With the UN finally voting for a no-fly zone over Libya, it looks like the U.S. is now committed to getting involved in the conflict in Libya. While storing millions of gold bullion in his banks and calling the world against him as Nazis, Qaddafi refuses to budge defying demands to withdraw his military from Libya. Blatantly issuing warning to President Obama and other leaders to back off from military action against him, in the tone of his letters — one addressed to Obama, a second to French Minister, Sarkozy, another to Prime Minister David Cameron of Britain and finally to Secretary General Ban Ki-moon of the United Nations—had suggested that Colonel Qaddafi was leaving himself little room to back down. “Libya is not yours. Libya is for all Libyans,” he wrote in one letter, and had it read to the news media by a spokesman. “This is injustice, it is clear aggression, and it is uncalculated risk for its consequences on the Mediterranean and Europe. You will regret it if you take a step toward intervening in our internal affairs.”But the world did not heed his threats, and a coalition intervened Saturday with unusual speed. On the wake of U.S., France, Britain, Canada and Italy launching strikes on Libya designed to cripple Muammar Gaddafi’s air defenses, oil and gold prices surged. Gold prices had benefited as investors assessed the current risk levels of the global crisis and economy, and purchased gold as protection against the continued uncertainty in Japan as well as U.N. airstrikes against Libya. While President Obama declared, “The people of Libya must be protected and in the absence of an immediate end to the violence against civilians our coalition is prepared to act and to act with urgency,” a proud Italian soldier yelled to the press, “the last time we fought a good battle like this was before the Romans fought the Huns! Onward against Gaddafi! ”
As those statements and actions manifested throughout the world, the other shoe dropped in world oil markets this week with crude oil prices to increase $10 a barrel. So far in March, Brent has risen just 2 percent with gains limited by expectations of lower demand from Japan after the deadly earthquake just over a week ago, and oil exports from Libya have dried up to almost nil since the rebellion started. Brent crude oil shot above $116 a barrel on Friday on news of an airstrike in Libya near an oil terminal, while gold hit a record high as investors rushed into a safe-haven trade. World stocks slipped, while on Wall Street, stocks pulled back from session highs to trade modestly higher.
Investors were nervous that political instability could spread to major oil producer Saudi Arabia, a central U.S. ally in the region. As investors made their flight-to-safety bids, the dollar fell to a record low against the Swiss Franc. U.S. Treasury debt prices declined, but trimmed some losses as demand rose. The basic reasons for owning gold and silver for currency protection, inflation hedge, store of value, calamity insurance, many of which are becoming clichés even in mainstream articles, and when tossing in the supply and demand imbalance, you’ve got the basic arguments for why one ought to hold gold for the foreseen future as an intelligent investing option. Irrespective of the corrections each of the previously mentioned catalysts will force gold’s price higher and higher within the years ahead, especially because of the currency issues.
But there’s an additional driver of the price that escapes many gold watchers and definitely the mainstream media. And I am convinced that as soon as this sleeping giant wakes, it could ignite the gold market like nothing we have ever witnessed. The funds management business handles the bulk of the world’s riches. These institutions consist of insurance businesses, hedge funds, mutual funds, sovereign wealth funds, etc. However the elephant in the place is pension funds. These are institutions that offer retirement income for both public as well as private plans. Global pension assets are estimated to be $31.1 trillion. No, that is not a misprint. It’s much more than twice the dimension of last year’s GDP within the U.S. of $14.7 trillion. Now here is the fun part. Let’s say fund managers as a group understand that bonds, equities, and real estate have become poor or risky investments and so decide to improve their allocation to the gold market. In the event that they doubled their direct exposure to gold and gold stocks – which might still represent only 0.6% of their overall assets – it might amount to $93.3 billion in new acquisitions. Just how much is that? The investments of GLD total $55.2 billion, so this amount of money is 1.7 times larger than the largest gold ETF. SLV, the largest silver ETF, has net assets of $9.3 billion, only one-tenth of that extra allocation. Regal Assets team of analyst stated on Tuesday “There is no doubt that gold is becoming the safe haven and flight to safety for investors. Pensions plans have already started to shift their direction of investing and it will not be long before they gain major exposure to precious metals.”
The marketplace cap of the entire sector of gold stocks (producers only) is about $234 billion. The gold industry might see a 40% increase in new money to the sector. Its marketplace cap would increase two times if pension institutions allocated just 1.2% of their assets to gold. However what if currency problems spiral spinning out of control? What if bonds decline and die? What if real estate takes a decade to recover? What if inflation becomes a barking dog like it has each and every other time in history when governments have watered down their currency to this level? If these funds allocate just 5% of their resources to gold – which would amount to $1.5 trillion – it would certainly overwhelm the system and rocket costs skyward.
And also let’s not forget that this is just one class of institution. Insurance businesses have about $18.7 trillion in assets. Hedge funds handle approximately $1.7 trillion. Sovereign wealth funds manage $3.8 trillion. Then there are mutual funds, ETFs, private equity funds, and private wealth funds. Throw in millions of retail investors worldwide like you and me and we are looking at $100 trillion of feasible new invested funds. Sovereign debt dangers are far from over. The U.S. dollar along with other currencies will lose considerably much more value against gold, interest rates will most definitely rise in the years ahead, and inflation is just getting started. These kinds of forces are in place and building, and if there’s a thinking shift in how these kinds of managers view gold, look out!—Because as soon as fund managers enter the gold marketplace in mass, this tiny sector will catch on fire with blazing speed. With the situation in the world, Gold and silver “could be poised for further gains as investors seek to diversify towards safe-haven asset types with a mix of fresh buying and short covering potentially leading gold [and] silver to retest recent highs,” says James Moore, research analyst for FastMarkets.
Source: http://goldcoinblogger.com/geopolitical-headwind-continue-to-lift-gold-prices/#more-2914
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