“With the currency volatility and the debt-contagion risk in Europe, investors are gravitating toward something tangible like gold,” said Adam Klopfenstein, a senior strategist at Lind-Waldock, a broker in Chicago. LINKWhat's stunning to me about this is that up until now, Bloomberg has always associated gold with risky investments and the talking heads on Bloomberg t.v. have always gone out of their way to portray as gold as a bubble asset with a lot of risk.
Of course, we all know that the percentage of smart capital that has been slowly flowing into gold for the last decade is infinitesimal compared to total amount of investment capital globally. But what we are seeing now is that large institutions and Central Banks (other than the U.S. Fed and the ECB) are starting to allocate a little more capital into gold and gold-indexed investments (Texas State Public Pension System, Northwest Mutual, a few large hedge funds in the U.S., Government of Mexico, etc). Imagine what happens to the price of gold when a lot of really big U.S. fund management entities like Pimpco, Fidelity, Vanguard and CALPERS actually start to move just 5% of their funds into the tiny precious metals market (tiny compared to the value of stocks on the NYSE)...imagine the pressure created trying to stuff a beach ball into a test tube...This is why guys like Jim Dines and John Embry predict that eventually the action in the mining stocks will make the price moves we saw during the tech bubble look quite tame.
As the media continues to start promoting the idea of gold as being a safety refuge from reckless Governments on the brink of default - i.e. almost every Government - the amount of capital that flows into both gold and silver will accelerate. It is this dynamic that inspires someone like Ben Davies to predict $2000 gold this year: LINK
I've been trading this market for a bit longer than Davies and I think $2000 gold this year is a bit optimistic, although I'm for sure not ruling it out. But we will see at least $2000 gold before next summer in my view. However, in the spirit of celebrating this subtle shift in the media's view of gold, I wanted to highlight this must-read article from the Telegraph-UK, which I think has the most legitimate business reporting of any major media publication. This latest article discusses the re-emergence of gold as the global currency of choice:
"It is very scary: the flight to gold is accelerating at a faster and faster speed," said Peter Hambro, chairman of Britain's biggest pure gold listing Petropavlovsk. "One of the big US banks texted me today to say that if QE3 actually happens, we could see gold at $5,000 and silver at $1,000. I feel terribly sorry for anybody on fixed incomes tied to a fiat currency because they are not going to be able to buy things with that paper money." LINKIt's quite amusing for me to see this shift take place. When my partners and I first met back in early 2008 to discuss launching a precious metals and mining stock investment fund, I said that we would be begging people to invest with us with gold at $1000 but that we would be turning away new money when gold was over $2000. In fact, the lawyer who wrote our partnership agreements thought we were nuts and said $800 gold was the peak. Now that I'm firmly convinced that the we'll see at least $10,000 gold and $500 silver, I guess we'll just have to open up a new fund...