Private Briefing with Adrian Ash from BullionVault

How much gold is China buying? Why are Western investors still selling? How can you easily buy and vault your gold?

These are some of the questions Investment Director Tom Dyson recently put to our old colleague Adrian Ash (Adrian used to work with Bill on the UK version of his daily essay). Adrian has been at BullionVault in London for over a decade now.

Please note: Bonner Private Research has no financial relationship with BullionVault. Adrian is an old friend and Tom has used their services himself. US residents interested in learning more can do so here. If you’re wondering how to buy gold, silver, platinum or palladium in your IRA, please read this.

New readers should also review Tom’s comprehensive Gold Report for other options to buy and store gold and silver in the US.

Tom Dyson: Hi, everyone. Welcome back to Bonner Private Research. I'm Tom Dyson here in Chiswick in West London. For today's private briefing, I've got an old friend and colleague, Adrian Ash, who is head of research at BullionVault, which if you're not familiar with BullionVault, they are, not sure if the largest, but a very prominent gold vaulting and trading service. So I thought it'd be great to get Adrian on just to discuss what's been going on in the gold market, which is quite exciting at the moment. So, hi Adrian.

Adrian Ash: Hey, Tom. How are you doing?

Tom Dyson: Thanks for coming on.

Adrian Ash: Not at all.

Tom Dyson: I was really looking forward to talking to you because the activity in the gold market has been really exciting in the last couple of weeks. From your position at BullionVault, effectively you're sitting on a gold trading desk, you have a very good perspective of the market, so maybe just to start off with, can you give me a big picture overview of what you're seeing?

Adrian Ash: I think if we start with price, because as you say, it has been quite a phenomenal spring so far, really quite a remarkable start to the year in terms of gold prices. Silver as well because silver's really moved. I often say silver is kind of gold on crack. When gold moves, silver really moves, both up and down. So across the longer term, you tend to get the same kind of performance.

Gold has really been driving, though. And I think we've had a remarkable period, where you had the actual six monthly gain or year-on-year gain isn't that dramatic. I don't think this is a blow off top. If you look at gold's big peaks, 1980, at the end of the inflationary seventies, 2011, when the global financial crisis was coming to an end, and then mid-2020 during the first wave Covid crisis, there were really dramatic sharp gains over extended periods. 

What you've had in gold over the last six months has really been just relentless strength. We had a period in early March where gold set new daily record highs in the London market six days running, and that's really unusual. It hadn't done that since, I think that was 2008 it had previously done that six days in a row. It then did it again at the start of April, and it did eight days in a row, which is a new record for daily highs in a row.

Tom Dyson: Let me ask you this. The last time I saw you was precisely the day when Russia invaded Ukraine, and that day the gold price, just as I was on my way to meet you, the gold price leapt $50 an ounce, I think. And then as we were having coffee, it crashed back down again. And you told me that, and I'm not sure if this is, are you allowed to disclose this kind of stuff, but you told me that you saw a lot of people selling into that spike, which actually surprised me. I always thought of investors, and I don't know if BullionVault is more retail or institutional, but I always thought there was sort of a trend following the markets. So are you seeing that again?

Adrian Ash: Yeah. Oh, absolutely. Look, just for background and for those viewers who maybe don't know BullionVault that well, so BullionVault does what it says on the tin. We don't run or operate the vaults we use. We're a fintech, we're a tech business, that's what we are. Our technology is a trading platform which enables you to plug into the wholesale market. So this is the professional large bar gold market. So these are the large bars of popular imagination. Goldfinger, Italian Job. 12 and a half kilos, 400 troy ounces cost you what? $800,000 today? Upwards of $900,000 at this price. And that's the most efficient gold market you can be in. This is where the professionals trade gold.

If you think about coins, jewelry, teeth, fillings for your teeth, bonding wire in your iPhone, all of those forms of gold come from a big bar. They're manufactured starting from a big bar. And when you scrap that stuff, when you sell your small bar back to your retail dealer and he ships it back to market, or you have your gold fillings come out and they go back to market, or your bonding wire from your phone, they go back into a large bar. So this is the most efficient form. This is where spreads are negligible, storage costs are lowest. Storage is the most secure because you're in professional specialist vaults which are dedicated to secure custody. Insurance costs are therefore lowest.

 How do you, as a retail investor, get into this? And the reason BullionVault exists is, founder and now chairman, Paul Tustain, he was a software engineer. He put himself through evening school in the eighties, but at the time he was working in back office London stockbrokers. So his specialty was settlement. At what point does this trade settle? At what point is the stock mined and the money is yours, right? Paul developed a business with a friend in the nineties that was all about settlement for big houses. And their IT system was very successful, and they sold that in the late nineties, early two thousands.

Paul had a chunk of change and he's wondering where to park this money. He didn't like the stock market. He was a tech guy who had been a stockbroker in a previous life, so he knew not to be in the stock market in the early two thousands. This clearly wasn't the right place to park large sums of money. And he's looking around for where he is going to park this. And at this time Gordon Brown, who was Chancellor of the Exchequer at the time, was selling half of the UK national reserves at what proved to be the cheapest prices in history in real terms. Paul didn't know anything about it. It must be too cheap. That's what happens when governments sell assets.

