“Gold is money, everything else is credit”
- JP Morgan
The US currently has $31 trillion dollars in debt. With increasing interest rates, the annual interest expense on this debt will soon be more than $1 trillion per year.
A simple question: where will the money come from to pay for this higher interest expense?
Higher taxes? Lower spending on defense? Lower spending on social security?
We cannot be sure but it seems to us that it will probably come from more issuing even more debt!
This dynamic will likely have wide implications on all asset classes. We know that gold's performance can be uncorrelated to other assets as it is an 'outside the system' asset. Due to this and other such reasons, we invest a portion of White Falcon's portfolio in precious metal royalty companies - as a proxy for gold - to hedge the portfolio against macroeconomic risks.
Royalty companies are simple and high quality dividend paying businesses that provide financing to mining companies and, in return, earn a royalty on every ounce sold by these mining companies. Royalty companies are highly profitable through the cycle but do really well when gold and silver prices are increasing.
In this video, we interview the CEO of Sandstorm Gold Royalties, Nolan Watson. We discuss the business model of royalty and streaming companies, the history of Sandstorm, and the price of gold.
Disclaimer: White Falcon and its partners own shares in Sandstorm Gold Royalties. Please read the disclaimer at the beginning of the video.