Gold News

Big Funds Run to Gold

Big fund managers are beginning to Buy Gold, but it's still a tiny proportion of total investable wealth...

SO IT LOOKS AS THOUGH the big rush to Buy Gold is about to get started, reports the Mogambo Guru for The Daily Reckoning, as Julian D.W. Phillips of writes that "The combined gold holdings of the major Gold Exchange Traded Funds and Barclays Gold Trust have grown to 1079.83 tonnes – growth of almost 70 tonnes in two weeks."

This is just part of the good news, too. Because "There are many other gold bullion-holding funds in the developed world from Canada to Switzerland that are not included in this total. If they were the total would be approaching 1,200+ tonnes. Clearly we are seeing a stampede of institutional fund management into gold at present!"

One such fund is the Central Fund of Canada, the top-performing trust in Canada (up 117% in 3 years; the Gold Price in Canadian Dollars is up 77%) and which holds only silver and Gold Bullion, is selling another giant swath of shares to get the money to, as I understand it, buy another big potload of precious metals, which is not that remarkable, I guess, except for where the underwriter, according to the press release, "Exercises Its Right To Purchase Additional Class A Shares", which made a big impression on me for some reason that I don't understand, but I sense that "somebody knows something."

To keep things in perspective, Mr. Philips reminds us to "Bear in mind that at $900 an ounce, one tonne of gold costs $29 million, so far." But even he admits that gold really hasn't gotten up a good head of steam yet. Because "With global pension fund assets estimated at $18.6 trillion by the end of 2005, only a tiny proportion of that amount has entered the Gold ETF market so far. So the 1,200 tonnes held in this manner, via a trust structure, represents only $34.8 billion or 0.19% of these pension funds assets (there are many other types of funds other than Pension Funds as well).

So "Quite a way to go before gold makes a dent on these portfolios."

And on the other side of the trade, "Gold Mine Production Down, But Costs Up 24% World-Wide" says a report at, which tells you everything you need to know about the future Gold Price, which assumes that you already know that the price of everything is determined by the intersection of supply and demand, and in the case of gold, supply was down by 88 tonnes last year and is still going down, while demand is going up, and under which there is a rising "floor" price since the costs of gold mining are mounting, and will continue to mount as long as the corrupt socialist morons running the world continue to increase deficit-spending by governments, and as long as the corrupt socialist morons running the central banks continue to create the money and credit to finance the damned deficit-spending, which causes higher prices!

And, of course, this is already old news to gold bugs around the world, as Nick Barisheff writes in his essay, "Making Money in Troubled Times with Gold" at that in the last year "Gold rose: 9% in Euros, 45% in British Pounds, 25% in Russian Rubles, and 38% in Brazilian Reals" which is not to mention that gold "increased by 31% in Canadian Dollars."

The reason for all of this is that, as he explains, "In 1971, when the US abandoned the gold standard, total M3 money supply stood at $800 billion. Since then, the Federal Reserve has increased the money supply well in excess of GDP growth. In 1987, Alan Greenspan took over as Federal Reserve chairman and opened the money supply floodgates. He expanded the US money supply by $6.5 trillion during his 19-year tenure to $10 trillion - more than all of the previous Fed chairmen combined. Ben Bernanke surpassed Alan Greenspan's record by adding another $4 trillion in just the last three years."

What does this have to do with Gold Investment and gold going up in value so high that I can quit my lousy job and get the hell away from my clinging family, all the time whining "Please stop Buying Gold and please just buy us some food, daddy!" and all the rest of their gimme gimme gimme?

Well, since you asked, the point is that "At the end of 2007, above-ground privately held gold bullion amounted to less than $650 billion, and the total amount of silver and platinum bullion was less than $5 billion. Put together, this is less than one-third of 1% of the estimated $187 trillion of global financial assets", which doesn't even start to address the implications that "China, Russia and the OPEC countries are considering substantial increases to their gold allocations in order to diversify their US Dollar risk", which means that "Any reallocation by these countries will drive prices much higher."

And it is already beginning, as "Last year investors experienced shortages of the smaller wafers and coins, with premiums running as high as 10-40% for gold and 30-100% for silver", which may have been what led Citibank to predict that gold could soar to "$2,000 an ounce sometime in 2009."

And in that regard, people keep asking me if the government is going to confiscate gold, and I tell them "Why don't you ask the government?" Hahaha! As if they would tell you the truth! Hahaha!

But not even mentioning that the Federal Reserve can print up all the money it wants, so they would not confiscate gold for the money, there's the fact that all the gold held at the Federal Reserve is chump change. Because if the Fed still has all of its reported 261 million ounces, then at even $1,000 an ounce, all the gold would only be worth a lousy $261 billion dollars. That's less than a quarter of the Federal budget deficit for this year alone! Hahaha!

And then the government has to store the gold someplace and start absorbing all of the expenses of guarding it, which doesn't even address that the "takings clause" of the Constitution which prevents the government from taking anything away from you, including gold, without paying full market value to you, the owner.

So will the government confiscate gold? Why in the hell would they want to do that? Hahaha!

And that means that YOU should be buying it! Or so I reckon. Ready to Buy Gold?

The angriest guy in economics, the Mogambo Guru is Richard Daughty, general partner and COO for Smith Consultant Group, serving the financial and medical communities. The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it – has been quoted frequently in Barron's, The Daily Reckoning and other fine publications.

See the full archive of Mogambo Guru articles.


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