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Guest Post: The Driver For Gold You’re Not Watching
Submitted by Jeff Clark of Casey Research
The Driver for Gold You’re Not Watching
You already know the basic reasons for owning gold – currency
protection, inflation hedge, store of value, calamity insurance – many
of which are becoming clichés even in mainstream articles. Throw in the
supply and demand imbalance, and you’ve got the basic arguments for why
one should hold gold for the foreseeable future.
All of these
factors remain very bullish, in spite of gold’s 450% rise over the past
10 years. No, it’s not too late to buy, especially if you don’t own a
meaningful amount; and yes, I’m convinced the price is headed much
higher, regardless of the corrections we’ll inevitably see. Each of the
aforementioned catalysts will force gold’s price higher and higher in
the years ahead, especially the currency issues.
But there’s
another driver of the price that escapes many gold watchers and
certainly the mainstream media. And I’m convinced that once this
sleeping giant wakes, it could ignite the gold market like nothing we’ve
ever seen.
The fund management industry handles the bulk of the
world’s wealth. These institutions include insurance companies, hedge
funds, mutual funds, sovereign wealth funds, etc. But the elephant in
the room is pension funds. These are institutions that provide
retirement income, both public and private.
Global pension assets are estimated to be – drum roll, please – $31.1 trillion. No, that is not a misprint. It is more than twice the size of last year’s GDP in the U.S. ($14.7 trillion).
We
know a few hedge fund managers have invested in gold, like John
Paulson, David Einhorn, Jean-Marie Eveillard. There are close to twenty
mutual funds devoted to gold and precious metals. Lots of gold and
silver bugs have been buying.
So, what about pension funds?
According to estimates by Shayne McGuire in his new book, Hard Money; Taking Gold to a Higher Investment Level,
the typical pension fund holds about 0.15% of its assets in gold. He
estimates another 0.15% is devoted to gold mining stocks, giving us a
total of 0.30% – that is, less than one third of one percent of assets
committed to the gold sector.
Shayne is head of global research at
the Teacher Retirement System of Texas. He bases his estimate on the
fact that commodities represent about 3% of the total assets in the
average pension fund. And of that 3%, about 5% is devoted to gold. It
is, by any account, a negligible portion of a fund’s asset allocation.
Now
here’s the fun part. Let’s say fund managers as a group realize that
bonds, equities, and real estate have become poor or risky investments
and so decide to increase their allocation to the gold market. If they
doubled their exposure to gold and gold stocks – which would still
represent only 0.6% of their total assets – it would amount to $93.3
billion in new purchases.
How much is that? The assets of GLD
total $55.2 billion, so this amount of money is 1.7 times bigger than
the largest gold ETF. SLV, the largest silver ETF, has net assets of
$9.3 billion, a mere one-tenth of that extra allocation.
The market cap of the entire sector of gold stocks (producers only) is about $234 billion. The
gold industry would see a 40% increase in new money to the sector. Its
market cap would double if pension institutions allocated just 1.2% of
their assets to it.
But what if currency issues spiral out of
control? What if bonds wither and die? What if real estate takes ten
years to recover? What if inflation becomes a rabid dog like it has
every other time in history when governments have diluted their currency
to this degree? If these funds allocate just 5% of their assets to gold
– which would amount to $1.5 trillion – it would overwhelm the system and rocket prices skyward.
And
let’s not forget that this is only one class of institution. Insurance
companies have about $18.7 trillion in assets. Hedge funds manage
approximately $1.7 trillion. Sovereign wealth funds control $3.8
trillion. Then there are mutual funds, ETFs, private equity funds, and
private wealth funds. Throw in millions of retail investors like you and
me and Joe Sixpack and Jiao Sixpack, and we’re looking in the rear view
mirror at $100 trillion.
