Commodities Bull Market Alive and Well!

I got a harsh comment last week saying I should “apologize” to my readers for telling them to invest in gold and silver.  This person said he lost $40,000 in the silver market.  I don’t give market timing calls and never will.  I have said (since this site when on the Internet in 2009) everyone should have gold and silver coins in their portfolio as a long term investment.  I am sticking by my guns, and so are plenty of other expert investors with a lot more money and experience than I have. One is famed investor Jim Rogers.  In an interview last week in The Economic Times, Mr. Rogers said he had “absolutely no idea” where the market was going in the next three months, but long term, all commodities are going up in price.  He, also, is not worried about the recent correction in commodities and said, “These things correct 10-15-20-30% every year. Nothing unusual about that. That is the way the markets work. I do not see anything unusual. I expect there would be more correction during the course of the bull market. I hope that the bull market goes up, consolidates, goes up, consolidates, goes up and consolidates for years to come. That is my expectation for all commodities.” (Click here for the complete Financial Times interview.) Look at silver, for example.  The headlines say silver is off around 25% in a week, but even after a brutal market correction, it is still up around 25% for the year!  This looks like a consolidation to me.

Expert investor Peter Schiff, CEO of Euro Pacific Precious Metals, is also not worried about the long term price of precious metals.  Years ago, he was one of the first to predict gold and silver would rise in price dramatically.  He, too, is sticking by his guns and has written an excellent post about gold to back up his point of view.  Mr. Schiff has a stellar track record of predicting the markets, and I am very happy to welcome him as a guest writer to this site.  Please enjoy the article.—Greg Hunter–

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THE INSTITUTIONAL GOLD RUSH

By Peter Schiff Guest Writer for USAWatchdog.com

I have worked on Wall Street my entire life, and one thing I’ve learned is that large institutional investors, like pension funds and endowments, rarely veer from the herd. They manage too much of other people’s money to stick their necks out alone – if their investments go bad, at least they can point to everyone else who fared just as poorly.  For this reason, these funds are often lagging in their perception of crucial market changes – changes such as a doomed currency. While many of us are buying precious metals to hedge against the collapse of the dollar, gold and silver have been taboo investments on Wall Street for years. Fund managers are taught that gold is a “barbarous relic” – much better to stick with government bonds and blue-chip stocks. That’s what everyone else is doing.

But there are early signs that the herd is changing direction.

THE CURRENCY THAT CAN’T BE PRINTED

In a remarkably under-reported story, the University of Texas’ endowment fund – the second largest in the country, after Harvard’s – added about half of a billion dollars worth of gold to its portfolio just this month, on top of the half-billion it purchased several months prior.  The university’s endowment now owns a staggering 6,643 bars of bullion (664,300 ounces), which have already appreciated by over $40 million since mid-April when the bars were delivered to a dedicated HSBC-owned vault in New York City. Not a bad start.  Kyle Bass, the well-known Hayman Capital hedge fund manager and UT endowment board member, advised the university on the purchase. He stated his reasoning plainly: “Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services? I look at gold as just another currency that they can’t print any more of.”  Apparently, the university agrees that sitting on a pile of fiat paper is an act of faith not befitting a prudent and enlightened institution.

AN INSTITUTIONAL AWAKENING

The purchase is certainly causing a few heads to turn.

Now that a major endowment has taken this step, other fund managers are going to be emboldened to follow through on their gut instincts. These are smart guys, after all; they are aware that although their funds may be posting nominal gains, they are losing much more in purchasing power. I’m sure many have privately bought precious metals, but now they have cover to do so professionally.  Perhaps the most interesting part of UT’s billion-dollar repudiation of Fed Chairman Bernanke and his printing press, however, is that the fund demanded physical delivery of the bullion. While more commonplace in Europe, this is truly unprecedented for a stateside institution.  The delivery of physical bullion has at least two important implications. The first is that UT perceives gold to be a long-term strategy for wealth preservation, as opposed to a short-term speculation. The second is that UT must be somewhat concerned about the stability of financial markets in general, so it wants to own physical gold safely stored in a vault, as opposed to owning paper claims, shares of gold funds, or other instruments with counterparty risk.

