The Bull Case For Gold & Platinum, With Will Rhind Of GraniteShares

As the inflation rate went sky-high in 2022, gold and precious metals came back into the financial limelight. But did they perform as expected?

Will Rhind, founder and CEO at GraniteShares, joins Andy Hagans to discuss why High Net Worth investors are giving gold and precious metals renewed attention in their portfolio allocations.

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Episode Highlights

An introduction to GraniteShares, and its family of exchange-traded funds.
The most popular investment thesis behind gold, and why many investors choose to include it in a balanced portfolio.
Why central banks are continuing to add gold to their own balance sheets.
The differences between the various types of gold ETFs, and why ETFs featuring physical storage remain popular with investors.
The investment thesis behind platinum, and its diverse sources of demand.

Today’s Guest: Will Rhind, GraniteShares

About The Alternative Investment Podcast

The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.

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Show Transcript

Andy: All right. Welcome to the show. I’m Andy Hagans, and today we’re talking about precious metals, and the investment thesis behind them, in an era of high inflation and high interest rates. So, joining me today is Will Rhind, who is founder and CEO at GraniteShares. Will, welcome to the show.

Will: Thank you so much, Andy. Pleasure to have me. Thank you.

Andy: And, you know, I always love talking about gold. It’s a little bit within the world of alternative investments. I feel like it’s almost the original alternative investment, or it may be up there with, like, farmland. It’s gotta be one of the originals, right?

Will: Yeah, no, absolutely. One of the originals, you know, when you’re in the investment space, like me, it’s one of the few things you can talk about with anybody on the planet, and they’ll know instantly what you’re talking about, and secondly, they’ll have an opinion on it, whether it’s good or bad.

Andy: Yeah, no, I think that’s very true. You’re right. It’s not like cryptocurrency, where you mention it and you need to explain it. You’re right. It doesn’t even matter what culture, or even what era. You know, you could go back 200 years and they’d know what you’re talking about. Well, I know you have some skin in the game when we’re talking about precious metals, when we’re talking about investing in gold, platinum. To set the table, why don’t we talk a little bit about your company, about GraniteShares, and how your company is involved in these markets?

Will: Sure. So, GraniteShares, we’re an ETF issuer. In simple terms, we’re an asset manager, but we’re an asset manager that specializes in a specific type of fund, exchange-traded funds, or ETFs. And ETFs can do all sorts of different, you know, exposures, if you will, and have all sorts of underlyings, including gold. And so, we have one fund, ticket code BAR, or B-A-R, that is a physical gold ETF. And as the name might suggest, owns physical bars of gold, in a maximum security vault, and provides investors a way to simply own gold, and track the price of gold in their investment portfolios.

Andy: And, you know, it’s interesting. I was involved in the ETF space many years ago. This was, like, over a decade ago. At ETF Database, I was a co-founder there. They later, you know, merged and exited. I mean, but they’re still kinda covering the space. But I always thought gold ETFs were so interesting. I should say, I’m not a gold bug, although I’ve flirted with that identity before, I should say. You know, I’m gold bug-adjacent, let’s say, you know. Because it seems like a lot of people are kind in the gold bug camp. or they’re anti the gold bug. I’m more like, “You know what? I get it, and I’m gonna hedge a little bit, but I’m not gonna bet the farm, so to speak, on gold.” But I remember, this was back in, like, 2010, you know, a big thing that we talked about, on our website all the time and our newsletter, was all of these gold ETFs. You know, in theory, they’re tracking gold, but they all do it very differently. You know, some of them are physically holding gold. Some of them are tracking an index or holding some sort of derivative. And, you know, there’s differences in expense ratios.

Very interesting to me. Something on the surface, you know, a gold ETF, you’d think it was very commoditized, but when you go under the hood, and we actually had, like, a blog series called “Under the Hood,” I think. But when you go under the hood, when you X-ray them, they’re very, very different animals, a lot of these different exchange-traded funds.

