Fyi, Speaking of the Yellow Stuff / Glorious Gold, I see where,...

Fyi, Speaking of the Yellow Stuff / Glorious Gold, I see where,

If you’d stuck your money into the goldies this week, then you’d likely be smiling as the XGD ASX All Ords Gold index is pointing 3.2% higher for the week, ahead of the Banks on 1.32% and Resources on 1.08%.

Good session, that. Nicely played.

Same again next week, please. And now onto this article’s headline act…

Two sets of investment experts have made some head-turning comments about atomic number 79 this week. Let’s examine, and prize out the best nuggets, because there are some beauts.

Firstly we have Wall Street resources investors Goehring and Rozencwajg, who have just provided their thoughts on what they see as an “upcoming gold bull market” in a new report.

Their best quote is this little show-stopper:



Interestingly they clarify they are “no gold bugs”, which makes their thesis even more compelling, really. And that’s a thesis based on determining when gold is undervalued or overvalued.

“If an investor can identify periods when gold becomes extremely undervalued, it can offer exceptional excess returns, often uncorrelated with other financial assets,” they write.

Right now, according to Goehring and Rozencwajg, it’s very much undervalued considering what they believe is ahead.

Meanwhile, here’s what Morgan Stanley reckons

Gold has been showing a huge amount of resilience and staying power amid the interest rates hiking-a-thon this year, believes Lisa Shalett, Chief Investment Officer at Morgan Stanley Wealth Management, and it represents a buying opportunity of, you guessed it, the golden variety.

“Like equities, which have continued to shrug off the negative implications of rising real rates, gold, which moves inversely to real rates and in turn to the U.S. dollar DXY, has remained extremely resilient,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in a note earlier this week.

“Regarding the intermediate outlook, we are buyers of gold on weakness or declines in rates,” she wrote.

Further to that, gold’s resilience is possibly tied to a market expectation that central banker rate hiking is temporary and “purely technical,” added Shalett.

How high could gold go in an upcoming bull market?

This is the US$14,000 question. And, actually, we  just answered it right there.

Or, more specifically, Goehring and Rozencwajg did.

That’s US$14,000 per ounce, a bit more than a 7X from the yellow metal’s current price of US$1,940 an ounce.

Why that figure?

The analytical resource investors looked to the past, to dig that one up. In previous gold bull markets, they wrote, “the value of the US Treasury’s gold holdings has surpassed the monetary base by over 1.5 times – including in 1980 after the US dollar was no longer backed by gold.

“The Fed’s monetary base today stands at $5.6tr. For the Treasury’s gold holdings to cover the monetary base by 1.5 times, gold would have to reach $32,000 per ounce.

“Critics might argue the monetary base is distorted by excess reserves left on balance at the Fed.

At present, excess reserves foot to $3.2 tr, and the Fed has talked of someday draining them out of the system. If that were to happen, the Fed’s monetary base would fall to $2.4 trillion.

“Even under this conservative scenario, gold would have to reach $14,000 for the Treasury’s gold position to cover the monetary base by 1.5 times…

“Could the dollar value of the Treasury’s gold holdings reach 1.5 times the monetary base – as it has twice in the last 100 years?

We believe it’s highly probable.”



Food for thought  

Frank