HUGE RAMIFICATIONS

I have long recommended that investors hold at least 5-10% of their portfolios in physical precious metals. UT’s $1 billion position represents roughly 5% of its $20 billion endowment, so they have reached my minimum recommendation – but likely have more buying to do.  As endowment after endowment decides to sell billions of Bernanke’s dollars and diversify into gold, what might this do to the gold price? If these colossal funds start getting the idea that holding 5% of their portfolio in gold is more conservative and intelligent than holding the current average of 1%, what will this mean for gold demand? The answer is obvious and the ramifications huge.

ONE SMALL STEP FOR INSTITUTIONS, ONE GIANT LEAP FOR GOLD

If US university endowments were to increase their gold positions from the current average of 1% to an average of 5% of their portfolios, it would equal $20 billion, or roughly 400 metric tons of gold at today’s spot price. This is significantly more than the entire yearly gold production of China, the world’s largest producer.  Beyond endowments, private foundations in the US, with 2010 assets totaling nearly $600b, would similarly require nearly 600 metric tons of gold if they sought to hold 5% of their assets in the metal – almost twice China’s yearly production.  And again, these are just US endowments and foundations; there’s a whole world of demand beyond the borders – and we can’t forget sovereign wealth funds (SWFs).  The largest SWF in the world, Abu Dhabi Investment Authority, has assets worth over $600b alone. The second and third largest funds, Norway and Saudi Arabia, together constitute roughly a trillion dollars in assets.

GETTING IN BEFORE THE HERD

The point here is simple: the total investable funds around the world are immense relative to the size of the gold market. It’s not hard to perceive what a simple move from 1% to 5% of the average institutional portfolio would do to the price of gold, and this why the University of Texas’ bullion delivery is so important – it’s a vivid indication that such a move is now taking place.  Gold remains widely neglected among the big-money players, but it’s clear that they’re beginning to come to terms with the US dollar’s terrible prospects. After all, while fund managers don’t want to veer from the herd, they also don’t want to follow the herd off a cliff.  The University of Texas, with its billion-dollar stash of physical gold, is one institution that has finally seen the cliff. The physical delivery of this purchase exemplifies the severity of the threat that UT’s endowment board perceives.  The average investor should recognize that there is little time left to purchase precious metals before substantial new demand drives the price of gold higher. A very small percentage change in large institutional investment is all that’s required for massive gold price increases.  I believe we are on the cusp of a smart-money gold rush. It will drive gold to a record in real terms, even before retail investors join in. Though you may have missed the last decade of gains, there is still a chance to buy in before the stampede.

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For the latest gold market news and analysis, sign up for Peter Schiff’s Gold Report, a monthly newsletter featuring original contributions from Peter Schiff, Casey Research, and the Aden Sisters. Click here to learn more.

Peter Schiff is CEO of Euro Pacific Precious Metals, a gold and silver dealer selling reputable, well-known coins at competitive prices. To learn about our products and policies, please visit http://www.europacmetals.com/or call us at (888) GOLD-160.

Comments
  1. James Prime

    Hi Greg, this person sounds like an opportunistic speculator in paper silver that got margin called out. For those who invest in physical, last week’s correction was nothing more than a wonderful buying opportunity. I love your work. Regards, James

    • Greg

      James,
      He sent me a tweet and said he was being sarcastic. I hope he is really not down $40,000 but if he is he will get all that money back in good time. Thank you for weighing in.
      Greg

  2. iknowbetter

    I bought my gold over 10 years ago. The tough question is, if you buy gold now, will you be happy with your purchase in 2021 Are you ready to plan for ten years out? I did it. Do you have the balls to buy gold now and wait ten years?

    Economic news suggests you should.

    …ikb

    • droidX-G

      While I do think buying now is planning ahead, I don’t think we will have ten yearsand that if you don’t by soon ; you wont be able to get it.

  3. luke

    Right on,

    In the short-run financial institutions and for profit investors will manipulate the market to profit. This will always be true. In the long run with a failing US Economy and extreme debt ceilings along with many other things will drive commondity prices up.

