Gold is the Investment for the Individual

What about that Dow! Overnight, it 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. But how far can they melt-up before the bust?

Dan Denning makes the argument below that there’s a way to go yet. He reckons 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. More on that from Dan below…

Greg Canavan
for Markets and Money

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From the Archives…

The US Federal Reserve: What a Humiliating Failure!
3-05-13 – Bill Bonner

The End of the Road
2-05-13 – Bill Bonner

Why Apple’s Advantage is Gone
1-05-13 – Dan Denning

The Kamikaze Rally That Could Drive Stocks Higher
30-04-13 – Dan Denning

Australian Deficit: Where Did the Money Go?
29-04-13 – Dan Denning

Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

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