Will: Yeah. And that’s, you know, the same with most ETFs, whereby, you know, for any investor, clearly should always make sure you understand what’s in the fund, because there are differences. And like you said, the gold is a great example. Just because it says gold on it doesn’t mean to say that all gold ETFs are equal. And so, you know, our ETF, BAR, is physically-backed, which means, like I said, we own physical bars of gold, 400-ounce bars. And that’s very different from, say, an ETF that owns futures contracts, or owns other derivatives that are linked to gold. In other words, they carry credit risk or counterparty risk. And we find, and over the years of doing this, that, you know, I would go as far as to say it’s the number one reason people own gold and want exposure to gold is because they want a hedge in their portfolio.

In other words, they’re buying gold as a, you know, forgive the analogy, but a quasi-insurance policy, in case the other parts of their portfolio go bad. And so, what they don’t want is, you know, when the, you know, metaphorical house is burning down for the insurance policy to be null and void. And so, the reason we have physical bars is because physical bars of gold, you know, can’t go bankrupt. A bar of gold can’t go bankrupt. And, you know, as we know with some of the banks, etc., companies can go bankrupt. And so, we don’t want that with, you know, customers holding an ETF. And so, they want physical gold because it’s free of counterparty risk and credit risk. And so, that’s why, you know, they want that exposure in the portfolio, in case something dramatic happens with the rest of the portfolio, whether it’s a stock market meltdown or whatever. And gold retains its value.

Andy: Yeah, totally. And I always thought the gold ETF was a unique one. When I use the term “gold bug,” I use it lovingly. I mean, way back in those days, I was, like, a big Ron Paul guy, so I use the term lovingly. But, as you point out, you know, a lot of the mindset of investing in gold is if you-know-what hits the fan, I wanna have this hedge. And if you-know-what is hitting the fan, the last word I wanna be hearing is, like, “derivative,” right? Like, the physical gold… So, to me, that was always a very interesting hook or feature of that type of ETF, you know, to physically store the bullion. You already alluded to this, but I wanna dig a little bit deeper, because, as I said, I’m gold bug-adjacent, you know. It’s like, gold bugs are some of my best friends, but I’m not really a gold bug myself, but I do have gold in my portfolio, precious metals in my portfolio.

And for me, it’s a hedge. And I guess, to explain my reasoning, not that you asked me, but let’s pretend you did. You know, the bulk of my portfolio, I want it to generate income, right? Because, you know, I wanna outpace inflation, I wanna have growth and appreciation. And I guess, in my mind, you know, it depends on who you ask, gold is a pretty stable store of value. Like, I’ve heard the example that 200 years ago, you know, an ounce of gold could buy a men’s suit, the tailormade men’s suit in Downtown London. And it’s still essentially, you know, roughly, with some variation, but still essentially can buy you, you know, the value of an ounce of gold could basically pay for a men’s…probably not the really high-end Savile Row, but you could still get a suit, you know, a nice custom suit.

So, to me, it’s that store of value. And I wouldn’t wanna lock up the majority of my portfolio in a store of value that’s not generating income. So, for me, it’s a hedge. And you alluded to, for most investors, that’s what it is. Do you think for all investors that’s what it is, or are there some… You know, with your ETF, you know, do you think there are people using it as a tactical allocation, maybe trading in and out of it? Could you give us some insight, the different ways investors are including gold in their portfolio?

Will: Yeah, no, absolutely. And clearly, the beauty of an ETF is because you can buy and sell, you know, throughout the day. You can hold it for a long period of time or a short period of time. And therefore people have, by definition, lots of different uses for something as simple as a gold ETF. Just to come back to your point for a second, because you make a good point. And, you know, sometimes, you know, people that, you know, don’t like gold, or at least don’t invest in gold, one of the arguments that they’ll use for not investing in gold is they’ll say, “Well, gold doesn’t produce an income. You know, it’s just a lump of metal.” And you have to take them back to the reason why it doesn’t produce an income. And of course, the reason why it’s not producing an income is because you’re not taking on any counterparty risk or credit risk that you need to be compensated for. It’s just a lump of metal. But if I was to lend my gold out to somebody, then yes, now I’m introducing, you know, counterparty risk into that trade, and my borrower, you know, might default on me. So, therefore I need to be compensated for that in the form of income. But a lot of investors that invest in gold, that’s not what they want. That’s not the reason why they’re buying gold. And so therefore, you know, you accept the trade-off that, they’re not taking any counterparty risk.

