I’m reading an excellent book by Shayne McGuire right now. It’s called Hard Money: Taking Gold to a Higher Investment Level
In the introduction he raises an obvious, but little-discussed topic.
The managers of the world’s largest investment funds and pension funds generally allocate the money they invest into equities, bonds and “other”.
The equities provide the potential for growth.
The bonds are there to balance things out. Not much growth potential, but very safe.
The “other” makes up a tiny percentage of the fund as a whole, maybe 1%, and comprises things like precious metals and real estate.
At least, that has been how it has always been, in the past.
Today, who knows whether those equities will deliver strong results over the next five years.
But the bigger issue is with the bonds. Federal, state and municipal bonds used to reliable, safe and a source of at least some income for the fund.
But that is no longer the case. Municipalities are declaring bankruptcy. State and Federal debts loads are now so high, bonds no longer look safe at all. And they pay out almost nothing.
So, if trillions of dollars invested in these funds, worldwide, start coming out of bonds, where will it flow?
It can’t all flow into equities, because the overall risk to the fund would be too high. And it sure as heck won’t be flowing into real estate.
All that money needs a home that is safe and – hint, hint – solid.
That’s right. These fund managers will be bringing billions of dollars to the gold market.
Right now, a typical pension fund has only a fraction of one percent of its investments in gold, or other precious metals. But that could change in a hurry if the situation with bonds deteriorates further.
And now we have another problem. According to Shayne McGuire, the amount of above-ground gold, available for trading at any one time, is valued at only about $40 billion.
That’s a big number, but not so big if trillions of dollars flow out of bonds.
If these fund managers do turn to gold as an alternative to bonds, as a safe haven and a balance against the risk inherent in equities, then there will be huge competition for gold.
And yes, that means the price of gold will go through the roof.
The doomsday conspiracy theorists have always maintained that we’ll have to wait for the complete collapse of the U.S. dollar before the price of gold explodes.
Not so. We just have to wait for a few billion dollars to flow out of bonds, in search of an alternative safe haven.
With this in mind, now is the time to buy as much gold as you can afford, before the price really takes off.
Where should you buy your gold bullion? If you have a reputable local dealer who deals in gold bullion, that could be your first choice.
If you don’t, you can buy gold coins and gold bars online at GovMint.com.