The Second-Most Popular Investment in America? It Might Surprise You Peter Reagan
This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Gold the second-most popular investment in America, UBS is very bullish on gold, and Chinese city’s golden strongman challenge.
Gold demand to quadruple as its popularity as an investment surges
Recently we’ve documented a groundswell of popularity in gold as an investment. Google searches for how to buy gold recently hit a new record. Central bank gold buying, already fierce, is poised to grow even more.
Investors all over the world have been looking for a value store: a safe haven from inflation, geopolitical problems and other things that can erode the value of a country’s money.
So it’s no surprise to see that gold is now considered the second-best long-term investment in the U.S. according to Gallup. Polls like these long acted as a fairly accurate gauge of what Americans think right now. Opinions are fickle, as you’d expect – even when focusing on “long-term investments” poll results offer a blend of trendiness and received wisdom.
Gold, despite having more history than any other asset I’m aware of, was only added to the poll in 2011. That’s shocking – less a surprise, though, when we remember that gold had recently hit its previous all-time high of $1,910. The global financial crisis was still fresh in everyone’s minds, along with “quantitative easing” and bank failures and a debt ceiling stand-off.
In the most recent poll, gold surged in popularity at the expense of the only other tangible asset Gallup included in the survey: real estate. That’s not too surprising, considering the surge in mortgage rates and the recent decline in real estate prices. When we consider just how expensive to own and illiquid real estate is generally, I’m honestly shocked by real estate’s popularity. (Maybe I shouldn’t be – after all, no matter how much gold you own, you can’t live in it…)
There’s no single reason Americans want to own gold. Take your pick:
Decades-high inflation eroding the purchasing power of currency (not just in the U.S. but around the world)
The appeal of a tangible, physical asset (one of the very few you can hold in your hands)
The desire for a safe-haven asset in a time of economic uncertainty
Uncertainty about the future of the U.S. dollar as a store of value (Why else are central banks hoarding gold? Why is Texas launching its own gold-backed money?)
It’s less a question of why buy gold, more a question of why would you buy anything else? Especially considering that the typical American family isn’t already diversified with gold…
Rick Rule, former CEO of Sprott Holdings and long-time market insider, observed that most Americans simply don’t have exposure to precious metals:
Precious metals-related investments comprise less than one half of one percent of all savings in investment asset classes in the United States. The four-decade mean market share is two percent.
Rule says that a return to the forty-year average of 2% of investments allocated to gold would send prices surging to new records.
Rule believes Americans are finally waking up to the erosion of purchasing power that’s becoming harder and harder to ignore. For their own sakes, I hope they diversify with gold sooner rather than later… The laggards will pay a premium price (if, indeed, there’s any gold available for sale at all) for dragging their heels.
UBS: Three reasons to buy gold as it heads to $2,200
It tells us that UBS is quite enthusiastic about gold when it’s mentioned in two separate editorials, one a daily and the other a more widely-read monthly publication.
UBS says gold is their most preferred asset and the U.S. dollar the least preferred. The greenback’s weakness might catch investors by surprise, says the bank, as the Federal Reserve pauses rate hikes right when other banks begin theirs. This alone will be a massive boost for gold prices in U.S. dollar terms, practically the only currency in which gold prices didn’t hit all-time highs in the last few months.
Their daily letter goes deeper into gold’s appeal right now and offers three three reasons to invest in gold right now: central bank gold demand, the aforementioned dollar weakness and recession risks. UBS took notice of this year’s central bank purchases in Q1 exceeding what was already a record figure year-on-year. The team says that sanctions imposed on Russia over the war in Ukraine might have altered how central banks approach their balance sheets.
Besides what are looking to be a difficult 6-12 months for the dollar, UBS also elaborated on how recessionary risks are flaring up again. Data that supports this notion includes weaker-than-expected Q1 GDP, six straight months of manufacturing decline and the weakest consumer sentiment since November. Increased difficulties obtaining credit are also likely to cause economic contraction.
With so many tailwinds, UBS expects gold to hit $2,100 by year’s end and $2,200 by March 2024. It’s a fairly conservative forecast, to be sure – many forecasts predict gold will hit $2,200 this year.
Chinese city giving away 25kg gold ingot (if you can pick it up with just one hand)
The most surprising thing about Zhaoyuan’s 25-kilo gold brick challenge might be how much backlash it’s generated. The challenge is a straightforward one: if you can lift the 25kg (60 lbs) gold ingot with just one hand, and hold it in the same position for 25 seconds, it’s yours.
Zhaoyuan, known as China’s gold capital and China’s gold rush city due to its abundant deposits and role in production, doesn’t exactly hide the motives behind the challenge. It’s a unique take on a tourist attraction that is meant to bring visitors, not unlike quite a few other Chinese cities have been doing as of late.
This challenge, though, appears to have rubbed both locals and foreigners the wrong way. Some commenters believe it’s an impossible feat, both due to weight and rules. The ingot’s traditional, trapezoidal shape makes gripping it at all a challenge. Officials have been accused of making up new rules to prevent a second lucky winner from walking away with another $1.5 million gold bar (though in reality, the rules haven’t changed since 2009 and, to date, no one has won).
The ingot on display is most likely only tungsten coated in gold. After all, having $1.5 million on display, fondled and thrown around by strangers would give any self-respecting security guard an anxiety attack. I’ve no doubt Zhaoyuan’s city council can produce an authentic 25kg gold bar. Not paying out as promised, should a contestant finally achieve the challenge, would more than undo all the positive publicity they’ve received to date.
Fifteen years into the challenge, surely there are hundreds of hopefuls doing fingertip push-ups to build the Herculean strength necessary to win the competition. So is this even possible? It will probably depend on how many musclebound competitors are willing to book a trip to Zhaoyuan. (Which, not coincidentally, is exactly what city officials want.)
Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal IRA Specialists, Birch Gold helps Americans protect their retirement savings with physical gold and silver.