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The world's super-rich are hoarding physical gold


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Bullion is the only real hedge

Gold has had a great run in 2019.

Over the last year, gold prices are up nearly 20%. The yellow metal is on pace for its best year since 2010.

In a note to clients published over the weekend, analysts at Goldman Sachs outlined why the strategic case for owning gold remains strong. The firm cites political uncertainty and recession fears that are unlikely to abate as primary catalysts, among other worries among the global elite like wealth taxes and increasing talk about MMT and central bank effectiveness.

By 2020, the firm thinks the price of gold will reach $1,600 an ounce; on Monday, gold was trading near $1,460.

But the firm also surfaces some really interesting data on how investors have expressed their desire to own gold. Which is that owning the physical metal seems to be the global elite’s preferred way to hedge against tail events.

"Since the end of 2016 the implied build in non-transparent gold investment has been much larger than the build in visible gold ETFs," the firm writes, citing the chart below.

Trade data implies that gold in storage has increased far more rapidly than is reflected by financial market instruments, indicating a widespread preference for physical gold instead of gold-linked financial assets. (Source: Goldman Sachs)
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Trade data implies that gold in storage has increased far more rapidly than is reflected by financial market instruments, indicating a widespread preference for physical gold instead of gold-linked financial assets. (Source: Goldman Sachs)
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In plain English, this means that for those including gold in their end-of-the-world trade, owning gold bullion is a must.

"This [data] is consistent with reports that vault demand globally is surging," the firm writes.

"Political risks, in our view, help explain this because if an individual is trying to minimize the risks of sanctions or wealth taxes, then buying physical gold bars and storing them in a vault, where it is more difficult for governments to reach them, makes sense.”

"Finally, this build can also reflect hedges by global high net worth individuals against tail economic and political risk scenarios in which they do not want to have any financial entity intermediating their gold positions due to the counter-party credit risk involved."

This thesis also brings to mind Evan Osnos' 2017 New Yorker story that chronicled efforts from the super rich to prepare luxurious hideaways that will see them through the apocalypse.

The head of an investment firm told Osnos that, "A lot of my friends do the guns and the motorcycles and the gold coins. That's not too rare anymore."

As Osnos chronicled, underground bunkers with air-filtration systems and helicopters that are gassed up and ready to go are now the real differentiators in the prepper community.

If you want to be truly prepped, then owning gold is just table stakes.

And for Goldman Sachs, that reality helps round out the already strong thesis for investing in gold.

https://finance.yahoo.com/news/gold-high-net-worth-wealthy-hoarding-physical-gold-morning-brief-111534226.html

 

 

Maybe they know something we don't.

B/A

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Goldman Says Central Banks Gobble Up 20% of Global Gold Supply

(Bloomberg) -- Central banks are consuming a fifth of the global supply of gold, signaling a shift away from the dollar that’s bolstering the case for owning bullion, according to Goldman Sachs Group Inc.

“De-dollarization in central banks - demand from central banks for gold is biggest since the Nixon era, eating up 20% of global supply,” Jeff Currie, the head of global commodities research at Goldman, said in a Bloomberg Television interview Monday. “I am going to like gold better than bonds because the bonds won’t reflect that de-dollarization.”

Last week, Goldman analysts including Sabine Schels said investors should diversify their long-term bond holdings with gold, citing “fear-driven demand” for the precious metal.

Bullion climbed to a six-year high in September as the Federal Reserve cut borrowing costs and the total pile of debt yielding less than zero climbed to a record $17 trillion, boosting the appeal of non-interest bearing gold.

Hedge funds and other large speculators boosted their bullish bets on the precious metal by 8.9% in the week ended Dec. 3, government data showed Friday. That’s the biggest gain since late September.

“Gold cannot fully replace government bonds in a portfolio, but the case to reallocate a portion of normal bond exposure to gold is as strong as ever,” Goldman said in a note Friday. “We still see upside in gold as late cycle concerns and heightened political uncertainty will likely support investment demand” for bullion as a defensive asset.

Gold has fallen about 6% from its peak in September in the spot market. The precious metal rose 0.1% to close at $1,461.68 an ounce at 5 p.m. in New York.

While Goldman said the correction in bullion prices has further room to run, the bank is still sticking to its forecast prices will climb to $1,600 over the next year.

https://www.yahoo.com/finance/news/goldman-says-central-banks-eat-222915582.html

 

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