Precious metals like gold and silver have been gaining prominence in the last few years. These commodities are becoming the preferred choice for retail investors to hedge against the impending recession. As a result of this growing interest, prices for gold and silver have risen more drastically such that people make a beeline to own bars of it.
Now, not everyone has the luxury of space to store gold or silver bars at home so that is how Silver Bullion and The Safe House come into play. Gregor Gregersen, the founder of the Silver Bullion, believes that more and more people will look towards building a robust precious metals portfolio and his company will be able to satisfy this demand for a secure and reliable storage facility.
Ahead, we speak with him to learn more about the precious metals market in the coming years and his motivation behind building one of the highest capacity vaults worldwide — The Reserve.
Hi Gregor, how did you become interested in precious metals, and could you tell us more about Silver Bullion and The Safe House?
I have been fascinated by the stock market since I was little. I became a stockbroker assistant in the US, and eventually ended up working with quants (math PhDs) at a bank’s structured product desk developing custom derivatives for institutions.
I learned to program some of the derivatives that have become our financial system’s little-understood, quadrillion-dollar foundation. These derivatives are complicated bets from different counterparties that offset each other to produce the desired behaviour. Mathematically they might be sound, but they have a fatal flaw in that they work only if all counterparties remain solvent.
This flaw became apparent in 2008 when Lehman Brothers’ US$35 trillion worth of derivative positions defaulted. Being twice the GDP of the United States, its impact brought the financial system within hours of collapsing.
I witnessed the consequences of this collapse, working as a senior data architect at a major bank in Frankfurt, and realised, with absolute certainty, that greed and incompetence had irreparably transformed our financial system into a fragile house of cards. It had become too leveraged and interdependent.
Physical precious metals, like gold and silver, were one of the few real wealth refuges that did not depend on somebody’s solvency, so they were in very high demand as people quickly bought them from every dealer or bank that still had stock.
By the time I decided to buy some physical silver, no physical bars were left. Banks and dealers would only buy back, and in the secondary markets, silver was trading at three times the official price.
I finally managed to buy a 1kg silver bar through a contact at the gift shop of the European Central Bank.
My fascination for financial markets was thus replaced by an unrelenting drive to create an alternative, truly secure, wealth storage independent of politics and counterparties.
This is still the drive behind Silver Bullion, which has delivered to clients over S$1.5 billion (or more than 730 metric tons) of gold and silver to Singapore, and The Safe House vault, which is safeguarding much of this bullion for our clients.
There are different types of commodities that one can invest in other than metals like agriculture and energy. Why are precious metals the preferred choice over other commodities?
Gold and silver are not just commodities. They are the world’s most enduring currencies (currency code XAU and XAG), are intrinsically valuable, practically indestructible, and cannot be printed out of thin air. They are effectively money that appreciates over time. Gold, for example, has appreciated on average by 7.8 per cent per year since 1970, from US$35.96 to around US$1,900 today.
Currencies backed by gold are limited by their gold holdings, which is why no government-issued currency is now backed by gold. Today’s fiat currencies’ worth depends solely on the perceived credibility of the issuer, allowing popular issuers to fund increasingly unsustainable deficits with no plans for repayment other than by issuing more currency.
Fiat currencies nearly always lose value over time through inflation, and eventually, become worthless once confidence in the issuer is lost. In contrast, gold and silver have endured throughout history as they have always been the neutral asset people trust, especially in a crisis.
To put it plainly, in a crisis, do you want to risk holding the next banana money or gold?
These monetary uses set gold and silver apart from other commodities, which must usually be consumed lest they decay.
Various news outlets have forecasted a recession in 2023. Why do you think precious metals are a good buy during a recession?
We are not heading into a normal recession characterised by negative to low growth and low inflation. Instead, most of the developed world is in a stagflation (defined as low growth and high inflation). On average, major currencies lost 9 per cent of their purchasing power in 2022. Such wealth losses have not been seen since the last stagflation ended in the early 1980s.
