Gold continues to bide its time in run-up to the election; Hathaway calls record ETF gold flows ‘paltry’ compared to global assets under management

(USAGOLD – 10/16/2020) – Gold continues to bide its time in the run-up to the U.S. election with safe-haven demand acting as a positive influence and ongoing gridlock over the stimulus package acting as a deterrent. Overarching all, the pandemic seems to be reasserting itself in both the United States and Europe.  Gold is level on the day at $1911.  Silver is up13¢ at $24.48.

“In simple mathematical terms,” writes long-time gold market analyst John Hathaway in a study posted at Gold Eagle, “the gold market could not clear at current prices if 1% of the $100 trillion or so of institutional assets under management were to move into the physical metal. Record year-to-date inflows into gold-backed ETFs have exceeded any previous year. But in dollar terms, this amounts to a paltry $51.2 billion requiring the acquisition of 936.2 metric tonnes of gold (according to Meridian Macro Research). By contrast, a $1 trillion inflow into gold bullion would require 18,000-19,000 tonnes, equal to roughly six years of annual world gold production. A shift of this magnitude by asset allocators would require a bullion price of $5,000-$10,000 an ounce.”

(Editor’s note: Though it might be difficult to imagine gold trading at those levels anytime soon, the figure does graphically illustrate gold’s under-utilization as a financial asset. The $1 trillion figure Hathaway cites represents only 3% of the more than $35 trillion under management in global pension funds, for example. By way of a broader perspective, according to Toptal Finance, insurance funds globally have another $30 trillion in assets under management. Mutual funds house about $40 trillion and sovereign wealth funds about $7.5 trillion.)

Chart of the Day

line chart showing debt as a percent of GDP now well over 100 percentSource:  St. Louis Federal Reserve [FRED]

Chart note:  As you can see, the national debt as a percent of GDP now stands at almost 136%, according to the St. Louis Federal Reserve  – and the growth rate has gone vertical.  “In the short term you have to spend what it takes to minimize the recession and keep the economy afloat,” Brian Riedl, a senior fellow at the conservative Manhattan Institute for Policy Research recently told the Wall Street Journal. “But the soaring debt to GDP ratio is totally unsustainable, even if interest rates remain low.”  How all of this translates to the rest of the economy and financial markets – particularly the bond market – remains to be seen.

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