Owning SLV is essentially fractional reserve silver and I would avoid it like the plague. SMF069

Monday, August 20, 2012

Boom Goes The Dynamite: Silver Pops

But gold has risen with only slightly more than 1% of the world’s assets in gold. Right now the world’s assets are about $150 trillion. Of that number, $60 trillion is in cash, $40 trillion is in bonds, and $40 trillion is in stocks. But, remarkably, only $2 trillion or just a bit over 1% is in gold.

With inflation headed higher, institutions, which have virtually no allocation to gold today, they will have to increase their allocation to gold. There have been several studies over the last few months that have suggested that institutions will need to put part of their funds in gold.

If you look at world financial assets, a 1% increase in allocation to gold of the world’s financial assets would require 12 years of gold production at today’s prices. There simply isn’t the gold available at today’s prices to facilitate even a small move by institutional money into the sector. Of course they can never get a sizable commitment into gold at these prices.

I would also add that over time they will put a lot more than 1% into gold. The studies I reference also suggest that institutions will improve their risk vs return situation by moving money into gold. So I am convinced that there will be a big inflow of institutional money into gold over the next two or three years