    • Greg

      Thank you Master Luke!!
      Greg

  4. Michael

    Greg,

    Listened to your interview with Jason Hartman a few months back. I enjoyed it and continue to enjoy your site.

    My questions.

    Why has the Chinese currency not appreciated against the US dollar the way it should be?

    If a rather simple thinking individual can see the danger in printing the dollar into the dirt, surely the leaders of our country can. Does that mean they just don’t care?

    • Greg

      Michael,
      The whole world cares about the dollar. $7 trillion of them are held outside the country. Thank you for the comment.
      Greg

    • droidX-G

      The Chinese govt requires businesses to return a large percentge of their profits to buy Chinese bonds. Chinese govt then uses these funds to manipulate U$D. Its a pusher / junkie releationship. And they want to keep the junkie going right up to the time we OD.

  5. Art Barnes

    Yea Greg, you can hear the stampede off in the distant. What the article didn’t discuss was the poor dollar when, and if, large funds should decide to buy more than 5 percent in PMetals – what then for the dollar? Its a ways off to be sure, but once the herd gets rolling whats going to stop them? The gold stampede may be the catalist that crushes the dollar faster than even old Ben could even foresee, after all, who knows which way a stampede will turn.

    • Greg

      Thank you Art ans NM,
      Greg

  6. Fluffy

    Sorry to hear about the fellow who lost $40,000 in the silver markets. My view on the markets is that they are rigged to benefit the big banks and corporations. My faith in the financial markets has evaporated. Today, I understand why my grandparents never trusted the banks or financial markets.

    My take on Gold and Silver is that they are not a trade, although you can trade those commodities just like any other security like stocks, bonds, CDOs, oil, sea shells, tulip bulbs, etc. I am (and have been) slowly accumulating Gold and Silver Coins for two purposes. My primary purpose has been to collect coins with my discretionary Federal Reserve Notes. I am an amateur coin collector. My secondary purpose is that I believe the coins will provide me with insurance or a hedge against currency devaluation or failure.

    I hope the price of Gold and Silver never goes to the moon where I’ll have to exchange my coins for a loaf of bread or pay my taxes. If these events every happen, then the Federal Reserve Notes will become worthless and a new monetary experiment will have to start. I hope that I can pass my gold and silver coins to my children and grandchildren to enjoy.

  7. Sam

    Dear Greg,

    Darn good column, and thanks for reprinting Mr. Schiff’s column.

    As to “investing” in precious metals coins: wrong, wrong, WRONG!

    You do not “invest” in them. You exchange one form of money for another. As to the individual who whined that he lost so much money, he should have hung on, like the rest of us. When you try to use precious metals as an “investment,” you’re asking for trouble and you’re going to lose, big time. But, when you see precious metals as insurance, you really don’t give one whit about how much it goes up, or down. Because when you exchange your paper for silver and gold, you are taking out insurance on a currency COLLAPSE.

    I’ve been involved in precious metals for a very long time, ever since I was 13-year-old Boy Scout who took Coin Collecting merit badge. The most important thing I have learned is that one should have more silver than gold, because gold is wealth storage and should not be sold, but silver is for trade. It will be nearly impossible after a collapse to give change for an ounce gold coin, much less a tenth ounce one, but silver will be traded freely.

    As of this morning Kitco shows gold and silver going up again, this may be one’s last chance to jump in whilst prices are relatively low.

    • Greg

      Good points Sam. Thank you.
      Greg

    • Magnix

      Yeah, thats what Im talking about! I kept telling others on shtfplan.com and zerohedge.com not to invest in PMs, but buy/store them for trading purposes.

      Thanks for bringing that up!

  8. markm

    Hey Greg,

    Haven’t you heard the news? Employment went up by 240,000 jobs! The stock market is soaring! Inflation is well under control!

    Gold isn’t going anywhere nor is silver, because the economy is taking off.

    Yeah, I agree with your emailer, you guaranteed us that we would become rich if we invested in gold!!!!

    OT: Why is it not OK to pour water on a high value illegal-combatant prisoner, but it is OK to invade a soverign country and shoot that same person in the face, or launch a Maverick Missile at him?

