Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Gold Going Mainstream, Time to Buy or Sell?

Commodities / Gold & Silver 2009 Jun 02, 2009 - 09:48 AM GMT

By: Michael_Pollaro

Commodities

Best Financial Markets Analysis ArticleAs Good as Gold, says the Financial Times in a May 8th essay.  To quote. “The glistering store of value, unwanted in 1999, is back in fashion.”  All one needs to do is “buy and hold.”


Around 1999, some of Europe’s monetary authorities started selling gold – 3,800 tonnes of it for $56bn. Alas, they started the sales at the bottom of the market. Since then, the gold price has more than tripled. An astute evil-doer who snapped up all those ingots would have made $52bn from the central banks.

Since the start of the financial crisis in August 2007, its price has risen by 35 per cent. The metal is a hedge against the chance that the world’s central banks will prove no better at preventing high inflation than they were at choosing when to sell gold

http://www.ft.com/cms/s/0/99c7813e-3bfa-11de-acbc-00144feabdc0.html

On May 15th, a 13F Filing showed that hedge funds managed by John Paulson held almost 9% of all outstanding GLD (the gold bullion ETF) at the end of March, a position with a market value of around $3 billion. Paulson's funds also owned about 15% of GDX (the gold mining stock ETF), 11% of Anglogold (AU), 4% of Kinross (KGC), and 3% of Goldfields (GFI).

Around the same time we learn that David Einhorn of Greenlight Capital, another well-known hedge fund manager, has accumulated a substantial exposure to gold-related investments.

Then on June 1st, Bloomberg reports:

Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time the company’s 152-year history to hedge against further asset declines.

“Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor’s in Brooklyn…

Northwestern Mutual has accumulated about $400 million in gold, and Zore said the price could double or even rise fivefold if the economy continues to weaken…

“The downside risk is limited, but the upside is large,” Zore said. “We have stocks in our portfolio that lost 95 percent.” Gold “is not going down to $90.”

http://www.bloomberg.com/apps/news?pid=20601087&sid=ajf0L9wTPq6Y&refer=home

Mainstream papers like the FT singing gold’s praise.   Then, smart institutional money, of the likes of Paulson and Einhorn, moving into gold.  And finally, conservative minded life insurance companies like Northwestern Mutual doing the same.  It must be time to sell gold, right?  Or, is this indicative of a changing mindset among the establishment to gold?

Bill Fleckenstein, proprietor of Fleckenstein Capital, notes:

According to a story in Commodity Online, gold comprised just 5% of world financial assets in 2008; whereas in 1982 gold comprised 22% of world financial assets. As I've noted before, when I first got into the investment business 30 years ago, it was considered prudent to have at least 5-10% of one's assets in gold. Of course, that asset allocation doesn't take into consideration the general disdain that central banks now have for the purchasing power of any of their currencies, which ought to exacerbate today's demand for gold.

Looked at differently, according to the World Gold Council (and John Hathaway), if global pension funds decided to increase their exposure by about 1.2%, it would require more than 44,000 metric tons, or roughly 27% of all the gold that's ever been mined.

As I noted when the FT changed its tune about gold (May 09: "As Good As Gold"), I think the big story is going to be the establishment-types who -- to potentially hew to the fashionable status of allotting 5-10% of one's financial assets in gold-- ultimately chase the price much higher as they build their positions. And, if the Chinese central bank decides to do that, they have a long ways to go from their base of just under 2%.

Bull markets have 3 phases, graphically depicted below:

The smart money moves in early, the institutional money next and finally the dumb money, the retail money, last.  Phase 3, when the smart money sells to the dumb money, is where fortunes are made.

Gold bottomed at $252 in 1999.  Smart money has taken it to today’s $980.  Big gains, yes, but institutional money is only now moving in.  If gold is the real deal, and I believe it is, an explosive Phase 3 still awaits. 

As Fleckenstein notes, at the top of the last bull market in gold, gold comprised 22% of the world’s assets.  Today it’s a mere 5%.  

Perhaps, we ain’t seen nothing yet!

    By Michael Pollaro

    Email: jmpollaro@optonline.net

    I am a retired Investment Banking professional, must recently Chief Operating Officer for the Bank's Equity Trading Division. I am also a passionate free market economist in the Austrian School tradition and private investor

      Copyright © 2009 Michael Pollaro - All Rights Reserved
      Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

    Michael Pollaro Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules