OCT 6, 2017
I gave a presentation to some corporate board members recently, and they had one primary question on their mind. Why is overall gold demand weak?
These are smart people. They’re successful, both professionally and with their investments. They even believe in owning a little gold. But they’ve been puzzled by the significant drop in demand for physical metal. They had some ideas, which were mostly right, but their main concern was if they were overlooking some critical factor that was making other investors ignore gold.
What was especially interesting was their reaction. Once they grasped the reasons why physical demand has been down, they instinctively concluded that they needed to buy more of it. Now.
See if you’d come to a similar conclusion after viewing my presentation…
There are a number of reasons why demand for physical metal has fallen, but these are probably the main ones.
Ounces of Eagles sold 10 months before election (1-1-15 thru 10-31-16)
Ounces of Eagles sold 10 months after election
(12-1-16 thru 9-30-17)
Some investors obviously felt less of a need for gold when Trump won.
This has put a dent in the amount of gold and silver purchased.
Number of new highs in 2017 (through 9-22-17)
Even the board members were surprised to see how many new highs each market has made year-to-date (and that number has gone up since my presentation).
If you don’t have much fear, you probably think you don’t need a lot of gold.
I pointed out why these are actually reasons to BUY gold.
The cryptocurrency market may yet grow, but keep in mind that it took gold 3,000 years to reach that level. Cryptos can’t compete with this.
In contrast, gold is negatively correlated to stocks, so is a perfect hedge against lofty equity prices. Further, both gold and silver are undervalued: gold is down 32% from its 2011 high, and silver down 65%. Insurance is currently cheap.
The best hedge against these events is gold. Indeed, the metal is just as likely to become an offensive profit-making investment as it is a defensive asset-protecting hedge.
The need to be overweight gold at this point in time is glaring.
|Stock markets at record highs||A correction is inevitable, it’s only a question of timing. It is likely to be big given the size and length of the run-up.|
|Average US home price now above 2006 bubble level||Real estate is overvalued again. We learned in 2008 that property values do not rise forever.|
|Inflation near all-time lows||The risk is high for higher inflation. This is Fed’s goal.|
|Bonds in 36-year bull market||Bonds have interest rate risk, inflation risk, and in a crisis, default risk.|
|Nominal debt levels at extremes||Debt inhibits growth. It can also lead to crisis, and make the crisis worse.|
|Next recession is inevitable||We are now in the third longest economic expansion since WWII.|
|Europe, China and Japan still printing money||This signals economies are not as strong as we’re told.|
The corporate board members I met with decided to buy more gold. Risks in the financial system are clearly elevated, and gold is the best hedge against them. They also like that it is undervalued compared to most other asset classes.
I hope you, like them, will buy a sufficient amount of gold to withstand whatever will soon come our way.
Mike and I continue to buy. I bought another one of these last week.