Bob Elliott: What do hedge funds see in gold right now?
Gold is up over 50% in the past year, yet recent volatility has left many investors questioning what’s really driving the market.
In this episode, we sit down with CEO & CIO of Unlimited®, Bob Elliott. He explains why the latest moves in gold may have less to do with fundamentals and more to do with hedge fund positioning, set against a shifting macro landscape defined by an oil shock, rising inflation risks, and the slow unraveling of globalization.
The result: a world where traditional portfolios may be increasingly fragile—and where gold’s role is more important, and more misunderstood, than ever.
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Transcript
Bob Elliott:
Interestingly, a lot of that weakness in gold, the way I would attribute it is not necessarily to the underlying fundamentals of what's going on in the market, but really about some levered players, like hedge funds in particular, who basically cut back in their overall risk taking across all their positions, basically to book wins.
First of all, gold is up a lot. Gold is up 56% in the last year. That is a lot. And so I think it's hard to look at gold and be like, wow, that is a terribly performing asset or something like that. It's done very well in this environment. I think part of the challenge is, as we see with all sorts of different financial market instruments, there started to become a fair amount of mania around gold, which pushed it into the mid-5000s.
And as that mania has come off, we've seen a price decline. I look at that sort of picture and I think people are too focused on gold as a specific asset and not focused enough on what is the underlying driver of why we've seen the moves in the last couple weeks that we have.
Monetary Metals:
Welcome back to the Gold Exchange Podcast. I am overjoyed to be joined by my good friend Bob Elliott. He's the CEO and CIO of Unlimited®. Unlimited® offers ETFs that mimic hedge fund returns with some proprietary strategies that we're going to get into today. Bob, welcome back to the show.
Bob Elliott:
Thanks so much for having me.
Monetary Metals:
Bob, I want to start off at a high level. In the past you've said, well, the kind of boring macro view is actually probably more right over the last 18 months than some of these more interesting theories. But now things seem super interesting. So where do we stand on a macro front? Are we still in the kind of, hey, nothing ever happens regime, or are things really happening now?
Bob Elliott:
Well, I think the sort of core of the macro economy continues to move relatively slowly. And there really what we've transitioned from was a period of relatively strong growth driven by strong income growth, both for households and businesses, to a period more recently where it's keeping up. The strong growth that we've seen, say through 2025, through the end of 2025 really required a lot of savings, both by households and by businesses.
And that can go on for a while, particularly later in the cycle. But eventually you can't just keep spending out of savings in order to maintain your consumption. And so that's been on a gradual path, creating a little, you know, some weakness in the economy, particularly to start off 2026. But then, of course, we had something relatively unexpected happen which is we've experienced an oil shock.
And you know, an oil shock in many, in many ways has been seen many times in history. It's a traditional supply shock type dynamic. In this case, you know, taking about 20% of total, between 10 and 20% of total crude production offline, at least for the immediate term. And that has a relatively direct effect.
It's a challenging one, which is that it both increases inflation, which reduces purchasing power, and it also slows growth because there's less real demand in the economy. And so that sort of savings driven economic expansion sort of waning combined with an oil shock does not create a particularly good outlook for really across much of the developed world ahead.
Monetary Metals:
And so when we see supply shocks, a lot of people think, well, the Fed should do absolutely nothing. Because textbooks say, well, this is a stock supply shock. This has nothing to do with, you know, baseline monetary factors. Other people are saying, no, this is going to increase inflation, so the Fed needs to do something. Let's talk about the two parts to the question. What should the Fed do and what likely will the Fed actually do in reality?
Bob Elliott:
Well, I think in general, central banks, particularly if they're faced with an extended period of being above target inflation, then seeing a supply shock, particularly in an area as meaningful as, as oil, should probably tighten into that dynamic. And we actually see that start to get priced in across a couple of central banks, particularly those more sensitive on the inflation side like the ECB and the bank of England.
What will they probably do is nothing, because that's the easiest thing for a central banker to do when there's uncertainty. There's a long history of pressing the do nothing button in these circumstances. And then, you know, the, the tilt will be basically, how much do you accommodate the higher inflationary environment by those central banks in terms of what they probably will do is really a question of just how big the growth hit is and you know, how sensitive they are to inflation.
In the US Case, for instance, you know, we have a central bank that doesn't necessarily have to worry or at least, at least doesn't choose to worry too much about inflation. And so, you know, there may even be easing. You know, there's talk about how the new Fed chair is going to come in and start cutting rates quickly.
That may or may not happen. But that's the sort of tilt from the Fed right now.
Monetary Metals:
And how much does this idea of a taco trade that Trump always chickens out, the taco idea? First of all, any credence to that idea? Second of all, when it Comes to macro policy, how hard is it now to decide what regime we're in? Because one minute we're doing this policy, the next minute we're chickening out on that policy. Actually, never mind we're doing it again. How important is that type of factor to a macro regime when you're thinking about, hey, where do I allocate capital?
Bob Elliott:
Well, I think traditionally when it comes to macroeconomic policy, there's always a chicken out. I think that's actually something to keep in mind. The question is, at what point does that happen? When I say chicken out, what I mean is policymakers will almost always accept some amount of pain to the point where it becomes too painful, and then they start to respond to it aggressively.
