Guest Post: Is the Table Set For A Mania In Precious Metals?

Tyler Durden's picture

Submitted by Jeff Clark of Casey Research

Is The Table Set For A Mania In Precious Metals?

It may feel like I'm out of touch with the precious metals markets to broach the subject of a mania today, but I think the table is being set now for a huge move into gold and silver.

There are, however, very valid reasons to reasonably expect a mania in our sector. For one thing, manias have occurred many times before, but the main issue is that a mania in gold and gold stocks is the likely result of the absolute balloon in government debt, deficit spending, and money printing. Saying all that profligacy will go away without inflationary consequences seems naïve or foolish. Inflation may not attract investors to gold and silver as much as force them to it.

Now, one could make the argument that any rush into gold and silver will be muted if no one has any savings, especially given that demographers say a quarter of the developed world will soon be retired. But even if individuals are wiped out, the world's money supply isn't getting any smaller, and all that cash has to go somewhere.

I wanted to look at cash levels among various investor groups to get a feel for what's out there, as well as how money supply compares to our industry. Data from some institutional investors are hard to come by, but below is a sliver of information about available cash levels. I compared the cash and short-term investments of S&P 500 corporations, along with M1, to gold and silver ETFs, coins, and equities. While the picture might be what you'd expect, the contrast is still rather striking.

(Click on image to enlarge)

Naturally, not all this money or even a big chunk of it will be used to buy GLD, Barrick, or American Eagles, but it's clear that if any significant fraction of the cash sloshing around the economy were to be used to buy gold, it would have a major impact on the price of gold – which would trigger the mania I fully expect. Let's take a quick look at what kind of impact our sector could experience if just a small amount of available funds were devoted to various forms of gold and silver.

  • The entire worldwide value of all gold exchange-traded products (ETPs) currently represents just 2.1% of the cash and short-term investments held by S&P 500 corporations. If 20% of these companies decided to put a mere 5% of their available holdings into these precious metals vehicles, their value would more than double.
  • If just 1% of the physical currency (M1) floating around the system were used to buy gold Eagles, it would be 13 times more than the entire value of all coins purchased last year.
  • If corporations chose to invest 1% of their cash in silver ETFs, it would surpass the total current value of all such ETFs.
  • If corporations moved 5% of their "short-term investments" evenly into gold stocks, the market cap of every gold company would increase by 20%.
  • If they chose silver stocks, they'd each grow by a factor of six.
  • Five percent of M1 would increase the market cap of gold producers by 14%. The same fraction would be 3.4 times bigger than the entire current value of all primary silver producers.

This is just S&P 500 corporations – there are many more corporations in the world, as well as pension funds, hedge funds, sovereign wealth funds, mutual funds, private equity funds, private wealth funds, insurance companies, and other ETFs.

It's striking, when you really stop to think about just how big the impact could be if some significant fraction of the larger financial world started chasing the small niche market that is gold. Such cash inflows will send our industry to the moon.

In the meantime, keeping our eye on the big-picture forces that have yet to play out is the plan to follow. Sooner or later, though, I'm convinced the catalysts will kick in that will pull/push/drag/compel/force the mainstream into our sector. I suggest beating them to it.

And when the mania arrives, we'll all wonder why anyone doubted it in the first place.

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SHEEPFUKKER's picture

The table is set for a mania in boating accidents. 

Winston Churchill's picture

Uptick in gardening mis-haps too.

CIABS's picture

How did I guess that this would be a piece from the Casey organization?  Yeah, they're pretty much right about the markets, but I only skim these things, as they are usually just re-hashes of stuff that has been said endlessly already.

kengland's picture

Spot on. I can pull the old newsletter from 05, and it would be a carbon copy. Still waiting Doug. The real mania is represented by the newsletters you sell. Christ, it's unbelievable what they pay for your crap these days.

kekekekekekeke's picture

can you really do that please it would be interesting to compare

Pladizow's picture

To: Kengland

Yeah, what a dumb ass Casey is, Gold and silver have only gone up four fold since '05'.

There are no prettier bubbles, then a golden one!