Andy: Will, sorry to interrupt. That’s an interesting point though, because if I’m thinking in terms of dollars, a dollar is just a store of value, but you don’t usually think about having dollars in your portfolio. You think about T-bills or bonds or something, and you’re thinking, “Well, no, if I have it in dollars, it’s producing income.” But no, that’s not actually dollars. That’s a bond or a T-bill. And then now you have some risk associated with that. Now, maybe in the case of a T-bill, it’s very little risk, but there’s still counterparty risk, to your point.

Will: Yeah, absolutely. And obviously, you don’t need to be reminded of that with all the recent discussions over the debt ceiling, and, you know, the potential consequences if, you know, the debt ceiling raise doesn’t go through. And that’s as perhaps as benign as missing government payments for a few weeks or however, to as serious as a potential default. But, you know, starting from that position where you were, that yes, when you have dollars in the portfolio, dollars themselves, you know, have a value against something else. And the reason why, for gold investors, that’s probably the most important relationship is because it’s dollars versus gold. And the way that we talk about gold having value, or preserving value, is against its paper currency equivalent. And so, when you think about it the other way round, and you say, like you said, an ounce of gold, if I have an ounce of gold, what’s that worth in dollars? How many dollars does that buy me?

Then clearly, in 1971, or when America came off the gold standard, if you look at the relationship between gold and the dollar, the dollar has lost nearly all of its value since then, when measured in gold. And that’s because paper money is, by definition, is inflationary. And gold, I’m not gonna say it’s not inflationary, but the rate of increase in supply is by and large very constant, about 3% per annum. And gold production cannot be ramped up in the same way a printing press can be ramped up with paper money. And so, that’s why, you know, we talk about gold preserving value related to paper currencies.

But, yeah, I mean, fundamentally, you know, gold is just an asset, and a lot of people want to trade that asset. A lot of people will take a view, clearly, that the price of gold is going up, or, you know, the price of gold is going down, but the price of gold is going up and they just want, you know, participation in that. They want to profit from the gold price going up. That’s the simplest, you know, form of investing, clearly, that people do.

Then you have the other scenarios we talked about, which tend to mostly revolve around this idea of gold being a hedge asset in the portfolio. And whether it’s a short-term hedge or whether it’s a long-term, or, you know, a piece of permanent real estate in your portfolio, people will have different views on that. But, you know, fundamentally it’s about the same thing, which is, “I want gold because it’s a hedge against,” it might be the dollar. “I’m worried about the dollar devaluing, so therefore I want to preserve purchasing power using gold. I’m worried about the stock market crashing, I’m worried about a recession,” whatever it may be, “and I own gold because I want to have some hedge in the portfolio for that eventuality.” So, those are sort of, broadly speaking, I think, the two kind of major applications that people are using, you know, gold investment for in the portfolio.

Andy: Yeah, understood. And it kinda reminds me, I’m almost thinking of blue jeans, how every 10 or 20 years, they get wider, and then they get tighter again. And it’s just like this never-ending cycle of in and out of fashion. I feel like gold, maybe it’s even a little bit faster than that, than blue jeans, that cycle. But it seems to constantly come in and out of fashion. There’s this kinda underlying thing, you know, what we’ve already talked about, of, like, literally this is a millennia-old investment. But then even in the last 20 or 30 years, you know, I can think of these moments where gold is just, like, on the cover of a magazine, and it’s like, “The triumph of gold.” And then, you know, two or three years later, you’re reading things like, “All the people who bought gold are idiots. Look how low it’s gone.” You know, I guess being an asset manager, managing this ETF, do you see that… Is that mainly, like, a news media cycle, or do you actually see that with, you know, investors piling on with inflows and outflows in your ETF?

Will: Yeah, I mean, yeah, first thing to say is gold is cyclical, like most commodities. And so, the price of gold does move with supply and demand cycles, and those supply and demand cycles will correlate to lots of different macro factors. And so, absolutely, the price of gold rises, the price of gold falls, you know, in cycles. What I can say though is, throughout my career, we’ve been in this, what I call an upward cycle for gold, meaning that yes, the price of gold has gone up and down, but, you know…

Andy: A secular trend.