We saw it, you know, leave aside the Liberation Day story, but we saw it in Covid, right? Stocks went down 30%. The Fed eased a lot. We saw it in the financial crisis. Stocks went down, you know, 50, 60%. The Fed eased a lot in response. You know, back in the 2000 cycle, essentially you had pretty significant equity drawdown, and you saw a lot of cuts in response to that. Even. It's easily forgotten.
Even Paul Volcker cut interest rates initially when they saw enough economic pain and they thought inflation was solved. It wasn't solved, and so he had to hike them back up. But even there, it's basically like you can only take so much pain before you respond. And in general, if you look across countries, across time, usually policymakers start to shift their efforts.
Once you sort of get a 20, 25, 30% drawdown in the equity markets. Now, sometimes they are behind the curve enough so they have to, you know, they're still behind. So like in the financial crisis. But usually you see them shift their behavior when you're in that sort of circumstance that I think is very applicable to like the Liberation Day and the tariffs. And we saw stocks basically fall 20% and then Trump chickened out in response to it through a series of moves.
I think one of the challenges is as we turn to our attention to a war. I like to say it takes two to taco in a war. And the reason why that is is because you're not the sole decision maker in terms of what the policy is ahead. You have a counterparty on the other side, particularly if they're able to be disruptive, even if they're a weaker power. If they're able to be disruptive, they have a lot of control over how things play out. Iran right now can essentially choose to close the Strait of Four moves or not right. They have a lot of power in that from that perspective.
And so I think taco is a much more challenging framework in this environment, particularly in a war environment, than it is in sort of a traditional policymaker environment.
Monetary Metals:
And do you think because of this level of uncertainty, a lot of people would think, well, gold prices are going to go much higher because gold is this kind of safe haven asset that people turn to in times of uncertainty. And yet gold prices have not only fallen, but they've been pretty volatile. Where do you see the gold story now? Is gold acting as the kind of safe haven hedge? It always has. It's just waiting for some sort of finality when it comes to this kind of war or this taco trade or de globalization or where is gold? Is it still acting like it always has or is there something different happening in gold now?
Bob Elliott:
Well, first of all, gold is up a lot. I think it's easy to squint it from the very peak to the point in which we're at today. Gold is up. Just checking the numbers right here, up 56% in the last year. That is a lot. It's up a couple times over in the last five years. And so I think it's hard to look at gold and be like, wow, that is a terribly performing asset or something like that.
Like it's done very well in this environment. I think part of the challenge is, as we see with all sorts of different financial market instruments, there started to become a fair amount of mania around gold which pushed it into the, into the mid-5000s. And as that mania has come off, we've seen a price decline.
I think, interestingly, a lot of that weakness in gold is really the way I would attribute it is not necessarily to the underlying fundamentals of what's going on in the market, but really about some levered players who were like hedge funds in particular, who basically cut back in their overall risk, taking across all their positions basically to book wins rather than keep their positions exposed.
It's interesting if you look through, you know, a lot of people will focus specifically on gold and its performance, but you also see similar reversals and moves by hedge funds in closing positions and long European equities, long Japanese equities, yield curve positions, dollar positions, these were all favorable trades that actually made a lot of money to kick off the year that hedge funds basically have locked in their view on.
And after that sort of acute deleveraging that happened in the second half of March was essentially chopped sideways. So I look at that sort of picture and I think people are too focused on gold as a specific asset and not focused enough on what is the underlying driver of why we've seen the moves in the last couple weeks that we have.
Monetary Metals:
Talk to us a little bit more about hedge funds. Obviously at Unlimited® you guys are doing some really interesting strategies around hedge funds. Talk to us about like, are hedge funds actually smarter than everyone when it comes to retail investors? Should we be thinking, wow, this is. These hedge fund guys really know what they're talking about. How intelligent is the average hedge fund investors? Give us a deep dive, a 101 on all things hedge funds.
Bob Elliott:
Well, if you just think about it very simply, like hedge fund managers spend tens of billions of dollars a year on employee compensation, hiring some of the smartest minds in the world in order to beat markets. And the reality is they do that and they do that very well. I think the challenge when people see the performance of these funds, often what they'll be looking at is the performance after they take their fees.
And that should not be the indication after they take the fees is not the indication of how good they are trading markets. Right. That's how much they're stiffing their investors. Right. That, that's, that's the indication that it's giving you. If you look at the performance of hedge funds on Agrosa fees, meaning before they take their fees performance, they generate lots of alpha. And man, they should.
If you invest tens of billions of dollars in beating the markets like you should be better than your sort of average Robinhood trader. And they are. The problem, I like to say, with hedge funds is it's the fees that are the problem, not the strategies. And so part of the question there is as an investor, is there any way you can get access to those strategies at a lower fee point?
Because if you can, actually that's a pretty compelling thing to have in your portfolio.
Monetary Metals:
And explain to us a little bit about how Unlimited® goes about kind of mimicking these hedge fund strategies. I think it's fascinating and I think also for investors, it's a great way or great paradigm to think about, hey, I know there's alpha out there somewhere. How could I recreate it in my portfolio?
