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I would like to share some hard data pertaining to one of the
most critical characteristics associated with an investment bubble. Even
though the usual cheerleaders for paper assets and the "debt is
wealth" mindset would most likely dismiss the evidence as anecdotal, the
uniqueness of the data set should give it extra weight, in my
opinion. The consistent element I am referring to is retail investment
participation. Why the information forthcoming is of particular worth is not
only does it underscore the low participation rate of retail investors in
precious metals, but the source of the information comes from an investment
environment that renders meaningless the typical excuses for investors to not
have taken a position in gold and silver.
The bull market cycle that never was
It has been well documented for over a decade that many of the
most savvy international investors, assorted sovereign wealth funds and
numerous central banks have been building considerable positions in gold.
Additionally, a host of analysts, who coincidently had the faculties to
foresee danger in the dot.com, derivatives, and real estate market, have been
advocating the acquisition of gold and silver throughout the same
period. I will not go on to list these various individuals and
institutions as it would be redundant for those tuned into the goings on of
the precious metals market and easy enough for newcomers to learn with the
ease of a Google search.
Even though it would appear simplistic to point out that big
investment successes are hallmarked by entering a particular bull market
cycle early and exiting before it tops out, this most basic of action
plans is consistently lost on the emotionally driven masses who historically
pile in at the end. While there is no question that a minority of the
financially astute have taken steps to fortify their portfolios with precious
metals, by no means have a large majority of financial professionals entered
the trade, let alone a significant percentage of individual investors.
Because of this absence of a substantial percentage of investors in this gold
bull market, I question the validity of those calling a top in gold and
silver, despite prices for both having risen greater than 400% this past
decade.
Hard facts, not hearsay
There is plenty of commentary in the precious metals world about
investor behavior particular to this gold bull run. These observations
are coming from seasoned precious metals professionals whose gut instinct and
historic perspective provides valuable insight. The consensus view is that a
significant enough percentage of retail investors have yet to embraced
precious metals as would be typical at market tops. Contrary to crowding into
the precious metals market in a quest to ride gold and silver's unparalleled
price appreciation, the vast majority of individual investors have dismissed
the entire market sector as if taking direct cues from the mainstream
financial media. Following is a sampling of excuses that individual
investors are often heard to make regarding their reluctance to consider
precious metals:
- I did not know I could buy precious metals.
- I do not know how to buy precious metals.
- My advisor said precious metals are too volatile.
- My other investments are down and I am waiting for
them to come back.
- I have no money to buy precious metals.
- I did not have time to open an account to buy
precious metals.
- I would buy precious metals but I might need the
money for other things.
Targeted analysis of a unique data set
To really measure the degree of investor apathy and antipathy
toward precious metals to date, I sought to mine data from an environment
that nullifies legitimate reasons for pushing back on acquiring this time
tested form of wealth preservation. The statistics forthcoming have been
extracted from an investment environment meeting the criteria
desired. Let's call this a "no excuse" environment. In
the end, I believe you will concur that the results unequivocally bolster the
views espoused by most precious metals professionals. Namely, investor
behavior and sentiment has not emulated that which is customary at a market
top.
Gold and the self directed IRA
To help me gauge the extent of non-participation by individual
investors, I contact Carl Fisher, President of CAMA Plan
(www.camaplan.com). CAMA Plan is a long established
administrator of self directed IRA's. For those not familiar with self
directed IRA's, these plans allow for the purchase of many IRS approved
investments which are not made available to clients of traditional investment
firms. A few examples of the alternative investments available to owners of
IRA's with a firm such as CAMA Plan are: real estate, notes, tax liens,
private placements, and precious metals.
Why do I consider self directed IRA accounts "not
excuse" accounts? Because:
- Funds are in place and available to invest.
- The account is established, no need to transfer from
another firm.
- Monies in place are for long term investing.
- Holders of the accounts are made aware of the
precious metals option.
- Virtually all competing investments, including those
in most IRA's, have grossly underperformed in comparison to gold and silver
over the preceding decade.
Now, from data provided by Carl, let's see how the so-called
"gold bubble" manifested itself over the course of the last decade
amongst the owners of self directed IRA's.
Check Point 1 - Beginning of gold bull market
Gold
closing price on December 31, 2000: $274.24 per oz
Overall percentage of investment assets in precious metals (aggregate of
all accounts): < 1%
Check Point 2 - Eight years into the great gold bull run
Gold
closing price for 2008: $869.75 per oz
Gold per oz dollar gain from 2000 close: +$595.30 (+217%)
Overall percentage of investment assets in precious metals (aggregate of
all accounts): 1%
Note
the following:
- The amount of new investment dollars into precious
metals was even less consequential than illustrated since the majority
of the increase in the overall percentage was achieved by the gain in
value of the existing precious metals investments.
- In calculating overall percentage of assets in real
estate, most "notes" and "private placements" are
secured by real estate thus bringing investor participation in real
estate related assets to greater than 60%.
Check Point 3 -Ten years into the great gold bull run
Gold
closing price for 2010: $1,405.50 per oz.
Gold per oz dollar gain from 2000 close: +$1,131.05 (+412%)
Overall percentage of investment assets in precious metals (aggregate of
all accounts): 2%
Despite an approximate decrease in real estate values of
approximately 25%+, the overall amount of investment assets (Real Estate,
Private Placement, and Notes) allocated to real estate remained constant
since the real estate sector's collapse. This would indicate that new money
continues to pour into real estate in the belief that the debacle at hand is
a buying opportunity.
Conclusion
Coming from a professional background that included time with a
Wall Street broker dealer, merchant banker, and M&A firm, I have seen
several investment manias first hand. If this great gold bull market
were to wither away now, without the traditional blow-off top characterized
by a flood of new participants feverishly bidding up the spot price, it would
be a historic anomaly. More likely, analysis seems to indicate that only a
minimal number of investors have benefited from the rise in gold and silver
so far. Further, this strongly suggests that the bullish trend for precious
metals remains in place, and there is still room for substantial appreciation
over the long term.
Chris Blasi
Neptune
Global
Chris Blasi is
President of Neptune Global Holdings LLC (www.NeptuneGlobal.com) and a guest
contributor to both www.FinancialArticleSummariesToday.com and www.munKNEE.com
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