together in that way, for the same reasons?

ET              So far, it hasn’t been the case. Gold, in particular, has really jumped on the upside over the last 18 months. Silver, more recently, just this year. But emerging markets have not rallied to nearly the same extent. Now, part of the reason for that is because of the strength of the dollar.

                   The dollar has been really quite firm over the course of the last year, not least because there was a lot of safe haven buying in response to the pandemic. But the bigger question is, is it going to hold going forward? Because I think that the dollar is very likely to decline from here. I think that we’re already seeing the Chinese renminbi appreciating.

                   So, on the one hand, we’re looking at a scenario where the dollar is one of the weakest currencies, and the renminbi is one of the strongest. And if you’re any other country in Asia, then what are you looking at?

                   You’re looking at the renminbi, because you’re trying to compete against China’s competitiveness. You want to export your goods into China. So, if they’re appreciating their currency, it makes your exports into China more attractive. That’s good for those emerging markets.     

                   It’s not like those emerging markets aren’t also going to sell to Europe, to Latin America, to Africa, to North America. So, it’s those emerging markets are probably going to benefit even more, because they get to play China off of America.

BS              How do you think that ties into the relationship of those countries with precious metals, though? Because, of course, all across Southeast Asia, you have this view of gold and silver, which is much stronger than we have in developed countries, in the UK, and likewise. There’s not the same relationship with viewing precious metals as a store of value over in the West, as there is over in the East.

                   So, when you have that, when there are Bangladeshi farmers who own vast amounts of silver, because it’s historically always been a store of value. And they still hold on to that, and they still have these vast hordes of silver, how do you think that dynamic with the Asian currencies plays into that dynamic, again, with the East and the West, and emerging markets previously rallying with precious metals?

ET              Just like you said, they have a historical affinity for precious metals. So, when people in India, and Bangladesh, and China, and much of Southeast Asia, have more money, gold and silver are usually one of the first ports of call for them to invest in. So, that’s a good reason why both gold and silver tend to rally with emerging markets.

                   But all of that is a play on a weak dollar. So, when we start to see today and in the last maybe three weeks that emerging markets are really moving to outperformance relative to Wall Street, but most particularly to the tech sector, and that the dollar is back on its lows, and that the renminbi is appreciating, that tells me that we are on the dawn of a new era, in terms of where demand may come from.

                   A lot of the demand for precious metals has come from physical ETFs over the course of the last couple of years. That’s very impressive, and it’s something that is likely to be a very important factor going forwards. But it’s unlikely to be the only source of major demand in a big bull market. And I do think that we’re going to see demand coming through from emerging markets as a very significant factor, as we head into the next portion of this bull market.

BS              When you’re describing the bull market in stages like that, where do you think we actually are now? What does the next stage look like? Are there catalysts on the way that you’re looking for?

ET              I think the first thing is that gold does tend to outperform silver in the first couple of years of a new precious metals bull market. So, that stage has been done. The next stage is that silver tends to outperform gold for the rest of the bull market. And it’s really only just started. We’ve only just begun to see that occurring in maybe the last three or four months.

                   Now, with that, what it tells us is that we have come out the disbelief stage, and we’re moving into the acceptance stage of this bull market.

                   So, what that tells us is people get the message. They may not be invested. They may not have an overweight position. But they understand the rationale for why there should be a bull market, that governments all over the world are printing money like it’s going out of fashion. They have no plan for how they’re ever going to pay back the debt.

                   The only way they’re going to get out of it is to devalue the currency. This is a very simple message. Everybody is asking the same question. How are they going to manage debt? And the answer is, they’re not going to. So, big bull markets have big simple messages. Anybody can understand that message. And, increasingly, people get it. So, that’s the acceptance stage.

                   People then start to look at gold and go, golly, it’s at $2,000. Maybe I need to find something cheaper to buy. So, then they go and buy silver. That’s the other thing that people say.

                   It’s not just that silver is high beta, but that silver is poor man’s gold. We’re now in the poor man’s gold era of this bull market. That it is the acceptance stage. It’s when people start to look for catch-up potential. So, they start looking for leverage. They go, okay, I understand the bull market. How do I make the most money from it? So, they go buy silver, and they look for more leverage to the gold price.