Bob Elliott:
Yeah, in the same way, if you go back 50, 60 years, the only asset managers that were out there were sort of high fee mutual funds. And there was a transition basically to introduce diversified low cost indexing to the world of stocks and bonds. And that totally changed the world of investing. What we're focused on Unlimited® is basically bringing those concepts of diversified low-cost indexing and bringing it to the world of what is traditionally a 2 in 20, meaning a 2% management fee, 20% of profits, which basically take those exorbitant fees to generate the returns.
And the way that we do that is we've designed technology that allows us to look over the shoulder of how those managers are positioned in real time and from that understanding translate that into long and short positions and liquid securities. And we use Those to back ETFs that are available for all investors. Because I like to joke, because I hired 20,000 hedge fund analysts, they just don't know that I have and I'm not paying them squat. And because of that, we could offer access to those returns in a much lower fee point than a traditional 2 in 20 product.
And by putting in the ETF wrapper, it can be available for any investor, you know, whether you've got 20 bucks or, you know, 20 million bucks. And if you have 20 million bucks, feel free to call me. But you know, we want it, we want all investors should have access to these diversified, low cost hedge fund strategies in the same way they have access to diversified investments in bonds or in gold or stocks at a low cost.
Monetary Metals:
If I understand correctly, a bit of how the model actually works is they say, hey, let's look at all these different hedge fund managers. Wow, this guy's really outperforming. And I know this guy's a gold bug, so you, he's probably outperforming because of his gold position or. Yeah, look at this guy. He's a tech stock guy. All he does is talk about how great Tesla is all day. He's probably out for performing because of Tesla. Let's kind of mimic him by adding a little more Tesla to the portfolio. How can individual investors kind of use that thinking and use that, if you want to call it reverse engineering framework to better their own portfolios?
Bob Elliott:
Yeah, I think it's interesting when you look at sort of the overall hedge fund universe and we're talking about 3,000 managers and, you know, $5 trillion of assets. Any, any two managers, let's say, might be on one side of a trade, or might be on the other side, or might be on opposite sides of the trade. The thing that's actually really interesting that we found is when you look at the wisdom of the crowd, it's actually a lot more consistent when it comes to the quality of the views than the views of any one manager.
And so what we're really focused on is saying, you know, let's not get focused on this manager or that manager. The way the news kind of like chaotically tells you, this person thinks gold's going to go up, this person thinks gold's going to go down. If I can have. If a plurality or a majority of hedge fund managers believe in assets likely to go up like gold, then it's a pretty good bet over time that that's what will hold in the future. And so a big part of what we're doing in the same way, you can either choose an individual S&P 500 stock, and you might be right, or you might be woefully wrong.
You might pick Nvidia, you might pick UnitedHealthcare. You don't know which one you're gonna pick. It's the same reason why you invest in an overall index fund, because you don't necessarily know exactly which one's gonna pan out and deliver the returns. And so you might as well make sure that you're well diversified.
And if you do that and you do it at a low cost, it's actually quite a compelling addition to a portfolio. And, and then the neat thing about it is investors can actually go look and see how these managers are positioned in real time, right? So you see, are they long gold right now or are they short gold? Are they long bonds or are they short bonds? And that's a pretty neat sort of side effect of what we've been able to do is to really bring some transparency into the sort of wisdom of the crowd of those managers.
Monetary Metals:
All right, let me put back now. So in the past, Warren Buffett's very famously said, oh, who cares about all these active hedge funds? The index is way better if you're just a retail trader, just put it in index fund, you know, buy and hold up into the right, forget about it. You know, you'll, you're, you're not smarter than these traders. Do you think that this kind of up into the right framework of buy and hold, just passively invest?
Do you think that's going to break at some point either because of the kind of Mike Green argument that, hey, this, this passive structure is fundamentally unsound, or simply because this idea of, oh, there's a fed put, and we never need to worry about anything, Stocks always go up into the right so that that breaks. Do you think either of these two scenarios is plausible? And if so, give us a bit more on what you think the biggest risk is?
Bob Elliott:
Well, if you look at the bet of being a passive investor in financial markets is that assets will outperform cash over time. And that really is, in some ways it's like a fundamental concept of capitalist system, right? Like I give up my cash, which I could otherwise stick in my mattress, and presumably I will, you know, it's pretty likely that I'll get more money in the future than what I gave you, because otherwise why the heck would I do that, right?
And so, you know, that sort of core concept I think makes a lot of sense now. Underneath that though, you know that that's a story over, like if, you know, I had to bet over the next thousand years, assets will probably outperform cash, or the next hundred years assets will probably outperform cash.
I think the challenge for most investors is that there could be long periods of time when particularly a single type of asset underperforms cash or loses money, whether it be in nominal terms of real terms. So if you look at stocks over the last hundred years, we've had three periods in which there was basically flat performance in real terms for 20 years at a time.
Okay, well, that's a pretty wasteful thing to do, is to give up your money or a lot of people, basically everyone holds bonds in their portfolio. Well, bonds have been in a 10 year drawdown, meaning if you bought bonds, if you invested in bonds 10 years ago, you have lost money over the course of 10 years.
And so I think one of the challenges is from an investor's perspective is a lot of people look at, oh, I should only invest in this asset or that asset or this other asset because it goes up over time or it's gone up recently without recognizing that there can be very long stretches where certain assets passively do not do very well. And the solution to that is relatively simple, which is you've got to diversify.
