The consensus amongst analysts is that gold is grossly under-valued in view of its bullish fundamentals and now presents a once-in-a-lifetime opportunity for millions of investors worldwide who wanted to own gold but were heretofore leery of its lofty price. Below are 9 fundamental factors behind these bullish opinions.
The above introductory comments are edited excerpts from an article* by Vronsky (gold-eagle.com) entitled Golden Opportunity For Global Investors.
Vronsky goes on to say in further edited excerpts:
Below are 9 fundamental factors for these bullish opinions on the oldest form of money:
1. Universal acceptance of gold as a timeless currency and store of value
The history of gold begins in remote antiquity…[with] the first use of gold as money is claimed by the citizens of the Kingdom of Lydia (western Turkey) in 700B.C…
2. Gold’s value runs parallel with growth in the monetary base and to money supply
The following charts clearly indicate that…over the long run the Monetary Base and Money Supply are primary drivers of the gold price.
a) The U.S. monetary base to gold price ratio, from 1930 until 2012:
b) The U.S. M1 money supply to gold price ratio, from 1970 until 2012:
c) The U.S. M2 money supply to gold price ratio, from 1970 until 2012:
d) The U.S. M3 money supply to gold price ratio, from 1970 until 2012:
3. Many major central banks are accumulating gold reserves
…It is reported [that] more than 500 tonnes of gold were snapped up by central banks in 2013…and this does NOT take into account China’s gold purchases as it is not public knowledge…
The big reason to buy gold now, proponents argue, is that it should hold its value better than fiat currencies that aren’t backed by hard assets, such as the [U.S.] dollar or Japanese yen. The Federal Reserve, along with central banks in Europe and Japan, have issued so much debt — and pumped so much cash into their economies — that they’ll eventually have to inflate their way out of debt by devaluing their currencies, according to this line of thinking.
4. Total assets of the ECB and Federal Reserve (in US$) vs. the gold price
Another primary driver of the gold price is the ever increasing total assets of the ECB and the Federal Reserve… It is indeed astounding how the increases in total bank assets have fuelled the price of gold in parallel fashion.
5. China’s dire need to diversity its overt FOREX risk away from the U.S. dollar
China’s total foreign exchange reserves were $3.8 trillion U.S. dollars in 2013 [which was] a sharp increase from the mid-90s…
To substantially reduce China’s dangerous FOREX risk, it must buy thousands of tonnes of gold to shore up its thin Total Foreign Reserves [which serves as] a driver for gold demand...
6. In recent years precious few have invested in gold
In 1968 nearly 5% of total global financial assets were invested in gold and today (2014) gold investments accounts for only 1% of total global financial assets.
Historically it has been an accepted tenet of portfolio management that gold should represent 5-10% of any investment portfolio, if just for the reason that it has a negative market beta but, with gold only accounting for less than 1% of investment portfolios, institutional and individual, how the hell can this possibly be the statistical profile of an asset that is in a bubble stage? [The fact is] there is an absolute tsunami-sized flood of capital that still has yet to flow into the sector before we can even begin to whisper the “B” word.
7. The U.S. federal debt vs. the price of gold
Today’s Federal Debt (the gross amount of debt outstanding issued by the US Treasury and held by the public and federal government accounts) is about $17,952,841,077,000 and counting. Needless to say, this continually ascending U.S. Federal Debt will fuel gold and silver to…record highs [and result in] precious metal mining company shares flying into orbit hundreds of percent higher than today’s values.
The chart below is testament that since 1962, the US Federal Debt has (on-balance) also fuelled the price of gold higher.
8. Internet communication to easily transmit gold’s message – instantly and worldwide
Once the price of gold has put in a definitive bottom, the news will be communicated instantly worldwide via Internet publications and emails . Consequently, the gold price will quickly soar as international investors stampede into gold…
9. The U.S. Dollar is on course to lose its global reserve currency status
Major world powers are maneuvering to replace the U.S. dollar as the world’s primary Total Reserve Currency…[and these events will result in] a mass exodus from Uncle Sam’s currency resulting in a precipitous decline of the US Dollar Index. Consequently, this will lead to a massive resurgence in the value of gold and silver and a resurgence in prices of precious metal mining company stocks. In fact the prices of mining stocks will inevitably and eventually go ballistic because their current values are the lowest relative to gold since 2001. (See chart below)
Although there are short-term technical aspects that gold must deal with, fundamentals will ultimately prevail. To be sure the greatest weakness of fundamentals is the almost total absence of timing and, as everyone knows, timing is essential to maximizing profits.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
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