Late last week, I not-so-gently suggested that gold was in “mania mode”. That wasn’t an attempt to traffic in hyperbole. It was more a statement of fact, to the extent one can objectively determine a threshold for “mania”, something the Fed insists is only possible in hindsight.
I quoted Bloomberg’s Eddie van der Walt, who noted that the incessant media coverage of gold’s ascent had succeeded in “drumming up excitement around a mania-prone Veblen good”.
Some readers appeared to take umbrage. Or maybe it was Eddie’s contention that “soon, dentists and other retail investors will be getting in on the action” that irked the audience. Or perhaps it was when he said rallies of this sort are “self-perpetuating… right until the moment [they] stop”.
Read more: Gold In ‘Mania’ Mode Amid ‘Great Debasement’
Whatever the case, gold obviously kept rising, and I’ve slavishly documented the surge, mostly because of the connection with plunging real yields, which serves as good entry point to more interesting discussions about monetary policy.
10-year reals hit a record low this week, and that’s driving the yellow metal’s “parabolic” move (as van der Walt put it Wednesday) from a fundamental perspective.
But, behind the most recent push to all-time highs (gold surged 10% in just eight sessions) are, in fact, the dentists, JPMorgan suggests.
Obviously, the bank doesn’t specifically point the finger at dental offices, but Nikolaos Panigirtzoglou does say that “retail investors appear to have been mostly behind the recent rally”, given the “steep rise” in physical gold ETF usage.
“This year [is] already the strongest on record with still five months remaining”, he notes, referencing the figure on the left, which shows retail investors are buying by the metric ton.
The figure on the right (above) just shows that gold ETF holdings have eclipsed the previous high, set eight years ago. The implication is that retail investors are now overweight gold.
Panigirtzoglou uses the ratio of the outstanding amount of gold ETFs to the value of equity and bond funds globally to measure retail’s allocation. As of late last week, we were around 0.03% away from the highs seen in 2012.
“It remains to be seen whether this previous high gold allocation will be breached [but] at the moment, Figure 14 implies room for the gold rally to continue”, Panigirtzoglou reckons.
If you’re looking to get a read on the market, perhaps it’s best to stop obsessing over the next basis point or two on real yields and just ask the hygienist on your next visit to the dentist.
Assuming, of course, they haven’t closed the office forever due to lost revenue from the COVID lockdowns.
Time to ask aging family members who have had gold and silver in their safe deposit boxes for decades if they want to sell. They probably do not even realize gold is near $2k/ounce.
First, however, they will probably need help remembering where they hid their safe deposit key.
For the last month I have been investing in gold ETF’s …… treating gold just like any short term momentum trade. Doesn’t seem like there is much downside risk and the exit point should be an easy decision.
Buy gold, please:)
My dentist was eyeing my gold crown last week. Glad I was not sedated…
I tried to insert a crown joke, but I couldn’t make it work
So, despite this great rush of historic, massive, outsized, phenomenal, mind blowing, move in gold, it is still just 0.4% of AUM. Up a hugely from 0.3%. Wow. I’m surprised such a tiny asset gets any coverage at all in a world of $300T in paper assets.
“The implication is that retail investors are now overweight gold.” They are? How many of the retail investors in the OECD actually own a share in a gold ETF much less anything physical besides the crown?
Would be interesting to see percent of Vanguard and Fidelity retail who have a gold ETF. And, to see the median and mean percentage of portfolios allocated to any gold. If the mean allocation to gold is 0.4%, the median is probably tiny. Wild guess of median asset allocation for retail investors is 0.01% to 0.1%. I’d guess it’s much like when Bill Gates walks into a bar and the average net worth of the patrons instantly becomes millions. I’d hardly count this as overweight.