I mean, like, look, I'm probably preaching to the choir here, but like, there's a whole, you know, everyone in the world holds essentially a 60, 40 portfolio of stocks and bonds. And then you're like, okay, well what if you held gold? Because gold outperforms bonds about half the time in which stocks fall, right? So gold is just empirically. This is just empirically.
If you just look through time, gold is as good a diversifier to stocks as bonds are. But yet no one holds gold and everyone holds bonds. Well, that doesn't make any sense, right? And part of the whole story here is to push people to the idea of increase your diversification. Because if you increase your diversification, you, you know, it's more, of course, you'll probably hold something that's not doing well, at a particular period of time, but you'll hold a few other things that are doing well and over time you'll be okay.
Monetary Metals:
I want to ask you now about this kind of empirical results, which is, hey, you know, gold. Gold has this kind of different flavor to bonds, but in many ways it sometimes outperforms, at least historically. Obviously, can't know the future. But why is it, do you think, that investors have had such a difficult time just empirically adding gold to their portfolio when, if you look at the results, if you look at the math, which again, when it comes to investing, most people say, hey, it's not about emotions, it's about math. If, you know unicorns outperformed the s and P500, I'd buy unicorns.
Right? So why is it that gold, this asset that's been money for 5,000 years, you know, people do hold it in a very small percentage as part of their portfolio. Why such a mental sticking point adding more gold to the portfolio? And if these empirical results are true?
Bob Elliott:
Well, I think one of the challenges, it kind of goes back to that, that idea of what is the expected return, basically of handing over cash and getting an asset. And when you think about something like stocks, there's a strong intuition. It's like you're building a company, I hand you my money, you build a company, you successfully do things, you give me more money back. And I think there's good intuition around that. Or you build a company, you borrow, and then you give me more back in the future. I think probably what they're.
And so it's, you know, the phrases that often get thrown around is like, well, gold has no yield, or gold is an unproductive asset, or even worse, it's just a shiny yellow rock. You know, without recognizing that in many ways, when you hold financial assets, when I talk about that bet of cash versus assets, the thing that people often don't think enough about is that it's cash versus assets in a particular currency.
And so as a simple example, you could have assets outperform cash in a particular currency, but underperform real assets. Right? Hard assets. And so gold, in many ways is the, you know, it is a currency that cannot be debased the way a fiat currency can.
And so I think part of what people don't realize when they're thinking about whether or not to have an asset like gold in their portfolio is they're not thinking about whether the currency that they're thinking about could be devalued relative to hard assets. And when you start to think about in that, I mean, there's a reason if you go to India or across the emerging world, there's a reason why if you ask people what's in your portfolio, how much gold you hold, they're like, a lot. I hold a lot of gold.
Why? Because their currencies, their fiat currencies have devalued relative to hard assets in recent memory. Right. If you're sitting in Istanbul or in Argentina, like, you know, the feeling of, sure, your stock market might have gone up, but the value of it in hard asset terms has gone down a lot. Right? You've lived that experience. And so I think the problem is most Western investors haven't really lived that experience.
I mean, increasingly, more recently they have, but they haven't really lived that experience in the modern day. And so they're essentially making a huge bet on the purchasing power of the dollar, the euro, sterling, et cetera, yen, to have purchasing power over time when I think increasingly what we're seeing is that they haven't held the purchasing power.
And also there's good reasons why that may not be the case in the future.
Monetary Metals:
I want you to kind of expound on some of those reasons in the future. Obviously, number one is maybe the debt issue comes to a head. Obviously, Social Security might come to a head. There might be more inflation than otherwise expected. The Fed could make a policy mistake. Regardless of what you think that policy mistake could be, of course there could be de globalization, which adds to inflation pressures. What are some of those risks that you see going forward when it comes to debasing the currency that investors should be thinking about?
Bob Elliott:
I think ultimately it comes down to looking at the debt levels across a wide range of these economies in the developed world. And look, when you have high debt levels, you're heavily indebted. You basically have two choices to pay off your debts, maybe three. One, you can earn more income. And that, of course, is easier said than done. Earn more real income, right? It's easier said than done. It's like, oh, it would be great if we had a great productivity, a positive productivity shock. It's like, yeah, everyone would like a positive productivity shock.
And maybe it could happen related to AI or something like that, but it's not necessarily obvious that that's what's going to happen. The other thing you can do is tighten your belt, but that sucks. And there's a reason why government officials don't choose austerity to solve their problems, because it is, to put it generously, politically unpalatable to engage in significant austerity.
And so essentially, if you're like, well, I don't have some way to, you know, flip the lever and increase my income, my real income, I am not going to engage in austerity. Essentially the only solution to the problem is to basically devalue the worth of fiat money relative to hard assets and productive assets in the future.
And, and so basically every developed world economy is facing this circumstance. And whether they be, you know, Japan, who is sort of more advanced along this dimension, or, you know, the U.S. which is a little earlier in that dimension, they all basically face the same circumstance. And, you know, the, the basic, I sometimes I, I call this, this the trolley test.
The old trolley test, which is basically you have two choices. You can either, you know, trains coming to kill five people and you can pull the lever and only kill one. Well, the five people is essentially your economy and the bond market and the functioning of the underlying country's economy, and the other is the currency. And you're like, ah, will you destroy your bond market and destroy your economy in order to pay off the debts?
