Gold market, prices may be telling investors it’s ‘the beginning of a broader crisis’: ETF expert

GraniteShares Founder and CEO Will Rhind joins Yahoo Finance Live to discuss the state of the gold market.

Video transcript

INES FERRÉ: Precious metals, in general, have rallied as Treasury yields have plunged. We're joined now by GraniteShares Founder and CEO Will Rhind to find out how to capitalize on these shifts for this week's ETF report brought to you by Invesco QQQ. And, Will, talk to us a little bit about what we've seen with gold with this chaos that we've been watching in the banking industry. And if it continues, what are we to expect when it comes to this precious metal?

WILL RHIND: Yeah, I mean, what we're seeing is just a classic crisis of confidence. And when you see a crisis of confidence, but particularly in our financial system and our banking sector, people rush for safe havens. And arguably, there's no more famous safe haven in the world than gold. It's one of the highest quality assets out there with no counterparty or credit risk. So in other words, gold can't go bankrupt, unlike a bank, and that's very appealing at this particular point in time.

SEANA SMITH: And, Will, demand for gold has shot up, obviously, in the wake of the two banks that collapsed over the weekend. And I understand-- if I understand this correctly, GraniteShares did have some exposure to SVB, to Silicon Valley Bank. What has the last week been like for you? And how-- I guess, walk us through the last couple of days and give us an inside look at how stressful that time must have been.

WILL RHIND: Yeah, no, absolutely. So we used Silicon Valley Bank in the UK where we have a business. In the US, we didn't. But obviously, it affected the whole company, so regardless of where you were positioned. And we, like a number of other firms in the sort of venture-backed sort of startup space, used them because they were incredibly friendly to startup companies like us within operating in the fintech space.

And so when we saw on Thursday the stock price dropping pretty significantly on the exchange here, started to get worried. And then obviously on Friday, it dropped dramatically further. And so we tried to get-- or move money out of the accounts in the UK.

But obviously by that time, and unbeknown to us at the time, the actual bank had frozen up. So fortunately, we weren't holding huge amount of money at that particular time so weren't really affected by it. But it's a wake-up call for everybody in terms of the banking relationships that you have and how quickly something like this can happen.

INES FERRÉ: And given with what we've seen with Credit Suisse today as well, and just the banking sector in general and that concern that investors have had, I mean, in talking to investors as well, what are you expecting as far as what the Fed may do next week? Are you thinking that a rate hike should be definitely off the table here?

WILL RHIND: I mean, I'm definitely in that camp. I just-- I just can't see it really-- we've got to a position where, at 4.75%, you have banks failing. Now, obviously, people will make the argument that that's not exclusively down to the Federal Reserve and that is down to some specific policies that those institutions took that didn't go right. But I think you just have to look at the broader reaction from the market to tell you that interest rates have gone up too quickly, too high, and it's causing problems now for the system.

My bigger worry is that you see bank runs happening. And people perhaps might forget that we first started seeing bank runs happening in 2007, as early as August in 2007 for Countrywide Financial, and obviously in the UK later on that year, in September, with Northern Rock. And that was really a year before the financial system completely collapsed with the bankruptcy of Lehman. So I'm starting to worry that this is the beginning of a broader crisis here. And I think the gold market is telling you that. And that's why we're seeing gold prices well above $1,900 today.

SEANA SMITH: So, Will, you have exposure to the gold market with some gold-focused ETFs. But you also have a GraniteShares US High Income ETF. What can you tell us about this? And when it would make sense for investors to buy into that product?

WILL RHIND: Yeah, so the ticker code is HIPS-- H-I-P-S-- stands for High Income Pass-through Securities. Yields about 10% per annum. And this is a product that has a fixed cash distribution every month. And what's interesting about this is obviously for many years, it was really one of the places where you could still generate high levels of income in a market where interest rates were zero.

Now we've seen interest rates climb. And certainly, you have now more products competing with high income, especially in the Treasury market where, at one point just in the last couple of weeks, the two-year Treasury was at 5%. Now obviously since the banking incident has happened, and particularly over the last few days, interest rates have come down quite dramatically in reaction to what's happened with the Federal Reserve and the response.

So again, I think it makes high-income products even more valuable at this time. And put simply, where do you get 10% income in this particular market, or at least an above inflation rate of income, and HIPS is one of the few places to do that.

SEANA SMITH: All right, Will Rhind, GraniteShares founder and CEO. Thanks so much.