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The Reincorporation of Precious Metals into Mainstream Finance Is at a Very Early Stage

Ironically, the fact that silver no longer matters in the financial system today is one of the most important reasons to invest in it.16 Although investments in alternative assets like real estate and commodities (including gold and silver) have increased, the vast majority of global wealth is now invested in stocks and bonds, which had experienced the best financial times in U.S. history prior to the 2008 crisis.18The years since 2006 have been an amazing coda for the bond market, with returns unimaginable prior to the introduction of Fed-driven zero percent interest rates. The 24-year period that ended in 2006 represents the most fantastic boom in stock and bond market investment returns in the past 200 years, counting from when Thomas Jefferson was president in his first administration.

Although a number of individuals, hedge funds, and small funds have been investing in silver, either through financial markets or in physical form, silver has essentially no importance in the world of institutional investment: pension funds hold 87 percent of their assets in equities and bonds. This is not surprising given the tremendous returns that the stock and bond markets have provided over the course of the past generation.

As a percentage of total assets, pension funds, insurance companies, endowments, and sovereign wealth funds—which manage tens of trillions of dollars worth of wealth worldwide—have virtually no silver holdings. The small size of the silver market mostly explains this. The physical silver that all investors around the world took in on all markets last year was worth approximately $10 billion, or the same as how many shares of Apple Computer were traded in one day. While significantly more than that is traded on the futures market in silver, which is widely regarded as paper silver, fewer than 3% of futures contracts are ever converted into the actual metal, rendering much of this activity virtually virtual.

Gold is an asset class that the investment community has finally come to terms with, and it is widely regarded as something that ought to hold a certain position in well-diversified portfolios. However, pension funds, which currently manage $31 trillion in global assets, typically hold less than 0.30% of assets in gold, which is to say, virtually nothing.20Despite the fact that it is more closely associated with gold than anything else (as will be discussed further on), silver is in a completely different situation: If any pension funds own any white metal, their holdings probably account for less than 0.05 percent of their total assets. Consider the following: Teacher Retirement System of Texas became the largest nonbank silver holder in the world after my pension fund invested less than one-tenth of one percent of its total assets in silver in recent years.21 Big money has not invested in the silver market, which has primarily advanced due to individual investors, family funds, and hedge funds.

To argue that global investors are about to move significant investments away from stocks and bonds—such as more than $10,000 in total portfolio, 97% in commodities, $300, 3% in gold, $15, and 0.15% in gold—: Gold holdings at typical pension funds (in millions of dollars) SOURCE: Texas Teacher Retirement System.

It would be absurd to introduce 19 percent and precious metals. Due to their superior risk-adjusted returns over time, stocks and bonds have established themselves as the primary assets on institutional balance sheets. Despite the current investment push into real assets, gold and silver are nonyielding assets that may not outperform traditional investments over the long term22. However, take into consideration the historical foundation upon which I base my assertion that the investment community holds almost no silver in its portfolios: Bonds and stocks recently achieved the highest generational returns on investments in two centuries. Even though traditional financial asset classes have outperformed silver for more than a decade, inflation has not even begun to rise. However, the circumstances that have historically resulted in inflationary surges in favor of real assets like gold and silver are striking:

Despite the fact that we are unable to grow our way out of a huge debt, leaders continue to use deficit spending to keep their economies growing. While their economies are barely expanding (or are in a recession), governments in the United States, Japan, the United Kingdom, and Southern Europe are heavily indebted and run unsustainable deficits. Take into consideration the situation in Europe. At the end of 2012, when it became clear that troubled Spain would eventually be permitted (and encouraged) to borrow even more money from other European nations, stock markets soared dramatically.It is essential to keep in mind that excessive government deficits preceded all documented cases of hyperinflation, which are thankfully uncommon. Global central banks are printing money to maintain weak domestic currencies in an effort to boost economic growth, which is now commonly referred to as “currency wars.”During the 1970s, when central banks were actively attempting to curb inflation, prices of gold and silver skyrocketed. Until the Federal Reserve raised the Fed Funds rate to above 20%, they were unsuccessful. What can we anticipate now that global monetary authorities are acting in the opposite direction, encouraging inflation by setting the Fed Funds rate at zero?

Take into consideration Ben Bernanke’s remarks from October 2012:

Our goal is to increase employment. Our goal is to achieve the maximum number of jobs required by law.
For the first time, the chairman of the Federal Reserve is effectively stating on record that the institution in charge of defining the value of American money will print currency to create jobs. I mean, our tools involve affecting the prices of financial assets, and those are the tools of monetary policy.23 Many financial asset managers, and high-net-worth individuals in particular, continue to scramble to acquire real assets, which have proven to be inflation-protection vehicles, despite the fact that such an endeavor is mathematically difficult. They are attempting to shield their wealth from the error of the government.

While spending more than $10 million on a one-of-a-kind automobile may seem outrageous now, it will be prudent in the long run if the vehicle hasn’t changed in value.
Gold is currently the easiest option for many investors looking to increase their investments in real assets.I have referred to the professional asset management industry’s rediscovery of gold as the gold reincorporation trade. The fact that gold, which provides time-proven diversification benefits to portfolios, is gradually taking a position alongside traditional financial assets like stocks and bonds has not been taken into consideration by commodity specialists, who have been predicting a decline in (nonproductive) gold price for years. Demand rises as a result of taking advantage of a limited supply of gold—mining production only increases supply by less than 2% annually. The metal’s rally is likely to intensify due to its limited supply if, as I anticipate, pension funds, insurance companies, endowments, and sovereign wealth funds begin to consider silver—many for the first time—as a viable real asset to take more seriously.

There is a lot of potential in the Toronto gold market. Additionally significant are the cities and towns that surround Toronto. Additionally, there is a significant gold market in Mississauga. A lot of people buy gold in this area. In point of fact, this region is home to numerous gold dealers. Try to buy gold bars from reputable bullion dealers if you want to buy them in Toronto. Before you buy anything, check the price of silver and gold because they fluctuate a lot. The most well-liked bullion products are the Gold Maple and Silver Maple coins.

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