Or are you going to pull the lever and just destroy your currency? Because that's the easier lever, right? And that, that's the trolley test that all of these policymakers are undergoing. And I think it's pretty clear which way they're leaning towards.
Monetary Metals:
And talk to me now about this idea of a dollar milkshake theory invented by our friend Brent Johnson. His argument is, yes, Bob, all these things are you saying are true, but you have to look at this in a relative game between our country and our currency versus foreign countries and foreign currencies.
Yes, it's true the US has problems, economic and otherwise, but those monetary problems are way better relative compared to a Brazil, a Russia, an Argentina, a China, a South Africa. What do you think about this idea that actually the relative game matters most? It is true that all these fiat currencies are devaluing against gold, but what we should care about first and foremost is how these relative debasements fare against each other. What do you think about this idea?
Bob Elliott:
Well, I think basically it's just difference between creating views on relative exchange rates and creating views on fiat currency relative to hard assets. And a lot of times these two things get confused with each other. Meaning like you could be bullish on the dollar relative to other developed world currencies and bearish on the dollar or bearish on fiat currencies relative to gold.
That's a totally logically coherent set of thoughts. And the reason why that is, is that exchange rates just tell you the relative purchasing power and the relative movements of different currencies. They don't tell you the absolute level. The absolute level essentially can be seen through what's going on with the price of those fiat currencies relative, you know, basically relative to gold and maybe you could think some other metals as well. And when you look at that from that perspective, like they're all so highly correlated.
Like we're, we're talking about I, you know, related to the, to the Iran war. People are like, oh, the dollar searching, it's up 2%. Okay? Like, who cares? Like 2% does not mean anything to anybody. Maybe if you're trading, you know, an extremely levered way on an extremely short term basis.
But like, what's happening to the dollar? Well, it's down 60% against gold over the last few years. That's what's happening to the dollar. Don't lose the forest for the trees
Monetary Metals:
in the future. How important do you think this globalization trend or the end of this globalization trend is going to be for these relative currencies or these currencies compared to gold? Because in many ways we've lived in this kind of world of peace, of peace through strength. There's been globalization. We've gotten cheap goods from, from our partners around the world.
If that ends, you know, whether it's the Strait of Hormuz, whether it's an issue with China, a trade war, a tariff war. Do you think that that kind of idea of, hey, we're in a world, you know, where there's peace and candy and unicorns is all gone and assets like gold that people tend to go to as a safe haven are going to have their time to shine again?
Bob Elliott:
Yeah, well, I mean, we spent 40 years in the, 40 or 50 years in the, in the sort of post war peace period building essentially the most efficient economy that had ever existed by a, you know, by a mile. And you talk about just like how Every single person in the global economy, let's say by 2010, right. Even looking past the GFC, like 2015 or 2015, like basically everyone was doing their most efficient thing globally, right? We had global trade at all time, highs.
We had, you know, basically, you know, a massive move of unutilized labor on, you know, from the farm to the factory, you know, through the China industrialization as well as the rest of Southeast Asia, you basically had this incredible efficiency in the global economy. But the issue with that efficiency was that it meant that everyone had to do their own, you know, was contributing their own thing. Which means that, you know, the brilliance of what an electronic device should look like happened in California and then the production of it happened mostly in China, and then the parts production happened in India and, and the metals were created in Australia.
And like, okay, so this is like this beautiful global supply chain. Well, when you break the global supply chain, and it's not clear, this is not a commentary about, about whether it makes sense or not, because I think there's, you know, there might be geopolitical reasons or geostrategic or defense reasons why it may make sense that you actually want to produce more. You want to have supply chains that are domestically.
But when you break this highly efficient global supply chain that we've been working on for 40 years and instead fracture it, there's only one path that that brings, which is higher inflation, almost by definition. Right? Because it used to be we just go to whoever was the most efficient person essentially in the world to produce the thing and they would produce it. And that was great. But now we're saying we're not doing that. We have our people, our people are going to produce the things.
Well, our people are pretty good at producing financial services and pretty bad at producing cars, solar panels, I mean, pretty much anything that involves heavy manufacturing. Right. And so, and so by definition, we're producing it at a higher cost.
And that is, that's bad for consumers. That's just all there is to it. It's just, it's just a bad outcome for consumers. And that's in the sense of they will be getting less, you know, whether it be lower quality or, or higher prices, they'll just be simply getting less for their spending than they did the day before. The, that's the trade off.
And when you think sort of more broadly about a world where we've essentially had 40 years of disinflation, which has allowed central banks to run easy money for a long period of time and not really worry about inflation, well, this inflection point in the other direction starts to create the real risk that we're entering. Either it's going to be a period of much higher interest rates and weaker economies and tighter belts as a function of it.
But we already said that policymakers don't like that sort of thing, or it's going to be an environment where we accept higher inflation and the devaluation of currency relative to hard assets. And that seems to be the path we're choosing.
Monetary Metals:
And how does the same story play out when it comes to foreign countries buying bonds? So, for example, you might be an investor in China and you're saying, well, do we really want Treasuries? Or you're an investor in Japan saying, well, in this new fractured world that Bob Elliott is talking about on the Gold Exchange Podcast, how intertwined do we really want to be with the United States? Do you think that matters or do you think that in a way there is no alternative to the US treasury in the US Bond market?
