“It’s not if, but when” – Interview with Claudio Grass

Recommended Conference on 01/03/2012 in Belgium: The tragedy of the euro; how to survive the collapse of the monetary system. Subscribe now or more info.

Mr. Grass, you are the Managing Director of the Precious Metals division of Global Gold. Can you tell us a bit more about your company?

Global Gold Inc. was founded in 2008 and is specialized in the purchase and storage of gold, silver, platinum, and palladium. As a subsidiary of BFI Capital Group AG, GlobalGold benefits from a long history, impeccable track record and vast experience in the realm of wealth management, financial services and precious metal investments. Our parent company is a Swiss wealth management group that has been in business since 1991, overseeing more than US$ 2 billion in total client assets and with more than US$ 250 million of assets under discretionary management. Global Gold has quickly grown into an internationally recognized and respected physical precious metals storage programs.

You are one of the keynote speakers on our forthcoming conference about the tragedy of the Euro. Can you comment on the recent developments in Europe? Is the Euro really going to crash?

I personally believe that the question is not if, but when. When we look at the actual currency war, it is obvious, that this is not the crisis of one currency, but the crisis of a whole fiat money system.  History tells us that there is a clear connection between Hyperinflation and the paper currency system, and it is also a fact that almost every Hyperinflation happened in the twenties century. The only Hyperinflation before happened during the French revolution, when their monetary system was also based on a paper currency standard. Since 1971, when President Nixon closed the Gold Window, the actual monetary system is backed by nothing but trust, representing the longest fiat money or paper standard system ever. Therefore the risk that history repeats itself is definitely given.

But we are going to pay our coffee with it, aren’t we?

That is true. But for how long? The paper we used as money used to be a property title, now it is a debt security. Our paper money has transformed from I-owe-something to I-owe-you. It is nothing more but collateral, and a special form of collateral: the promise of the former generation that future generation will pay of the debt.

For forty years, the world has operated on a debt-based monetary system which is fueled by means of credit creation. It stands or falls on the assumption that the debt upon which it is based will, someday, be repaid. For a long time, that was not a problem, because money and debt creation follows the exponential growth function.

The best example to explain exponential growth I have heard of so far came from Chris Martenson and he describes it as follows: “

You go to the bank to get your fist loan for 1000 Euros. At this time the bank has an asset, which is your loan on the books. You own 1000 Euros in cash and a liability of 1000 Euros towards the bank. Let’s say after one month, when you have to pay the first interest we see 1000 Euros in money still exist in circulation but your dept has grown by the size of the interest, for example 10 Euros. Now you own the bank a total depth of 1010 Euros in total. So where does the 10 Euros coming from because there are only 1000 Euros in money available? It must loaned into existence, in the form of 10 Euros of new money plus 10 Euros of debt that must also be paid back with interest.”

Therefore this process rises for a long time very moderately. You hardly even notice it. But then, all of the sudden, there is a massive acceleration, and then the point of no return is long gone. It is only a matter of time before people start to realize that. This is why Global Gold has been founded a couple of years ago: we know that there is a huge market for people who are looking exactly for this kind of security. Our product fits like a glove: a safe storage for gold and silver, managed by people with experience.

Ok, so gold and silver. But why would that be such a safe haven? Hasn’t gold gone up so much already? I am playing the devils’ advocate of course, I know the answer already.

I know. Especially people that have read Mises and Rothbard no longer let themselves be fooled on these matters. Gold has not risen in value, not even a bit. It is the way you measure its worth that has changed.  Let me give you an example. Two thousand years ago, one ounce of Gold bought you a nice “Roman Tunica”, and today nothing has changed: I could take you to a place here in Geneva where you can buy a tailor-made suit that equals the dignity of a Roman senator, and it still costs you one ounce of gold. So, to conclude: gold does not rise in value, it is the euro that lose it. The more money printed, the more fiat paper money depreciates against gold.

Got it. Now the only thing to do is to convince the rest of the world.

I hear you. Most people use the word “gold” in every day verbiage, but if you tell them that we might face a high inflation and that they should buy some gold, they look like you are from another planet. They simply do not get the historical value of gold anymore. But its history is very interesting. Gold and silver became money because they have all the intrinsic characteristics of being a good medium of exchange: durable, homogeneous in quality, recognizable, scarce, and lots of other qualities. Out of all the possible means of indirect exchange – cattle, barley, salt, you name it – gold and silver got selected by the market for thousands of years. People should really think about that.

Ok, let’s talk more about that at the conference. For the time being, I am more interested in how your product actually works. Let’s say I want to buy gold with Global Gold. How does that work in practice?

Signing up for an account is relatively simple. The most important thing is that we know our customers and understand their background of assets and thus, we ask for a clear identification. In this context I’d like to mention, that Global Gold is a registered member of VQF, a vocational organization of Swiss asset managers and financial services institutions, supervised by the Swiss Financial Market Supervisory Authority with the objective of quality assurance according to professional standards and Swiss law.

What would be the next step then?

