The Evolving Gold Narrative: 2011 vs. 2016

Sprott Money's picture




Bill Gross just called out Janet Yellen as the penultimate market manipulator.

Gross, former head of PIMCO and current manager of Janus funds, recently echoed Rick Rule, assigning blame to the Fed for deferring short-term pain at the expense of long time gain. Mr. Gross’s comments are timed as the Fed continues to debate whether to raise interest rates after years of keeping them anchored in an effort to stimulate the economy and generate inflation. Instead, Gross said, the Fed has merely inflated asset prices while actually harming the economy.

His solution for investors? Avoid stock and bonds, move toward gold and tangible assets.

We’re glad Mr. Gross has finally caught up.

But as this has been an ongoing narrative for gold investors since 2011, we asked Rick Rule what has changed in the gold story.

Rick explains: “In 2011, there was an entire narrative around the gold market, when gold was at $1,900, and that narrative was partly about U.S. markets; that is, higher incomes in places like India and China that had historic cultural affinity to gold. But, the other part of the discussion was really about the ability of U.S. Treasury securities and the U.S. dollar to retain the degree of hegemony as savings instruments that they had always enjoyed. The narrative in 2011 was that U.S. Federal Government on-balance sheet liabilities, at $16 trillion, were unsustainable, and worse, the off-balance sheet liabilities of $55 trillion were similarly unsustainable (and those numbers didn’t include state and local debt or pension obligations or stressed individual corporate balance sheets).”

Today, on-balance sheet liabilities are no longer $16 trillion. They are estimated at $19 trillion.

And investors somehow seem more sanguine at that higher level. Off-balance sheet liabilities, similarly, have moved from $55 trillion to $90 trillion.

The perception of sustainability is partly explained by the ongoing strength of the US dollar, which was all too uncertain in 2011. Rick
explains, “I would suggest to you that is not a consequence of the strength of the U.S. economy or our collective balance sheet, but rather the weakness of the competition. I don’t think I have to recount the difficulties that emerging and frontier markets have faced, or the difficulties that Japan and Euro-zone face.”

In terms of the macro case for gold, its market dominance has eroded. In the 1980s, at the peak of that manic bull market, gold and gold related equities enjoyed an 8% market share of investable assets among U.S. savers and investors. The median and mean converge over the last three decades at about 1.5%. The current percentage is 0.33%.

And with national mouth-pieces like Bill Gross suddenly remembering the benefits of gold and other tangible investments, will we see a reversion to the mean? According to Rick, “I’m not suggesting that it will immediately get back to 1.5%, but even if we got back to half of mean, that would double demand for gold and gold related equities in a market where the U.S. still counts for 24% of the world’s investable assets.”


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Written by Sprott U.S. Media

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Dragon HAwk's picture

What if they banned cash, but everybody kept using it among themselves.

 when they stop hauling gold in Heavily Armed, Armored Cars i will start to worry.

steveo77's picture

What are dying?

Whales they eat krill
Mures, they eat fish that eat krill
Reindeer and caribou die offs, they eat lichens/fungi
Insects are dying their wings are made of Chitin
Birds that eat insects are dying
Krill have an exoskeleton made of Chitin
Fungi have biological structures made of Chitin

Chitin absorbs radiation and Chitin has its chemical structure destroyed by radiation.

After Three Mile Island and after Fukushima in Hawaii…all the flies went away for a year. Fly wings are made of Chitin.

No Chitin Sherlock, the smoking gun uncovered.

Who was that masked man's picture

Who is the ultimate market manipulator?

Not My Real Name's picture

Who is the ultimate market manipulator?

You beat me to it. Penultimate = second to last.

Apparently there will be one last Fed Chair after Mr. Yellen.

RaceToTheBottom's picture

Wait, paper gold isn't physical?


Lonesome Crow's picture



Aristotle, Cantillon, Jefferson, Jackson, Mises, and "Blondie"  = Evolving gold narrative

morethan1's picture

I'm confused, hasn't physical gold demand been consistently high for the past several years with China and Russia buying as much as possible? So it would seem to me that physical demand is being marginalized by paper manipulation. So doubling physical demand STILL isn't going to impact price in the near term.