Bob Elliott:
Well, I think one of the places that has not fractured that much yet in the way that we've had supply chains fracture is in the capital markets. Capital markets are very. You can't just simply replace one thing for another. I mean, I guess you can't really do it in manufacturing either, which is the problem we're running into.
But, you know, the US Financial markets continue to be the deepest, most liquid financial markets that are, that are in the world. And of course, there are others, you know, there's the Europeans, the Japanese, the U.K. you know, Canada, Australia, China, etc. That provide other capital markets. But, you know, the U.S. is just essentially has created a very substantial public good through the depth and liquidity of its capital markets. Is that going to change soon? Probably not.
And you know, I've been in this business long enough to hear, you know, tales of the death of the dollar for a few decades at least. And those with a little more gray hair have heard it probably for a few decades before that. And the reality is not much has changed, even, even, to be clear, even during this more recent period of, you know, reserve confiscation of, of Russia or the, the conflict, we call it the cold, the cold conflict with China, et cetera.
And still we're basically in the same circumstance. And that's because there's basically, if you have a lot of money to save, there's really very little, very few capital markets where you can save, where you can save as much as you can. Given the depth of the US Markets, I always like to joke that people are like, oh, China, China is going to come up against the dollar.
And I always like to remind them of something that the head of the Russian central bank said, which is that the Russian central bank would not invest in Chinese bonds for fear of experiencing capital controls during a difficult financial environment. And I'm like, look, if the Russians won't invest in the, in Chinese bonds, like nobody in the Western world, the Japanese are certainly not investing in the Chinese bonds. That's how it goes. So I guess in the land of the blind, the one eyed man is king and we here at the US are king along that regard.
Monetary Metals:
Obviously, gold is a $35 trillion asset class, but let's talk outside of gold for a minute. There have also been cryptocurrency competitors. There's been a sort of crypto winter, if you want to call it that, where crypto prices in general have failed.
Do you think that this idea of A, cryptocurrencies are going to take over from the US dollar has been abandoned? And B, do you think that that is even a credible story? If not Bitcoin or Ethereum, maybe some other cryptocurrency or a tokenized version of gold? Do you think this is a viable path towards some alternative capital market? Or should we really think about a different way to transition away from the dollar?
Bob Elliott:
Well, I think it really comes down to can you do the sorts of things that you can, that you need to do in order to, in whatever that currency is or that medium of exchange that's necessary for economic activity. Right. Because that's really what all of this sort of comes down to is ultimately, you know, can you do what you want economically? And so if I think about something like transacting, you know, can you transact in bitcoin? Like, I guess, kind of.
But it's a pain, you know, it's certainly. And can you transact in size? And you know, there's all sorts of operational aspects that don't make it to be a particularly good medium of exchange. I mean, not to mention the fact like no one takes it. I can't go downstairs and buy a sandwich and be like, here, take 0.0001 of my Bitcoin. They would look at me like I was a crazy person. So, so that doesn't, you know, doesn't, doesn't pass that test.
But I think probably even more importantly, it doesn't pass the test around some of the things that you need in order to have a particular currency be the baseline of, of activity in economy.
So for instance, you know, can I be borrowing in substantial size and efficiently in, in, in Bitcoin? The answer is like, not really. Can I be, you know, can I, can I do I see things quoted in that, in those terms. So I think about it as a, you know, as sort of baseline storeholders wealth. Like no, not really. People don't do that is quoted in Bitcoin is quoted in dollars, not the other way around. Right.
And so you look at all sort of, all those things and you sort of say, of course, maybe over time these things could develop. And there's obviously layers on. It's not just the sort of core Bitcoin technology. There's layers on top of it. And maybe that's a way, in the same way we created the Eurodollar market in the US for globalization of dollars, we could create something to the equivalent of that in bitcoin or a different cryptocurrency.
Those are all possibilities. I'll just tell you if you think, if you think China is behind, right? Like bitcoin and other cryptocurrencies are like, you know, 10 times behind where China is in terms of catching up with the U.S. so maybe, maybe in our lifetime it could happen, maybe.
But over a time frame that most investors care about, it's probably not worth thinking about.
Monetary Metals:
Well, for those who like looking at their assets and their wealth denominated and priced in gold and paid in gold, they can check out monetary-metals.com Bob, I want to take us to a lightning round. I'll ask you questions all over the map. You can answer as short, as long, or as you want. And of course, you can always pass, but I have a feeling you won't.
Bob, let's start with the idea of a banking crisis. We heard SVB, it failed because of high interest rates, but it's just the first bank. There's many more to come. And yet we really haven't seen a banking crisis in the United States. So what happened? What were these commenters missing when they said there would be a banking crisis that never actually materialized?
Bob Elliott:
Well, banks have gotten so boring since the financial crisis. It used to be you could run a bank at 30 times leverage, and now you're lucky if you can run a bank at eight times leverage. And that's a pretty big difference in terms of what's going on. SVB was no bank can withstand a significant run, and it was an engineered run by, you know, a subset of investors or depositors in that, in that company. And, and you know, it was, it was, it was maybe mechanistically or it was, you know, it was probably negative equity in the moment because of the investments that it made.