After the registration procedure is completed, you are homefree, and it all is quite simple. You just wire the money you want to put into gold and silver, and you place your order. Your order can executed during one of Global Gold’s two daily trading hours: between 09 – 10 AM or 16 – 17 PM Central European Time. And when the purchase is made, and the metal is in the vault, you will receive in both cases notice.

I am willing to believe that, but let’s stay sharp. How am I sure that my gold is really there? And what happens when you guys go broke?

“Read the small letters”, we always say. Buying gold nowadays is not a problem anymore, but are you actually buying gold? A rapidly growing number of precious metal certificates, ETFs and other “paper metal” solutions, generally issued by banks, are being introduced to the market. But most of these have provisions that protect the interests of the issuer in the context of a crisis. Generally, when you read those contracts, it stipulates that when “unusual market conditions” arise, the issuers have the right to suspend transactions in the product.

Well, well. But who reads those contracts anyway?

Exactly. And what are “unusual market conditions”? The crash of a currency? And even if people the “Terms of a Agreement”, they often don’t know what to look for. How many people actually know what a “cash settlement clause” is? If you agree to such a contract, the issuers of this “papergold” have the right to pay you out in fiat paper money, and not in the gold you requested. When the proverbial excrement hits the fan, you are a sitting duck. If you you find such a clause, you are sure that you are not buying gold, but a half-promise to gold.

Don’t let yourself be fooled! The Global Gold Program does not have any such provisions or cash settlement clauses. It is not a “paper metal” solution. It is the real hold-it-in-your-hand-thing. Our clients are the direct and unencumbered owners of the coins and bars they have bought with us. Your precious metals are not exposed to our creditor obligations, nor are they encumbered with counterparty risks. What we offer is a deposit-contract. Your gold cannot be used as a collateral for loans, nor do we loan it out, or anything else. The only thing we do, is keep it safe for you until you come and get it. It’s yours, and nobody else’s.

That is starting to look like it.

And what is more: since we have stored your coins and bars one-to-one like you have bought them a request for physical delivery can be effectuated without delay. With Global Gold you do not have to wait for the fabrication of your goods, nor are you subject to any of the related fabrication costs. Your goods are already fabricated and at your immediate disposal. They are in the vault, waiting for you. As a client of Global Gold, you can sell or have your precious metals delivered promptly, even during a financial crisis. I strongly believe that our solution is one of the best product on the market, it is safe and reliable, even during the most harsh crisis scenario’s.

Yes, but what in case that GlobalGold goes bankrupt? You aren’t evading my question, aren’t you? 

(laughs) No, I am not! You Flemings seem to be born suspicious! But that is a good attitude. Let me say loud and clear: we do not own your gold. We provide a brokerage service to buy or sell it, and we store it for you. So, in the event that we go broke, our creditors will not be able to put a claim on your metals. Your metals are not listed on our balance sheet. I hope I have made myself absolutely clear now? (laughs)

Yes you have. But there is another thing that worries me. Safety has two dimensions: physical and political. I trust that the gold is stored safely, but I still have concerns about the judicial status of Switzerland. It seems to me that it has lost a lot of its former strength as a jurisdiction where property rights are honored. How do we know that the gold will not be nationalized like they did in the States in 1931? 

It is correct that Switzerland has been under attack by almost every foreign government in the last couple of years. Frankly, I expect that as long as the debt and deficits in the other European countries around continue to grow, the pressure on Switzerland will even grow larger. But Switzerland has a long standing tradition of direct democracy within a federalist structure, and a strong link to gold within the Swiss population, so we consider the risk of a gold confiscation through the political system as very unlikely.

I can understand the doubts and worries people have, but one has to see things in perspective. There are only two things absolutely sure in life: death and taxes. But if there is one place in the world where gold faces a very small chance of being nationalized, it really is Switzerland. Look at all those other jurisdictions that are called safe: either they are part of a geopolitical bargain, with a huge counterparty risk. Or they have a very centralized political structure, which makes it easy to implement new laws without even asking the people. Switzerland is one of the most decentralized nations in the world, has a freedom loving populace, and a solvency that stands out from the rest. Try to pressure that.

Ok, convincing. Now, what does it cost to store gold with you, and what is the lowest amount one can buy?

The minimum investment to become a client is 50 000 Swiss Francs. That is about 41 000 Euro’s now. So even if you have as little 30 Krugerrands, you might consider taking an account with us.

Not exactly the solution for a small investor.

What is a small investor? We believe international diversification doesn’t make sense, financial wise, for an individual which has less than 50 000 CHF of savings. In such a case you can buy a few Krugerrands and store them in several ways. You can bury them in your garden, or keep them in the attic, or even in your sugar bowl in the kitchen. The only thing I would advise against for people that have more gold than that, is to buy a safe, and put it in there. Don’t forget that storing gold at home can be dangerous, especially when you consider that due to growing poverty, criminality will rise. In times of despair, people are afraid of nothing. I personally know stories of people that have been put a gun to their head while they were sleeping. At that point, your safe does not help you anymore, since if you value life, you will give the code of it immediately. But your life savings are gone.