I don’t know if pension funds will
devote that much money to this sector or not. What I do know is that
sovereign debt risks are far from over, the U.S. dollar and other
currencies will lose considerably more value against gold, interest
rates will most certainly rise in the years ahead, and inflation is just
getting started. These forces are in place and building, and if there’s
a paradigm shift in how these managers view gold, look out!
I
thought of titling this piece, “Why $5,000 Gold May Be Too Low.” Because
once fund managers enter the gold market in mass, this tiny sector will
light on fire with blazing speed.
My advice is to not just hope
you can jump in once these drivers hit the gas, but to claim your seat
during the relative calm of this month's level prices.
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DP
WTF!?!?!?
"Take it higher"? So all this crash JP Morgran shit was all a joke?!
I thought because the central banks were running the largest ponzi in all of history, it was in their best interest to SURPRESS THE PRESS OF METALS?
I did my part. Bought a ton of silver in Decemeber. Bought a decent amout of gold between late 2009- till later 2010.
Is this all a joke? Is it just fun to 'be in it together' against the criminal banksters?
Are Gold and Silver going to crash and all you milionaries are just going to laugh at all us suckers?
"Is this all a joke? Is it just fun to 'be in it together' against the criminal banksters?
Are Gold and Silver going to crash and all you milionaries are just going to laugh at all us suckers?"
No, but they are going to test your resolve, they are going to send you a real gut check to find out if you are steadfast in your commitment to PMs.
Buy the dips when they send the gut check. Otherwise you are shaken out of your position...and, that is what they really want.
Well JPM (an example you picked with 20-20 hindsight) has gone from 42 to 46 (up about 10% over the course of a year). In the last year, I think gold has done a bit better than that.
If you really want to make a strong case against the PM's, why don't you give us a list of stocks that you think will outperform gold over the course of the next year. Then in a year you can tell us what idiots we are for holding PM's.
The point is that various types of investments do well in different environments and PM's tend to be uncorrelated with equities. For example, in the 70's PM's did great, but stocks did nothing the entire decade. Then stocks took off and PM's did nothing for a couple of decades. It's dangerous to put all of your eggs in one basket.
Hey Robo, you fucking piece of shit, did you miss that double top staring you in the face on that JPM chart?
Looks more like a short candidate than anything else to me, but WTF do I know. Only been accumulating silver when it was $6-7 ounce.
Fuck you, and take your fucking stupid stock charts with you. Start posting your actual positions of JUMP THE FUCK OFF, YOU FUCKING TROLL (JTFOYFT).
NFL
Ha Ha Ha
Game Over!
BANKING STOCKS> Are you serious Robo, can you tell me exactly what is on their books, can you tell me every bad loan that is Off their books. They put out any number they want each quarter as it is so easy for banks to manipulate their books. And how many would be solvent if Mark to Market was ever inforced. And you trust these guys to tell the truth and not rape us....again. Amazing.
YOu are losing it Robo.
And you, Sir, obviously don't day trade. So STFU.
Robo is right. This isn't a market. Its a casino. If you want to gamble in a rigged casino, don't fight the house.
I think gambling in this market is like picking up dimes in front of a steamroller. I'm happier buying my silver.
A silver dime is still worth over two bucks even if you get it after it's been run over. The newer dimes are not so dear.
When the dead fish analysts realize that gold is not going back to 850 and will plow ever higher then they will start to move up their prices on the miners. All of these dead fish are just waiting for the big dump in gold. Well, keep waiting. And yes, maybe we can make more money buying the crap that blew us up, until the next time it blows us up again. I will stay with an investment that creates Real earnings, not lies, not decieit, and not a company that destroys people and only cares about the "bonus" and the Porsche.
Very happy with my gold, silver, miners. Buy banks. I cannot believe an intelligent being said that.
Gold will be at 850 New World Fiatscos, soon my friend.
Just need to get rid of these Libs that think going off-planet is bad.
You seem altogether too thick to be a frickin' cat.
850 what? How many USDs to an NWF? Should be about ten.