In a normal recession, the traditional advice is to purchase low-risk bonds, earn interest, and sit out the tough times. In a stagflation, however, buying low-risk bonds that pay 4 per cent or 5 per cent interest while your money loses an average of 9 per cent in purchasing power is not necessarily a good long-term plan.
While inflation might fluctuate year to year, inflation will remain uncomfortably high for the next five to 10 years because so much paper money was created over the past decade. Meanwhile, geopolitical tensions are causing trade to recede, making goods harder to make and, therefore, more expensive.
This prolonged high inflation expectation is not just my opinion. Singapore’s Prime Minister Lee Hsien Loong has made it clear in his 2022 National Day message that low inflation is not likely to return anytime soon.
As people see their dollar wealth erode, they will realise that they need to protect their wealth by buying something that tends to do well in a stagflation.
Precious metals tend to do well in stagflations. For example, during the last decade-long stagflation, the gold prices in US dollars surged from US$35.96 in 1970 to US$459 in 1981, representing an average 26 per cent increase per year for 11 years.
Central banks have already greatly increased their physical gold purchase in 2022. I think mainstream investors will slowly follow suit, ensuring that gold and silver will become increasingly popular this decade.
Why should one invest in silver and could you share with us the outlook of silver in the future?
Silver was the first global trading currency and, along with gold, the foundation of most modern currencies, including the US dollar and Pound Sterling. Silver literally means money in Spanish (plata) and French (argent). The Chinese characters for a bank (银行) literally refer to a place to store silver.
As an industrial metal, silver is indispensable, being the best electrical and thermal conductor and a potent antibacterial agent. Our mobile and electronic devices all have silver in them, which cannot be easily substituted away. When these devices reach end-of-life, they are often discarded in landfills, making the silver unretrievable.
So whereas gold is carefully hoarded, much silver has been literally thrown away a gram at a time over the past 50 years, leaving global silver reserves a tiny fraction of what they used to be. As of 2022, the identifiable above-ground silver inventories are only 52,000 metric tons compared to over 190,000 metric tons of gold that the World Gold Council estimates to exist.
Besides being surprisingly scarce, silver is also historically undervalued. In nature, the ratio of silver to gold is about 16 to 1, which was also the exchange ratio between silver and gold for most of history. However, gold is trading at 75 times the price of silver today, making silver over four times cheaper than its historical mean.
I would define silver as scarce, indispensable, undervalued, and largely forgotten by the mainstream. Most of my personal money is invested in silver, as I expect it to strongly outperform gold as we enter the next precious metal bull market.
Could you share with us why you have decided to build The Reserve in Singapore instead of another place like Malaysia?
Throughout history, when a country with unsustainable debts can no longer monetise their debts effectively, they tend to make drastic changes, usually at the expense of savers.
For example, during the Great Depression in 1933, the US suddenly made gold ownership illegal. It forced individuals to sell their physical gold to the government at US$20.67 per troy ounce or face up to 10 years in prison.
Essentially holding gold in the United States in 1933 became like holding cocaine today, a highly illegal and dangerous endeavour.
Following this gold nationalisation, the government increased the gold price to US$35 per troy ounce, effectively creating 70 per cent more US dollars for the government to spend at the expense of gold holders (today, gold is trading at US$1,850).
People who held their gold outside the United States were unaffected. So, it is important to store gold in a stable, well-funded, trusted jurisdiction that is unlikely to nationalise gold in a crisis.
Storing gold and silver in Singapore, which has no net debts and a fully funded pension system, rather than in highly indebted Western countries whose unfunded pension systems I consider to be a ticking timebomb, is a prudent choice.
Singapore is politically stable, has very low corruption, well-enforced property ownership rights, and investment-grade precious metals are exempted from taxes, which are all good things.
Singapore is also well-regarded internationally. It has a strong regional military presence comprising of over 420,000 active and reserve personnel and a military budget over three times that of Malaysia.
These are the reasons we are investing so heavily in Singapore.
The Reserve is going to be one of the biggest precious metals storage facilities in the world, why have you decided to embark on such a large-scale project and what’s your vision behind this project?
