by Egon Von Greyerz, Gold Switzerland:
In 1980, global assets, including property, were less than $20 trillion. Today almost 40 years later they have grown to $524 trillion. That is a compound annual growth rate of 9% which is quite remarkable for a 38 year period. Global assets have gone up 26 fold during this period.
In the same period, gold went from an average price of around $650 in 1980 to $1,300 today. So whilst global assets have gone up 26x since 1980, gold has just managed to go up 2x. Admittedly gold started at $35 in 1971 so it had already benefitted from a substantial rise by 1980. Nevertheless, since 1980, gold has been totally ignored both as an investment and as insurance or wealth protection. The massive increase in money supply through credit expansion and money printing has gone into conventional assets such as stocks, bonds and property but not into gold.
Gold has been a forgotten asset and investment for for 38 years and has not even kept pace with inflation with gold’s 1.8% annual growth rate since 1980. So there has been very little interest in gold whilst other investment assets have surged. We identified gold as a strategic investment for wealth preservation in 2002 at $300 and recommended to our investors to put a substantial percentage of their assets into gold with a minimum of 25%. Since then gold has been performing better than most investment classes. But the rise so far is totally insignificant compared to what is going to come.
BIGGEST WEALTH TRANSFER IN HISTORY
Because, between now and 2025, we are going to see the biggest transfer of wealth in history. The coming transfer will affect global investment markets in a way which will be totally shocking to most investors. All conventional markets, bonds, stocks and property will lose at least 50-75% and possibly more. At the same time, gold and silver will not just catch up with the underperformance since 1980. The precious metals will experience a totally unexpected investment mania of spectacular proportions.
As stocks and bonds fall precipitously, the markets will be overcome by a fear that the world hasn’t experienced since the 1929 crash. But this time it is likely to be much worse.
WORLD FINANCIAL ASSETS (INCLUDING PROPERTY)
Table 1 below shows global assets at $524 trillion currently. A major part of that is property which is a massive bubble in many countries like the US, UK, Australia, New Zealand, China, Hong Kong, Sweden, Switzerland etc. Low interest rates and unlimited credit have driven property prices to dizzy heights. So dizzy that they are now ready to fall down to earth very fast.
Looking at gold, the figure of $3 trillion represents all the gold in the world ever produced which is in gold bars or coins, including ETFs, some of which may not have the physical gold. It also includes central banks many of which don’t have the gold they officially declare. But that gold will then be somewhere else like in China, India or Russia so it clearly exists albeit elsewhere.
1. GLOBAL ASSETS 2018
As the above table shows, only 0.6% of world financial assets are in physical gold today. Back in 1960, gold represented 5% of global assets but the explosion in other investment assets has reduced the percentage to just 0.6%.
The coming implosion of asset bubbles will lead to a reduction of asset prices of at least 50% between today and 2025. That will obviously cause a major financial crisis and massive problems in the financial system, since assets do not just include stocks and property but also bonds and loans. Thus, the banking system will be under tremendous pressure and so will insurance companies and pension funds.