BS              When you say big bull markets have really simple narratives like that, I’d like to explore that a bit with you.

                   Because, with silver, it seems that the story with silver isn’t so simple as it is with gold. Because gold has this, it’s always been… Not always been, but it has this aura of being the hard money. And all we really use it for is jewellery and as an investment. There’s a little industrial usage in various electronic devices occasionally, even in things like catalytic converters, but by and large, this stuff is hard money, and it’ll protect you from inflation.

                   Silver, though, more than half of the demand for the stuff comes from the industrial sector. When you think of the consumption for this, it’s coming so much from industry, and yet our view of it, we think of it still, to some degree, as money.

                   We’ve seen it behave, doing this catch-up fashion with gold very recently. Just this year, really, it seems that it’s come into its own again. How important is the industrial consumption to the silver price, do you think?

ET              Silver is an industrial metal. It’s not simply a precious metal. And obviously, then the industrial demand is going to be a factor. But it’s also worth considering that there’s no such thing as a silver mine either. Silver is almost always produced as a by-product of other metals.

                   So, in many respects, there are two big factors. One is going to be demand for silver as an industrial resource. And the other is going to be, where is supply coming from? Because a lot of silver production will come from lead consumption, or it will come from other industrial metals.

                   So, batteries and solar cells are a very important way of thinking about silver. Silver is a major component of every solar cell, and there is a big bull market in renewable energy. We had Boris Johnson just yesterday saying that we’re not going to have any internal combustion engines sold in the UK after 2030. And that’s just another portion of this renewable energy bull market, where there is a clear determination to go carbon neutral.

                   Solar and wind represent the major portions of that drive, and that requires silver. So, that’s a big new source of demand for the metal. But if we then think about renewable energy in terms of batteries, rechargeable batteries don’t use lead. And one of the primary sources of demand for lead is in lead acid batteries. So, if you’re going to have less internal combustion engines, you need less lead for them.

                   And that means that there will be less lead mining. And if there’s less lead mining, there’ll be less silver as a by-product. So, then we have to start thinking about, where is the new silver going to come from? You do get silver as a by-product of gold mining. And, in fact, a lot of the silver miners started concentrating on gold production in order to survive the bear market.

                   They could not make money with silver at prevailing prices. The only way that silver is economic, even today, is because of the more valuable by-products that come out of the mining process.

                   So, if we see demand for silver starting to increase, it will require a significant amount of investment in new supply. And miners are extremely conservative at this stage in the cycle, so they’re not going to spend a big pile of money on an uncertain outcome.

                   That suggests to me that, volatility aside in the short term, there is a clear story for why silver should be doing better than gold over the medium term.

BS              It does seem almost paradoxical how it’s an industrial metal, so it relies on industry for a lot of its consumption. And yet, at the same time, a reduction in industrial output, when it comes to things like batteries that aren’t rechargeable, could lead to supply constraints for silver. It seems there’re so many twists to the narrative of silver in general.

                   Just broadly speaking, do you think we’re going to see silver being viewed in its more natural monetary terms by investors in the years to come, or do you think the renewable story, the industry story, this green gold idea will be more of the prevailing narrative used to describe why the silver price has gone up?

ET              Any good salesperson will take whatever story they think their customers will appreciate best, and it’ll be used to sell them whatever they want to sell them. And I think that the more stories there are, and the more use cases there are, in terms of the whole marketing way of trying to get people to buy silver, then people will use them. But the most important thing from an investor’s perspective is going to be the devaluation of currencies.

                   Because that’s the real reason you want to be invested in any kind of precious metal. You want something that can hold its value when there are rampant attempts to rob you from governments.

BS              And that is, I guess, the main thrust, and it always has been the main thrust for precious metals, is that purchasing power argument. With silver specifically rather than gold, and the manner in which the great skew between the gold price and the silver price. As you’ve already described, silver is mined primarily as a by-product when you’re looking for other things. It’s the tailings that get left behind, when they’re after things like cooper, or nickel, or cobalt, or lead.       

                   That’s where a lot of the silver really comes from. Do you think this bull market will last long enough, and do you think the general surge behind precious metals is great enough that we’re going to see significant capital investment applied to extracting silver specifically? Or do you think it’s not? This is going to be a really… Not necessarily short, but short in terms of capital cycles, short in terms of the actual amount of time required to set up a new mine, for example.

