Perfect Storm for Gold

by Alan Currie

Bank of International Settlements ( The central Bank of central Banks) report recently said this:

“A 0% risk weight will apply to (i) cash owned and held at the bank or in transit; and (ii) gold bullion held at the bank or held in another bank on an allocated basis, to the extent the gold bullion assets are backed by gold bullion liabilities. ” BIS on Basel III

Previously Gold Bullion had a 50% risk weighting meaning if a bank held 100 million dollars in Gold Bullion in their vault they could only show $50 million in gold assets on their balance sheet.

This will now encourage banks and central banks to own and store much more gold bullion. The Perth mint reported recently that they have seen a doubling of central bank purchasing last year from their supplies.

There is an accepted practice that investors should have about 5-10% of their investment portfolio in precious metals like gold and silver. But recently Silver Doctors podcast it was reported by  Jeffrey Christian and the CPM Group that number is quite higher.

In late 2016, Jeff and his firm re-ran those numbers in a backtest from about 1968 to late 2016. What they found was if you took a portfolio of 50% S&P and 50% T-bills and you added gold to it in 5% increments, the optimal gold allocation was actually about 27% to 30% gold depending on whether you used T-bills or T-bonds respectively.

On that same podcast it was reported by Jeff that gold producers are now holding back on about 20% of their annual production in order to start storing the bullion they mine in anticipation that the pricing will go up.

In Australia Gold has gone up on average over 20-30 years about 10% per year. The moment Gold passes $1360 USD then it will have broken a very important trading trend line and most are expecting Gold to enter another long term upward trend.

Further Gold research check out

CPM Group is a commodities research

Forbes report on Central Bank buying

Got anything to say? Go ahead and leave a comment!