Has Gold Hit Bottom, and What Will Drive it to $10,000

The macro-economic conditions that have supported gold’s bull run over the past decade have not change; they’ve become worse. In Europe, the Bloomberg Europe 500 Banks and Financial Services Index, is down around 35% over the last year. In the US, the question is not whether there will be a recession, but when.

Gold is chronically under-owned, even by institutional portfolio and pension fund managers who have a fiduciary responsibility to meet liabilities. They use asset allocation to achieve diversification in order to reduce risk, maximize performance and thus responsibly manage their funds. To ignore the best-performing asset class year after year could conceivably expose managers and trustee to legal liabilities.

The traditional view is that three asset classes (stocks, bonds and cash) are sufficient to achieve diversification. But only precious metals offer negative correlation to those three; a portfolio that has only positively correlated asset classes is not balanced or diversified. Holding cash does not work either; currencies are performing miserably against gold.

More fund managers are realizing that an allocation of between 5 and 10 percent to bullion is prudent. Wainwright & Co. Economics Inc. studied the allocation of gold required to protect against inflation and found that 15% conferred immunity.

Gold has been a store of value and wealth preservation for more than 3,000 years, while all fiat currencies have reverted to zero value after around 30 years. By that measure, the clock is ticking for the US dollar; it has been 41 years since President Nixon abandoned the gold standard in 1971.

The US Treasury Department’s own projections have US debt at $23 trillion by 2015, a 64% increase to the current debt limit. Given gold’s close correlation to US government debt, a gold price in the $2,750 range in to two three years’ time seems reasonable. Now is the time to buy gold, not to sell.

Fund managers, advisors and investors must realize that all bullion investments are not created equal. Uncompromised gold that offers liquidity, no counterparty risk, and allows unitholders to own their bullion outright is the best choice, particularly in an era of increasing risk to the global financial system.

To read Nick Barisheff’s article: Has Gold Hit Bottom, and What Will Drive it to $10,000?

Related articles

• As Europe Falls, Expect Precious Metals to Rise (minyanville.com)
• $10,000 Gold: Bullion Management Group CEO Nick Barisheff to publish new book with John Wiley & Sons Canada Ltd. (bmg.spiserver.com)

Tagged as: Exchange-traded fund, Financial Services, Gold as an investment, Gold standard, Investing, Precious metal, United States