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  • sin_nickle1 sin_nickle1 Jan 1, 2011 3:58 PM Flag

    New, Crazy Phase for Gold, Silver?

    Corrections may come, but I'm holding. Here's why.

    “But suddenly the financial industry is being forced to think long and hard about gold. Surging public debt in many of the world’s largest economies may be about to push the global government-bond market into a period of significant turmoil. If some part of the world’s $30 trillion in sovereign debt could be dumped by the world’s pension funds, insurance companies, banks, and individual investors, then where will that money flow to? Stocks? Real estate? Since pension funds already have high exposure to stocks and other assets like real estate and private equity, it seems reasonable to expect that some fraction of that capital—perhaps as much as $500 billion or more—could eventually flow into a time-tested real asset: gold. Most funds would practically be starting from zero, considering the low percentage of total assets the metal represents today.

    The effect of suddenly moving a substantial amount of investment money into precious metals was best described in a telephone conversation I had with an industry expert: he said it would be like shoving an elephant into a mailbox. At $1,300 an ounce, all the gold in the world—all the jewelry, coins, bars, molars, and church art—is worth an estimated $6.5 trillion. But the vast majority of global gold, like the ring on my finger, is not freely traded. In fact, perhaps only 5 percent of all physical gold actually trades each year, which would make the investment gold market around $320 billion. The mining industry produced around 2,500 metric tons of gold in 2009, worth around $80 billion at the average price for the year. A little over half of every year’s gold production is used for jewelry and industry, so less than $40 billion was available to the global investment community. That’s equivalent to about 20 days of trading in shares of Google—a single stock on the American market.”

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