The Gold Thesis

Gold is a strategic long-term store of value

  • While the price of gold has remained consistent over the past century, the purchasing power of several major currencies has declined considerably

Gold Store of Value

Gold should be a core component of a diversified portfolio

  • Historical evidence suggests that gold is not directly correlated to any specific asset class and has had significantly less volatility

Gold Correlation

Gold is an undervalued asset

  • Using the Dow/Gold ratio, gold is undervalued versus equities relative to previous market dislocations
  • On an inflation adjusted basis, current price of gold is still half the price that it was in 1980; the current macro-economic conditions suggest that the price should be significantly higher
  • Aforementioned dynamics should provide downside support for the price of gold

Demand for gold continues to increase, while supply growth is limited.

Gold Supply and Demand Dynamics

  • Supply trends
    • Since 2003, annual mined production of gold has decreased by 10%
    • Central bank sales have been more predictable due to The Central Bank Gold agreement (2004)
    • Scrap gold sales have dramatically increased over the past two years
    • New mines can take up to ten years to start production
  • Demand trends
    • Since 2003, investment (especially ETF’s) has represented the strongest source of growth in demand, with a 5 year increase of approximately 280%
    • East Asia, the Indian sub-continent and the Middle East accounted for 72% of world demand in 2007
    • Official accumulation of gold in the developing world is only 8% of total reserve holdings
      - As emerging economies like China and India look to diversify their holdings away from US Dollars and Treasuries, they will likely increase allocation to gold bullion

Gold has outperformed the S&P 319% to 25% in the past eleven years.

Gold vs. S&P

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