Asset Managers to Send Gold Prices Soaring?
If you want to know where gold prices are headed, you have to start paying attention to the big picture.
Understand that gold is a global phenomenon. Call it the global currency; don’t think of it as something limited to just one country.
Advertisement
You see, as it stands, we are seeing a significant amount of development at the global level that suggests that if you don’t look at gold prices now, you could be kicking yourself later.
One of the biggest things that investors need to pay attention to is where the “smart money” will flow in the next few years.
Consider this: according to a report by PwC, a multinational profession services firm, global assets under management are expected to increase to $101.7 trillion by 2020 from $63.9 trillion in 2012. That’s roughly 5.47 trillion a year going towards assets management each year on average! (Source: “Asset Management 2020,” PwC, last accessed September 7, 2016.)
Before going into any details, let me ask one question: don’t you think even a little bit of this money could move toward gold?
Dear reader, currently, uncertainty in the global economy is increasing each day.
We see major economies are struggling.
Look at Japan, for example; the Bank of Japan continues to print and the economy hasn’t done anything. It’s been stagnating for a very long time, and the Japanese currency has taken a tumble.
In Europe, negative rates are in full effect. If you buy German government bonds, for example, you will lose money. They have a negative yield.
And stocks in general have increased significantly since the financial crisis and investors are giving them wild valuations.
It shouldn’t be shocking to see some of the money that goes toward asset management coming to the gold sector instead. Remember, gold provides a hedge against uncertainty and volatility.
Now, back to the $5.47-trillion figure that’s expected to move toward asset management each year.
It’s very likely that an asset manager could think of gold as a hedge for their portfolio, given the negative interest rates, uncertainty, and everything else around it.
Gold Prices Outlook: Bullish, Mining Stocks Worth a Look
How much could investors pour into gold?
Usually it’s said to have 10% of one’s portfolio in gold and precious metals.
If we assume this is the rule asset managers could follow, then we could see a flow of about $550.0 billion into the gold market each year. This is going to be big for gold prices.
Understand that the gold market is very small compared to the stock market or the bond market.
If that sort of money goes into the gold market, you could see gold prices double or triple in a very short period.
It may sound a little unorthodox, but it could send gold prices to $5,000 very easily.
Obviously, time will tell.
In the meantime, the wisest thing for investors could be to pay close attention to gold mining stocks. If gold prices double from where they currently stand, gold mining stocks could provide investors with obscene profits.
Don’t think this could happen?
Look at Gold Resource Corp. (NYSEMKT:GORO), for example. Year-to-date, gold prices are up about 26%, but GORO stock is up 293.94%. This means that for every one percent increase in gold prices, Gold Resource’s stock increased 11%.
However, please note that this not a recommendation to buy. It’s just an example of how investors could take advantage of higher gold prices.