Will: Exactly.

Andy: Like, can we say. Yeah.

Will: But it makes higher highs. And, you know, I remember when, it was probably 15 years ago. But around 15 years ago, it was inconceivable that the price of gold could break $1,000 an ounce. And for people that had been around in the gold market for a long time, you know, they couldn’t envision a scenario where gold broke the 1980 high, which was just a touch over $800 an ounce, let alone go through $1,000. And, of course, it did. And as we know today, the gold price sits around $2,000 an ounce. But what I can say about gold is that it’s always, you know, from peak, the last peak, or the last all-time high, yes, the price retreats, just like anything else, but can come back, and has come back to make a new all-time high, you know, sometime later.

And that’s a really interesting thing because, you know, just like the market, you know, it seems like we’re in this situation where ultimately, it’s supply and demand, we know that the supply is finite, and we have more demand, you know, for gold, broadly speaking throughout the cycles. And whether that’s jewelry demand, whether it’s investment demand, or even one of the big trends we’ve seen, you know, over the last decade, it’s this demand for central banks, and central banks buying gold in record numbers. And of course, we know that central banks own gold as a strategic asset, you know, on the balance sheet, which, again, talks to the importance of gold, the strategic nature of gold, not just this investment for retail, or for, you know, professional money managers, but for the most important central banks in the world.

Andy: That’s such an interesting fact that central banks are buying up gold, increasing their own holdings of… I mean, it’s one of those things, if I think about it, you know, it starts to get your wheels turning. You’re like, “Wait, does this central bank not believe in their own currency?” You know, I mean, isn’t that kind of begging that question?

Will: Yeah.

Andy: Why would you wanna own this at a central bank?

Will: Yeah. And just to sort of maybe elaborate on that little bit more, typically when I say central banks, I’m not talking about Western central banks. Because they are the ones that own the majority of gold anyway, in the first place, in terms of central banks. I’m talking about the central banks in the rest of the world that are largely on the accumulation drive. So, Chinese, for example, being probably the most well-known example, but you have, you know, all sorts of central banks from South America to Russia, the Stans, you know, Turkey, etc., that have been buying gold. And one of the reasons that they buy gold, probably the biggest reason they buy gold, is the same reason that we were talking about from a, you know, kind of retail investment perspective, that typically, a lot of them are export-driven economies, so they’re exporting whatever goods, typically, that they manufacture.

And if they’re exporting them to the United States, or just on the worldwide market, they’re typically receiving dollars for those goods. And again, they don’t want the dollar to depreciate. You know, they don’t want the dollar to devalue. They’re worried about, you know, the dollar just as much as anybody else. So, to diversify their dollar reserves, they can sell dollars and buy gold. So, it’s not necessarily kind of a bet against their own currency per se. It’s more to diversify the foreign currency reserves that they have, which typically are overweight dollars.

Andy: Yes. Very much overweight dollars. I mean, and it’s amazing, you know, it’s a bit of a tangent, but just, with the debt ceiling discussion and the debt continuing to grow, you know, someone asked me the other day, “You know, it seems like this pyramid, and when is it gonna collapse?” And I said, “You know, as long as there is so much demand for the U.S. Dollar worldwide, it is sustainable.” But it’s sustainable until it isn’t, right? If that demand for the U.S. Dollar ever goes away, then there’s a real reckoning, and, you know, some other countries have had that reckoning, and we’ve been able to escape it because of that demand for the U.S. Dollar. So, that discussion’s probably a little bit above my pay grade, but, you know, Will, you probably get that kind of, you know, higher-level thinking, or that kind of discussion in your line of work, given your asset classes, quite often.

Will: Yeah. I mean, you know, put sort of fairly simply, that I think is one of the major arguments for owning gold right now. And when I say right now, I mean that this is a trend which a lot of investors in gold are starting to think more and more about, and it’s this idea of de-dollarization, which just, you know, to kind of extrapolate on your previous thought, is this idea that the world is moving away from the dollar as the reserve currency. And there’s a spectrum of that. That doesn’t mean that the dollar’s about to imminently disappear as the world’s reserve currency, and it may never do, but it’s an idea that the dollar will be less important in global trade than it has been in the past. And we already see signs of that happen… Well, not signs. That’s already happening, in terms of, whether it be Middle Eastern, you know, countries trading with Russia or with China, and using either local currency or a combination of local currency and gold. But, in other words, using less dollars or no dollars to transact with each other, in a way that previously would’ve only been possible with dollars.

