Q&A: Canadian Bullion Services’ Daniel Kroll – investing in gold, silver, precious metals
Gold is, at the moment, big.
Trading at nearly $1,600 an ounce (up from only $250 in 2001), the metal makes for an appealing investment — especially for those wary of volatile stock markets and on the lookout for something physical into which they can sink their money.
But, despite gold being a bit more tangible than mutual funds and stock indexes, investment in the metal don’t come without risk — despite reaching an all-time high this year, its price has been falling over the past six months.
That hasn’t sated the widespread lust for the shiny stuff, however. So, to get some insight into the relatively new industry, Star Business Club Editor spoke with former stockbroker, gold evangelist and Canadian Bullion Services (CBS)’ CEO Daniel Kroll. His company is one of a handful of Canadian businesses launched in the past few years to tap the demand for gold by selling (and storing, for a fee) gold and other precious metals directly to the public.
How’d you get where you are today?
I did my degree in economics at York University, and shortly after that became a stockbroker for a couple of years, and (eventually moved into) trading futures.
At the time we were recommending crude oil at $10 a barrel, it went up above $30 dollars, and when they bombed the USS Cole (in October 2000) the market went to $37.50. We did extremely well, but the whole world was different back then.
In 2001, the 9/11 attacks closed the commodities market. Nobody wanted anything to do with any type of paper investment, so we had this idea to get involved in precious metals. Gold was $250 an ounce in 2001, so I set up a business to allow individual investors to purchase gold and silver at much lower premiums than (what they could buy from) banks.
Fast forward to 2008, gold was trading at around $900 an ounce. Our clients were making a lot of money.
But you left the business around this time. Why?
I had a young daughter, and I had worked extremely hard building the business. So I sold it and took a couple years off to raise my family. My wife got pregnant with my second daughter and I was around to help out.
The stock market dropped off in 2008 and a lot of people were very upset with their investments. I identified a really great opportunity, and by 2010 it was almost like a perfect storm pointing to higher prices in precious metals. I was so excited, I actually had trouble sleeping some evenings. I wanted to get back involved. So, in 2011 we started forming Canadian Bullion Services with a very small staff of four.
What’s the company look like today?
Now we’re up to 11 and we’re looking to expand even more in the next few months. We’ve just moved into a custom office built for us in the the RioCan building (in midtown Toronto).
We’ve doubled our revenues from $2.5 million in 2011 to upwards of $5 million in 2012. Things are on track to continue doubling our revenue every year, and I’m expecting 2013 to be a breakout year for us because we’ve established ourselves in the industry.
Who are your core customers?
Any investment course I’ve ever heard of says individuals should have 10-30 per cent of net worth in precious metals — it’s a way to diversify. So our customers are anyone from young people coming out of school and trying to put things together for their future to CEOs of large corporations, as well as corporate accounts.
Why do they feel more secure with precious metals?
There are so many things scaring people away from the stock markets: government changes, increasing taxes, accounting issues coming out of the banking sector, and so much fraud. People are much more comfortable having something you can touch and hold with your hands.
Who’s your main competition?
A lot of people are (buying precious metals) through banks. But banks have a vested interest in having people own financial products they can charge fees on, so they’ve got huge premiums on buying precious metals. But people buy because they’re used to going to banks for financial products.
Are you afraid banks could just drop their prices to edge you out of the market?
Companies involved in physical precious metals, I don’t think we’re even really making a dent in the market. The average person isn’t buying silver and gold at this point, and the banks are continuing to put up huge profit numbers. Their actions haven’t indicated that they’re worried about us, and I don’t feel threatened.
What would make them start paying attention?
I don’t see it being a problem until people start pulling a lot of money out of the banks to put into physical products. At that point it’ll be too late (for the banks to edge us out) because prices will be so high anyway.
What are the risks to investing in precious metals?
Basically the price going down. There’s also using money that you need for something else, say for your children or their education. We never recommend using money that you may need in the next few years because if the market declines and you sell, you’ll lose out.
What are you expecting in the next few years?
We expect prices to be much higher. There’s the risk that we’re wrong. Markets go up and down — gold traded at $250 in our lifetime. It’s possible something could happen where all the debt is gone, economies become extremely strong, people look to invest in companies again and all of a sudden they’re taking money out of gold and silver. Any investment that has the ability to go up has the potential to go down in price.
But I’ll tell you this, (with gold) there’s no accountants or stock market to rely on, and a bar of gold or silver can never commit fraud.