The Gold Bull Stage 2: Here Come The Pensions

truthingold.blogspot.com / By Dave in Denver / January 9, 2013

Pension money invested in bullion is ‘peanuts’ at the moment…If 1 percent of their total assets shift to the metal, the gold market would explode. - Itsuo Toshima, advisor to Japanese pension funds (Bloomberg, link provided below)

I have maintained since 2002 that the precious metals and mining stock market would eventually erupt into bull market frenzy that would at least rival, and likely succeed, the bull market frenzy we saw in tech stocks. Part of what will fuel this frenzy is the enormous flow of institutional investor money, globally, that will eventually find its way into the precious metals and mining stock sector. Because the amount of potential capital from institutions from just a small increase in sector allocation – relative to the total size of the precious metals/mining stock sector – the price effect is potentially enormous.

There are a lot of solid fundamental reasons for this. But from a technical perspective, the total size by market capitalization of the gold, silver and publicly traded mining stocks combined is absolutely minuscule in relation to the total size of global investible institutional assets. To put this in perspective, the market cap of each of the top 15 stocks in the S&P 500 is individually larger than the total market of the entire publicly traded mining stock sector (1). Think about that for a minute. Apple has a bigger market cap than every single mining stock globally combined.

(1) I get this number by taking the total market cap of all mining stocks globally as of March 2009, calculated by Ibbotson & Assoc of $150 million LINK, and grossing this number up by 25%, which is a blended rate of appreciation between the XAU and the Canadian Venture Exchange, which is the commonly accepted benchmark for junior mining stocks. The market cap of the 15th largest stock in the SPX is $204 million: LINK.

Interestingly, if you think about it, to what extent can Apple possibly achieve even more market penetration and customer-base growth over the next 5 years? It is likely that Apple’s market saturation and ability to innovate and create demand has plateaued. At very best, its growth curve has largely flattened. The ole law of diminishing marginal returns – yes, it’s a bona fide law of economics/nature – had to get its claws into Apple eventually. Apple stock happens to be the largest holding across all hedge funds.

Now compare that to gold, silver and mining stocks. This visual should help:

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