And so, that’s already happening. And clearly, we know initiatives that the Chinese are pursuing, such as, you know, Belt and Road Initiatives, etc., are all about opening up not just trade, but it’s trade in local currency. You know, having partnerships whereby you can trade with a country like Brazil, and, you know, trade in their local currency, in your own local currency, but avoiding using dollars. And that goes back to this idea of the most important relationship that gold has, and it’s to the dollar, to the U.S. Dollar. And typically, they’re inversely correlated with each other. In other words, if the dollar is going up, the price of gold is typically going down, and vice versa. Price of gold’s going up, the dollar is typically going down. And, you know, the price of gold, like I said, when you think about gold, it’s always gold price relative to what, and the international price for gold is set in dollars, because, again, dollar’s world reserve currency.

But if you measure the value of gold in other currencies, you’ll see that already the price of gold, you know, went through an all-time high last year, in certain currencies around the world. And again, that goes back to this idea that, you know, when we think about a world where the dollar becomes less important, all things being equal, that probably means the dollar gets weaker, and therefore the gold price gets stronger versus that dollar. And that’s what a lot of people are starting to focus on more. And it’s one of the reasons I believe you can have a situation where the price of gold is $2,000 an ounce, but yet we have the highest interest rates that we’ve seen, you know, for decades. And, you know, those things shouldn’t go hand-in-hand. So, the fact that the price of gold is as high as it is tells you that all’s not right in the world. And I believe the gold market more than, you know, the rest of it.

Andy: Wow. There’s so much to unpack, there Will. I mean, you really have my wheels churning. So, to try and parrot this back, to make sure that I understand it, gold, right now, in 2023, here as we sit, we’re in June now, June 2023, it’s very, very strong against a basket, or against ex-U.S. currencies, other currencies, a basket of global currencies. It’s at an overall all-time high against many of those individual currencies. It’s also gold is fairly strong against the U.S. Dollar, but the reason it’s not even stronger is because the U.S. Dollar is relatively strong, for now, right? Kind of what I had told my friend before.

Will: Yeah. On the back of record interest rate increases. Yeah.

Andy: Yeah. And it’s like, you know, it’s fashionable to beat up on the U.S. Dollar for so many reasons, the national debt, deficit. I get it. But just from that evidence-based perspective, there’s still a ton of demand for the U.S. Dollar, and even overseas, in, you know, Africa, in Asia, in less stable economies, especially economies that have had hyperinflation previously, you know, even back to the 10% inflation that we had earlier this year, they might look at that and say, “Well, that’s a very stable currency. You know, our currency is…” you know? So, you know, it’s interesting to try and, you know, think that through. If gold continues on that momentum, let’s say worldwide, and more of these foreign central banks, especially in emerging markets, you know, China’s banks and, you know, other banks in other countries, if they continue to buy up more gold to diversify, is there a chance that gold could become the world’s reserve currency? And is there even enough gold to be the world’s… I mean, maybe there is, and you just continue to subdivide it further and further. I get… Maybe that’s the bull case for $100,000 an ounce or something. But is that even plausible to you, that gold could become the world’s reserve currency?

Will: I don’t think so. And the reason is not anything to do with not being enough gold or the denomination of gold having to change. I just think the way that, you know, central banks, the way that governments around the world manage their finances, they don’t wanna be constrained. And they, you know, going back to a gold standard, which is the scenario you’re talking about, the reason why, you know, America came off the gold standard, the reason why other countries ultimately abandoned a gold standard, is because they don’t want to be disciplined by…

Andy: Oh, yeah. No, no, totally. Yeah, no, I mean, thinking that. Yeah, I get it that no country is going to adopt it as its own…

Will: They wanna print money.

Andy: …currency.

Will: They gotta finance all these things.