    (CAVEAT EMPTOR:
    #1, employment increased because McDonald’s hired 60,000 hamburger-flippers and BLS used an accounting gimmick to make-up the rest of the increase.
    #2, Stock market gains are due to inflation caused by “Bernank” and bailouts given by Obama.
    #3, Food and fuel inflation is huge; however, these are not included in published inflation rates.
    #4, I don’t recall you telling people to buy gold and silver in order to become rich. As I recall, you thought is was a good idea to have some gold/silver as a survival hedge, in case of monetary collapse or anarchy.
    #5, It is OK for our country to have live-fire-war-time exercises in multiple countries because a Democrat is in the White House–[Democrat=good; Republican=bad–it is all politics as put forth by the MSM.)

    markm

    • Greg

      Thank you weighing in Markm.
      Greg

  9. Otter

    Congrats on printing an Austrian Economist’s analysis.

  10. Lew

    Precious metal trading isn’t for the faint of heart because of the price fluctuations (when they occur). It also is not a short term or speculative investment, if it is seen as such, the preverbal shirt will be lost.

    Gold (especially) rises on currency declines which are reasonable. Rapid rises are driven by fear (at least in the past). The price always (as far as I can see) settles back to the more reasonable price once the environment calms. The current wild ride appears to be somewhat perpetuated by institutional (and national) purchases, this should be hinting at a more systemic crisis on the horizon.

    I think there are 3 very important questions one needs to consider in precious metals:
    1- Physical possession? (I say yes). Would you really trust a banker?
    2- Is this a hedge against the dollar? (Buy Gold)
    3- Is this a hedge against the worst case scenario? (Economic collapse) buy silver, this would be (IMO) the accepted “currency” in such an instance.

    • Greg

      Thank you Lew and Cowboy for adding content to this post!
      Greg

  11. cowboy

    Greg,
    Don’t worry about the cry babies. The first rule in investing is to not blame anyone besides yourself for your losses. Silver has and will be an excellent way to protect your capital. Even a blind person should have seen this correction in silver coming and waited to buy. I used the spike up in silver to trade about half of my silver for Krugerrands. The silver was purchased in 2003 for apx $4.25 an oz. This gave me an out of pocket cost in the Krugs of $210 an oz. I am in the camp that thinks gold will be where you will need to be when we come out from whatever kind of a dollar crash we get.
    love your insights on all this selfishness and greed that has taken over America. Keep up the good work.
    Cowboy

  12. Sarkis

    Don’t Panic- Mike Maloney

    http://www.youtube.com/watch?v=RJD0qTnwFyk&feature=player_embedded#at=415

  13. Davis

    The Strange Case of Gold, Oil and Mummar Kaddafi.

    What with the world’s attention diverted with demise of Osama Bin Laden and dubious controversies over whether or not to release any photographic evidence of his brain matter, the story of the ongoing violence in Libya has been moved to page 12 so to speak. That is until just the other night when Kaddafi’s forces managed to blow up the last remaining oil facilities in rebel hands at the port city if Misrata. Going up in the smoke of the fires was not only the rebels last hopes of holding the city but any potential of funding there little revolution with oil and any financial viability to the curiously and hastily created new Central Bank of Libya.

    I’d say that it’s a pretty safe bet that Kaddafi is a low life tin pot dictator not much different than any other low life tin pot dictator found all across the Arab world. This raises the questions of why Libya and why now? As the wave of violence spread across the Middle East Kaddafi was hardly the only or the first to turn his guns on his subjects. In particular, as in Syria, where using unarmed protesters for target practice is now a daily ritual.

    So is there something going on under the surface with Libya that is perhaps not being discussed but is also perhaps a driving force behind the “humanitarian mission” that NATO has undertaken? Well let’s look at a few elements, some not necessarily making the front page in the New York Times.

    1. Shortly after the so-called rebels took control of the city of Benghazi it was announced that it would become the home for a new Central Bank of Libya and would seek association with both the (International Monetary Fund (IMF) and the Bank for International Settlements (BIS).