But negative equity is not the thing that determines a bank failing because banks earn money nim. Over time. They, they earn money over time and they can recapitalize themselves through that. That. And so essentially what the Fed did at that, you know, not only is the general system much less at risk than, than it was before the financial crisis, but then once SVB happened, they basically said we're going to ensure that, you know, we're not going to have deposit runs on banks anytime soon, either implicitly or, you know, initially explicitly and then now sort of more implicitly.
And so, you know, the tails of the bank runs being, you know, emerging, it's just, it's just not happening.
Monetary Metals:
What is the biggest fragility point in the current economy? What's the biggest risk that you're seeing that maybe most investors are not paying attention to?
Bob Elliott:
Well, it's funny actually, about six weeks ago I was asked that same question. I said, I'm not predicting anything, but if we had a war in the Middle east, it would sure be a problem in all sorts of different ways. That was not a wish casting, but it was, you know, it was, it was when everyone was talking about, you know, private credit and I was like, I think this war in the Middle east thing could be a big deal. And you know, now here we are, you know, what's my honesty?
The second or third consequences of, of, of continued conflict? I still think if you just look at the markets, the US stock market sits down, is down like 4% since, 4 or 5% since the beginning of this conflict. Wars are, they have a momentum of them of their own. Like we don't know exactly how this is all going to play out. So I know it's probably boring in the middle of a war that everyone kind of knows about to say that that's the biggest risk. But from what I see, that is basically the biggest risk that's in the market right now.
Monetary Metals:
And talk to us about some of the signals that you look at specifically. Is it oil prices, is it gold prices? What are some signals that maybe you look at that other investors don't that you think maybe they should focus on as well?
Bob Elliott:
Well, I think for some reason, I think there's been a lot of focus lately on trying to read the tea Leaves of everything in terms of policymaker commentary. And that's the sort of thing that certainly could give you a headache if you followed a little too closely, because even within the span of a single speech, it could tell you one thing or the other. Just with the commentary that's going on, from my perspective, what I really like to focus on is just very concretely, like, what's happening with the real economic activity that's going on and not getting necessarily lost in the shuffle.
So if you think about something like oil production right now, like, there's 9 million barrels of. Of shot, 9 million barrels of capacity, production capacity that shut in in the Middle East. Okay, well, and inventories are falling about 10 million barrels a day. So, like, what's happening with, like, one random tanker ship in Hormuz? Like, who cares? Like, like, production's cut 10 million barrels, basically, and inventories are falling 10 million barrels.
Like, I don't care if some ship gets through Hormuz. Like, what I care about is the fact, like, I'm just looking at the signal, at the hard data, the real data, and it basically says there's a 10 million barrel a day gap in the supply of oil, and that's a big deal.
And that'll keep oil prices, you know, between 100 and $120 a barrel for the foreseeable future. And so, you know, that, that's sort of like that way of thinking of, like, don't get so focused on the rhetoric. Focus on the fundamentals. Focus on the real, empirical, hard data that's going on, and you're going to be in a lot better shape than other people.
Monetary Metals:
All right, Bob, let's say good news. We get off this podcast, we see a Truth Social post, and, and it says President Trump is the smartest ever. The war in Iran is over. They've unlocked the Strait of Hormuz. Oil is flowing. How quickly is it going to take for that information and that great news to spread to markets where we don't see oil prices at 100, we don't see the Fed in this kind of conundrum. How quickly would good news in this conflict actually spread to markets?
Bob Elliott:
Well, I think you'd probably get it over the course of a couple of days or short number of weeks. You. You'd get the pop. Again, we haven't sold off that much. So, like, how much pop are you gonna get? Right? Like, I think people, you know, people are. I think some people speculate there's going to be an incredible windfall if we get a You know, a taco or resolution here, it's like, okay, but like stocks are only down 4 or 5%, you know, what, what kind of, what kind of windfall can you get?
You know, and so I think we probably see a resetting in that sort of way. I think that would probably then create some disappointment ahead because even though we can price into financial markets relatively quickly, you know, what improved circumstance, it doesn't necessarily mean that the hard data reality is immediately resolved. And so, I mean, it's a simple example. We've, we, we've lost, you know, hundreds of millions of barrels off the market through the course of this conflict that need to essentially be resupplied.
We have all sorts of supply chains that are all screwed up as a function of these things getting, you know, the straight moves getting cut off and maybe it's, you know, if it's helium for your balloons or all the way to fertilizer, all the way to, you know, various refined products.
In the same way that Covid was a big pain in the backside macroeconomically, there's still a lot of parts of the economy that are still going to be affected. And so if we get that 5% bounce, it's like everyone's betting that everything's going to be hunky dory. Like this never happened at all.
In a way that probably a few months down the line, a few months, maybe even through the end of the year, we'll still be seeing the effects of this conflict play out. And that's like in the best case scenario. The best case scenario is it's going to be a huge pain through the end of the year in the worst case scenario. Obviously this could be far more painful than we've seen so far.
Monetary Metals:
Talk to me a little bit about gold and silver. Obviously, gold has a lot more of a kind of monetary flavor than silver is not just pure monetary. It also has some industrial components as well. How do you think about pricing or an outlook for gold and silver going out to the rest of the year?
Bob Elliott:
I still think a lot on gold is a lot of the fundamental underpinnings of the rally that we've seen remain firmly in place. And if anything, this heightened conflict tilts it in a more favorable direction, particularly at a lower price that we're seeing right now. So it still seems like a good trade to be holding. Silver is a much more, from my perspective as a, as a old macro guy, silver is just a lot more complicated because of that industrial use.
