Gold's New Ally

If you’ve invested in gold, you’re about to gain a powerful ally: pension funds.

“I think the largest institutions like our own are realizing that we barely own any [gold]” Shayne McGuire, head of the Teacher Retirement System of Texas said in an interview in Hong Kong very early this morning. “The same thing applies to most of the pension funds which manage trillions of dollars in world wealth.”

McGuire, who oversees $95 billion, just opened an internally managed gold fund for his 1.3 million public education employees, and suggests other pension funds follow suit. Owning gold is “financial insurance,” he said, sounding a lot like David Einhorn at the Value Investing Congress earlier this week. “Consider the tremendous fiscal excess that major governments have made to prevent the world economy from collapsing… I don’t think the question really is what is gold worth but what are currencies not worth.”

According to the FT, there are 2,600 public pension plans in the U.S., worth over $2 trillion.

“If we believe we’re in a secular bear market or entering a world of hyper-inflation and debased fiat currencies,” Eric Sprott, fund chief at Sprott Hedge Fund LP, added. “There’s no better place to be than gold and precious metals. I find it quite instructive that the price of gold has gone up every year for the past nine years, since the bear market started. That’s not a coincidence, and we think the full cycle could easily reach 15-20 years.

“There is a survivalist aspect to having such a big stake in tangible assets. As long as governments show such low regard for policies that support the real value of paper financial assets, investing in precious metals is about the only way to guarantee the preservation of your wealth.”

“Sprott is our kind of guy,” notes Addison Wiggin, fresh back from the Congress himself. “His $4.2 billion hedge fund is long 30% in silver bullion, 15% in gold bullion, 30% in gold stocks, 10% in energy, 5% in miscellaneous stocks and 10% in cash. Suspicious of equities going back to the tech bust, Sprott played what we had termed ‘The Trade of the Decade’ like an impresario…”

Now, after nearly 10 years, “bargains are harder to find today,” Sprott continued, “but we’re still finding small gold miners that appear to have slipped through the market’s cracks and trade — based on what we believe are reasonable production estimates and no increase in the price of gold — at only around five times estimated 2011 earnings. When we find those, we’ll buy them all day long.”

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