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Whatever their reasons, the number of investors wanting exposure to gold is
increasing. Many who ignored it a decade ago are now buying. Those who started buying, say, five years ago, continue purchasing it today in spite of paying twice what they paid then. Slowly but surely, it’s becoming more important to more people…but what happens when it becomes a must-own asset to a substantial majority instead of a small minority? Sure, the price will rise, probably parabolically, but putting aside speculation on the price of gold for now, have you thought about what happens if you have trouble finding any actual, physical gold to buy? [Let’s explore that possibility and what that would mean for gold stocks in such an eventuality.] Words: 870
So says Jeff Clark (www.caseyresearch.com) in edited excerpts from his original article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Clark goes on to say, in part:
Gold Supply
The following chart shows the growth in the world’s population vs. the total supply of gold from around the world. By this I mean new supply from mines, not the existing holdings of refined gold of various sorts held by governments, institutions, and individuals around the world.
Gold
The world population…has grown roughly 15% just since the year 2000 while the new supply of gold from all sources (mining, scrap, de-hedging) has fallen 4.2%. The rate of growth in the world’s population last year was 1.1% while was roughly similar to the increase in annual mine production. The trend right now is clearly for the growth in population to surpass the global supply of gold coming to market while, at the same time, demand keeps growing. China [alone] imported 3.3 million ounces of gold last November – and total global mining production outside China is just 6.4 million ounces per month. Gold bullion held by the world’s central banks is at a six-year high – but it’s roughly 15% below the amount they held in 1980 and has fallen in half as a percent of their total reserves.
Silver
Silver supply and demand paints an even starker picture: last year, for the first time in history, sales of silver Eagle and Maple Leaf coins surpassed domestic production in both the U.S. and Canada. Throw in the fact that by most estimates less than 5% of the U.S. population owns any gold or silver and you can see how precarious the situation is. A supply squeeze is not out of the question – rather it is coming to look more and more likely with each passing month. This is great for gold owners and speculators, but it has further implications: As increasing numbers of people view gold as a must-own asset, and as supply is not keeping up with demand, where is the next logical place for investors to turn to get exposure – silver!
Gold and Silver Stocks
Imagine the plight of the mainstream investor who calls a bullion dealer and is told they have no inventory and don’t know when they’ll get any. Picture those with wealth finally becoming convinced they must own precious metals and being informed they’ll have to put their name on a waiting list. Imagine a pension fund or other institutional investor scrambling to get more metal for their fund and being advised the amount they want is “currently unavailable.” Mining equities would be the fastest way to meet that demand – and it’s already happening on a small scale.
It also won’t be just investors buying stocks; sovereign wealth funds will buy entire companies… Meanwhile, most institutional investors are underweight gold and gold stocks – if they own them at all. The average pension fund devotes approximately 0.15% of its assets to gold stocks; doubling its holdings – still just one-third of one percent – would represent $47 billion of investment in the gold industry. If they wanted 1% exposure, $117 billion would flood our sector. In addition, don’t forget about the needs of hedge funds, sovereign wealth funds, mutual funds, private equity funds, private wealth funds, insurance companies, ETFs, and millions of worldwide retail investors like me and you. All these entities could easily view a shift into gold stocks as a viable way to gain exposure to precious metals. It’ll be the next logical step to take – maybe the only sensible step available if the supply of physical metal remains constrained. It will feel like the most natural thing in the world for them to do.
Conclusion
Make no mistake: if this bull market continues, gold [and silver] stocks will truly soar. An increasingly desperate clamor for exposure to gold could light a short fuse for our market sector. It’s not here yet, but when the rush starts, it will be both breathtaking and life-changing. Are you positioned?
*http://www.caseyresearch.com/articles/new-reason-gold-stocks-will-soar
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