So Paul started to look at how he, as a private investor, could get into the physical gold market. He wanted to own gold, he wanted to be off risk, he wanted to know it was his. He didn't want to have a sack of coins and try to bury them at home somewhere. He wanted liquidity. He wanted to be able to know that his metal was secure, he wanted it insured.

And he discovered that London is and still is the center of the global physical gold bullion market, which very few people in Britain know and understand. And so he got to meet people and make friends and start developing this idea and started building the tech. He hired a couple of young developers to work with him.

They were actually in Chiswick. They were in a rented basement in Chiswick for a couple of years, just building the platform, building out the software and the idea. And what Paul wanted was a business that would serve him and what he wanted to achieve as a private investor. And that's what BullionVault does. So whenever you look at BullionVault and you think, "Why does it work like that," it's because that's the way Paul wanted it to work for himself.

I genuinely think that's why we've been so successful, because I think if you look at any tech business, when you have a tech leader who is a tech guy, that's when things really work. If you think of Apple, you think of all the great tech businesses, you've actually got a software guy who understands the tech who's developing it. So really, yeah, it's private investors. A typical customer is about $15,000 US dollars in total holdings.

Tom Dyson: That's great. So what is their sentiment? What's the sentiment in that group?

Adrian Ash: So holdings peaked. You can vault with us, you can buy and sell and vault in London, New York, Singapore, Toronto, or most popular is Zurich in Switzerland. People love Swiss gold for a lot of good reasons. Holdings peaked by weight back in August last year. They've since sold as a group about 6% of that by weight.

Tom Dyson: Wow.

Adrian Ash: But the important thing, Tom, is by value, the metal that customers still own has gone up by 12% over that time in dollar terms. So this isn't a rush for the exits. This is profit taking and rebalancing, I think. Now, you mentioned the Russian invasion, and I said to you that day that customers were actually net sellers. Customers have been net sellers now on BullionVault for six months, and what they're doing is rebalancing. This is not people selling their entire holdings and quitting gold.

Because if you look at the speed of the price gains and you look at when a lot of people bought, BullionVault is a retail facing business, effectively, and we've got customers from a couple of hundred bucks, who are starting to build their position through to, I think our biggest customer at the moment might have $25 million US with us. 

We serve big customers as well. We have some charities, we have some corporate treasury, we have family offices increasingly come to BullionVault because we're a better service for them than going to a private bank they feel. But in the main, the sentiment is relatively bullish. As I say, that strength that we saw in the price, and it hasn't been that dramatic, but it has been so strong, and people have just been clipping profits off this whilst leaving their main holding to grow in value.

Tom Dyson: Okay, so the question that I'm then burning to ask is that we see the exact, this is mirrored in the ETFs trading in the US. The gold is flowing out, and so regardless of the reason behind, the fact is that gold, your customers and the ETFs, the physical holdings are going down. So the question then becomes, where is the buying coming from?

Adrian Ash: Right. Well, I'll tell you where it's not coming from. I'll tell you where it's not coming from, is Costco. Now, I know that story's gone crazy in the UK.

Tom Dyson: Because you can buy two ounces. That's nothing.

Adrian Ash: It's insane. Honestly, the way that story gets, Costco, their PR department must be over the moon, they get so much coverage. If you look at the numbers on the Costco story, I think Wells Fargo, and clearly Wells, were looking to try and piggyback on this PR story as well, right? They said, "Oh, let's do a note on Costco." A hundred to 200 million US dollars of gross gold sales per month.

Tom Dyson: Is nothing, yeah.

Adrian Ash: That's like BullionVault size. Now, we're a big player in our market, but we are not a giant by any stretch. So the Costco story is, if you look at bars and coins more broadly, you look at the US Mint, the US Mint is on track for a quiet  month in terms of gold coin sales. Even for that in the coin market, and this is true in the States, particularly true in Germany, Germany has been a real phenomenon in retail gold investing for the last 10 years, because the Germans have a proclivity towards gold anyway, and they've also had negative interest rates for 10 years.

Tom Dyson: Yeah, exactly.

Adrian Ash: Negative interest rates literally made gold a no-brainer. It was cheaper to own gold on BullionVault than it was to put cash in the bank. Negative interest rates meant it was cheaper to own gold than it was to put cash in the bank. Now, but Germany has collapsed as a retail market for bars and coins, completely reversed. There are German dealers who don't know what to do because they're just piling up metal from customers selling back.

Tom Dyson: Selling it.

Adrian Ash: Right? And so this is happening across Western investment.

Tom Dyson: Is that in London as well?

Adrian Ash: Yeah. It's not such a transparent market, the UK market, because it's less developed and it's less sophisticated, frankly, in coin and bar. The provision isn't as good as it is in Germany or the States. But you can tell what's going on when you see emails or homepage banners that say, "Discounts on premiums. Special offers on coins." There's a reason there's a special offer on the coins today is because they can't sell them.

The reason the US Mint is seeing such weak sales is because if a dealer makes a new sale today, he or she wants to sell some of the old coins they've got stacked up in the store room, they don't want to go and buy new coins because then they're paying extra premium to the mint. So the new coin market is really dead. 

The secondhand coin market is net selling as we're seeing on BullionVault in the ETFs. And frankly, you're seeing it across the wholesale market. There's been a lot of chatter in the last couple of weeks about who's driving this move, as you asked. And the fact is it's simply not Western money. 

Tom Dyson: Do you think there are big palettes with big gold bricks being loaded into planes and actually physically traveling east to Japan and China?