Colombian Gringo's picture

Yeah, we should buy Bershire Hathaway since 2007 they are up, oops down 17.5%, while gold doubled. Yeah thats sounds like a good deal, NOT.

TWSceptic's picture

Don't believe him, he's full of it.

Ignorance is bliss's picture

There are always new people awakening to find themselves in their own personal kobayashi maru.

BKbroiler's picture

I thought it was the anchor... damn.

Future Tense's picture

Robert Prechter just released a special report to his paid subscribers calling for the top in the treasury bond market after being (correctly) bullish on treasuries moving higher for over 20 years. Here is an amazing video with him discussing the coming slaughter in the bond market:

http://www.ftense.com/2012/06/robert-prechter-on-capital-account.html

Bay of Pigs's picture

So is he finally long gold then after a decade or more of bashing it? Or is he still on the "gold to $300" horseshit? 

Edit: I listened to the entire interview. Not only didn't he say anything worthwhile about gold, he totally avoided it. Same old story. Nice try Bob. 

narapoiddyslexia's picture

Although Lauren's nipple display was very tastefully done. Just a hint, with sufficient arm-waving to keep them on display.

FieldingMellish's picture

Prechter is bearish on bonds? hmm... I'd better buy bonds then. Or maybe not, he is such a bad indicator that i don't think I could even use him as a contrarian.

SemperFord's picture

Silver Bitchez!!!

Stoploss's picture

Man, that's a lotta If's..

Likstane's picture

Long canoes and experienced divers.

hamurobby's picture

The mania will not come from j6p, it will come from CB's and heggies.

How about that 8 trillion sitting quietly waiting for someplace to go?

 

 

mademesmile's picture

I don't always have boating accidents, but when I do, I lose my change.

greenknightist's picture

good to be ahead of the curve.--------- great post  !

GubbermintWorker's picture

Currently long on .357Magnums.

who-is-john-galt's picture

Gotta go with the .223.  Besides, what's more fun than an assault rifle equipped with one of these? http://militarygunsupply.com/index.php?main_page=product_info&cPath=57&p...

JohnKozac's picture

That looks like only part of the gun...are you going to beat your enemy with that?

In Vino Veritas's picture

>>Besides, what's more fun than an assault rifle equipped with one of these?

An assault rifle equipped with one of these:

http://www.youtube.com/watch?v=O8UaDWdebMg&feature=relmfu

:-)

ArrestBobRubin's picture

"Besides, what's more fun than an assault rifle equipped with one of these?"

A burger run in one of these?

FPSRussia Goes to Whitecastle - In a tank...

I freakin' love this Russian. Da, Baby.

Maos Dog's picture

Bah, wifey shoots better than that....

I have a great fear of getting into a gunbattle where my wifey is involved, I will be running behind her shouting "NO DON"T SHOOT THEM IN THE BACK WHEN THERE RUNNING AWAY, THATS MURDER TWO!!!!!"  "NO DON"T SHOT THEM IN THE HEAD WHEN THERE DOWN, THAT"S MURDER TWO!!!!"

 

 

RafterManFMJ's picture

Yeah, I like it...but 350 bucks for 4 dollars of injection molded plastic? Naw, I'd rather not be gouged, thanks.  Besides, aimed fire is better than buring though a clip just to look cool.

Money 4 Nothing's picture

It doesn't matter... They're not advertising the actual price anyway. It should be over 3K troy oz for Gold right now and it's reflecting half. When and how will price discovery ever find it's way to print?

zerotohero's picture

just remember when it does shoot up to sell at the right time and not cling to it like it was your hot babysitter.

BKbroiler's picture

that, my friend, is the hard part, and picking tops is harder than picking bottoms.  I prefer latina bottoms and my target is 3K, that's when I'm out.

SHEEPFUKKER's picture

Maybe you could sell to Krugman at 3K BK. 

BKbroiler's picture

Do I have a deal for you Paulie.  It's a heavy, useless, inedible, inflammable, soft hunk of metal that pays no dividends, is rampantly manipulated, and gets taxed as a collectible.  3K an an ounce for you pal, for helping us get there.

Pladizow's picture

To: BKbroiler.