I junked you for calling Robo an idiot. He never said JPM were great, honest marvelous people. He said he thinks their stock is headed higher. I'm long JPM for Robo's reasons. Jamie D doesn't give a darn who owns the stock. Someone's going to own. I hope to sell mine at a profit. But I agree w virtually every complaint about the banksters/TBTFs etc.
I also own GDXJ. Are some of its portfolio companies unethical? Prob, but I think the ETF goes higher.
What a great attitude, Doc. Yeah, they're scumbags, but I'll make bank, and if not me, someone else would buy. Good collaborator. Sit up. Bark. Roll over.
From wiki
Intelligence is most widely studied in humans, but is also observed in animals and plants
I take it that Libs displayed no intelligence in this study.
Then I take it you're confessing to being a self-loathing 'Lib'?
Key Word, STUDIED.
No counterparty risk doesn't sell to these fellas, as they are the counter party risk. Rather, what fool would hire someone to hold their gold? It is a catch-22 (unless they all strike at once.)
What is obvious is how the US/World financial sector is totally dependent on the paper assets of these "pension" funds. A crash of the dollar and trillions are wiped out overnight.
Hedge or no hedge, if the Saudis refuse to take FRNs for an oil shipment, these guys are done in minutes.
How would our lives change if 90% of the retirement wealth was destroyed in 2 days?
And we have put our faith in Bennie, Turbo Tax Tim and the Bamster. :-(
sschu
sschu
And, you have 2 choices, leave it with them(participate), or opt out, and contribute ZERO to it.
Discipline yourself to set an amt each payday, and buy PM's.
No way you will do worse than them stealing it, and trust me, its just a matter of time before Any funds in any bank, invested in anything, will be confiscated, and dealt out to you as THEY see fit.
+ $1425
When I get some extra dough, I buy some gold with some of it.
DosZap is right. You need to have something OUTSIDE the system, off the grid. Nothing better than gold for that. Do not let the system, the EE, take all your money in a collapse.
When the Saudis refuse to take FRNs, it's time for the U.S. Air Force to deliver some encouragement.
The House of Saud knows which side of their bread the butter is on. They saw what happened at the gallows next door in Iraq.
"When you've got them by the balls, their hearts and minds will follow." -- Charles Colson
Moar phree monee from the Phed's phake monatary policies!
But..but..but.. if investors get gold, mutual funds and hedge funds get gold, now pensions get gold and states start using gold as legal tender...doesn't that make gold.......Money??? OMG! It's Alive! Run for the hills!
How many honest fund managers are there? Don't you think the majority of them work in Wall Street and take kickbacks and "off-account fees" for investing where GS and JPM tell them to invest? The few honest money managers are scared shitless of doing something out of the main stream. I know many pension funds in California have hired money managers from Wall Street and have entered into all sorts of funny deals. Their fortunes are not tied to the fate of the fund but to the private deals they cut in NYC.
Jiao Sixpack--
I love it.
We got rid of smallpox. I call for the same effort to get rid of the Lib gene.
I can't stand their stupidity anymore.
No,we still have smallpox, the last batch on earth is yet to be unleashed.
I strongly disagree. Gold/Silver/Platinum are too thin of markets and too volatile for pension funds to play, it does not meet their investment objectives.
You're right , MBS and crappy derivatives are the shit .
Not if you didn't go ALL In.................I had Fuddelity, I couldn't find ANY Funds I wanted to be in, ZERO, nada.
They pick the shit, and you take it, or throw in their MMkt Funds.
Used to At least stay close to even with inflation there.
That seems to be a good reason for each of us as individuals to buy gold, silver and platinum.
Platinum is way underdicussed, and yet it is a sublime PM...
I'll stick with PMs that aren't so tied to the Auto industry, thanks.
Omi,
Partially correct:
The pension managers can get commissions and perks out the ass buying equities and muni-bonds; anything BUT precious metals.
