Jun 3, 2009

Bill Fleckenstein on gold being underowned in investment portfolios

According to a story in Commodity Online, gold comprised just 5% of world financial assets in 2008; whereas in 1982 gold comprised 22% of world financial assets. As I've noted before, when I first got into the investment business 30 years ago, it was considered prudent to have at least 5-10% of one's assets in gold. Of course, that asset allocation doesn't take into consideration the general disdain that central banks now have for the purchasing power of any of their currencies, which ought to exacerbate today's demand for gold.

Looked at differently, according to the World Gold Council (and John Hathaway), if global pension funds decided to increase their exposure by about 1.2%, it would require more than 44,000 metric tons, or roughly 27% of all the gold that's ever been mined.

As I noted when the FT changed its tune about gold (May 09: "As Good As Gold"), I think the big story is going to be the establishment-types who -- to potentially hew to the fashionable status of allotting 5-10% of one's financial assets in gold-- ultimately chase the price much higher as they build their positions. And, if the Chinese central bank decides to do that, they have a long ways to go from their base of just under 2%.

~ Bill Fleckenstein

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