Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Fox in the Henhouse: Why Interest Rates Are Rising - 23rd Apr 18
Stocks and Bonds, This is Not a Market - 23rd Apr 18
Happy Anniversary Silver Investors! - 23rd Apr 18
The Hottest Commodity Play In 2018 - 23rd Apr 18
Stock Market Correction Turns Consolidation - 23rd Apr 18
Silver Squeeze, Gold Fails & GDX Breadth - 23rd Apr 18
US Economy Is Cooked, the Growth Cycle has Peaked - 23rd Apr 18
Inflation, With a Shelf Life - 23rd Apr 18 - Gary_Tanashian
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

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

© 2005-2018 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