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Is Your Financial Adviser Smarter Than Billionaire Sam Zell?

Jan 23, 2019 | Fred Abadi |

Is Your Financial Adviser Smarter Than Billionaire Sam Zell?

As financial advisers are urging their clients that the markets just hit a ‘bump in the road’, so they should not change their heavy allocation to stocks and bonds, I want to share another reason why the price of gold will go up and gold will dominate investment asset classes in the next few years. The original name for this article was supposed to be “Gold price will skyrocket. Here’s why,” but when putting the finishing touches on it, I saw that billionaire real estate investor Sam Zell was interviewed by Bloomberg and stated that for the first in his life he is buying gold, following my main hypothesis. In my opinion, what I’m writing here is one of the main reasons to look at gold and silver as assets that will skyrocket in the next few years…and I have Sam Zell backing me up on this. So, here goes!

While gold and silver take hundreds of millions of years to form in the Earth’s crust, it takes humans only a few decades to extract them, and we are always exploring for new deposits. The problem is that gold-mining companies haven’t been exploring much lately, so gold production—and thereby gold supply—is declining.

For several years now, mining companies have been cutting their exploration budgets. In fact, their budgets hit an 11-year low in 2016. The reasons can be found in stagnating gold prices and therefore the lack of interest by stock market investors to invest in the gold-mining sector. Looking at the chart below, we can see that the price of the Gold Miners ETF is pretty much the same today as it was five years ago.

Because of the lack of gold exploration, gold supply will be insufficient once gold demand picks up again—which it will, according to analysts and experts.

Take for example Pierre Lassonde, the billionaire founder of gold royalty giant Franco-Nevada and former head of Newmont Mining:

“If you look back to the 70s, 80s, and 90s, in every one of those decades, the industry found at least one 50+ million-ounce gold deposit, at least ten 30+ million-ounce deposits, and countless 5 to 10 million-ounce deposits. But if you look at the last 15 years, we found no 50-million-ounce deposits, no 30-million-ounce deposits, and only very few 15-million-ounce deposits. So, where are those great big deposits we found in the past? How are they going to be replaced? We don’t know.”

Another expert sounding the alarm is Ian Telfer, chairman of Goldcorp:

“If I could give one sentence about the gold-mining business, it’s that in my life, gold produced from mines has gone up pretty steadily for 40 years. [Gold production is] already going down. We’re right at peak gold here.”

So, gold production has peaked, the capacity of unmined gold still buried in existing mines shrank by 40% in 2017, and gold exploration is at a low. Common sense dictates that when demand picks up, gold production needs to increase, so mining companies will be forced to acquire one another to meet the required output. But wait, we are already witnessing these industry consolidations—Newmont Mining just recently acquired Goldcorp for $10 billion, and in September Barrick Gold bought Randgold Resources for $6 billion.

All these developments, which will be favorable conditions for the price of gold to go up, are so simple to analyze that they caught the eye of real estate mogul Sam Zell, who is not a precious metals insider. He just bought gold for the first time in his life. “[I] bought gold because it is a good hedge,” he said in a Bloomberg TV interview this week. “Supply is shrinking, and that is going to have a positive impact on the price. The amount of capital being put into new gold mines is almost nonexistent. All the money is being used to buy up rivals.”

Sam Zell isn’t alone. Today, with the price of gold going up, even more investors should make gold part of their portfolio. Both US and global economies and financial markets are headed towards a recession. Just consider these indicators:

  • US debt is almost $22 trillion, growing at more than $1 trillion each year.
  • Interest rates are still negative in other major economies, including Europe and Japan.
  • China’s economy is rapidly slowing.
  • It appears that governments across the world are trying to eliminate paper money and inflate their currencies to cancel out their massive debts.
  • US interest rates are slowly rising from their longtime lows, already dampening the past decade’s huge stock and bond rally.

These are all good reasons why you should own gold. And here’s another one: several of the world’s largest gold miners are spending a combined $16 billion to increase their gold reserves, making it clear there is a major shortage of gold. The best news is that this is just the beginning—the price of gold will only go up, so there is no better time than now to invest in gold. Just ask Sam Zell!

More about Fred

Fred has spent over 14 years in the financial industry, focused primarily on commodities and precious metals as investment assets. He has published numerous articles on the commodities markets, metals pricing forecasts, and investment-grade metals for retirement accounts. In his career, Fred has helped thousands of clients protect and preserve their investments with precious metals. He has been with Gold Alliance for more than two years as a leading Sr. Portfolio Manager, and he oversees many of our clients’ portfolios.

Fred happily provides advice for clients wishing to diversify into precious metals. For a free non-committing consultation, you can reach out to Fred directly at fred@goldalliancecapital.com.