Is the Gold Trade 'Crowded'?

By: Jeff Clark | Fri, Jul 16, 2010
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It's true that GLD's assets just passed the $50 billion mark, and that it's the second largest U.S. ETF. Yes, mints had difficulty filling orders when the Greek crisis broke. And yes, the gold price is up nine years in a row.

But those who look at statistics like these are missing the other side of the equation. I think it's less about how much money is already invested in gold and more about what's available to invest. After all, one could be impressed that China, for example, invested $14.6 billion in gold over the past few years - until you realize they have $2.45 trillion sitting in reserves.

So, how much is invested in gold, and how much is available?

Gold ETFs versus US Money Market Funds

According to hedge fund Paulson & Co, if you added up all the money invested in gold ETFs, it would total $78.3 billion (at $1,200 gold). The amount of money currently sitting in U.S. money market funds, on the other hand, comes to $2.849 trillion.

In other words, all the money invested in gold ETFs represents just 2.7% of what is sitting in cash. Put another way, if just 5% of available money market funds ($142.4 billion) were to move into the gold ETFs, it would almost triple the current value.

But what if it's 10%? And what if Doug Casey's call for a modern-day gold rush comes to pass?

Those who claim the gold market is crowded will also point to Paulson's extraordinary high percentage of funds sitting in yellow metal investments. Yes, he's got a $3.4 billion stake in GLD - but the critics didn't look under the hood. Most of those holdings are from the fund's employees (including John himself), not outside investors. Not exactly an overheated trade.

To some, the amount of money invested in gold may "feel" high, but it's a relative pittance compared to what's sitting idly on the sidelines, waiting for a reason to move and a place to go. And when you consider that the vast majority of U.S. citizens don't own any form of gold, this is a market that is the opposite of crowded. There is a lot of money that could hit our sector.

And it's not just precious metal funds. I interviewed Andy Schectman of bullion dealer Miles Franklin, and Kevin Brekke, our Switzerland-based editor, told me it was the most informative interview we've published this year. Why? Because based on what Andy sees week after week regarding supply, he's come to the conclusion that we'll see a serious drought of bullion when the average citizen begins to buy gold. Meaning, if you wait to buy until everyone else does, you may find yourself out of luck. And the data I present this month backs up that claim; in fact, you may be surprised at some of the findings.

If you're not a subscriber to Casey's Gold & Resource Report, you may want to pony up the $39 to check out the current issue. Not only does it contain Andy's insightful - and scary - interview, but I've arranged for huge discounts on the premiums of two bullion coins. The amount of money you'll save from buying one of each coin is more than the cost of a one-year subscription. And you can't get these prices anywhere else.


We're "Calling All Gold Virgins" in the July issue. So if you don't own any gold, or don't have enough, well, I've made it very easy for you to lose your virginity. Click here to sign up for a risk-free 3-month trial.

 


 

Jeff Clark

Author: Jeff Clark

Jeff Clark
Editor: Casey's Gold & Resource Report
Casey Research, LLC.

Jeff_Clark

Having worked on his family's gold claims in California and Arizona, as well as a mine in a place to remain nameless, Jeff's research and writing skills are utilized in his role as editor and one of the primary writers of Casey's Gold & Resource Report.

Whether it is researching new companies to recommend, analyzing the big trend in gold, or looking for other safe and profitable ways to capitalize on the bull market, Jeff is devoted to making Casey's Gold & Resource Report the best precious metals newsletter for the prudent investor. He coordinates the efforts among the research and writing team, ensuring that whatever is happening in the gold and silver market doesn't escape coverage.

Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained herein is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed herein are those of the publisher and are subject to change without notice. The information herein may become outdated and there is no obligation to update any such information. Doug Casey, entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications. Corporate policies are in effect that attempt to avoid potential conflicts of interest, and resolve conflicts of interest that do arise in a timely fashion. No portion of this web site may be extracted or reproduced without permission of the publisher.

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