We think of gold as a crowded "trade" as far as our investment alternatives are concerned. I feel that way, and that's the main thing I don't like about gold. But those feelings may be more psychological than based on actual fact. If you look at actual investment alternative facts, you see this excellent chart depiction in a November 20 article over at safehaven.com by Jordan Roy-Byrne "Gold Contrarians Will Get Killed" (click to enlarge charts)
As a reserve asset, gold was put into the dog house in the 80's and is just now poking its nose back out of the doorway. As for our stock market choices, the article shows gold as a dog as well:
I've seen it mentioned a time or two that in the paper money vs gold money dilemma, the entire market cap of gold investing was less than that of just one big stock like Microsoft (MSFT). This Casey Research graph puts it in perspective. Precious metals tend to make big moves both up and down, and when you see the giant pool of money tilting from paper and usable assets to "useless" gold, you can see a lot of money crowding into a very small space with just a little bit of tilt. Add to this the fact that the supply/demand equation for gold isn't like that for other investments where more demand is met with factory ramp-ups, IPOs and other supply increases. Over 99% of all the gold that's ever been mined is still around. So even if we could quickly ramp up mine production, it wouldn't make any big difference - a drop in the bucket of all the gold ever mined. But mine production has actually been declining since 2000.
So it becomes very important to know just where we are in the investment tilt-o-whirl. The following map shows this pretty well:
As Jim Rogers is fond of pointing out, bull and bear cycles in commodities usually run in 12 to 18 year moves. We are just in year 9 or 10 of an up cycle with monetary problems greater than in any previous cycle. In the big picture, we are probably not at the tulip phase of the gold move yet, even though it may feel like it.
Disclosure: long gold
