Gold News

Stocks and Gold Have Very Different Buyers Right Now

Gold is an investment for people, not fund managers...

WHAT ABOUT that Dow! Yesterday, the Dow Jones punched through the 15,000 mark, on its way to 16,000, 17,000 and beyond. Could it happen? Well, markets are clearly in melt-up mode, writes Greg Canavan for the Daily Reckoning Australia.

But how far can they melt-up before the bust?

There could be a way to go yet. Private capital is simply fleeing from the marauding Fed into the safe havens of the global blue chips. It's the only place to hide.

What about gold then? It's been the safe haven from marauding everything for millennia. Yet it gives the impression that it's no longer a safe haven...right when it's needed the most.

Here's an idea worth thinking about. Right now, gold is an investment for the individual. It's not really an option for big, institutional money. Pension funds choose to invest in vastly overpriced government bonds rather than gold. Institutional money wants to buy the Dow Jones, not nature's proven wealth protector.

But small investors, not restricted by investment mandates and quarterly investment performance, choose to protect their wealth in gold. You saw that last month when gold dived to around US$1,320 an ounce. It unleashed a buying frenzy all around the world.

Even before that, the Chinese continued to buy huge amounts of the yellow metal while the West remained fixated on chasing stock index performance. Bloomberg reports:

'Gold imports by China from Hong Kong more than doubled to an all-time high in March as buyers in the biggest consumer after India boosted purchases, underscoring increased bullion demand in the world's second-largest economy.

'Mainland buyers purchased 223,519 kilograms (223.52 metric tons), including scrap, compared with 97,106 kilograms in February, according to data from the Hong Kong government yesterday. Net imports by the mainland, after deducting flows from China into Hong Kong, were 130,038 kilograms compared with 60,947 kilograms a month earlier, according to Bloomberg calculations.'

The important figure is net imports of 130,038 kilograms, which tells you how much gold the Chinese mainland absorbed. So that's 130 tonnes in a month, before the price drop in April which sparked a buying frenzy! Next month's data should be massive.

What's happening in China is a reflection of what's happening all around the world. Individuals are protecting themselves against the coming monetary storm by buying gold. It's one of the few times you're seeing the small investor take a position ahead of the 'big money'. Normally it's the little guy who is late to the party.

And when the system begins to crack under the weight of liquidity and monetary craziness, big money will panic into gold. But the market will be too small to accommodate them and prices will have to rise significantly to let the 'big money' in.

But that's a story for later this year. In the meantime we watch the melt-up in global stocks. 

Greg Canavan is editorial director of Fat Tail Investment Research and has been a regular guest on CNBC, ABC and BoardRoomRadio, as well as a contributor to publications as diverse as and the Sydney Morning Herald.

See the full archive of Greg Canavan.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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