What you need is professional storage, and that, of course, comes with a price. But I dare to say that even here GlobalGold is very reasonable with its price setting, and certainly when you take into account the service you get. Global Gold offers physical precious metals in coins and bars at wholesale terms. You can buy the most liquid and famous coins: Krugers, Eagles, Maples, Kangaroos, you name it. If you visit our website, you will see that the prices are updated every 30 seconds, and that they are sharp. We go out and buy those goods for you, and put them in our safe.

The cost?

The main cost to pay is the annual storage fee, because we are a storage company. The fee is based on the amount of gold you store with us. The highest fee (0,7 %) is for storages with a value between 50 000 CHF – 100 000 CHF, but that percentage drops sharply when storing more. The lowest fee is as low as 0,4 %. The storage fees are invoiced annually in arrears. They are calculated on a pro rata basis and the average value of the precious metals in storage during the respective invoicing period. Don’t forget that the storage fee also covers the cost for the insurance of your metals and for the yearly external audit, which is being conducted by an internationally recognized audit partner.

And of course, to cover the cost of us buying the gold for you and actually putting it in the safe, a transaction fee applies. Global Gold does not trade paper, but really goes out in the free market to purchase the physical gold for you. Besides our highly customer oriented services, we also provide the logistic services, by bringing it to the vault, registering it to your name, and doing the reverse when you decide to sell, these are all costs that have to be covered.

Cut the promo. How much?

Haha, you really like to get down to business fast, do you? No problem. The brokerage fee is based on a sliding scale model, which is limited up to 3 % on purchases and no more than 1,5 % on sales. All fees are transparently agreed to in advance and will be reported in your transaction statements.

Any other advice?

Yes and no. I cannot say much about that. The only thing I want to stress is that investing is not only about return, but also about risk. I don’t think people actually  realize the risks they are taking in today’s stock markets. Do they take into account that one of the main reason most stocks are still surging higher is because they are being propped up by the ongoing injection of newly created money? In Zimbabwe’s stock market, everybody used to be a millionaire until the last reform, when the Reserve Bank of Zimbabwe removed 12 zeros from the currency. The same goes for the euro: governments have been taking on so much debt that it is mathematically impossible ever to repay it. As in our present monetary system debts are magically converted into money, the situation is getting riskier with each bail-out.

So the question your customers have to ask themselves is this: “How do you want to protect your wealth and where do you want to store it?” Do you prefer to be invested in an asset that has shown to be rock solid in every crisis during the last 3000 years? People who think that gold is a bubble, do not understand how bubbles come about: you cannot print gold, you can only mine it. Gold is the money of the free market. And mining money costs money too. That is why gold is such a safe haven: whatever the government does, it cannot destroy the intrinsic value of gold, nor can it influence its production. It is stable as a rock.

The other important question you have to ask is: “Does it make sense to keep some assets outside of the country you live”? When I see how Governments around the world are running into fiscal problems and are setting off on an aggressive hunt for tax money, increasingly employing methods that are at the limit, if not beyond, legality, it makes me really worried. So if your government acts ‘above the law´, it is time for serious planning. In the absence of rule of law, the most fundamental prerequisite of a functioning free country is undermined. At that stage, protecting your freedom and your property within that country becomes a gamble. Privacy and property are in jeopardy and need to be protected OUTSIDE of your country.

Ok, thank you. Since it seems that I have run out of nasty questions, I suppose we have reached the end of this interview. Do you have any final message for the people following our website?

I do, and it is about this interview. You cannot imagine what pleasure I take in seeing that the Austrian analysis of the economy is finally gaining ground, and that you have asked the right questions. I’m always keen to speak to people, who don’t accept the general mainstream theories as the only truth. The fact that people are interested to listen about the “Tragedy of the Euro” and want to hear more about Gold and Silver, shows that they have kept some great qualities; curiosity and the ability and willingness to think independently. Today, this is something rare to find. For most people it has become more convenient to repeat what the majority is telling them without making the effort to think freely and  to question the actual development.

I am very much looking forward to the conference itself. When I saw the subject and line-up I knew that the philosophy was right, and that the speakers would be interesting. For instance, it has been quite a while since I have seen Philipp (Dr. Bagus). I know him very well. He is really top gear when it comes to the euro. When in October of last year he was asked by the European Parliament to deliver a talk on the ECB, I was very happy. Not only for him personally, but also because the Austrian analysis makes sense to more and more people, even politicians. If Mises would still be alive, what would he think about our times? These are very exciting times. I therefore cannot wait to exchange views with Philipp.

How nice.

Yes. The fun part about this job is that you meet so many interesting people. People with a critical point of view. Take you guys for instance. Do you really think that organizing a conference with that title “The tragedy of the euro” is common? But nevertheless, you have a vision and you go for it. That is admirable. It will pay off in the future. And the conference will hit the bulls eye, I am sure.

Interview conducted by Brecht Arnaert on the 11th of February in Geneva.
Transcript approved by Mr. Grass.

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