Best of the Week
Most Popular
1.The Trump Reset, US Empire's Coming Economic, Cyber and Military War With China (2/2) - Nadeem_Walayat
2.Now Is the Time to Buy Gold - 5th Jan 17 - John Grandits
3.CIA Planning Rogue President Donald Trump Assassination? Elites "Manchurian Candidate" Plan B - Nadeem_Walayat
4.The Trump Reset - Regime Change, Russia the Over Hyped Fake News SuperPower (Part1) - Nadeem_Walayat
5.Most Popular Financial Markets Analysis of 2016 - Stock Market Crash Postponed Again - Nadeem_Walayat
6.No UK House Prices Brexit Crash 2016 Despite London Weakness, Forecast 2017 - Nadeem_Walayat
7.President Trump Understands the NSA, CIA... LIE, America's Intelligence Agencies Crime Syndicate! -Nadeem_Walayat
8.President Donald Trump's 2017 New Year Message, BBC Fake News, Was 2016 a Dream? - Nadeem_Walayat
9.Major Stocks Bear Market Still Looms - Zeal_LLC
10.Biased 2017 Forecasts - Debt, Housing and Stock Market (1/2) - James_Quinn
Last 7 days
Time for Crude Oil Price Drop below $50? - 21st Jan 17
AI and Robotics - We Are All Low-Skilled Workers Now - 21st Jan 17
The Trump RESET Starts on US Presidential Inauguration Day 2017 - What to Expect - 20th Jan 17
Will the CIA Assassinate Rogue President Donald Trump Like JFK? - 19th Jan 17
Bonds, Dollar, Stocks, Gold, Silver Major Markets at Turning Points - 19th Jan 17
Populism; the Danger? What About Debt? - 19th Jan 17
Gold Price 50-DMA Breakout - 19th Jan 17
Turkey, 'Axis of Gold' and End of US Dollar Hegemony - 19th Jan 17
The Most Important Market Chart on the Planet - 19th Jan 17
Trump Deficits Will Be Huge - 19th Jan 17
Stock Market Trading Patience Pays Off with CHK Using Momentum Reversals - 19th Jan 17
Gold - How to "Buy Low and Sell High" Like a Pro - 19th Jan 17
State of the Global Stock, Financial and Commodity Markets Report 2017 - 19th Jan 17
The Hunt for Russia's Next Enemy - 18th Jan 17
Returning Gold Bulls - 18th Jan 17
Biotech Breakthrough Could Create A $11.4 Trillion Opportunity - 18th Jan 17
Bitcoin and Gold - Outlook, Volatility and Safe Haven Diversification - 17th Jan 17
Stock Market Uptrend on Borrowed Time - 17th Jan 17
The One Stock to Retire On - 17th Jan 17
Trump anti-Communist Counter Revolution - 17th Jan 17
US Stock Market Update as the Trump Inauguration Approaches - 17th Jan 17
The American Crisis - Common Sense 2017 - 17th Jan 17
Obama Leaves, Hope Arrives, Will Stupid Stay? - 17th Jan 17
Damage Inflicted by Precious Metals Manipulation Is in the “Multi Billions” - Keith Neumeyer - 17th Jan 17
Gold Price Forecast 2017 Update - Video - 17th Jan 17
The Story of the U.S. Regime Change Plan in the Philippines - 16th Jan 17
Gold Price 2017 Trending Towards $1375 as Forecast - 16th Jan 17
'Deep State' CIA Director States We are Not NAZI's, Warns Trump Does Not Understand Russian Threat - 15th Jan 17
UK House Prices Forecast 2017 - Crash or Bull Market? - Video - 15th Jan 17
SPX Stocks Bull Market Update - 14th Jan 17
President Trump vs the Deep State that Hides in Plain Sight - 14th Jan 17
The Impact of Sir Alex Ferguson's Retirement on Man United's Share Price - 14th Jan 17
What Can Stock Market Tell You About Politics? - 13th Jan 17
Big Gold Buying Coming 2017 - 13th Jan 17
A Bullish Case for Gold 2017 - 13th Jan 17
Will Stocks Bull Market Continue to Charge or is it Time to Sell the News - 13th Jan 17
Gold and Silver Off To Shining Start to 2017 - 13th Jan 17
Gold’s Fundamental Outlook for 2017 - 13th Jan 17
Is trading stocks and shares just as luck-based as roulette? - 13th Jan 17
Trump CIA Like Nazi Germany - Fake MI6 Intelligence leaked to Fake News Mainstream Media - 13th Jan 17
USD in Decline. SPX and TNX May Follow - 12th Jan 17
CIA War On Trump - Leaks Fake MI6 Intelligence to Fake News Broadcast Media - 12th Jan 17

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

Gold Prices Will Explode Higher When These Investors Start Buying

Commodities / Gold and Silver 2013 Mar 27, 2013 - 04:58 PM GMT

By: Money_Morning

Commodities

David Zeiler writes: Until recently, an entire class of investors that control a huge pool of money - more than $27 trillion worldwide - have almost entirely ignored gold.

