Billionaire Buys Gold

Bigger news than you might think...

BILLIONAIRE Sam Zell just announced that he bought gold for the very first time in his life, writes Frank Holmes at US Global Investors.

That's because, as he puts it, "gold is a good hedge."

In a recent Bloomberg interview, the Equity International founder and creator of the real estate investment trust (REIT) admitted to seeing an opportunity in gold's increasing supply shortage.

"For the first time in my life, I bought gold because it is a good hedge," Zell, 77, told Bloomberg.

"Supply is shrinking, and that is going to have a positive impact on the price."

He added:

"The amount of capital being put into gold mines is at most nonexistent. All of the money is being used to buy up rivals."

I believe Zell's reasons for investing in gold are sound, and I've discussed them in detail a number of times before.

Supply is indeed shrinking. The "low-hanging fruit" has likely already been mined, and it's become prohibitively expensive for many companies to look for large-scale deposits, to say nothing of developing them.

As you can see below, the number of ounces in major discoveries has been falling for years, and exploration budgets are still far below the 2012 peak.

As if to confirm Zell's reasoning, the Canadian Imperial Bank of Commerce (CIBC) forecast in a report last week that a gold deficit will emerge in 2019 "on the back of stronger demand over the next two years, primarily from bar hoarding, net central bank buying and exchange-traded products (ETFs)."

Peak production, according to the bank, will occur in 2021 at close to 34 million ounces, but then decline to under 16 million ounces by 2030.

Demand isn't abating, though. We're seeing appetite grow for the precious metal, not just from investors but also central banks, which have been net buyers since 2010. According to CIBC, several central banks stepped back into the market last year, most notably the Reserve Bank of India (RBI), which until recently "has expressed negative sentiment around gold purchases."

CIBC raised its gold price forecast this year to $1350 an ounce, up from $1300. The bank is also looking for $1400 an ounce in 2020.

As attractive as I think gold bullion looks right now, there could be some incredible opportunities in gold equities, which are extremely discounted compared to the S&P 500 Index.