Andy: Right. You know, I just kinda meant if they’re all trading their foreign currencies in for gold, then it kind of, like, there’s some sort of implication there. But I wanna ask about platinum too, okay? So, I’ve done my kind of gold bug segment. I appreciate, by the way, Will, that you’re very measured about gold. You know, I don’t get the feeling that you yourself are, like, a total all-in gold bug, that more that you have a very measured.

Will: What I’ll say is, I mean, first of all, I fully confess I love gold. I’ve been involved in the gold market for a long time.

Andy: I would hope so.

Will: And I do love it. But what it does do, which does go to a bit to the gold bug kind of reference, and the reason why I empathize with that community a lot, is because when you spend time with gold, what gold does, and why I urge anybody to dig more into gold, but study gold a bit more. Like, if you’re at college or, you know, if you’re starting your investment career, the simple reason is just for this, and this alone. When you start thinking about gold, you think differently. It forces you to think differently about financial markets, in a way that’s not taught by the mainstream universities, and even the sort of the mainstream, you know, investment firms. So, by thinking about gold, you’re automatically sort of forcing yourself almost to take the other side, which is a really helpful way to think about things. And I’ve always found that just very valuable, in terms of thinking about markets and, you know, trying to think of not just what, you know, you read on the mainstream, you know, news outlets, and, you know, to a certain degree, parroting what Federal Reserve and other people are saying. But why is the gold market? You know, what do people in the gold market think about this? And typically it’s almost the opposite side. And that’s just a very helpful perspective to have.

Andy: Absolutely. I mean, for any investor, you know, to examine things from different angles, to say “what if,” to examine your assumptions. I love that perspective. But we’ve spent a lot of time on gold. I wanna make sure to ask about platinum. Because, you know, these different precious metals, and then even some of the precious metals that are also have industrial uses, you know, they’re all a little bit different, right? Like, you know, we kinda tend to lump them all together. They’re all precious metals. But sometimes the bull case for one versus another commodity could actually be quite different. So, what’s the case, what’s the investment thesis for platinum right now? Is it different than the investment thesis behind gold?

Will: It is. So, let’s start with platinum itself. So, platinum’s 30 times rarer than gold. So, it gives you an idea. It’s a lot smaller market. It comes from typically one place in the world, which is South Africa, and to a lesser extent from Russia. But the vast majority of platinum is found in South Africa. It’s used in catalytic converters. So, it’s a catalyst metal. And a catalytic converter is obviously the device on your car or your truck that cleans the emissions from your engine, and you use platinum in the catalytic converter that’s in your car and your truck. Now, platinum’s typically associated with diesel engines, and the other metal, which is in the same family, but different metal, called palladium, that’s used typically for gasoline engines. And I guess, a little bit of history, but throughout, you know, I’d say the last sort of few decades, going back probably now, maybe even to the Financial Crisis, maybe just before the Financial Crisis, platinum always traded at a premium to gold. And the relationship was so kind of embedded that, in the English language, we associate the word platinum as inherently meaning above gold. So, a platinum credit card has a higher status than a gold credit card…

Andy: Well, we even have, literally, with our…

Will: …etc., etc.

Andy: …with our investor shows, we have different sponsorship levels, and you’re right.

Will: Exactly.

Andy: Platinum sits above gold. Yeah.

Will: And that comes from the fact that an ounce of platinum was historically always more expensive than an ounce of gold. Now, that reversed as at around the time of the Financial Crisis, and hasn’t ever gone back, to date. And so, that in itself is an interesting point. A lot of people follow that ratio, the platinum-gold ratio. And obviously, there’s a relative value trade between the two. But let’s talk about platinum itself. And so, like I said, the majority of demand comes from industry, from catalytic converters, which are the auto industry. That’s about 80% of demand. And then the remainder comes from jewelry, where we know platinum is used as a fine jewelry metal. And so, the reason why platinum is kind of a bullish case, if you wanna call it, at the moment, is because supply was already forecast to be in deficit for this year.

