For more than a year, I’ve been strongly encouraging readers to consider buying gold. In fact, almost exactly one year ago to the day, I wrote that gold was cheap relative to just about every other asset class in the world.
Since then, gold has been one of the best performing investments in the world.
Over the last 12 months, the price of gold is up 21.1%, handily outperforming everything from the S&P 500 index in the US to stock markets in China, Europe, and Canada, plus bonds, real estate, and even major commodities like oil.
Gold has even outpaced the stock prices of many of the world’s most popular tech investments like Netflix, Tesla, Amazon, etc.
(One of the more interesting exceptions has been Bitcoin, which has more than doubled in value over the last 12 months. We’ll talk about that another time.)
But while gold’s investment performance has been great, I want to tell you today why that doesn’t matter one bit to me.
According to data published by the World Gold Council (WGC), in the last quarter alone, both retail investors and a number of large hedge funds have been piling into gold.
That’s certainly been one factor driving prices higher. But to be frank, that sort of demand is extremely fickle.
The WGC data show that most small investors are buying into gold ETFs (which as I’ve explained previously is probably the dumbest way to own gold.)
Gold ETF buyers are NOT long-term investors. They’ll most likely sell the minute gold prices start to fall.
Hedge fund managers won’t hesitate to sell either, especially if they need to boost their quarterly returns.
So, long-term, gold prices won’t be driven higher by fickle investor demand.
The real demand that’s worth watching comes from foreign governments and central banks– institutions with such a heavy appetite that they buy gold by the metric ton.
In the third quarter of this year, Turkey bought 71 metric tons of gold. Serbia bought 9 metric tons of gold in the month of October alone.
Poland doubled its gold reserves last year. And China has been gobbling up not only gold, but gold miners too.
It’s critical to understand that foreign governments and central banks tend to be buyers of gold. They’re rarely sellers.
» Source » By simon Black