Three Critical Drivers for the "Rational Gold Investor"

If you may recall, we’ve written about this “rational gold investor” before… Shayne McGuire manages roughly $330 million in a gold portfolio for the $100 billion Teacher Retirement System of Texas fund. In addition to having a gold-dedicated portfolio larger than most exclusive to the yellow metal, he’s written the book on making gold a “serious” investment. It’s titled, Hard Money: Taking Gold to a Higher Investment Level, and in it he highlights three critical reasons for why everyone should own gold.

Here are the three essential drivers, as described by Scott Burns in The Statesman:

  • “Gold has never been more underowned as an asset. Historically, gold was money. It accounted for a substantial part of global assets. It was a universally recognized store of value and medium of exchange. Today, it is an asset only as a commodity. The value of all the gold in the world, he points out, is about 0.6 percent of all financial assets. This is down from 2.5 percent as recently as 1980…
  • “With gold accounting for so little of global assets, McGuire says, only a small shift in asset preferences — from currencies to gold or bonds to gold — would cause a major price increase in gold. Unlike most gold bugs, he is not talking about financial Armageddon. He’s simply talking about decisions by institutions, pensions and sovereign wealth funds to sell some bonds and put the cash in gold…
  • “The supply of gold is difficult to increase. When people want to own stocks, there is never a problem with supply. Wall Street will create it. Similarly, governments around the world are producing a worrisome supply of debt — more debt, many worry, than will ever be repaid. But the supply of gold can’t be ramped up quickly, whatever the demand. Worldwide gold production has been declining for years…”

    Back in November, the Wall Street Journal pointed to McGuire’s eye-popping predictions of gold heading to about $10,000 an ounce. Burns, on the other hand, says the McGuire vision of gold’s future probably looks more like $6,240 an ounce. Either value is a fair bit loftier than where gold stands now, which means, at least by his math, that it remains in a rise to be a part of. You can read much more detail in Scott Burns’ commentary for The Statesman on meeting the “rare bird” that is the rational gold investor.


    Rocky Vega,
    The Daily Reckoning