JV Video: Monetary Metals offers yield on gold, paid in ounces

Key Concepts

• Monetary Metals
• Leasing Program
• Bond Offerings
• Yield on Gold/Silver (paid in kind)
• Counterparty Risk
• Due Diligence
• Fiat Currency Debasement
• Inflation
• Interest Rates
• Market Uncertainty
• Perverse Incentives
• Healthy Alignment of Incentives

Monetary Metals: Earning Yield on Physical Gold and Silver

This summary details the concept of monetary metals, an innovative approach to wealth building that allows investors to earn interest on their physical gold and silver holdings, paid in the form of more metal. The discussion features Keith Weiner, CEO of Monetary Metals, who explains the rationale behind this model, its operational mechanisms, and its advantages over traditional methods of holding precious metals.

Background and Genesis of Monetary Metals

Keith Weiner's journey into the precious metals industry was catalyzed by the 2008 financial crisis. As a former software entrepreneur who sold his company to Nortel Networks just before its collapse, Weiner experienced firsthand the volatility and uncertainty of financial markets. This experience led him to a deep study of economics and a realization of fundamental problems within the monetary system, with gold emerging as a potential solution. He founded Monetary Metals in 2012 with the aim of making gold a more active part of the financial system, rather than a passive store of value.

The Dilemma of Holding vs. Earning on Precious Metals

Traditionally, holding physical gold involves incurring costs such as storage fees, custodian fees, and insurance premiums. For example, holding gold via an ETF like GLD incurs approximately 40 basis points annually. In an era of record-high gold prices, these storage costs become increasingly significant. Monetary Metals presents an alternative: putting these metals to work to earn a yield, thereby offsetting or even surpassing these holding costs. The core question for investors becomes whether to incur costs for storage or to earn a return on their holdings.

Monetary Metals' Two Programs: Leasing and Bonds

Monetary Metals offers two primary programs designed to generate yield on physical gold and silver, both achieving the value proposition of "yield on gold paid in gold."

• Leasing Program:

  • Target Audience: Businesses that consistently hold physical metal as inventory or work in progress (e.g., refiners, jewelers).
  • Mechanism: Physical metal is leased to these businesses. Monetary Metals has the right to inspect and verify the metal, which is typically held in excess of the lease amount (e.g., 10% more).
  • Asset Status: The leased metal is not considered the asset of the borrowing business, nor is it a loan or on their balance sheet. It is therefore not available to the creditors of the lessee in case of insolvency.
  • Return: Currently offers a 4% yield paid in gold. For instance, 100 ounces leased would return 104 ounces at the end of the year.
  • Investor Eligibility: Available to non-accredited retail investors.

• Bond Offerings (Lending Program):

  • Target Audience: Companies that do not hold gold inventory but have a gold income stream, such as mining companies nearing or in production that require capital for expansion or operational upgrades (e.g., purchasing processing plants, building infrastructure).
  • Mechanism: Monetary Metals provides non-dilutive debt financing denominated in the form of the metal the company produces. This is structured as a loan, appearing on the company's balance sheet.
  • Focus: Monetary Metals acts as the "last money in," financing projects that are close to generating revenue, not exploration or early-stage development.
  • Benefit: Eliminates currency mismatch risk (e.g., dollar liability against a gold asset) for the borrower. The company uses its gold income to amortize the debt and pay interest.
  • Example: A recent silver bond was issued for Bunker Hill, a TSX-listed company with an asset in northern Idaho.
  • Investor Eligibility: Primarily for accredited investors.

Alignment of Incentives and Risk Management

Monetary Metals emphasizes a "healthy alignment of incentives" by structuring its operations to benefit both the company and its investors. Unlike traditional banking systems, which can exhibit "perverse incentives" (e.g., "heads we win, tails you lose" with taxpayer bailouts), Monetary Metals' interests are directly tied to the success of its investors.

Counterparty Risk Management: Monetary Metals employs a rigorous 360-degree due diligence process to mitigate counterparty risk. This involves:

• Business Logic: Ensuring the borrowing business has a logical fit for a metal loan (e.g., a jeweler borrowing gold, not a shoe seller).
• Financial Scrutiny: Examining balance sheets, financial statements, and internal controls of potential lessees.
• Physical Security: Requiring insurance, cameras, dual signatures, and procedural safeguards (like RFID tags for jewelers) to protect the physical metal.
• Track Record: Assessing the company's history, longevity, and reputation.
• Ongoing Monitoring: Continuous compliance checks and monitoring of warranties and representations after the transaction is funded.

Weiner stresses that while a business might face bankruptcy, the physical metal itself remains secure if proper controls are in place. This is particularly true for larger, more established companies with robust internal controls, as opposed to smaller operations where the risk of metal disappearing is higher.

The Case for Earning Yield in Gold and Silver

In the current economic climate characterized by persistent inflation, central bank tightening, and market uncertainty, earning returns in ounces of gold and silver presents a compelling alternative to returns denominated in volatile fiat currencies.

• Fiat Currency Debasement: Fiat currencies are subject to inflation and monetary policy, leading to a decline in purchasing power. Even if nominal interest rates appear attractive, the real return can be negative if the currency depreciates faster than the interest earned.
• Gold as a Constant: Gold, in contrast, is not subject to inflation or monetary policy debasement. It has maintained its value as a store of wealth for millennia.
• Strategic Advantage: For those who choose to own precious metals, the decision is not whether to own them, but how to manage them. Monetary Metals argues that putting gold to work to earn a yield is a superior strategy to simply storing it and paying fees. This approach not only benefits the investor selfishly but also contributes to the broader goal of returning gold to its role as money in the system.
• Broader Economic Impact: By facilitating these transactions, Monetary Metals supports businesses across the precious metals ecosystem, including mining companies, refiners, and mints.

Conclusion

Monetary Metals offers a sophisticated and practical solution for investors seeking to generate income from their physical gold and silver holdings. By leveraging leasing and bond programs, the company enables individuals and businesses to earn yield in kind, mitigating the costs associated with passive storage and providing a hedge against fiat currency debasement. The emphasis on rigorous due diligence and a healthy alignment of incentives underscores the model's robustness and its potential to redefine how precious metals are integrated into modern financial strategies.