Trading is like dating - you never get the bottoms you want!

BKbroiler's picture

And like dating, the result isn't decided till it's over, and all trades and dates must come to an end.  

I'm pulling out just in time, before I own the ho.

Bringin It's picture

BK - and own what instead?  Where would you park your winnings in a world with POG @ 3K?

BKbroiler's picture

I'm guessing that gold's peak is real estate's bottom.  Cash purchase of a couple of non-stabilized rental properties for college kids to puke in who don't care about renovations as long as they can light the joint off the stove.  That's my guess anyway, if I knew it all I wouldn't be here. one bubble at a time.

Bringin It's picture

Thanks for sharing.  OK, so maintainance you can skip but, you wouldn't worry about ballooning taxes?  Title clarity problems?  Collapsing infrastructure?  Institutions?   Like colleges? 

A friend is buying what you're describing now. 

Sounds like issues to me.

zerotohero's picture

Tis true - just can't get too greedy

GubbermintWorker's picture

I'll sell you all my silver for ......$2800/ounce!

LeisureSmith's picture

What ever happened to those shipwrecks with all that silver that were in the news a while back?

If you are planning on boating while carrying Ag you should wear a west.

Canoeing seems to be the most hazardous.

XenoFrog's picture

Likely tied up in lawsuits as people/countries try to claim it as their own. Then eventually eaten entirely by lawyers.

LeisureSmith's picture

Found it.

http://articles.cnn.com/2011-09-26/world/world_europe_gairsoppa-shipwrec...

7 million oz. Thats a cool stash.

But you are probably right, it seems there are some legal complications.

Bear's picture

As much as I would like to believe your 'if-only's  since I am 50% PMs - what SP 500 company would or could put their cash into a 'speculative' asset. The CFO of that company would have a lot of explaining to do ... but a stock buy-back or goberment bond now that's where he'll stake his job. If all goes south, he'll have built explanations. No one will ask ... "Why didn't you buy silver and gold you moron?"

A Lunatic's picture

I am considering buying my own small scale mining property this year. Maybe even two. The window for this type of activity is getting smaller and smaller and it will be another lost opportunity perhaps even a few short years from now.

Dry Drunk's picture

I was briefly transported to the future and immediately doodleplexxed the word “Money”. This is what came back.

Mo – any item that can be freely exchanged between individuals for different mo in the present or at a future date. Includes knowledge, skills, actions, and promises. Items in the person’s possession, notably gold, are also viewed as mo for conducting impersonal exchanges.

 

Mojo -- the stock of mo possessed by an individual that could potentially be exchanged.

 

Gunmo -- Putting a gun in front of mo, forms the word gunmo. False mo brought about when otherwise free people are forced to exchange particular items by the power of the gun (for example, ancient legal tender laws), whose purpose is to finance the production of more guns and trigger wars. Gunmo provides ammo for wars.

 

 

 

Let's make the future come true. Stop calling it the US dollar and start calling it the US gunmo.

oldgasII's picture

When I woke up this morning my gold was pretty much the same oh, oh.

When I woke up this morning I was long and feeling lame, oh,oh. 

I can't sell because 'cause the spot will make me lose, oh, oh.

I bought my gold long, I feel something like a silly goose.

Every damn month I do a DCA, oh, oh.

Is my friggin investment ever going to pay?

lakecity55's picture

Some money manager I hear every now and then on Bloomberg Sirius today said something I never heard him say before (can't remember the guy's name), which was suddenly he was putting 10% of his portfolios into all 3: EFTs, Fizz, and Miners. But it was the way he said it, like, "oh, yeah, casual, casual," etc.

In days of yore, apparently the guy never kept more than 2% in EFTs

I'm doubling down on my miners Friday. My Fizz is still in a holding cell somewhere, probably glued to a JPM guy's fingers.

*****************************8

Ark! I just checked that account. The fizz is in the pipe. Tomorrow I'm raiding the coinshop for culls.

Henry Hub's picture

Being long gold for a long time, I look forward to a mania in gold. However, I fear the economic catastrophe that would cause such a rise. Be careful what you wish for...