History tends to repeat and recurring cycles can be identified. Every 80 to 100 years, a new superpower replaces the prior one, and every 30 to 40 years, reserve currencies tend to get into a crisis (e.g. the US dollar in the 1970s) and are either saved or replaced. Such cycle transition periods are always painful and often involve wars.
I believe that this decade we will be facing such a transition period and that this will cause great demand for ownership of liquid physical assets, stored in safe jurisdictions in a transparent manner.
The Reserve is built to address this demand by:
- Raising Awareness — Physical asset ownership is compelling, but it is difficult to capture people’s attention. The Reserve’s iconic structure symbolises the resurgence of physical assets while providing an attractive venue for related services and events.
- Protect Physical Wealth — Since 2009, we have ceaselessly prepared for the next systemic crisis. The Reserve will be the culmination of our efforts and the go-to destination for holistic wealth protection solutions.
- Bigger scale, lower costs — The facilities’ high floor loading and 15 high-security vaults allow us to lower per-ton-fixed storage costs by more than an order of magnitude compared to our prior facility. This enables us to efficiently store silver and valuable industrial metals in addition to gold, art, luxury timepieces, and other high-value items.
What are some services that will be offered on The Reserve that make it different from the others in the market?
Most vaults tend to be austere, inaccessible places. The Reserve has a more open, welcoming design and is cleverly compartmentalised to maintain high security without intrusiveness for most visitors.
We are currently storing over S$800 million in precious metals. Visiting the vault will be an experience. In our main 20,000 sqft vault room, we will store silver, and other valuable metals stacked 12 metres high. Walking through this room will be like walking through a canyon of silver.
Our clients can visit one of two labs in the facility that test the metals to learn about the five non-destructive testing processes we developed to authenticate and guarantee the metals.
Also, on site is The Xcess, a specialised bonded watch vault that will have 2,000 watch winders to store high-end timepieces optimally. These watches can be authenticated and maintained at a 2,000 sqft watch workshop within The Reserve. Once stored, the watches can be collateralised by the owner or sold to the highest bidder. Over time we expect to store a very exclusive watch collection.
The Reserve will additionally store art, wine, and whisky. We have approved zoning permission to conduct high-value international auctions in the facility. The facility will be a good venue for exclusive events.
Once this facility is fully operational, we expect third-party banks, family offices, and wealth managers to make use of the facility as well.
The Reserve will redefine what a vault can be.
Silver Bullion offers a unique secured P2P loan service where stored bullion can be collateralized for loans. What are the reasons behind offering this service?
Our secured P2P loan platform was launched in 2015. It allows customers to use their stored, authenticated assets as collateral to obtain loans peer-to-peer. The lenders are other customers who want to lend out cash for interest. Silver Bullion acts as an escrow and provides the platform to match lenders and borrowers based on a bid/ask process.
With this service, our clients have an added option of how they can use their stored assets. Perhaps they have investment opportunities and need liquidity without selling their bullion.
Having passed compliance checks to become storage customers, they can then obtain loans quickly since the collateral is a liquid physical asset. The system is designed to be very safe for lenders, and over the past eight years, we have had no defaults and averaged a yearly interest rate of just 4 per cent pa.
The loan platform has matched nearly half a billion Singapore dollars over 13,000 plus loans since its launch.
The company has been around since 2009, what are your biggest takeways from those years?
Maintaining a high level of trust and transparency with our clients is paramount. Sales are secondary to always building and maintaining this trust.
Strict AML/KYC and authentication processes are also indispensable to protect our customers and us. This is particularly true as we grow and invest so much capital into The Reserve.
Lastly, we are more than a conventional bullion dealer. We provide advanced systemic wealth protection solutions whereby precious metals play a big role. This important mindset distinction leads to, sometimes, radically different approaches compared to traditional gold vaults and dealers.
I would be developing smart software (a kind of AI) to optimise vegetable growth efficiencies for urban farming and franchise the systems. I hope to do this in the future .
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