By contrast, a $1 trillion inflow into gold bullion would require 18,000-19,000 tonnes, equal to roughly six years of annual world gold production. But in dollar terms, this amounts to a paltry $51.2 billion requiring the acquisition of 936.2 metric tonnes of gold (according to Meridian Macro Research). Record year-to-date inflows into gold-backed ETFs have exceeded any previous year. In simple mathematical terms, the gold market could not clear at current prices if 1% of the $100 trillion 4 or so of institutional assets under management were to move into the physical metal. We believe that now is the time to start layering in gold exposure, not when the rest of the world tries to do so To paraphrase the late market analyst Richard Russell, 3 “It is the nature of every bull market to take along the fewest possible number of investors for the entire ride.” While the investment consensus slumbers, it may be helpful to consider the potential upside for both gold bullion and gold mining equities and resist the urge to trade the metal’s secular bull market. Lack of crowd recognition provides an opportunity to accumulate positions ahead of more heated price competition that we believe is very likely in the months ahead. The underappreciated advance in the precious metals complex may well continue over the intermediate term. stocks, bonds and USD Source: Bloomberg Lack of crowd recognition provides opportunity In addition, the absolute performance of equities and bonds has been positive over the past two decades, so there has been little incentive to look elsewhere.įigure 1. Widespread disinterest can perhaps be ascribed to the stealthy, long-term character of gold’s outperformance. Until recently, gold’s strength has attracted little notice from mainstream investors. Paper assets, including equities, bonds and currencies, have underperformed the dollar gold-price since 2000, the dawn of radical monetary experimentation by central bankers. The very strong investment fundamentals for gold and gold mining shares are based on what has been a slow irreversible drift towards significant U.S.
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