So, at the beginning of the year, supply was in deficit. That means that we got more demand than we have supply. Supply has always been a bit of a struggle, coming from South Africa. We’ll come back to that in a second. But the auto market, as we know, that has been kind of on fire since COVID sort of reopened, and we’ve had all these supply chain issues, but they’re still working themselves out. But demand for autos is forecast to be higher this year than it was last year. So, all things being equal, that means more platinum. The other interesting thing about that is that the price of palladium used to be cheaper than the price of platinum. So, the reason why you have palladium in a lot of catalytic converters, particularly for gasoline engines, is because car makers want to save money, so they wanna use the cheapest metal that they can to do the job.

So, they used palladium for that. But conversely, the price of palladium skyrocketed in the last few years, and trades much more than an ounce of platinum. So, we’re seeing this substitution effect now, because platinum can be used for both a diesel catalyst convertor or gasoline. And so, car companies obviously will go where their capital is treated best, and where they wanna buy the cheapest, you know, metal they can, and source that, you know, in the best way they can. The other factor is that majority of palladium comes from Russia. And so, again, for car companies, given the situation with Ukraine, there’s also a moral component to that now, whereby, clearly, the first one is economic, that the price of palladium’s, you know, much higher per ounce than the price of platinum. But secondly, securing supply. You know, securing supply from Russia has become somewhat problematic versus metals from other countries.

And so, there’s almost, like, an inherent, you know, moral responsibility, if I can call it that, you know, to use platinum. And so, that’s helping demand. And then lastly, it’s not necessarily something that’s gonna drive demand today, but it’s started, and it’s gonna be a big factor going forward, is that a big competitor in this drive for the electrification of everything… Clearly, you have battery-powered electric everything. You have battery-powered vehicles. The other alternative to that is hydrogen fuel cell-powered vehicles, and hydrogen fuel cells need platinum. Again, platinum is used in the catalyst within the fuel cell, and not just for the actual fuel cell itself, but if you wanna talk about how to produce green hydrogen… So, green hydrogen coming from either solar or wind, again, you use platinum in that process. And so, it’s very interesting that, I think, you know if you forecast a world 20 years’ time, and let’s say that we do go to a world where, you know, the vast majority of vehicles or transportation is electrified in some way, shape, or form, I think we’re gonna have more, you know, ways to power these vehicles than just batteries.

So, battery’s not gonna be 100% the market. We know that’s not the case now. They’re gonna be competing technologies. And I think hydrogen fuel cells are gonna be one of those competing technologies. And we need platinum for those fuel cells. And, you know, that is a great sort of source of future demand for the industry.

Andy: Yeah, that’s a really interesting bull case. I think we can call it a bull case. And, you know, I like what you said, you know, in referencing the substitution effect. One thing that I find very intriguing and bullish about platinum is, you know, that dual use, where it has industrial uses. It’s also popular with jewelry. I would think the substitution effect would apply for both of those segments, actually, right? Because also…

Will: Definitely.

Andy: …as the price of gold goes up, then platinum jewelry becomes relatively more attractive, and the same thing is playing out with its industrial uses. Well, so, how about the GraniteShares ETF? You told us about, you know, the gold ETF, which is obviously unique. Does your platinum ETF work the same way? Is it physically storing platinum?

Will: Yeah, absolutely. So, we store physical, they’re actually, it’s called plate and ingot is the official name for it, but we can just call them bars. But it’s platinum plate, platinum ingots, and we store those in a vault exactly the same way that we store the gold. But it’s just a different type of.

Andy: In your basement, right?

Will: PLTM. Not in my basement. No, no. Maximum security facility in London. It’s PLTM. So, almost like sounds like platinum. But PLTM is the ticker code. And again, it’s an ETF that’s tracking the physical price of platinum. So, you can put that in your portfolio, you know, buy it just like any stock, and it gives you direct exposure to platinum.

Andy: Is it cost-prohibitive for an ETF that is structured, that, you know, it needs to physically hold… By the way, I’m not implying that it’s not worth the extra expense, but does that give your product a higher cost structure? But on the other hand, as I’m thinking through this, derivatives, options, those things also have costs associated with them. So, how much cost structure, you know, does it add for an ETF, that’s physically…you know, to give you that safety as an investor, that your ETF is physically holding the asset?

