Institutional Demand Will Drive Gold Ever Higher
The comments below are an edited and abridged synopsis of an article by Egon von Greyerz
Embrace uncertainty, says von Greyerz, for everything (the stock market, the economy) is uncertain. The sun will likely rise tomorrow, but we are at a point in history when trend extrapolation is going to be not only precarious but also both foolish and impossible.
Up for discussion: the end of a major cycle; central banks are panicking; the US road to perdition; US debt doubling every eight years; gold is the guardian of truth; total dollar annihilation inevitable; institutional gold buying; there is not enough physical gold in the world; and future gold demand cannot be satisfied at the current price.
If we assume that world financial assets are $500 trillion, total investment gold ($2.6t) represents 0.5%. If 5% of the world’s financial assets were invested in physical gold, that would be $25 trillion, which is 10x all the investment gold today. Most of this gold is not available and certainly not at the current price. But if just 1% of total assets went into gold, that would be $5 trillion, or 2x all the investment gold today. It would be impossible to acquire this amount of gold at the current price.
Institutions will likely want to inflation-proof their assets by holding some gold, which won’t be available at the current price. So an institution that decides to invest $1 billion in gold will have to buy it at perhaps 10x today’s price—or more. Instead of getting 16 tonnes at $1,940 per ounce, the institution will get 1.6 tonnes at $19,400 per ounce for the $1 billion invested.
The paper gold market will probably collapse soon. There is no possibility of delivering physical gold against the outstanding paper claims that are 100-300x times the available physical gold. And institutions that intend to buy gold would be unwise to buy anything but physical to be held in their own possession.
The combination of institutional and private gold buying will drive gold to unimaginable levels. The $19,400 price example above is probably too low, especially with the money printing to come.