Monetary Metals Review: How I Started Earning Yield On Gold and Silver

I’ve always wanted to own precious metals like gold and silver as part of my portfolio allocation to hedge against inflation. But I didn’t find them attractive compared to other investment options.

For one, they are costly and cumbersome to own. The two conventional ways to invest in gold and silver are either buying them physically or buying them through financial instruments like an ETF. The downside of these methods is that they come with fees. You may pay a large fee upfront to buy retail coins and bars, and you may also have to pay additional ongoing fees to store them securely in a professional vault. You pay ongoing fees even with a financial product like a gold ETF.

Second, I like owning productive assets that promise not just price appreciation but also generate an annual return for me, such as cash distributions and dividends. Historically, gold and silver don’t do that.

But what if there’s a way to invest in gold and silver while earning interest and without the fees? Turns out there is. During an investment conference earlier this year, I met Monetary Metals, a company that makes this possible.

Monetary Metals offer inve͛stors the ability to generate a yield from gold and silver by leasing to qualified businesses that use them for production. This allows gold owners to earn money rather than just waiting for their precious metals to appreciate, the same way a property owner makes money by leasing a house or an apartment.

If you’re like me and want to invest in gold without the fees while earning yield, this article is for you. The team at PhysicianonFire and I did significant research and calls with industry experts and jewlers over the past two months as well as with the principals of the company.

Here, I’ll review Monetary Metals‘ pros and cons and my experience with them as a company.

Why Invest in Precious Metals?

Before we discuss earning a yield on precious metals, let’s go over why precious metals could be a good investment for you.

Gold and silver have been considered valuable assets throughout human history. Since biblical times, gold has been a measure and means to store wealth. Gold and silver have stood the test of time and are recognized across various cultures and geographical boundaries. In the modern world, these metals play a crucial role in investment portfolios, providing stability, protection, and important diversification against economic uncertainties.

Diversification is all about owning non-correlating assets. Correlating assets have a dependency and, therefore, the same exposure to risk. Gold’s correlation to other asset classes is among the lowest you can find while providing positive returns over time.

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Gold has been considered a safe-haven asset, providing protection and security against currency fluctuations and extreme monetary policy changes. Inflation is a significant concern for investors, and the true “monetary” metals (gold and silver) provide a hedge against inflation. As the value of currency decreases, the value of gold increases, making it an attractive investment option. In today’s modern age, devaluing a nation’s currency is considered an effective monetary policy tool. The gold price measures the damage. Gold is in a long-term uptrend.

More recently, people have touted cryptocurrency like Bitcoin as an inflation hedge, but that’s a story for another day.

Who is Monetary Metals?

Monetary Metals is a company that offers investment opportunities in precious metals such as gold and silver. What’s unique about them is that they allow investors to earn interest by leasing their gold and silver to companies that use their gold productively, such as mints, jewelry, bullion dealers, gold producers, and refineries. Precious metal leases are a common way for companies in the industry to finance their inventory or work-in-progress. Historically, earning a yield on gold and silver through leases has only been available to the clients of large investment banks that deal in metal. But Monetary Metals makes these opportunities available to anyone, so long as you can meet their account minimums.

Investors and industry experts alike, such as Family Wealth Report, praise this unique market-driven approach.

Importantly, Monetary Metals tracks and monitors your gold at all times, even when it’s on lease. They have a team of in-house professionals who conduct due diligence on the companies who lease the metal and a separate team that ensures lease compliance and performance. This helps keep your metal secure, even when it is in a lease and earning interest.

Who’s the CEO?

The CEO of Monetary Metals is Keith Weigner, a serial entrepreneur who has sold a tech company and started Monetary Metals after 2008. He is also the founder and president of the economist, president, and founder of the Gold Standard Institute USA. Check out his Forbes profile here. 

He founded DiamondWare, a software company that developed 3D voice technology. He sold DiamondWare to Nortel Networks in 2008.

His expertise in banking, gold, and monetary theory has allowed him to meet and consult with bankers, legislators, and government officials worldwide.

Additionally, Keith and the management team have significant skin in the game. Keith is the majority investor in Monetary Metals, and he puts his gold into all the leases and bonds they offer alongside you. As I was doing diligence on the company, this is really important to me. Having someone with experience and skin in the game in unique investments is critical, especially given the stories we have heard about scams in gold.

How Do Investors Earn Money?

Monetary Metals offer two vehicles that deliver a yield on gold, paid in gold (and silver): gold leases and gold bonds.

Gold Leases

With a gold lease, Monetary Metals matches businesses with a financing need for gold as inventory or work-in-progress with people who own gold and want to earn a yield on their gold.

