Even Insurance Companies Are Buying Gold

According to a recent report from Bloomberg, Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer, has been buying gold. This is the first time in its 152-year history that Northwestern has purchased gold.

According to Northwestern CEO Edward Zore, “Gold just seems to make sense; it’s a store of value. In the Depression, gold did very, very well.”

According to Bloomberg, Northwestern has accumulated about $400 million in gold. CEO Zore believes that the price of gold could double “or even rise fivefold” if the economy continues to weaken. “The downside risk is limited, but the upside is large,” Zore said. “We have stocks in our portfolio that lost 95%.” But gold “is not going down to $90.”

Despite the rise in “cash for gold” TV ads and billboards, people are still generally skeptical about buying gold as an investment or hedge against inflation. As I’ve said before, I think gold will be the next bubble as people eventually lose confidence in the dollar and US governments ability to repay its debt.

Check out the increase in the money supply over the past year:

One might protest that it hasn’t really increased and that the banks that got the money from the Fed have just given back to the Fed to shore up their reserves. True, and the Fed is paying the banks interest on this money as well. But as some point the Fed is going to stop paying interest, and the bankers are going to start lending this money out.

The Fed hopes that this money will work its way into the economy in a slow and orderly fashion, so it takes maybe 5-10 years to enter the system and not rush in all of a sudden, because if it did the result would be similar a massive drug overdose.

In smaller amounts, its more palatable with contained inflation. But it will result in inflation nonetheless. And when it does, gold prices are likely to keep on rising.

Disclosure: Long Gold

Comments

[Gold Barron:]

Good Article. I am long gold also.

Jun 15 03:04 AM

[yellowhoard:]

I wonder if Northwestern is holding physical gold or paper gold?

Jun 15 08:19 AM

[ScroogeMcduck:]

Hoard witch is it that u prefer physical gold, paper gold or minners?

Jun 15 09:34 AM

[yellowhoard:]

Can't beat the real thing.

I'll be buying the junior miner etf when it begins trading.

Jun 15 09:48 AM

[doubleguns:]

By the time those who are hesitant to buy gold figure it out it will be to late for them.

Like a seat belt, you have it on when you need it or your dead.

Jun 15 09:55 AM

[Vuke:]

Interesting article but the author is incorrect in describing gold as the "next bubble", as a bubble implies collapse.

As can be seen by its fall today gold will gradually increase in price, step by step, until a stable level is found at which point CB's will begin buying it back. Gold is CB currency and they'll use it wisely to restore confidence and liquidity to financial markets.

As admitted by Volcker, they "lost control" of gold in the 1980's. Bernanke won't make the same mistake.

Jun 15 10:17 AM