They get a kickback no matter what, and the gravy is where the bailouts are; banking, equities, fiat money.
The populace have been sold out.
A mass-extinction event that involves no blood directly spilled, simply bled out individual-by-individual using a roundabout circle jerk cut to the carotid via the collusion of Banking and Government.
Investors who fial to buy gold now at $1,400 will pay $5,000 for it when there is a rush into Hard Assets as many economists describe, including Prof kotlikoff at Boston U.
The author is forgetting central banks and governments too.
Pension funds are owned by brokers; worshippers of equities, government, and central banking.
Precious Metals?
They will have to get their constituents stoned off their asses on peyote and hash-oil before they buy into PM's in any volume.
They should - but they won't - because the industry is OWNED by government and banking and has ZERO intersest in the well-being of their clientele.
I don't think it will be that much longer....
http://thehardrightedge.com/50-physical-silver-by-april-2011/
--
Forget gold, buy silver!
The problem with gold standard per Bernanke: there's not enough gold.
Solution: gold price goes high enough so that there is enough gold.
You've misquoted Ben. He said: "There's not enough gold left in Fort Knox to buy an ice cream sundae."
If these funds allocate just 5% of their assets to gold – which would amount to $1.5 trillion – it would overwhelm the system and rocket prices skyward.
Which is precisly why it will never happen. They won't get into a bidding war with each other, they're not that stupid. The gold train has already left the station. Too bad for them - stuck with mostly beta and interest risk.
gobble... gobble... more gold buffalo's to add to my herd this week... and slv eagles...
I pitty the fools who own paper gold
I am a big fan of McGuire. http://aucanary.blogspot.com/2011/03/driver-for-gold-youre-not-watching.... Some additional links and information here.
The f*cking world is an ugly place.
Thankfully, I will die with a smile on my face ;)
Good luck fighting it out in the streets folks.
THIS SHIT AIN'T WORTH IT. DAY IN/DAY OUT.... argh! So unhealthy!
life sucks so much. What is the fucking point. I don't know how you older folks do it. I am only 20!
No need to wait for U.S. pensions. Think China... because it's already happening.
http://www.commodityonline.com/news/China's-first-gold-fund-to-invest-$500-million-in-ETFs-abroad-37040-3-1.html
duplicate...
Gold and Silver are fine, just shut up about it even and wait for the levee to fall....
YouTube - Led Zeppelin & Neil Young - When the levee Breaks
Fund Managers will be long Handgrenades,Uzi's, and Glocks
oh yeah...?
Gold investors: Time to take your profitshttp://www.marketwatch.com/story/gold-investors-time-to-take-your-profit...
This shit is just not worth it anymore!
I thought we were going into a Depression? Is the dollar going to collapse or not?
Double-Dip (hey, that didn't happen!)
people try and sell a ton of snake oil. No one really cares for anyone but themselves. I love Ron Paul, campaigned for him dearly.
anyone that waxes on, Dickensesque, giving me Ayn Rand bullshit about that above statement, is asking for trouble!
Remember, Greenspan was a fraud!
This post makes me think of all the mainstream media negative statements on precious metals in January, it was a constant drumbeat of asswipery. And metals fell....
Where are we now?
He's a kool-aid drinker. I used to like kool-aid when I was a teenager too. I prefer Bordeaux wine now though. Kool-aid was cheaper.
When you're young and stupid, you tend to believe the msm. After all they said Ceasars-Cesaers was cheap pizza and they didn't lie. So the msm doesn't lie! Any idiot can see that!
I am drinking Bacardi 151 right now, gramps.
Sell Gold? Did Ben save us? Why does the market keep screming higher?
I don't want to get caught with my pants down like so many in 2008... people lost everything!
If we are going into a Depression, shouldn't we be selling our gold?
Cases of Bacardi 151 as currency, along with 1/10 oz. gold coins, silver, guns, food, water.