                   Do you think that this surge that we’re going to see in precious metals is something that will last long enough, that we do start seeing really focused silver mining in general?

ET              Rather than thinking about it that way, think about it the other way.

                   That the bull market will continue until those mines have been built, because in a supply deficit environment, where there’s excess demand, then you get supply inelasticity meets rising demand. And when that happens, you get higher prices. And the price only has to go up enough for it to become compelling for some enterprising individual to start a new mine and raise some money, that they’ll start to do it.

                   And it takes about maybe four or five years to build a mine of proper size. And when those mines open, they generally all tend to open at the same time, and that’s usually when the price starts to come back down. But it also means that we might not be looking to the end of this bull market for ten years.

BS              On that, I suppose, when it comes to the prices at which an entrepreneurial prospector decides that it’s time to set up a silver mine, what price do you think would be required and would need to be sustained for a set period of time before this behaviour starts to be expressed?

ET              If history is any guide, the way that you raise capital for building a mine is you go along to the bank. And there’s always enterprising people who want to start a mine, but the bank won’t give them any money. So, you go along to the bank and you say, look, the silver price has been going up at about 10% a year for the last three years, and I project that it will go up in a linear fashion. It never goes up in a linear fashion.

                   But I predict it will go up in a linear fashion, because it looks good on charts, that it will go up 10% a year for the next five years.

                   So, by investing in the mine today and giving me your money, by the time we open, prices will be X much higher, and we’ll all make lots of money. So, they can’t do that until they have history. They can’t just say, right, silver’s broken out. It’s time to build a new mine. And then, people are going to say, what happened last time? It crashed. There’s nobody going to give them money if they can only say that.

                   So, they need history. They need prices to be higher, but they need a trend of prices increasing before they can really start to get money together to start building mines. And that means we’re not going to see a big source of new investment in mining probably for at least the next two or three years.

BS              Yes, it does seem like, given the state of the precious metals sector in general, not even just for silver, it does feel like it’ll be very hard to get a lot of new supply online anytime soon. When it comes to silver exploration and gold exploration, too, it does feel like the sector has been drained or exhausted. And it’ll require an awful lot of energy to get it back going again.

                   It makes you wonder just what prices we need to see before that sentiment is stirred again. When it comes to maybe looking over, say, the next year, we’re looking into 2021, one of the things for me that I wonder about is just when it comes to the lockdowns in general and the manner in which the global economy has been compressed, it’s been stalled for a long period of time.

                   It feels to me that when we do get some recovery, or when there is almost a reopen, but just a broader opening up and trying to get to some state of normality once again, there’s going to be a modest rise, to some degree, in interest rates. There’re going to be people selling bonds, to some degree, getting even more risk when it comes to value equities, or it could be the industrial sector broadly.

                   It just feels to me that there’s going to be a modest rise in interest rates, to some degree. And it’ll feel like a big thing, because there’s so much debt everywhere. So, a modest rise in interest rates means catastrophe for some players. I think when that happens, there’ll be something of a selloff in precious metals. Maybe a bit of a consolidation there.

                   But it’ll just be one of the pauses before we go up to the next leg because, of course, interest rates aren’t going to be allowed to rise very much. What’s your thinking on that? Would you agree with me, or do you think that we’re not going to see that reaction?

TS              I think that precious metals are going to be volatile. And the number one way to play precious metals is to buy the dips. I personally like to have bids way under the market. After the flash crash in 2010, I started putting bids way under the market. So, I think that was a way to just buy on occasional, very short-term bargains in the market. I do anticipate that gold and silver are occasionally going to have very severe downward drafts.

                   And I regard them all as buying opportunities, because precious metals tend to trade in a sawtooth manner. They don’t go up in one line. They tend to have a lot of volatility. And most of the upside happens in very short periods of time.

                   So, if we go back and think about how did the precious metals trade in the big decade, from 2000 to 2010, 11, they often spent a year and a half ranging. And then, went up 20% or 30% in the space of only six months. But in those ranges, there was a lot of volatility, and there was a lot of opportunity to buy on the dips, and to get real bargains. And that’s the thing that I think investors need to understand, is that you’re not really too late, and there’s no need to panic into the market.

