The Driver For Gold (Almost) Nobody Is Watching

Flashback:

Gold and Gold Mining Shares As a Percentage of Global Assets or ‘The Once In a Lifetime Ride’

The idea is to destroy the pensions in the coming greatest financial collapse in history.

See also: Forget $8,000, Gold Headed Much Higher, Dow To Lose 90% Vs Gold

Why would a pension fund not invest at least 10% in gold and silver?


The Driver for Gold You’re Not Watching



You already know the basic reasons for owning gold – currency protection, inflation hedge, store of value, calamity insurance – many of which are becoming clichés even in mainstream articles. Throw in the supply and demand imbalance, and you’ve got the basic arguments for why one should hold gold for the foreseeable future.

All of these factors remain very bullish, in spite of gold’s 450% rise over the past 10 years. No, it’s not too late to buy, especially if you don’t own a meaningful amount; and yes, I’m convinced the price is headed much higher, regardless of the corrections we’ll inevitably see. Each of the aforementioned catalysts will force gold’s price higher and higher in the years ahead, especially the currency issues.

But there’s another driver of the price that escapes many gold watchers and certainly the mainstream media. And I’m convinced that once this sleeping giant wakes, it could ignite the gold market like nothing we’ve ever seen.

The fund management industry handles the bulk of the world’s wealth. These institutions include insurance companies, hedge funds, mutual funds, sovereign wealth funds, etc. But the elephant in the room is pension funds. These are institutions that provide retirement income, both public and private.

Global pension assets are estimated to be – drum roll, please – $31.1 trillion. No, that is not a misprint. It is more than twice the size of last year’s GDP in the U.S. ($14.7 trillion).

We know a few hedge fund managers have invested in gold, like John Paulson, David Einhorn, Jean-Marie Eveillard. There are close to twenty mutual funds devoted to gold and precious metals. Lots of gold and silver bugs have been buying.

So, what about pension funds?

According to estimates by Shayne McGuire in his new book, Hard Money; Taking Gold to a Higher Investment Level, the typical pension fund holds about 0.15% of its assets in gold. He estimates another 0.15% is devoted to gold mining stocks, giving us a total of 0.30% – that is, less than one third of one percent of assets committed to the gold sector.

Shayne is head of global research at the Teacher Retirement System of Texas. He bases his estimate on the fact that commodities represent about 3% of the total assets in the average pension fund. And of that 3%, about 5% is devoted to gold. It is, by any account, a negligible portion of a fund’s asset allocation.

Now here’s the fun part. Let’s say fund managers as a group realize that bonds, equities, and real estate have become poor or risky investments and so decide to increase their allocation to the gold market. If they doubled their exposure to gold and gold stocks – which would still represent only 0.6% of their total assets – it would amount to $93.3 billion in new purchases.

How much is that? The assets of GLD total $55.2 billion, so this amount of money is 1.7 times bigger than the largest gold ETF. SLV, the largest silver ETF, has net assets of $9.3 billion, a mere one-tenth of that extra allocation.

The market cap of the entire sector of gold stocks (producers only) is about $234 billion. The gold industry would see a 40% increase in new money to the sector. Its market cap would double if pension institutions allocated just 1.2% of their assets to it.

But what if currency issues spiral out of control? What if bonds wither and die? What if real estate takes ten years to recover? What if inflation becomes a rabid dog like it has every other time in history when governments have diluted their currency to this degree? If these funds allocate just 5% of their assets to gold – which would amount to $1.5 trillion – it would overwhelm the system and rocket prices skyward.

And let’s not forget that this is only one class of institution. Insurance companies have about $18.7 trillion in assets. Hedge funds manage approximately $1.7 trillion. Sovereign wealth funds control $3.8 trillion. Then there are mutual funds, ETFs, private equity funds, and private wealth funds. Throw in millions of retail investors like you and me and Joe Sixpack and Jiao Sixpack, and we’re looking in the rear view mirror at $100 trillion.

I don’t know if pension funds will devote that much money to this sector or not. What I do know is that sovereign debt risks are far from over, the U.S. dollar and other currencies will lose considerably more value against gold, interest rates will most certainly rise in the years ahead, and inflation is just getting started. These forces are in place and building, and if there’s a paradigm shift in how these managers view gold, look out!

I thought of titling this piece, “Why $5,000 Gold May Be Too Low.” Because once fund managers enter the gold market in mass, this tiny sector will light on fire with blazing speed.

My advice is to not just hope you can jump in once these drivers hit the gas, but to claim your seat during the relative calm of this month’s level prices.

Submitted by Jeff Clark of Casey Research

Submitted by Tyler Durden on 03/08/2011 19:19 -0500

Source: ZeroHedge

Only physical gold and silver are real, everything else is an illusion.

Exposed: The iShares Silver Trust (SLV) Scam

More on gold and silver:

Silver:

The Constraints on Silver Supply: Bob Quartermain

No Silver? No Problem: US Mint Would Like To Know If You Will Accept Brass, Steel, Iron Or Tungsten Coins Instead

Physical Silver (PSLV) Premium To NAV Surges To Record High

JP Morgan And HSBC Silver Manipulation Explained In The New York Times!

Louise Yamada: $80 Silver, $2,000 Gold and $140 Oil

Silver Shorts Bloodbath!

