By Jeff Clark, Analyst
In April 2013, a prominent hedge fund manager announced on TV that he was selling his gold position. Why? “Because the runaway inflation we thought would result from money-printing hasn’t happened.” He pointed out that many of his hedge fund friends felt the same way.
I remember thinking, “uh-oh.”
If you were a precious metals investor at the time, you know what happened next. The market tanked, registering one of its worst performing months in modern history.
This wasn’t the only reason for gold’s sharp decline (manipulation being another). But it was clear that scores of institutional investors were exiting the gold market. Even though the fundamental reasons to hold gold remained strong, their selling led to a rout.
Well, three years later, guess who’s back?
Other than bullion sales, which have been very steady, currency has consistently flowed out of the paper gold markets since 2013—EFT holdings, gold equities, exploration and development budgets, and M&A activity.
Until now. Check out the bank analysts, fund managers, and private investors that have recently entered the gold market. Keep in mind that so far, most major media outlets have not covered this abrupt flip…
This private investment arm of the world’s largest asset management firm increased its holding of GLD, from 1.94 million shares to a whopping 10.36 million shares, valued at over $1.2 billion… yes, BILLION!
Eton Park Capital Management
The hedge fund bought 3.59 million shares of GLD in Q1, a new positon worth $422 million.
The billionaire investor entered the gold market for the first time in three years: his firm purchased $123.5 million worth of call options in GLD. He also bought $264 million of Barrick Gold, now his largest US-listed position. Incidentally, he made these purchases after liquidating $3.5 billion in the general stock market. Hmmm…
The Toronto-based firm almost quadrupled its stake in GLD, becoming the sixth-largest shareholder.
Investor Barry Rosenstein bought 50,000 shares of GLD, worth about $5.9 million.
Billionaire Hedge Fund Manager Paul Singer
“It makes a great deal of sense to own gold… Investors have increasingly started processing the fact that the world’s central bankers are completely focused on debasing their currencies… We believe the March quarter’s price action could represent something closer to the beginning of such a move than to the end.”
Ole Hansen, head of commodity strategy: “We view this correction as a buying opportunity.”
Solita Marcelli, JPMorgan, Head of Fixed Income, Currencies and Commodities
“Gold is just starting a new and very long bull market… $1,400 is very much in the cards this year… Even though ETFs picked up significantly in January and February, we are nowhere close to the peak in 2012.”
Dawn Bennett, Bennett Group Financial Services
“Investors are seeing the truth behind our so-called recovery, which is that it’s just not a recovery. They are acknowledging the signs that we may be on the brink of an even greater collapse, despite the words coming from media pundits, government stuffed shirts, and the Federal Reserve. And in the face of deranged markets, the draw of gold is clear.”
Henry To, CB Capital Partners
“Over the long run, I’m still bullish on gold. A helicopter money policy is inevitable starting in Japan next year, then in the euro zone in 2018.”
Sol Palha, Senior Financial Analyst at Tactical Investor
“Gold and silver bullion should be viewed as a form of insurance against a future financial disaster. We are taking out insurance against another financial crisis, one that has the potential to be larger than the 2008 financial crisis… We see gold trading to the $3,300-$3,500 range relatively easy once it manages to close above $2,200 on a monthly basis. If there is a feeding frenzy—and there usually is—then our absolute high-end target for gold is $5,000.”
Billionaire Investor Stanley Druckenmiller
The legendary investor bought a huge stake in GLD in Q4 of last year, but he said at the Sohn Investment Conference last month, “The conference wants a specific recommendation from me—I guess “get out of the stock market” isn’t clear enough… Gold remains our largest currency allocation.”
US Mint Gold Bullion Coin Sales
April’s numbers were through the roof…
- American Eagle gold coins hit 105,500 ounces, 177% higher than March and 257% higher than April of last year. Year-to-date sales stand at 351,000 ounces, double the first four months of last year.
- American Buffalo gold coins surged 178% over March, and 95% from April 2015. The 79,500 ounces sold year-to-date is 20.5% higher than the same period in 2015.
And in spite of record numbers that month, the surge continued into May…
- American Eagle gold coins reached 76,500 ounces in May, lower than April but 255% higher than May of last year. Year-to-date sales total 427,500 ounces—more than double the same period last year.
- American Buffalo gold coins moved up by 18,500 ounces in May, slightly lower than April ounces but nearly double the 9,500 ounces last year. The year-to-date total of 98,000 ounces is 29% higher than the same period last year.
- And get this… the US Mint is now rationing American Eagle silver coins because of silver planchet shortages! May sales hit 4.49 million, up 10.5% from April and 122% higher than May 2015. Sales of American Silver Eagles now stand at 23.4 million year-to-date, 38.2% higher than the same period in record-breaking year 2015.
All this after analysts at Citibank, Deutsche Bank, ABN Amro, CIBC, Commerzbank, Taurus Wealth Advisors, and even billionaire Mark Cuban all publicly announced in the past few months that they bought gold, too.
With all their new buying, it’s no wonder the gold price has been strong this year.
Why the Sudden Interest in Gold?
You probably know the answer: global investors and fund managers are uneasy about negative rates. A third of all government debt in the world—over $8 trillion—now has negative interest rates. This absurd policy can’t have a positive outcome and shows you just how misguided and unstable global monetary policy has become.
Negative rates also remove the cynic’s usual argument, that gold doesn’t pay any interest. But owning gold is better than buying a bond that is guaranteed to lose money.
In the bigger picture, though, it’s not just about negative rates. The hedge fund manager I mentioned at the beginning sold his gold because inflation didn’t rise—but he came back for a completely different reason.
And that’s the advantage gold has over most other asset classes: it’s not just a hedge against inflation, or deflation, or negative rates, or stock market weakness, or political ineptness, or terrorism, or [insert more reasons here]. Gold is a hedge against all types of turmoil and crisis.
- It is not far-fetched to think that gold could end up replacing sovereign bonds as the preferred safe haven among investors.
Don’t think so? It’s already happening…
- Bloomberg reported that Ken Hoffman, senior metals analyst at Bloomberg Intelligence, said that an increasing number of hedge fund managers “are seeing gold as a currency.” He said that those worried about central bank consequences “think of gold as the alternative.”
- Investec Wealth said they favor gold over bonds, mainly to hedge against US political risk.
Even John Thornton, the former president of Goldman Sachs (who can speak more freely now that he’s no longer with the company), says he feels uneasy about the global economy…
“After the events of 2008, really since then, central banks either collectively or individually have tried to implement policies which would, in effect, buy time for individual governments to take the actions they should take to put their houses in order. By and large, governments have not done that. So I feel as though we’re sitting in 2016 with many of the same problems that we’ve had for the last eight or ten years. They haven’t been addressed very forcefully; we’re living on borrowed time. Sooner or later, that ends in tears… I think by and large, if things don’t make common sense, sooner or later, they come home to roost.”
You don’t need a crystal ball to know if you should buy gold; you only need to recognize that current government machinations don’t make sense right now, that there is no free lunch to all this financial engineering, manipulation, and experimentation. This is what’s led the many institutional investors to buy gold.
So, the #1 reason the gold bull market is here to stay is because institutional investors—the “big money”—is back. A major shift is underway, and interest is growing.
This means two things for you and me:
- This new bull market is just getting started. The price will back and fill along the way, but in the big picture it will continue to push higher.
- Since we’re in a new bull market, every dip is a buying opportunity.
Make sure you own a meaningful amount of the only asset that is sure to survive whatever these big money investors see headed our way.