Gold Bugs Emerging in Some Unlikely Places
Courtesy of Graham Summers, founder of GPS Capital Research.
Gold, unlike most commodities, has almost no utilitarian value— unless you count jewelry as useful, which I don’t. Consequently, it is best to think of the precious metal as a currency. And unlike fiat (paper) currency which ultimately is worthless— as all paper currencies have proven to be— gold has real legitimate value.
From roughly 500BC to the 20th century, gold was the primary currency. There’s even a “suit standard” which asserts that throughout history— from the time of Shakespeare to the time of today— a well-tailored suit cost the same as an ounce of gold.
In addition to its historic value as a currency, gold has another important quality: there is a finite amount of it. You can’t make gold out of thin air. Compare this to the US dollar—where the monetary supply has increased 26% year over year—and you begin to see why the non-existence of a gold “printing press” is a good thing.
Because of these attributes and more, gold is commonly used as an inflation hedge by investors. And with inflation soaring around the world— nearing double digits in China and India as well as the US— it’s beginning to look like the only currency of real value.
And smart investors have taken notice.
One of the most notable investors to buy the precious metal is Jean-Marie Eveillard, the legendary fund manager for the First Eagle family of funds. Since 1970, Eveillard has produced average annual gains of 15%. If you’d invested just $10,000 at his fund’s inception, today you’d be sitting on more than $683,000.
Even more incredibly, Eveillard has only had two down years in all that time. And the two years that he lost money, he barely lost anything—his losses were only -1.3% and -0.26%! We’re talking about a virtually flawless record spanning more than three decades. Obviously this guy knows how to invest safely.
Today, Eveillard’s second largest position is gold. He actually owns all of the gold held in the HSBC bank in Times Square: a massive room filled with over $2 billion worth of bullion. When you combine the holdings for all four funds he manages, gold bullion and gold mining stocks comprise nearly 10% of Eveillard’s total assets.
Eveillard views his gold stash as “insurance.” As he recently told Bloomberg TV, “I think that the time will come when investors will look at the various currencies… and will suspect that the days of the dollar-based monetary system are on the way out.”
It looks like he’s right.
Ambrose Evans-Pritchard of the UK newspaper The Telegraph recently noted that Iran is shifting a portion of its $80 billion reserves into gold bullion. Iran stated that it is pulling its money out of euro instruments to avoid sanctions over its nuclear weapons program.
Iran is not the only one. Vladimir Putin, Prime Minister of Russia, has ordered the Russian central bank to switch 10% of its reserves to gold. For the first time in history, the Russian central bank is buying from gold producers, not other central banks. Altogether, Russia has bought over 43 tons of gold (over 1.3 million ounces) since July 2007.
One thing’s clear, some big players are starting to shift some very large quantities of money into gold. It’ll be interesting to see what impact this has on the precious metal’s price.