Gold leases are designed to produce interest income on gold, and reduce risk, in addition to the benefits of owning physical gold (diversification and potential for price appreciation). Leases typically have a 12-month term or less, depending on the business need.

The company performs due diligence on lessees before offering a gold lease to investors. They work exclusively with companies that use gold productively and have a business need for physical gold. They do not work with companies attempting to short-sell or derivative-trade gold.

Monetary Metals structures their leases as a true lease of personal property. You, the investor, retain ownership of the gold even when it goes into a lease. It does not go onto the balance sheet of the third-party lessee or the balance sheet of Monetary Metals. Your gold is never sold or financed into a loan (sometimes called “paper gold”).

In their client portal, Monetary Metals presents investors with the lease terms from a business that needs the gold.

You can opt out of any leases you do not want to participate in for any reason. 

After you finish making your selections, your gold will be allocated, and you will start earning interest at the corresponding lease interest rates. Historically, Monetary Metals’ leases have paid between 2% and 5% annually in either gold or silver. The current annual weighted average return sits at around 3% but is subject to change as new leases become available.

Gold Bonds

Monetary Metals also offer a yield on gold, paid in gold through their gold bond offerings. Gold bonds are like dollar bonds except that the principal and interest are denominated and paid in gold. Unlike leases, gold bonds are private securities (available to accredited investors only) with a higher risk and higher return profile. Historically, Monetary Metals’ bonds have paid between 5% and 19% annually.

Gold bonds are used to fund business expansion or to catalyze a project into initial production.  Examples of companies that would borrow gold include miners, industrial manufacturers, vaults, and other gold-related businesses looking to expand. Borrowers repay the gold bond with the income from existing production or new production. Gold bonds typically have maturities between 2 and 5 years, depending on the business need.

When we spoke to Monetary Metals, they mentioned several new bond offerings in various stages of diligence that are expected to become available in early 2024.

One final note: Most clients of Monetary Metals participate in both gold leases and gold bonds. Participating across leases and bonds produces a blended rate of return on your gold, which reflects the diversified risk. Presently, the weighted average return across both gold leases and gold bonds in the Monetary Metals marketplace is 7.1% annually.

How Does Monetary Metals Make Money?

Monetary Metals earns revenue by making a spread on the interest rate for leases and bonds. If you are earning 3% in a gold lease, Monetary Metals is earning anywhere from 1.5% to 3% in addition, which means the third-party lessee is paying between 4.5% to 6% to lease the gold.

Monetary Metals will not make any money unless you make money in a lease. By aligning incentives it helps ensure they lease to high-quality companies with a high degree of confidence the lease will perform.

They also charge a reasonable fee for buying or selling precious metals through them.

What Are the Risks of a Gold Lease?

Monetary Metals gold leases are similar to traditional leases of physical, personal property, i.e., apartment or vehicle leases. This means there is an exchange of a physical item for agreed-upon terms, including the right to use and payment for use. In the case of a gold lease, the company agrees to pay an annual interest rate denominated in gold for the right to use the gold in its business.

Importantly, this means that the leased metal never goes onto the lessee’s balance sheet. You always retain ownership of the metal, even when it’s on lease. In the event of a default, Monetary Metals would repossess the leased metal and return it to investors.

There are two potential risks: the interest payment in gold and the principal amount of gold leased. In essence, you could lose the original gold you leased and the interest you would have received.

Some protections against this risk exist, but the exact outcome of each lease is uncertain. Monetary Metals requires all lessees to have insurance on the leased gold and Monetary Metals to be listed as a loss payee on the insurance certificate.

Additionally, Monetary Metals requires lessees to sign a corporate guarantee of the lease (or equivalent) and personal guarantees from the majority owners of the leasing company.

Finally, Monetary Metals monitors the leases in real-time for compliance and performance. They require regular reporting and third-party audits on lessees and have direct visibility into each lessee’s ERP through API integration.

Since 2016, Monetary Metals has done 55 leases and/or bonds with zero defaults or loss of metal.

While Monetary Metals thoroughly vets and monitors each company requesting a gold lease or gold bonds and has an impressive, albeit limited track record, that does not mean there is no risk of loss.

Monetary Metals Pros:

You can earn a yield on gold and silver.

Monetary Metals allow you to earn a yield on your gold, making it possible to preserve your wealth with gold and increase it.

The weighted average yield Monetary Metals offers is 3% in their gold leasing program. That number jumps to  7.1% if you had invested in their most recent gold bond offering. Your return will vary based on your investment preferences.

This may seem modest, but it’s better than earning 0% or a negative rate, which most other gold products offer.

