Marketwatch.com released an article this week entitled “Why Your Portfolio Doesn’t Need Gold”. This is just one of a barrage of articles and commentaries triumphantly predicting the end of the precious metal’s raging bull market. Gold reports on the major TV networks are down sharply, and the public seems to have forgotten the yellow metal, which was all the rage just nine months ago. Still, this is not the whole story. At the same time, major institutional players have been quietly decreasing their bets against gold. What do they know that the pundits have missed?
My personal thought is that simply doing the opposite of whatever is being pitched by the talking heads on the financial news stations may be about the best investment strategy one could employ. When gold hit $1900 per ounce, they couldn’t sing enough praise. Now that it’s by all accounts grossly undervalued, it doesn’t get the time of day.
Remember that financial publications and news operations are there to sell stories and increase viewership, not to make sound predictions. Perhaps this is why the author of this week’s Marketwatch article takes all the popular shots against gold. He says it’s a bad investment because it is unpredictable and that it is prone to large booms and busts. He says gold has no value other than its perceived worth. That gold is volatile is absolutely true, and it’s why the metal has produced 500%+ returns in the last decade. It’s even correct to say that gold’s only worth is people’s faith in its value. The same can be said of the almighty dollar, which has held people’s confidence for a hundred years. Gold on the other hand has held confidence for millennia.
What’s not being talked about is the behind-the-scenes activity by the major players. Industry insiders closely watch the COT (Commitments of Traders) reports, which are released each week. These reports show what the major institutional investors are doing with their gold bets. Last week, the COT report showed the lowest level of major short positions (bets against the gold market) since the low of 2008. In other words, fewer institutional traders bet against gold last week than at any time since the massive 2008 correction that saw gold prices slide over 30% in 8 months. What followed that bottom was a nearly uninterrupted run of over 100% returns. This week’s COT report is due out on Friday, and it may well be the most bullish one we have seen in a decade.
In addition, it should be noted that central banks have now added to their total gold holdings every single one of the last fourteen months. In short, major institutional investors, hedge funds and central banks are all positioning themselves for a significant upside move in gold. Even Iran is rumored to be buying up all the physical gold supply in the region. What do all these guys know that the talking heads and pundits don’t? Probably a whole lot.
Mike Getlin is Executive Vice President of Merit Financial, home to America's fastest growing physical gold IRA company. Please send comments or questions to firstname.lastname@example.org.