                   That if you are patient, there will be occasions to buy gold and silver at a discount. But you need to have a strong stomach to do it when that happens, because they can pull back really fast, and it’s terrifying. So, the most important thing to remind yourself of is that interest rates might rise a bit, but governments can’t afford for interest rates to rise.

                   The amount of money that that would mean in terms of interest rate expense on the existing debt would overwhelm the NHS. It would overwhelm the US government. So, they just can’t raise interest rates. Considering the size of the housing market and the quantity of mortgage bonds that the Federal Reserve has bought, they can’t afford the housing market to decline either.

                   Not only would that have a deleterious effect on the economy, but a lot of the debt that they’ve bought would be worthless. So, that’s also an additional factor. They can’t have interest rates rising, because property prices jumped this year, and they jumped on the back of lots of available cheap credit.

                   If interest rates go up, housing prices go down. And that’s when politicians lose elections. So, there’s just very little prospects of them being able to raise interest rates. But that doesn’t mean we’re not going to have inflation.

                   That’s exactly the financial repression that is going to create this bull market. But I don’t for a minute think that it’s all going to happen in a straight line. There are going to be surprises along the way. And there is going to be maddeningly difficult volatility, because that is just part and parcel of trading precious metals.

BS              It is to be expected. I must say that my confidence in seeing a precious metals bull market is relatively unwavering, just built on one principle, that real interest rates… I can’t imagine a how exactly we could see a genuinely sizeable rise in real interest rates over the next five years. I just don’t see where in the world this would be allowed to occur, when it comes to just simply allowing interest rates to rise to some degree, or rise in any way above inflation.

                   It seems like something that is not going to happen, certainly not in the developed world, anyway. And with that as the backdrop, it feels to me that there is so much support underneath the price of precious metals, because real interest rates in precious metals are, of course, negatively correlated.

                   When it comes to silver, though, I’ve always… I say I’ve always. My general feeling on it is that, while we’ve seen nominal interest rates go down and down, and inflation hasn’t been extreme by any measure across the developed world when it comes to the real economy, I think it’s when we get real interest rates are going down, specifically because inflation is going up, that silver is really going to grow its wings, as it were.

                   What’s your take on that? Do you think inflation is something that silver is maybe more sensitive to, or do you think inflation is one of the reasons why perhaps silver has been underperforming gold, as much as it has, over the past decade?

ET              I think inflation is probably the most difficult question there is, because there were a lot of people, myself included, anticipated inflation really picking up in the period after the financial crisis. And it didn’t. So, there’s a reason for that. It was that the banks, they took in a lot of cash, and they didn’t lend it out. And without that credit engine, you couldn’t get the multiplying effect and inflation picking up.

                   Now, of course, we had lots of inflation in the cost of living. We had lots of inflation in services, costs, and education, and healthcare costs. But it’s not the inflation that the Federal Reserve measures or the Bank of England measures. And that’s really the only inflation that matters from a financial markets’ perspective. So, what we would need to see, in order for inflation to really start to pick up, would be the credit facilities and banks starting to do better.

                   That banks have got these massive sources of new liquidity, and how are they going to make a return on it? Now, the reality is that we’re very close to a point where central banks are going to take over the banking sector. And we saw a touch of that already this year, with the PPP loans in the USA, where banks were literally told, lend out this money.

                   And that’s a very different kind of banking sector than we’ve had historically. Usually, it’s banks who make the decisions on who should get money. Not the government. And now the government is saying, give money to whoever wants it. So, I think that when we go back and look at how banking stocks perform, banks are not paying any interest.

                   The quantity of money that is available to them from the government is extraordinary. They are charging plenty of interest, but they’re not paying interest. So, they now have better margins. They have access to lots of cheap loans. They’ve been insured by the government. This is exactly the environment where banks will lend.  

                   They will put out as much money as they can, because they’re being guaranteed by the government. And, in many respects, this is exactly what China has been doing for decades, because those banks in China are part of the government. And, increasingly, banks in the UK and Europe and in the USA are going to be arms of the government. And when they take over the lending the criteria from banks, that’s when inflation really does kick off.