If I were younger and less law-abiding I would say a pot and coke stash to keep the girls partying with you but that is your gamble - would be a good reason for the cops to steal everything but your underwear.
The 151 is legal once you turn 21 in most states, and the guns and PM's too so I say you should stay on the straight and narrow.
You sound a little odd though; could be your age, or could be you are Blythe Masters herself fishing for some feedback and banter.
If you aren't sure about the future go 33% PM's, 33% cash, 33% equities - and let it sit don't play slot machine with it - comprende?
You're giving us young people a bad name, Blythe. Please try to come across as coherent. I don't even know what your point is between this crap and the youthful angst you keep spamming us with. Why does the market keep screaming higher?? That's what happens when you pour $600 billion of QE onto an economy. Why on earth sell gold going into an inflationary depression as we will shortly be experiencing...the last depression was deflationary but the circumstances were different. Public schooling was difficult on all of us but please at least try to maintain the fiction of cogent intellectual discourse.
I remember in 2009, Northwest insurance company was reported to have purchased some gold.
Math question cannot be longer than 2 characters but is currently 3 characters long.I'm sorry, but -17*-26 = 442, which is 3 characters long!
Sounds like Fed Reasoning.
DP
For what it's worth, I have a sort of 2000 point drop feeling (lately). Test, test...
BEIJING, March 9 (Reuters) - China should use some of its $2.85 trillion foreign exchange reserves to buy more gold XAU=, a government adviser was quoted as saying by local media reports on Wednesday
http://preciousmetalsnews.blogspot.com/2011/03/china-adviser-says-beijing-should-buy.html
This pie chart could be circumstantial evidence that humans use less than 2% of their brain.
Is that like a circumcised penis that never gets used for reproduction?
I.....don't think so.
Killer point in the guest OP! 1% of the pension funds is $310 billion!
Gold imports in China rose 500% from 2009 - 2010 to over 200 tonnes. China also mined over 340 tonnes of gold in 2010. In January and February of this year China had already imported 200 tonnes of gold. This should come as no surprise and we should realize they are just getting started with their gold buying program. China one of the lowest percentages of gold relative to the nation's foreign reserves, they must continue to import gold if they are to achieve stability and or any sort of dominance in the new monetary system that is yet to be upon us. China does not currently allow gold to be legally exported from their soil. The Chinese government has consolidated the gold mining industry this decade and the number of gold producers fell from 1200 to 700 in this time period. China relies on a handful of producers for nearly half or their production supply.
more@
http://nationaleconomist.blogspot.com/2011/03/case-for-physical-gold-par...
Why do I have a feeling of deja vu...like I read this article about 3 days ago...
And for the few that might want to do right by the people they serve, the central bank and the legal system will see to it that they won't.
http://guidoromero.wordpress.com/2011/02/12/and-for-the-most-recent-wtf-...
Although I suspect the Dutch Central Bank and Court of Justice are being driven by the Federal Reserve's and ECB's desire to experiment on a small economy to see what reaction aberrant monetary policies might elicit from the people, this is yet more proof that in the West we are living under a Fascist dictatorship.
Let the sheep love,need and require their ponzi paper while the Politicians,Banksters and Elites load up with Gold and Silver.
If MethMan and BastardBilly buy PM's does the price go up?
Get the slide rules out
Inquiring minds want to know.
If QE3 doesn't happen, what do you guys think will happen to gold and silver mining stocks, both majors and juniors? How about ones that are only in Canada?
Your wisdom would be greatly appreciated.
Cheers!
There is a +$1 trillion dollar short fall between tax revenue and government spending. How will our government over come this problem? There will be QE3. It may not be announced but they have no choice unless they want to cut over $1 trillion in spending. Do you really think they are capable of making cuts this steep?
http://en.wikipedia.org/wiki/2011_United_States_federal_budget
I'm just wondering when AIPAC is going to join with Congress to make a stock. JWTHL Jew Thrall?