SEMI-MONTHLY FISCAL/MONETARY REPORT – GOLD BULLION UP 4.5% IN JANUARY – WITH GOOD REASON

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SEMI-MONTHLY FISCAL/MONETARY REPORT – GOLD BULLION UP 4.5% IN JANUARY – WITH GOOD REASON, AND  THE GOLD MINING COMPANIES WILL REPORT SHARPLY IMPROVED RESULTS !

Gold bullion was firm in January, up 4.5%. The gold mining stocks were down modestly. This short term divergence only makes the gold mining stocks even more of a bargain. There are many gold mining companies with strong balance sheets, long term reserves, and improving production. There have been hardly any large discoveries in the last ten years and it takes something like ten years to get a new mine permitted. Sharply higher gold prices will not create a lot of new supply, so much higher prices can be sustained for a long time. The mining companies have reported excellent results from last year’s third quarter, the fourth quarter results will be no different, the bullion and the miners’ price charts still look good. Though gold bullion is approaching the $1600/oz. level, most analysts have built their earnings and cash flow models on lower prices and will be revising projections sharply higher as the new bullion price range becomes more established. As described below, gold related investments are starting to become mainstream, with the emphasis on starting.

A very small percentage, something like 1% of worldwide investable assets are allocated to gold related investments. All the gold related liquid assets (mining stocks, bullion ETFs, etc.) combined amount to something like $400 billion, compared to the trillion dollar valuations of one company like Apple or Microsoft. That 1% compares to over 20% in 1934 and 1982, when investor stress was extreme and gold was considered a safe haven.

In recent years, if a mutual fund manager invested in controversial  gold related securities, his/her job could be at risk, as opposed to buying Apple or Microsoft.

However, it is starting to become acceptable to own gold related securities, as quite a few investment legends endorse the holdings. (I’ll leave it to Google to provide you with their credentials).

Ray Dalio has said: “If you don’t have 10% of your assets in gold….you don’t know history”.

Jeffrey Gundlach has said: “I’m certainly long gold….it’s getting almost exciting. Something big is happening”.

Paul Singer has said: “It makes a great deal of sense to own gold. ….the world’s central bankers are completely focused on debasing their currencies”.

Kenneth Rogoff has said: “….a shift in emerging markets towards accumulating gold would help the international financial system..”

Paul Tudor Jones has said: “My favorite trade in the next 12 to 24 months is gold….it’s possible we go into a recession….rates in the US could go down to the zero bound; gold in that situation is going to scream.”

While his fiscal/monetary credentials are not quite as well known as the above investment professionals, Roger Lipton says: “My favorite investment in the next five years is gold mining stocks. To whatever extent gold “screams”, the miners should move by a multiple of that.”

Roger Lipton