BS              It does feel like capitalism with Chinese characteristics is becoming ever more prevalent in the West. Over here, in the UK – I’m not in the UK at the moment but in the UK, of course, we had the bounce-back loans from the government, where the banks themselves were saying that quite a significant proportion of the loans that they were extending, they did not expect to be paid back.

                   And yet, they were doing it anyway, because they’d effectively been told to by the government. And, more importantly, the government was saying, these have a government guarantee. So, if they’re not paid back, we’ll make up the difference. It does feel like we’ve rounded the corner when it comes to the deflation/inflation narrative.

                   Of course, it’s only in the fullness of time, in a year or so, maybe two years, that we’ll see whether or not this inflation really takes off and really takes hold again, after more than a decade, really, of not being there. On that, do you think silver is going to absorb that more than gold is, or do you think it’ll be much more of the traditional relationship, with gold leading, and then silver catching up more aggressively and faster?

ET              I think silver will outperform gold. That is historically what we’ve seen, is that gold goes first, and then silver takes up the running.

                   And we also have to remind ourselves that silver went on an absolutely epic bubbly environment in 2011. It went up way more than gold in the latter stages of this bull market. I don’t think we’re even close to that. There’s a long way before silver eventually climaxes. It’s really only just beginning. It only broke out five months ago.

                   So, we are at the absolute beginning of a new bull market in silver. It is only just beginning to outperform gold. And that is something that can last for a decade. So, when we start to think about what the potential is for silver, this is the time to be interested.

                   This is the time to be looking at it and thinking, when that pulls back or whenever there’s volatility, I’m going to buy some, because there is the clear scope that silver is going to go up a lot from here. And it will probably exceed the peak from 2011.

BS              Yes, it does feel like, when it comes to retail investor interest, certainly, when we’ve looked at what Robinhood is capable of, or at least what Robinhood has been blamed for over the lockdowns, when it comes to these incredible speculative surges, it does feel like if something like that came to silver, we’re in for some very positive volatility, I would suppose, indeed.

                   When it comes to silver, and you’ve been focused on this space for a lot longer than I have, what is it, do you think, that most investors who are in this space, and most people who look at silver, what do you think that they don’t get? What do you think is a common misunderstanding? What’s something that is conveniently forgotten about, or something that just doesn’t crop up on your average investor’s radar about silver, that they should remember?

ET              I think if you’re buying silver, it’s easy to buy and it’s easy to sell, and it then creates the understanding or the impression that it’s a big market, and it’s a big liquid market, like a big stock market. But that’s not the case. Silver is a small market. And a big hedge fund could buy all the silver in the world, and still have change left over.

                   It’s not a big market. It is an illiquid market. It’s difficult to move in size in the silver market, and that contributes to the volatility. So, just because you can go down to a jewellery store, or you can go and buy silver online, or you can buy silver ETFs, or you can buy silver futures, that doesn’t mean that because it’s easy to buy, that it’s not also a small market.

                   And because it’s small, it can move a lot. It can move a lot in the upside, and when it pulls back, it can pull back a lot. Because in an illiquid market, you’ll often see that there are no bids when you get these downdrafts, and that’s why you start to see the volatility coming through occasionally in the precious metal markets. And I think that’s something that most people don’t understand.

BS              The size of the silver market, it’s a quandary to me. And we probably shouldn’t go too far into some of the conspiratorial side of things, but when you look at the sheer size of the silver futures market, relative to the underlying silver price, why do you think it is that there are so much paper derivatives around it?

                   Because it’s even more extreme, I understand, than with gold.

ET              On the one hand, silver mining is a really uncertain business. It’s rather difficult to think about, how can I make money from silver? And then, if you’re a miner, you have to think, okay, I’m making money this month, but what am I going to do if the silver price goes down next month? So, hedging production in silver mining is much more prevalent than it is in gold.

                   So, the miners themselves will hedge some of that production. And by hedging it, it means they’re selling futures. That means that there’s going to be paper silver in the futures market. But then you’ve got to think about the fact that silver is volatile, and there are lots of trading strategies that do really well in volatility. And that means that there’s lots of trading activity.

                   It doesn’t mean that it’s a big market. It doesn’t mean that there’re going to be trillions moving around, like foreign exchange, but there’s lots of trading activity in silver. And I think that’s an additional reason why there’s so much volume in it. It is a favoured trading vehicle. If you want to get a turn on your view on gold, then you play in silver.

