Summary
- Indians have a strong cultural affinity for gold, and their demand for physical gold will likely increase as they become wealthier.
- China, Turkey, and India are major buyers of gold, despite only mining small amounts domestically.
- Wealthy nations like China have set up physical gold exchanges and have increased physical gold deliveries, particularly through the Shanghai Gold Exchange (SGE).
- Mark Mobius, a prominent investor, advocates for a 10% allocation to gold, though this is uncommon in the West.
- UBS is encouraging clients to move to a 5% gold allocation, with predictions of a gold price surge to $2,900 in 2025.
- Historically, a 20% gold allocation has provided a better risk-reward ratio compared to stocks and bonds since 1968.
- The current market suggests we may be entering a bear market for both bonds and stocks, making higher gold allocations more critical.
- Central banks are buying gold at unprecedented levels while preparing for more monetary easing cycles, leading to more fiat currency creation.
- Gold prices, adjusted for inflation, have not reached their 1980 highs, and true inflation-adjusted levels suggest prices could approach $30,000 per ounce.
- Silver is also poised for a bull market, with supply deficits and increasing demand likely pushing prices toward $50 per ounce and beyond.
Mark Mobius is correct. Indians love gold, and as they become increasingly wealthy they will likely continue being one of the largest physical gold buying markets in the world.
China, is a similar story. Both countries and Turkey are large buyers of gold per capita, yet only mining small fractions of the physical gold they typically demand year on year.
Increasingly wealthy nations like China have set up major physical gold exchanges, where as of the latest gold spot price dip in early August two months back, they were seen increasing their deliveries of physical gold off their local Shanghai Gold Exchange (SGE).
Mark Mobius is a renowned figure in emerging markets investing, at age 88 still going strong, he has an estimated net worth of approximately $60 million fiat US dollars as of 2024. His wealth is the result of his long and successful career in investment management spanning several decades.
But his suggestion to investors holding a 10% gold allocation is not common in the modern western world. That said, in the west gold allocation trends are changing.
Commercial bank UBS has begun pounding the table for clients to move to a 5% gold allocation with forecasts of a run towards $2,900 in late Q3 next year 2025.
But the issue with these tiny allocation suggestions remains the damning back tested data.
From 1968 to now in 2024, data suggests when measured against the S&P 500 US stock market index, and the US bond market performance, the correct risk reward allocation to gold bullion over the last 55 years has been around 20% of one's liquid investments allocated to gold throughout.
The other issue for investors today is most likely to remain unaware that we have likely entered the bear market for both bonds and stocks which are typical in paper asset 60/40 investment portfolios.
According to data, in the last 125 years of financial history we have gone through 6 eras of 60/40 bond stock bear markets in which performances have been sideways in real terms versus inflation. They have averaged more than 11 years.
Now beginning these 2020s, it appears we have entered the 7th bond stock market combo bear market, hence the need to pivot in aggressive gold allocations now, not later at higher relative values.
Globally the world's central banks are on the aggregate buying gold bullion in tonnage never before seen in financial history. Meanwhile they have entered what appears to be another growing rate cutting and monetary easing cycle (in other words more fiat currency and BRRR is upcoming).
We can say that because year over year data is screaming so globally. And no, this isn't real money growing, it's simply fiat currency units created from thin air that barely store value over the average human lifetime. This fiat US dollar dominated free floating currency regime remains afloat for now.
As we add another $345 billion to our now $35.7 trillion US Federal debt level.
You could try and run to the world's second largest fiat currency unit, but news flash.
They're in about as big a debt and unfunded liability quandary that we are in the United States.
The fiat euro will keep losing to gold bullion as well.
Last week I reminded you that even if we use the increasingly rigged US government price inflation data, the seemingly large record nominal gold price high at the moment is still well of the 1980 high using their rigged data working backwards.
But if we use the old pre-1980 version to gauge price inflation since then without rampant hedonic adjustments and inflationary data lie substitutions, the ShadowStats 1980 gold price high is nearing $30,000 oz looking backwards.
Where the spot gold price goes in nominal fiat US dollar units through this decade into next in terms of number go up is not what one should be focused upon.
Instead we should focus on what in real terms an ounce of gold can buy you in real world goods on a historic basis to know when to increase and or lesson one's gold allocations.
For instance today the S&P 500 US stock index closed at 5,751 meaning it still costs over 2 ounces of gold to afford just one share of that current stock bubble.
I'm not interested in buying US stocks on a relative value basis until and at least we again see a one to one parity or below. As this building gold bullion bull is going to likely end up making 2011 look like a grade school dress rehearsal.
Similar but even more aggressive story on the silver side of this relative value equation. In terms of the S&P 500 currently valued by spot silver, we're in a bubble only outdone by the year 2000 version. I don't care about swapping silver for US Stocks until at least this ratio falls below 50 back towards the pip squeak silver bull market of 2011 lows.
On the other side of this short break we are going to look at some short term factors for what's next. As well as longer term fundamental supply demand factors that are lining up to make this building bullion bull market an all timer.
The spot silver gold markets traded and closed in mixed fashion on the week with more relative strength in silver than in gold.
The spot silver price finished above $32 oz bid while the spot gold price closed just over $2,650 oz bid.
The spot gold silver ratio dipped to 82.
Another fiat US dollar pump occurred today on yet another phony jobs report that will certainly be adjusted lower months from now.
Short side trading algorithms of course attempted to shake out longs, but the bid returned quickly into a reversal price spike intraday today.
This coming Monday is the final holiday with the Chinese away from their trading desks. I look for some price weakness to perhaps hit early in the week, and remain interested to see what follows once China returns to the gold market Tuesday and beyond.
The Russian Federation recently announced they will begin buying silver, palladium, and platinum for state fund stockpiles. Annual allocations of a half billion fiat US dollar equivalent are now set to spend forward in Russia on the aforementioned precious metal state stockpiles.
In terms of the silver market, technically it appears we are beginning to make the bull market spot price climb toward higher $30s towards $40s oz sooner than later.
With the world's physical silver market in record supply deficits for years behind and ahead, this chart does a good job of showing just how pip squeak the 2011 bull was in underlying supply demand fundamentals.
Metals Focus had an insightful publication this week about the ongoing supply demand issues in the world silver market.
Asking and then trying to answer the following question.
With silver supply deficits unlikely to be met by ongoing supplies for years to come, the only way to finally begin returning the world silver market in surpluses rather than deficits is to finally allow the multi-decade suppressed spot silver price to return towards its ancient nominal price high of $50 oz and then eventually break beyond that level in mania.
It is in that coming mania I maintain that the shadow eastern price of silver currently around $380 oz will eventually return for a future fifth meeting with the red silver spot price line on this critical full fiat currency era chart.
By the time this occurs it will likely begin to make sense to rotate some gains out of silver and gold into other asset classes probably around the time that future US stock market investors are swearing off that asset class for its terrible underperformance in real value terms to come.
That is going to be all for this week's SD Bullion Market Update.
As always to you out there.
Take great care of yourselves and those you love.