And so you really have to, you know, be Adding up the production ounces against the demand ounces. I'm not a particularly strong. I don't have particular depth in that area. I've actually never traded silver in my career. But there's a lot of good folks out there. My old colleague Alex Campbell, for instance, writes robustly about the silver market he was commodities with at Bridgewater. And so I'd highly recommend going out there and finding the smart people who think about these markets comprehensively rather than try to like, be like, oh, silver's just like a higher beta gold. It is not higher beta gold. That's not how it works.
Monetary Metals:
All right, now we're going to get into the super Lightning round questions. These. I'm going to aim for just one word answers. We'll keep the audience guessing. They'll have to follow more Bob Elliott to get the rest of his thoughts. Okay, gold obviously responds to inflation and deflation differently. Where do you see us going for 2026? Which is the bigger risk, inflation or deflation?
Bob Elliott:
Inflation.
Monetary Metals:
Next one for you, AI. Is this a bubble where we're going to look back and go, why did we spend all those money on data centers? Or. Or is this the next Internet?
Bob Elliott:
Both.
Monetary Metals:
Okay, next one for you. What's the biggest macro mispricing today?
Bob Elliott:
Stocks.
Monetary Metals:
Ok. Here's a fun one. Which of the BRICS countries do you think is going to outperform most in 2026? You've got Brazil, Russia, India, China and South Africa.
Bob Elliott:
Russia.
Monetary Metals:
Okay, another fun one for you. Which Trump policy do you think is going to be the most impactful going into 2026?
Bob Elliott:
The war with Iran. I mean, I guess there's something. I'm not sure what else it could be, but that's my answer.
Monetary Metals:
Okay. Do Democrats take the midterms?
Bob Elliott:
I have no idea. I have no view better than what the betting markets would say.
Monetary Metals:
My next question is about prediction markets. How useful are prediction markets? Are these basically just a way for kids to gamble on sports and you know what Powell is going to say next, or do you think these are actually useful tools?
Bob Elliott:
Oh, I think it's useful. People, I'm going to give you a slightly longer answer than one word because it's worth it. People get confused. They're like, prediction markets don't necessarily predict what's likely to happen with whatever circumstance. I don't know the probability that there's a ceasefire with Iran by April 30th or something like that. That's true, but that's also true of financial markets.
For instance, financial markets are crappy at predicting what's going to happen to the Fed. What the financial market pricing is useful for is understanding what the consensus view is. And then the question you can ask yourself is, do I have a view that's inconsistent with or better than the consensus view? And so in that sense, I think prediction markets are actually super useful because I think they are good representations of consensus thinking that you can then say, you know, how do I think things may play out differently relative to that?
Monetary Metals:
All right, Back to the one-word answers, Mr. Elliott.
Bob Elliott:
Sorry, I broke the rules.
Monetary Metals:
No worries. There's no punishments here on the podcast. All right, which fee is the most insidious that you think investors tend to overlook?
Bob Elliott:
Fund. Fund expenses done by service providers. No one knows how much they are, and they can be an enormous drag on performance.
Monetary Metals:
All right, next one. Which asset class outside of gold with yield is the most under loved without any good reason?
Bob Elliott:
Diversified commodities.
Monetary Metals:
Okay, next one. Hedge funds. How do they view silver versus gold? Obviously, maybe you haven't personally experienced trading silver and gold, but do hedge funds think about silver versus gold?
Bob Elliott:
Some specialists do.
Monetary Metals:
And now what about diversification? We've talked about this in the podcast. When does diversification become over? Diversification, where you have your eggs spread across so many baskets that you really have lost out on some of the benefits of actually concentrating your portfolio.
Bob Elliott:
Never. It's a mathematical fact.
Monetary Metals:
I love it. All right, let's do one more. Which is what is the most overcrowded trade right now?
Bob Elliott:
Long stocks.
Monetary Metals:
All right, Bob, I want to ask you a question I ask all my guests, which is what's a question I should be asking all future guests of the Gold Exchange Podcast?
Bob Elliott:
Oh, that's an interesting question you should ask them. You know, presumably they're favorable to gold in in, given that they're probably on this podcast, but you should ask them whether they hold exposure to other commodities like oil or copper or things like that. And presumably just taking a guess that not many people do like, why not hold those other commodities? Since particularly if you like gold, they can often be diversifying to gold as an asset and diversifying to traditional assets.
Monetary Metals:
Bob, it's always a pleasure getting to interview you on the podcast. If people have listened to this and somehow made it to the end and said, how do I not have more Bob Elliott in my life? Where can they find more, Bob? And more Unlimited®?
Bob Elliott:
Yeah, for sure. If you want to learn more about our work around hedge fund alpha indexing and the ETF wrapper, check out unlimitedfunds.com or Unlimited® ETFs which you can see right over my shoulder if you haven't noticed it through this whole podcast. And if you want to learn more about my macro views, you can find me at Bobby Unlimited across a wide variety of different socials. Or check out my non consensus substack which I write on a daily basis.
Monetary Metals:
Bob, a pleasure as always. We'll have to have you back on soon.
Bob Elliott:
Thanks so much for having me.