As the saying goes, when it comes to investing, it pays to watch money flows.
For the past four years, the money has flowed out of the gold market en masse. With the exception of bullion sales, money flows into this sector have cratered—EFT holdings, gold stocks, exploration budgets, M&A, etc.
But that has abruptly changed.
Check out how the interest from a myriad of banks, hedge funds, and institutional investors has shifted to positive in the gold market in the past 30 days. As you peruse the list, keep in mind not just how much money these investors control, but also the influence they may have on other investors…
“We retain a bullish bias on defensive markets and gold (upgraded) versus risk assets.” It added that the “hoped-for coordinated policy stimulus is likely to be disappointing.”
“… Rising economic risks and market turmoil mean investors should buy [gold] for insurance… there are rising stresses in the global financial system; in particular the rising risk of a US corporate default cycle and the risk of a sharp one-off renminbi devaluation due to the sharp increase in China's capital outflows. Buying some gold as 'insurance' is warranted."
As someone who was a staunch gold bear, she now says gold is “on the brink of a bull market.”
This formerly gold bearish bank now says it makes sense to own gold in an environment of growing market uncertainty and rising volatility. “Our ratio analysis between gold and other commodity baskets—as well as the S&P 500 index—exhibits a well-defined relative outperformance picture, particularly in Canadian dollar terms.”
Further, “gold peaked in 2011 and has declined by over 43% within a 45-month downtrend. Historical corrections for gold show an average decline of 39% peak-to-trough within a 32.5-month timeframe; in other words, both amplitude and duration of the current down-cycle in gold has already been satisfied.”
Last, despite gold’s run since the start of the year, the analysts said the best may still be yet to come, with gold demand being the strongest from late summer to late fall.
“Our portfolio is now 5% Underweight equities, the first Underweight this cycle. In commodities, be short gas oil and base metals, but Overweight gold.”
“We believe gold is well supported in the market environment of continued high uncertainty and negative interest rates.”
The bank is not only bullish on gold, but the entire precious metals market. Silver has lagged, with the gold/silver ratio rising above 80 for the first time since December 2008, but the analysts said they’re confident the gap will close later in the year.
“Gold is the ultimate beneficiary when central banks run out of ammunition and more stimulus and negative interest increasingly become counterproductive… long gold might be the best macro trade to the upside for 2016 and beyond.”
“I think people are so confused about this market. Nobody really understands what's happening, including me. So, things that I thought made sense didn't make sense and weren't working. ... When traders don't know what to do, they go where everybody is. And I thought that would be gold.”
Cuban said he bought "a lot" of call options on gold.
“Gold's never made headway when real interest rates have been above 1.8%—we're way below that now and back on a negative trajectory.”
All three of Morris’ signals are no longer bearish, so he is confident that the December $1,050 low was the bottom of the market.
“I believe we are beginning to witness a tiny bit of disintermediation out of Treasuries in favor of gold, and I think that is extremely bullish.”
“Deterioration in China's macro backdrop could trigger flows towards gold; there are a limited number of investment alternatives and gold is poised to benefit should outlooks across the different options turn sour. “Moreover, rotation into gold ETFs would be a relatively easy switch for local equity investors and could gain further traction if equity markets continue to weaken. Despite small volumes, the trend would be interesting and could signal a change in how Chinese investors look at gold.”
The bank pointed out that the two Chinese gold ETFs it tracks have increased by a combined 174,580 ounces year to date.
“The inflows for January and February alone exceed the entire exodus from the last two years combined.”
American Eagle gold coin sales in February more than quadrupled year on year. The mint sold 83,500 ounces of American Eagle gold coins, more than four times the 18,500 ounces sold in February 2015. And American Eagle silver coin sales reached 4.78 million ounces in February, up 58% from a year ago.
These investors follow Ray Dalio, Stan Druckenmiller, John Paulson, Jim Rogers, and other big hedge fun names who’ve already taken large positions in gold.
The shift is on. All this new money coming into the gold market is driving the price, and will continue to push it higher. Not many, however, realize how small the gold market really is and what a big impact this growing demand will have on the gold price.
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