Will: So, it’s definitely more costly, because clearly, providing real physical storage is a different proposition to virtual storage, which is what you get when you buy a stock or a bond ETF, where you have a custodian, obviously, but it’s a virtual thing, virtual construct. And so, clearly, that’s why you don’t have, you know, physical gold or platinum ETFs at three, five basis points like you’ll see on the equity or bond side, because that’s a real cost, providing maximum security vaults, and providing custody in that way.

Now, that being said, the price of these ETFs is still ridiculously cheap, or inexpensive, in the grand scheme of things. So, to own our gold ETF at 17 basis points, or, you know, 0.17 of a percent, platinum is a little bit higher, but still half a percent, which is really not expensive at all, when you think about it. And the price of platinum is obviously higher, just because it’s a smaller market. So, the way the economics work, we will sell less platinum than we will sell gold, so therefore, we have to charge a little bit more for it, but it’s still very inexpensive.

Andy: Yeah. And, you know, it’s, interesting thing about your specific products, if I’m comparing an ETF that physically holds gold to actual physical gold, there are plenty of transaction costs with actual physical gold as well. So, you know, I think I tend to agree with you that that’s very reasonable. You know, and God bless ETFs, by the way. I mean, God bless the whole industry for just putting cost pressure and making all of these asset classes more cost-efficient to access.

Will: No, absolutely. And that’s the biggest thing, when people, you know, look at buying something physically themselves, you know, physical coin for example, the first thing they’re gonna notice is how much of a premium they’re paying over the gold price. And, you know, that premium clearly varies by who the dealer is, and the supply and demand for a particular coin or a particular asset at a given time. But you’re gonna notice there’s multiple percentage points. You know, we’re not talking about a fraction of a percent for a few basis points. It’s multiple, multiple percentage points. And that’s just to buy. And so, when you come to sell, you’re gonna have to pay the same again, in the form of a discount, when the dealer buys it back from you. And that spread is clearly there to reflect the inefficiencies of the retail market, and the fragmentation of the retail market. Whereas, you know, something like BAR, I mean, it’s a billion dollars, give or take, in terms of size, and there’s, you know, tons of people transacting in that all the time. And so, it pushes that spread, pushes that cost down to a really minute level, and the customer gains all those efficiencies, because you’re benefiting from the economies of scale created by the product.

Andy: Understood. And I know we’re almost out of time. I just have a couple more questions. Hey, I have to ask, are there photographs available of the vault? I just wanna get a look, you know. I’m thinking it’s either something really boring, like a bunch of cardboard boxes, or maybe it’s like a Scrooge McDuck-style, you know, swimming pool full… Probably not that. But are there photos available, or is that a security risk to even publish any sort of photograph of these vaults?

Will: Great question. So, the boring but completely correct answer is yes, that there’s no footage, video, or photos, because of the security situation. And it’s not just about the staff and the location, but it’s also insurance as well, because clearly, you know, there’s a lot of very valuable things in these vaults. But I can tell you, having been at the vault, clearly visited a number of these facilities in my time, it’s a fascinating place. And, you know, you’re in there with lots of, you know, clearly not just gold, but you have other precious metals, other things in there. And it’s very, you know, kind of just like you’d imagine in, like, the “James Bond” film or something. It’s very similar.

Andy: That’s awesome. Well, I had to ask. Well, you know, sometimes imagination is probably even better. But yeah, that must be wild. And so, you’ve physically been there. That is awesome. So, Will, I’m gonna have to have you back on the show to talk more about the experiences.

Will: Yeah, anytime.

Andy: To the extent that you’re allowed to talk about them. We’re gonna have to have you back on the show. But in the meantime, where can our audience of high-net-worth investors and family offices go to learn more about GraniteShares and all of your ETFs?

Will: The best place is just to visit our website, which is grantshares.com. And from the website, you can see all about the products and what we offer. And then to get in contact with us, you’ll find anything from chat, for those that prefer chat, to an old-fashioned phone number, just to give us a call and, you know, ask us any questions.

Andy: I love it. All right, Will, and we’ll be sure to link to those in our show notes. And I wish I could say we’ll have a photo of the vault, but not yet, guys. Not yet. We’ll work on that. Will, thanks again for joining the show today.

Will: Thanks, Andy. Thank you so much for having me. Pleasure.