But lately, this group has begun to show more interest in the yellow metal, a trend that ultimately will exert massive upward pressure on gold prices.


We're talking about pension funds, which typically have had little interest in gold.

But with more traditional investments like bonds at historic lows, many pension funds aren't getting the returns they need to fund future obligations.

And with central banks debasing most major currencies and risking higher inflation, pension fund managers almost have no choice but to consider adding gold.

It's already started in Japan, which has about $3.4 trillion in pension funds - second only to the U.S., which has about $20 trillion.

In response to Prime Minister Shinzo Abe's pledge to spur inflation by printing more yen, Japanese hedge fund managers plan to double their gold holdings from about $500 million to $1.1 billion over the next two years, primarily by investing in gold exchange-traded funds (ETFs).

Itsuo Toshima, who represented the Tokyo office of World Gold Council for 23 years through 2011 and now advises Japanese pension fund managers, sees gold becoming a standard asset as inflation becomes more of a threat - with major consequences for gold prices.

"Pension money invested in bullion is "peanuts' at the moment," Toshima told Bloomberg News. "If 1% of their total assets shift to the metal, the gold market would explode."
How Pension Funds Could Make Gold Prices Soar
Shayne McGuire, managing director and head of Global Research at the Texas Teacher Retirement System pension fund, estimates that gold only makes up about 0.15% of pension fund portfolios now.

In his 2010 book, "Hard Money: Taking Gold to a Higher Investment Level," McGuire argues that it makes sense for pension funds to invest in gold.

Like the pension fund managers in Japan, McGuire sees gold as a way to diversify a portfolio while increasing returns and gaining some protection against inflation.

And as more pension fund managers realize this, gold prices can only go up - and up.

Consider this: According to the World Gold Council, global gold sales reached a record $236 billion in 2012, with purchases by gold-backed ETFs rising 51%. The biggest is the SPDR Gold Trust (NYSE ARCA:GLD), with almost $70 billion worth of the yellow metal.

But using Toshima's formula, if pension funds around the world shifted just 1% of their assets to gold, it would create $270 billion of demand - more than the entire existing gold market. U.S. pension funds alone would account for $200 billion of demand.

"The effect of suddenly moving a substantial amount of investment money into the precious metals market was best described in a telephone conversation I had with an expert in the industry: It would be like shoving an elephant into a mailbox," McGuire wrote in his book.

He noted that only about $80 billion worth of new gold is mined every year, and half of that goes to jewelry and industry. A surge in pension fund buying would have to drive gold prices up, as demand would far outstrip supply.

"If gold rose from the minuscule part it represents in the world's largest portfolios today to just 1 or 2% of global assets under management, the effect would be substantial," McGuire wrote. "That it could rise to $10,000 an ounce is not out of the question."

Pension Funds Buying Gold Now
One Japanese bank, Mitsubishi UFJ Trust, told Bloomberg that some local pension funds in Japan already have made gold 2%-3% of their portfolios and the bank is talking to other fund managers.

In the U.S., McGuire's Texas Teacher Retirement fund - with over $100 billion in assets, the eighth-largest pension fund in the world - has tried to lead by example.

As of Dec. 31, 2012, the Texas Teachers fund held 2.4% of its portfolio in the SPDR Gold ETF, while adding new positions in gold miners Gold Fields Ltd. (NYSE ADR: GFI), 0.15% of the portfolio; and Harmony Gold Mining Co. Ltd. (NYSE ADR: HMY), 0.11% of portfolio.

Among its top 100 holdings, the fund also has 0.39% of its portfolio in Goldcorp Inc. (NYSE: GG) as well as 1% of its portfolio in the iShares Silver Trust ETF (NYSE: SLV), and 0.28% in Silver Wheaton Corp. (NYSE: SLW).

Separately, McGuire launched and created Texas Teachers pension fund, the $560 million GBI Gold Fund, entirely focused on precious metal investing in gold and silver.

Some other U.S. pension funds have shown interest.

The State of New Jersey Pension Fund E, which focuses on alternative investments, had 15.16% of its portfolio in gold, though the $577 million Fund E makes up just 2.5% of the total assets of New Jersey's four major state pension funds.

And the Commonwealth of Pennsylvania Public School Retirement System holds 0.36% of its portfolio in the SPDR Gold ETF.

Given the uncertain economy, the frustrating bond market and rampant money printing across the globe, pension fund gold buying could turn from experiment to policy in a hurry, with rising gold prices perhaps even encouraging the trend.

"A significant move into the metal could happen by default, as even the most die-hard gold opponents might soon be forced to consider it," McGuire wrote.

Source :http://moneymorning.com/2013/03/26/gold-prices-will-explode-when-these-investors-start-buying/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2016 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

Catching a Falling Financial Knife