-- Posted Friday, 28 May 2010 | | Source: GoldSeek.com
By Andrew Mickey, Q1 Publishing
Gold sales are soaring.
More than 200,000 ounces of gold and three million ounces of silver were sold by the U.S. Mint in May. With a week left to go, gold sales are on pace to double the previous 2010 monthly high set in April.
The much publicized Gold-to-go ATMs are spreading fast. The company is making 50 per month and just announced plans to put them in Italy, Malaysia, Russia, and Turkey.
And even more top investors continue to find gold’s glitter most attractive in the current climate. Thomas Kaplan, billionaire head of Tigris Financial, recently said, “I’ve reached a point where I feel the only asset I have confidence in is gold.”
Everyone, it would appear, is getting in gold. And many took the recent, remarkably short dip in gold prices to buy even more. But there are still a few holdouts and they’re becoming even more vocal.
With governments continuing to pile on debt, confidence waning rapidly in currencies, and real interest rates set to stay negative for a long time, we know they’ll turn. Here’s how to tell when.
The Golden “Ponzi Scheme”?
The resurgence in gold prices have driven a further divide between the haves and the have nots of the gold world.
Recently Wall Street Journal editor Brett Arends threw his opinion in the mix in a three part series on gold.
In the second part, Why I Don’t Trust Gold, he coyly asks:
What do we call an investment scheme where current members' returns depend entirely on new money brought in by new members?
A Ponzi scheme.
Of course, he could have just as easily inserted stocks, real estate, Social Security, or anything else to arrive at the same conclusion.
More importantly, this train of thought is the perfect example of how there are still many who trust their savings to governments to be responsible and pass on expedient (read: inflationary) solutions. And who are more likely to double down on real estate or some other asset class without nearly as much upside (a.k.a. fighting the last war).
Yet, we know they will turn…in time.
History is Rhyming
Just talk to your local coin dealer. They all will tell you how much more gold they sold at $1,000 than at $300 or $500 an ounce.
And think of those you know who are eyeing gold. They say they’re waiting for a dip. We all know they’re the type who won’t buy gold if it falls back to $900, but they’ll be at the front of the line when gold hits $2,000 an ounce.
In more quantifiable terms, we just have to look at where mutual fund investors – who, as a group are always last in at the top and last out at the bottom - are putting their money.
As hedge fund manager Barton Biggs put it in his book, Hedgehogging:
The big flood of money comes in after instead of before a fund has done well, and then redeems after it has done poorly and usually just before it’s about to do relatively well again. Billions of dollars poured into tech funds in 1999 and 2000 when the Nasdaq was toward 5,000. In fact something like 80% of all the public money that was invested in mutual funds at the height of the bubble in the spring of 200 went into tech funds. Over the next three years, as the Nasdaq raggedly sank to 1,000, investors lost 60% to 80% of their money. Redemptions were heavy in 2002 and 2003 just before the Nasdaq doubled again.
In addition to that, James Glassman (of "Dow 36,000" fame), noted in 2000 that “48 percent of Americans own stock, up from 15 percent just 20 years ago.”
Right now, mutual fund investors have certainly become more interested in gold and precious metals funds, but they certainly haven’t reached the “80% of all new money” type of buying that would signal a clear bubble.
For example, in Gold Investment Sentiment: Are We In a Bubble?, we broke down the buy high/sell low activity in U.S. Global’s (NASDAQ:GROW) precious metals funds over the past three years:
In 2006 when gold, precious metals, and global investments were thought to be unbeatable, U.S. Global reported more than $5 billion AUM.
Since then, a lot has changed. The credit crunch sent the herd running away. At the end of 2008, U.S. Global had a mere $1.98 billion AUM – a 60% decline from its peak.
Jump ahead a year and U.S. Global’s AUM has climbed to $2.7 billion at last report.
They are recovering, but when the gold bubble really does come, we expect U.S. Global to have around $10 billion to $20 billion AUM.
Clearly, there’s a lot more room to run for gold prices.
The real question now is, how much more room?
Nowhere Near “All In” on Gold
The recent Congressman Weiner/Goldline/Glenn Beck tussle provides further proof that we’re nowhere near bubble territory yet.
After Weiner accused the company of misleading gold buyers, Goldline revealed how successful its big-budget advertising campaign has been. The bullion dealer reports its ads on Glenn Beck, Mark Levin, and other conservative/libertarian programs have netted a mere 50,000 new clients.
That’s not many. But of course we have to consider the folks who were sold by the virtues of gold by the ads but chose a local dealer instead. So if we assume an additional 100,000 have been turned into gold buyers, that’s still less than 1/20th of 1% of the U.S. population.
There’s still no official number of how many Americans or what percentage of the world’s investors own gold, but we can certainly say they’re still a minority.
And they’re certainly not even close to the 48% of all Americans owning stocks at the height of the stock bubble in 2000.
For now, we continue to believe the gold bubble is coming for a number of reasons and recommend gold stocks where the rewards far outweigh the risks. For example the five gold stocks detailed in them climbed 1646% while the price of gold climbed 13% over six months period last year (follow this link to get your own copy of the report – 100% Free).
Bubbles create the greatest opportunities to make fortunes in a relatively short period of time. Don’t let this one pass you by because “it’s too late to get in.”
Good investing,
Andrew Mickey
Chief Investment Strategist, Q1 Publishing
-- Posted Friday, 28 May 2010 | Digg This Article
| Source: GoldSeek.com
