Why There’s an Irrational Negative Bias Against Gold
The comments below are an edited and abridged synopsis of an article by James Burton
According to Nick Barisheff, president and CEO of BMG Inc., a campaign of disinformation about gold by Wall Street and the central banks has created an ‘irrational negative bias’ against the asset class.
Barisheff believes that pension funds and advisors have nowhere near enough gold in their portfolios. He says that allocating to gold allows investors to step back and wait until stock prices become attractive again.
BMG Group is about to launch its BMG Diversified Hedge Fund. It already has three mutual fund trusts: BMG BullionFund, BMG Gold BullionFund and BMG Silver BullionFund. It also runs a BMG BullionBars program.
There are only two major pension funds in the world that have exposure to gold—Texas Teachers and the Amsterdam Pension Fund. Unifor invested with BMG last year.
Many smaller pension funds don’t have any real estate in their portfolio and rely on stocks and bonds. In 2018, the average global pension fund that had a 60-40 allocation lost 5%.
Barisheff discusses why we are on the edge of disaster: The longest running bull market in history; overvalued ratios; bubbles in equities, bonds and real estate. The markets have been buoyed artificially by central banks flooding them with paper currencies. When that happens, there is an opportunity to buy low, and sell high.
Given that the gold price and the US dollar have been largely correlated over the years, US debt isn’t going to decline. Then there’s the $15 trillion of negative interest debt and how, typically, gold goes up when the real interest rate is negative.
“Globally, the amount of gold in portfolios is about half a percent,” said Barisheff. “In the 1970s it was 5%. Right now, there’s about $300 trillion in financial assets; 5% would be $15 trillion. So, if $15 trillion tried to buy gold, but there’s only $1.7 trillion of above-ground gold available, you can’t divide 15 into 1.7 without the price going up to $10,000.”
“…on a normal day you [should] hold between 10% and 20% in gold because it reduces portfolio volatility and improves returns. It’s that simple. The reason it reduces volatility is because gold is the most negatively correlated asset. So when stocks and bonds are going up, gold is going down, and vice versa.”