John Hathaway: $50 to $60 Silver, US Dollar in Danger

Why Silver Is Headed To $500 Per Oz – Backwardation Explained

Silver Touches Fresh 31 Year High of $34.90, US Mint Runs Out Of Bullion Blanks, Halts American Eagle Silver Coin Production

CNBC: Total Silver Demand At 127% ! – The Case For $130 Silver

Dollar Ready to Collapse, Silver Squeeze to Continue

Even The Royal Canadian Mint Now Says It’s Difficult To Secure Silver

Unprecedented: Silver Backwardation Surges To Over $1.00

Eric Sprott on Silver: ‘THERE IS NOTHING LEFT’

Fractal Analysis Suggests Silver to Reach $52 – $56 by May – June 2011

Short Squeeze in Silver, Manipulators Getting Overrun

Silver Takes Out Hunt Brothers High … When Priced In Euros

Silver Backwardation Now ‘Unprecedented 73 Cents’

Short Squeeze Takes Silver To Fresh 31 Year High

Silver: Short Squeeze Could Be the Big One – Reaches New Multi-Decade High – Still In Backwardation

Massive Short Squeeze in Silver, Gold to Hit New Highs

London Source: Asians Buying SLV to Take Delivery of Silver

COMEX Silver Inventories Drop To 4 Year Low. COMEX Default Or Hunt Brothers Redux?

This Past Week in Gold and Silver

‘US Silver Term Structure Inverts As Supply Tightens’ – Reuters Article On Silver Backwardation

JP Morgan Silver Manipulation Explained (Part 1-4)

Silver Bullion Backwardation Suggests Supply Stress

Silver Lease Rates Rise Sharply – Bond Yields in Portugal Rise to Record

Silver Is Already In Extreme Backwardation! If The Same Happens With Gold, Then The End Game For The US Dollar With Hyperinflation Is Near

Perth Mint Has Run Out of 100 Ounce SILVER Bars for at least 6 Weeks!!!

Silver Breaks Its Golden Shackles And More Signs of Silver Shortages

$6,000 Silver and the ONE BANK

Canada’s Biggest Bullion Bank Scotia Mocatta: ALL SILVER BARS SOLD OUT

US Mint Sells Absolute Record 6.4 Million Ounces Of Silver In January, 50% More Than Previous Highest Month

Eric Sprott: Expect $50 Silver, Gold Possibly $2,150 by Spring

US Mint Reports Unprecedented Buying Spree Of Physical Silver

BullionVault.com Runs Out Of Silver In Germany

Silver: Shortage This Decade, Will Be Worth More Than Gold (!!!)

Silver Derivatives – China and JP Morgan

Max Keiser: Want JP Morgan to Crash? Buy Silver!

Max Keiser: Crash JP Morgan – Buy Silver!

JPMorgan Silver Manipulation Explained (Must-See!)

Gold:

Forget $8,000, Gold Headed Much Higher, Dow To Lose 90% Vs Gold

Pay Taxes In Gold? Obama Golf, We Buy Gold!

Chief Investment Strategist John Embry: Gold to $1,650, Shorts to Get Crushed

Gold Buying in China Jumps as Inflation Flares, Boosting Demand: UBS

Gold Coiled – By June, the US Will Have Monetized 100% of All of The Debt Issuance – Hyperinflation May Be in the Cards

Probable Black Swan Event Equals Gold Explosion

Richard Russell: Possibility of Gold Breaking to New Highs

Brazilian Billionaire Eike Batista Reaffirms $1 Billion Bid for Ventana Gold

Americans Will Flock Into $5,000 Gold and $500 Silver

Chinese Have A New Method To Buy Massive Amounts Of Physical Gold, Bypassing Comex And Any Form Of Delivery Limits And Problems

Gold This Decade!!!

‘GoldNomics’: Cash or Gold Bullion?

George Soros’ and John Paulson’s Biggest Holding Is GOLD

China, Russia, Iran are Dumping the Dollar, Buy Gold And Silver

Gold and Gold Mining Shares As a Percentage of Global Assets or ‘The Once In a Lifetime Ride’

And don’t forget to do this (!!!)…

James G. Rickards of Omnis Inc.: Get Your Gold Out Of The Banking System

… or …

US DEPARTMENT OF HOMELAND SECURITY HAS TOLD BANKS – IN WRITING – IT MAY INSPECT SAFE DEPOSIT BOXES WITHOUT WARRANT AND SIEZE ANY GOLD, SILVER, GUNS OR OTHER VALUABLES IT FINDS INSIDE THOSE BOXES!

Related information:

Egon von Greyerz of Matterhorn Asset Management: ‘A Hyperinflationary Deluge Is Imminent’, And Why, Therefore, Bernanke’s Motto Is ‘Après Nous Le Déluge’

The Dollar Collapse Will Shock the World

Marc Faber: ‘I Think We Are All Doomed’

The Market Is Telling Us That The US Dollar Is Finished

Global Economy? 23 Facts Which Prove That Globalism Is Pushing The Standard Of Living Of The Middle Class Down To Third World Levels

IS THERE GOLD IN FORT KNOX?

Tungsten Outperforms Gold, Returns 70 Percent In Last Year (And we all know exactly why!)

Alert: Get Out of Your Dollar Assets Now!!!

The Ultimate Cost of 0% Money

These Central Banks Are Printing Money – Prepare Yourself

Quantitative Easing Explained

Summary:


?

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.