Free Storage

Monetary Metals offers free storage and insurance for any metal not leased out or invested in gold bonds. This is a real benefit, as most other gold companies charge anywhere from 0.50% to as high as 2% to store your metals for you.

Zero percent default history since 2016

Monetary Metals has completed 55 deals since  2016. While that is a somewhat limited history, they have had a zero percent default rate on their leases and bonds.

Monetary Metals Conducts Due Diligence and Monitors Lessee Performance

Monetary Metals’ in-house team of professionals puts all companies through an extensive due diligence process before leasing any metal. And when your metal does go on lease, they continuously monitor the lessee to ensure compliance and performance on the lease.

Their rigorous process for vetting companies and continually monitoring them to ensure they pay is likely the reason why they have not experienced any defaults to date.

You’re in Control

One final benefit of Monetary Metals is that you control your gold. You always retain ownership of your gold, even when in a lease. And you are not obligated to participate in leases if you don’t want to. You can opt out of any lease for any reason.

Monetary Metals Cons:

Limited Lease Program

Since 2016, Monetary Metals has only issued 55 leases or bonds. That only comes to about seven leases per year, which is low. As of December 1, they have funded five leases in 2023. They just opened another lease on December 8, which pays 5% annually on silver, in silver.

High Account Minimums

The minimum to open an account with Monetary Metals is 10 ounces of gold or 1,000 ounces of silver. That’s currently over $20,000 today. This is quite a significant amount of gold to hold in your account if your goal is to test their services on a small scale.

Limited History

Monetary Metals is at the forefront of offering a broader range of public gold leases as an investment option. While this sets them apart, leasing precious metals is not intuitive to most investors and isn’t well understood unless you know precious metals finance.

Monetary Metals publishes a summary of their due diligence on every lessee you can review before making a decision. However, this means you must rely on accurate reporting and the quality of due diligence completed by Monetary Metals. In addition, since this is a relatively new investment option created by Monetary Metals, there is a limited historical performance record for metal leases.

Limited Reviews

Monetary Metals has very few online reviews on any platform. This can be a concern for some since there are limited personal experiences from customers using their services. That said, there don’t seem to be any bad reviews either.

My experience opening an account with Monetary Metals.

The process was quite easy. I answered an accredited investor form, provided ID, connected to a bank account, and was ready.

From there, the portal has selections for the types of products available.

I could fund the account from my bank and was good to go!

Final Thoughts

Monetary Metals gives investors unique opportunities to earn a yield on their own gold by leasing it out to businesses that need gold during their production process. This is particularly interesting as gold hits all-time highs.

While the average returns that Monetary Metals promise are a modest 2-5%, this is better than the zero percent (or negative yield) that gold usually earns if locked away. And the interest you earn with Monetary Metals is in addition to any price appreciation of the gold or silver itself.

That means in 2023, investors have generated >10% in gold appreciation, as well as the yield they would have earned with Monetary Metals, which could put them earning over 15% this year.

That said, there are a few things you should keep in mind. While Monetary Metals has never had a single borrower default, there is an inherent risk of potentially losing your gold and the interest you would receive. In addition, this is a relatively new investment opportunity, which means its risk and performance during certain economic conditions are uncertain.

                             LEARN MORE ABOUT MONETARY METALS

FAQ

What Interest Rate Do Gold Leases Offer?

According to Monetary Metals, gold leases have paid between 2% and 5% annually. The current weighted average yield on their leases is 3% annually.  If you lease 10 oz of gold, you will earn 0.3oz after one year.

How Much Gold or Silver Do You Need to Create an Account With Monetary Metals?

To open an account with Monetary Metals, you must have a minimum of 10oz of gold or 1,000 oz of silver.  As of December 1st, 2023, that is approximately $20,500 in gold and $25,000 in silver to open an account.

How Many Leases Has Monetary Metals Completed?

Monetary Metals has funded 55 metal leases since 2016. All 55 leases have been completed or are actively paying interest.

As of December 1, 2023 Monetary Metals lease program has not lost any investor metals since the inception of the program.

How Long Is the Lease Period?

The lease period for gold and silver leases varies depending on the company and program. But, the most common lease term Monetary Metals offers is one year. In addition, they have over a 90% lease renewal rate, meaning that 90% of leases can renew for additional 1-year terms if the investor chooses. Otherwise, you can have your gold returned to your account, sell it for cash, or have it shipped to you.

How much does it cost to purchase gold and silver through Monetary Metals?

Monetary Metals offers a tiered price structure for buying and selling metal. Here is their price table:

Monetary Metals buys and sells gold and silver at a spread to the London Fix price, or the spot price, depending on when the trade occurs.