BS              On that note, with the size of the silver market, it’s small compared to gold, and gold and silver together really aren’t that big when you compare them to various sectors in equities. I remember, there was a presentation by Grant Williams several years ago. I think it was called “Nobody Cares”.

                   It was asking the question, effectively, just imagine what would happen if pension funds allocated, say, 1%, broadly, on aggregate, to precious metals in general. And it was just looking at the scale of what they would be able to buy in the precious metals and mining sector. It was effectively all of the mines. They could buy all of the mines, and a huge amount of the exploration capacity, and a huge amount of the bullion as well.

                   Gold and silver and just precious metals in general, are really just so small when you compare them to, broadly, other commodities, when it comes to easily compared to bonds, compared to equities. It’s just such a tiny sector. I’d be interested to know what your take on this is. Because, over the last year, we’ve seen a big bull run, not just in gold. It probably is a more high-profile metal, but we have seen, as you say, silver break out to a large degree.

                   And we’ve seen some of these mining companies start writing some pretty big dividends. They’re very cash-rich now, and they’ve been very austere over the last decade, after the brutal bear market. Or not really the last decade, but over the last five years or so. They’ve become a lot more consolidated. They run a very tight ship.

                   And now you get these big increases in price. You’re seeing these businesses being able to pay it back to their shareholders in these gigantic dividends.

                   What I’m asking is, as we go forward, after the economic devastation we’ve seen from Covid, economic growth is looking pretty touch-and-go in various places. Especially in places like Central Europe, do you think we are going to finally see large investors, pension funds that are so reliant on income? When it comes to compound interest? When it comes to actually being able to earn money from assets? Not just sit on them for a capital gain?

                   Do you think we are going to see pension funds move into the precious metals space to any degree? Or do you think it’s still going to be viewed with disdain, dismissal for all of the capital destruction that we’ve seen take place in the past? Is this something that you think is on the cards? Because if it did happen, it feels to me it would change the market regime entirely when it comes to precious metals.

ET              If you’re a big investor, you’re very constrained in what you can buy, because you have to think about how you’re going to sell it later. And that pretty much stops them from buying any small companies. So, when you think about the gold mining sector, there’re probably only two or three are of a sufficient size that they can buy them.

                   If you’re thinking about the little miners on the AIM index, it is not going to be pension funds buying those. They just can’t, because it’s too small. We can say, if a pension allocates 1%. Would you like that job of going to the investment committee and saying, yes, we’ve bought every goldmine in the world, but we can’t sell any?

                   So, we’re in this forever. That’s not going to happen. There is just no way that they are ever going to be able to do it today. But markets are forward-looking, and it’s when big investors start moving into the sector, that will be when we get into the third stage of the bull market. That’s when people start to really believe, and they feel like they don’t have a choice, they have to buy. That’s when you’re usually in the acceleration phase.

BS              My thoughts were just, of course, large investors are constrained. But in an environment where interest rates are extinct, and all over the real economy, you are seeing very lacklustre returns. So, if the only people that are paying fat dividends are in the mining space, it seems to me that that would force, to some degree, these underfunded pension schemes often.

                   And sovereign wealth funds, which have, of course, a very large, very long investment horizon, indeed. Whether or not that would entice them in. When you talk about that third phase, describe it to us a bit, just in terms of what the conditions are. What transitions us from the second phase, which we’re not in yet, or we’re about to get to, into that third phase, where things get really hot?

ET              First, you have to have a big bull market. You have to have it really well understood. You have to have a lot of money pouring into it.

                   So, there will be a lot of investment in new mines, and there will be a lot of loss, and it will be just de facto that purchasing power of currencies is deteriorating. You need to have a hedge. The money in the bank is losing value every day, every month, every year. And if you just hold your money in the bank, you’re going to lose it.

                   That is the scenario where you will get a bull market that is beyond the expectations of anybody sitting and looking at gold or silver today. When inflation picks up and everybody has massive demand for hedge, and where, in fact, there are yields to be found everywhere, and nobody believes them. That’s when you get a massive bubbly environment in the precious metal markets.

BS              When you’re thinking of how long this is going to last, I would hesitate for a very long time. When you’re talking about financial repression, when financial repression ends, what would be the break for it?