    2. This new “Bank” would also become the financial clearing house for new oil export agreements between the new rebel “government” and other Arab states that would provide the logistical support to get the oil out of Libya, i.e. tankers and refinery capacity.

    3. Libya’s existing Central Bank is wholly owned by the State and is not affiliated with either the IMF or the BIS. (Not to mention that it also owns about 12% of the major Italian banks.)

    4. Just a few months before this “revolution” spread to Libya, Kaddafi (through the state owned bank) announced that they were seeking to create a “Gold Dinar” to be used by Arab and African States as the medium of exchange for oil transactions within the region.

    5. Any such transaction would be outside the reach of the IMF and BIS and would not necessarily be based on any translation of the spot price value based in U.S. Dollars, and whatever the agreed to transaction price was, based in Gold Dinars.

    With any such transactions now taking place directly between the buys and sellers and cutting out the western spot market and banking interests and eliminating whatever their cut of the action is for the currency trades certainly casts an additional if not different light on the above questions of “Why Libya and why now.”

    I’ll be waiting for Osama Ben Bernanke to be asked about this at his next propaganda press conference. But I won’t be holding my breath.

    • Greg

      Davis,
      guest Writer Ellen Brown wrote a very informative post about this subject a few week ago on USAWatchdog.com. Your comment is on target and backed up by fact. Thank you for bringing this up and adding your spot on analysis!!!
      Greg

  14. James M

    I took $10,000 out of a garaunteed annuity and bought 500 oz’s of silver delivered last July on the advice of a friend. When it hit $42 a couple weeks ago I thought it was getting to steep, so I sold half for $10,500 and bought 5 oz’s of gold with the money in the same transaction. I took the rest, got my truck tuned up, new brakes all around and I put 4 new tires on it and then I had a good weekend getaway up in Maine for two nights with my girlfriend with some cash to spare after all was said and done. I still have $9500 worth of silver but now I also have my truck taken care of for 2-3 years and $7500 worth of gold to boot. If I had waited another few days until silver hit $49 I would have made even more and if that money was left in my annuity would have earned me a measly $500 last year and it has actually only been 8 months. Woo Hoo!!

    • Greg

      James M,
      Thank you for sharing your investment insight and story with us hare on USAWatchdog.com. Sounds like you have hit a home run and the bases are still loaded with no outs!!!
      Greg

      • James M

        I have never invested in anything. I have a decent retirement account for a 43 year old single guy that does construction work. I am in and out of unions and in and out of unemployment. Times have changed drastically in the last 3-4 years. I have actually had enough time without work to be able to read a hundred books and watch 100 videos about what is actually occuring in America right now. I find it contemptable and sickening. I really wish that I knew what I know now when I was 20, I would be retired right now and donating to your website. I am not a rocket scientist but if one knows about the debasement of currency and one can watch it and play commodities one can do quite well as I just did. I think I might go into organic vegetables and grass fed cattle. That is going to go absolutely bezerk in ten years. Thanks for having a cool website my friend, James

        • Greg

          Thank you James M.
          Greg

  15. David

    Your email commenter lost $40k because of himself. The rest of us HOLD silver as a hedge against the dollar. I would never say that I’m INVESTED in silver, though from an “investment” perspective, my holdings in silver are doing very, very well. But alas, I am uncaring about how my silver holdings are doing as an investment.

    Anyone who emails you and says you should apologize for telling him to invest in silver and gold is part of problem of people refusing to take responsibility for their actions in this country.

    I say to him, Man up!

  16. Mountainaires

    Read this [below] today, found it informative: I agree with Rodgers, and Schiff, both very smart men. The investor who claims to have lost $40,000 should have listened to them, too, as well as Jim Sinclair.

    Manipulation in the Silver Market

    “The public has warned the Commission to no end about wrongdoing in the silver market, only to see that wrongdoing blatantly displayed again. There are many legitimate questions about what actually took place, such as the ones I have listed….”

    http://news.silverseek.com/SilverSeek/1304873055.php

  17. bizowiso

    Awesome post

    • Greg

      bizowiso,
      Thank you for the “Awesome” comment, really!!!
      Greg

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