Friday, July 15, 2011

Gold Is Now A Flight To Safety Refuge?

I noticed when I was on vacation that the business media has begun to refer to gold as "a flight to safety" investment vehicle.  I find this quite fascinating because all throughout the first 10 years of this quiet bull market in bullion, gold has been viewed as a "risky" investment that "failed" to demonstrate "safe haven" characteristics.   But here's none other than anti-gold Bloomberg news reporting on gold's safe-haven status a few days ago:
 “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.  LINK
What'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."   LINK 
It'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...

The Duomo in Florence:  It took 600 years to build this baby


  1. (Dave) LOL I wondered if anyone would catch that

  2. 2011-07-15 —

    Weiss Ratings, an independent rating agency of U.S. financial institutions and sovereign debts, has downgraded the debt of the United States government from C to C-minus.

    The C-minus rating for the U.S. reflects a continued deterioration in the weaknesses cited in the Weiss Ratings release of April 28, 2011, including heavy debt burdens, shaky international stability, and poor economic health.

    Weiss Ratings senior financial analyst Gavin Magor commented: "Our downgrade today is not contingent on the outcome of the debt ceiling debate in Washington. It is driven exclusively by the numbers, which indicate that, in addition to a decline in the long-standing weaknesses we noted three months ago, the U.S. has already lost the golden halo that helped guarantee liquidity and acceptance of its government securities in global markets."

    On the Weiss Ratings scale, which ranges from A (excellent) to E (very weak), a C-minus rating is the approximate equivalent of a triple-B-minus on the scales used by other credit rating agencies, or approximately one notch above speculative grade (junk).

    About Weiss: By adhering to its independent business model, Weiss outperformed Standard and Poor's, Moody's, A.M. Best and Duff & Phelps (now Fitch) in warning of future life and health insurance company failures according to a 1994 study by the U.S. Government Accountability Office (GAO), while also outperforming its competitors in identifying the safest insurers, according to its follow-up study using the GAO's research methodology. less

  3. OH MY...We're definitely entering the mania stage.

    Here comes the I was in before you chest pounding chatter.

    How bout this...I bought silver at 4.50 oz when Buffet did.

  4. Milking the citizenry...corrupt from top to bottom


    James G. Rickards

  5. you need to

    PIMCO's Largest "Equity" Holding - Gold

    the firm's flagship credit funds do not have the mandate, nor permission, to invest in such asset classes. As such, the firm's $200+ billion TRF flagship fund, at least, is limited to fixed income securities. However, the same limitation does not apply to the firm's other funds, especially the recently launched $1.2 billion equity fund, the Pimco EqS Pathfinder. The fund was launched in 2009

    The fund was launched in 2009 under the stewardship of Anne Gudefin and Charles Lahr, who jointly ran the $16 billion Mutual Global Discover mutual fund. So in an interview recently granted to Fortune by Gudefin, we were not very surprised to hear her response on what her largest investment position is in: "The largest position in the fund is gold, which we think is a very good form of protection against what can go wrong. We were encouraged by the fact that a lot of the central banks, especially in Asia, are big buyers. We think that's an underlying trend that's very favorable for gold." So to all those asking why Gross does not invest in the yellow metal, here is your answer.Should the EqS Pathfinder fund grow in AUM, one can assume that an increasingly bigger pro rata portion will be allocated to precious metals

  6. I loved it when Bernanke said the US only holds gold due to tradition. If so, why not park all that at my house if you don't care? So dishonest, Bernanke knows countries the world over view gold as THE liquid backstop for real credibility.