                   And I think we’d need to face another shock that’s like Covid. There’d need to be some other external semi-existential threat before something cracks the monetary regime, and we end up in a different place, where interest rates suddenly can go up and things like that.

                   How long do you think interest rates are going to stay as low as they are? Lower for longer was the saying. Now we’re effectively just waiting for inflation, and then seeing whether or not they do allow interest rates to rise when inflation rises. How long do you think this goes on for? Because, as far as I can tell, as I mentioned earlier, if real interest rates are what is going to light the fire under precious metals, how long are real interest rates going to keep going lower and lower?

ET              That’s a really hard question, but we know that Europe went for negative interest rates a decade ago. They haven’t been able to raise them yet. Japan went for zero interest rates. They haven’t been able to raise them yet. We’re now at zero interest rates or damn close to zero interest rates here and in the USA.

                   So, they may not be able to raise them, and it might be at least a decade. And if you think about currency resets, there’re two kinds. There’re the big ones and the small ones. The small ones are multilateral intervention. There’ve been a number of cases where we’ve had central banks and governments from around the world sit down and decide that they’re going to support one currency that has been trending down for a long time.

                   There was the Plaza Accord. There was an attempted multilateral intervention to support the euro about two years after it was introduced. If the dollar goes down a lot, and I mean a lot, there could easily be multilateral intervention to support it. That’s the benign scenario.

                   The less benign scenario is that we get a World War, and whoever is the winner sets up whatever the monetary system is going to be afterwards. And China is building a world-class military. They won’t be finished for a decade. So, if we had to think about when the problems are really going to get bad, then it’s going to be when China has a military. That’s around 2030.

BS              Quite ominous, indeed. I must say. When it comes to China, of course, they’re very big on gold ownership, mining, and making sure none of it leaves the country. As the bull market develops, do you think silver will retain or reacquire its status as a strategic metal, as this goes forward? Do you think some of the same constrictions that have been placed on gold historically, do you think any of that might come for silver?

                   Because when gold was banned in the US in the 30s, you saw a big bull market in silver, because people were just hoarding silver instead, as the next best thing. And, of course, we’ve got central banks who still trade all the gold, but silver’s been completely demonetised now.

                   What do you think silver is going to end up being seen as? Do you think it might acquire the strategic material status, or do you think it’s still too small and something that the governments really wouldn’t bother with?

ET              I don’t think governments like to hold silver and just pile it up, because it oxidises. Silver is not the same as gold. It does oxidise. My wife’s a jeweller. Any silver that’s been sitting out that’s not coated, is black in a month. And that oxidation, it’s not great for holding in a vault and sitting there indefinitely.

                   So, I just don’t think that central banks are going to have to resort to holding silver. Not only that, but the vault you need for gold is quite small. You can put a lot of gold and a lot of value in a small vault. If you’re going to start building vaults to hold silver as an investment, it’s aircraft hangars is what you’re thinking about.

                   That’s not really suitable in terms of just holding it as a reserve asset.

BS              Of course, if the price goes up enough, maybe you’ll be able to hold a lot of value in a short space. But, for the moment, it does seem like warehouses are the preferred area to keep silver in. We have used up a lot of your time. Thanks so much for it.

                   Are there any closing remarks you would give? Things to remember for any new silver investor, or for somebody who’s been there for a while, but wants to get an additional edge of information which you’ve gleaned over your many years of working in this space?

ET              I really think that eat your digestives and get a strong stomach. Silver is volatile, and that’s why you’re there. But it’s going to throw up surprises. And when the surprise comes, buy it.

BS              That’s a great note to end on. Eoin, thank you so much for your time.

ET              It’s a pleasure.

BS              There you have it, folks. That was Eoin Treacy. I hope you enjoyed that and found it informative. I know I did. It’s always great speaking to Eoin, because he has all this information he can easily access in his memory and pull out trivia or different aspects of market dynamics that you may not have considered before. And, of course, he gives a great warning about silver at the end as well.

                   The volatility we will see going forward will be great, indeed. It’ll make a lot of us reconsider our original outlook. But, of course, we just need to have an iron constitution going forward, and making sure that, of course, we’ve not taken on more risk than we are prepared for. But I hope you enjoyed that, and thank you very much for watching.