» Why Bill Gross Says You Should Be Investing in Gold

Why Bill Gross Says You Should Be Investing in Gold

Source: http://feeds.moneymorning.com/~r/moneymorning/jOLe/~3/bkpIgvlu_xI/
Posted on Monday, February 4th, 2013 | In Uncategorized

Contributed by: Money Morning (http://moneymorning.com) -

Renowned bond investor Bill Gross, the manager of PIMCO's Total Return Fund, the world's largest bond fund, just shared his top investment picks with Barron's. Leading the savvy investor's short and selective list was gold.

Why is a bond bull keen on investing in gold?

It's because Gross sees gold as a stellar inflationary hedge as global central banks attempt to reflate their economies.

Gross explained that while it looks like loose monetary policies and the deluge of dollars will continue for a while, at some point both will have to stop and "when all this money printing by central banks ends, it won't be pretty."

Gross sees trouble brewing in the artificially-priced U.S. Treasury market.

"The Fed is buying 80% of the Treasury market today. It is remarkable to think that when the Treasury issues debt in the trillion-dollar-plus category, the Fed ends up buying most of it. The Treasury sells it to banks and primary dealers, who sell it back to the Fed at a higher bid," Gross explained.

"This is very different from the free-market capitalism we've come to know. And it will continue until inflation exceeds the upper end of the central bank's target of 2.5% or, by some miracle, we get real economic growth," Gross continued.

The artificially priced bonds leave investors to question if investing in them is worth the slender reward, given the paltry yields from a bevy of bonds except high-risk junk bonds.

Why are Global Banks Buying Gold?

Should the two big holders of bonds - central banks and sovereign excess reserve countries -
become concerned about inflation, the dollar's buying power or the easy monetary policies in the United States, they could decide to put their money elsewhere.

The likely place is gold, Gross said.

And many appear to be doing just that.

Russia's central bank continues to buy gold in efforts to diversify its foreign reserves away from paper assets it judges dicey.

To date, the Bank of Russia has amassed a gold store worth $530 billion, making it the world's fourth-largest holder of the yellow metal.

"We are buying the metal and will continue to pursue this course," First Deputy Chairman Alexi Ulyukayev told reporters at the World Economic Forum in Davos in late January.

Germany has just started to repatriate its gold with plans to store most of its 4,000 tons in Frankfurt. The move suggests the stalwart Eurozone country wants to have the precious metal not just safely on home turf, but at hand when and if needed.

While Gross doesn't expect gold prices to move much from current levels unless real interest rates rise or inflation fears heat up, investing in gold will still provide a "decent hedge" - something you can't get from bonds.

Investing in Gold with ETFs

For those interested in investing in gold, Gross likes the exchange-traded fund SPDR Gold Trust (NYSE: GLD).

Fellow Barron's Roundtable contributor Fred Hickey of The High Tech Strategist likes the iShares Gold Trust (NYSE: IAU), citing its lower fee.

Other fund managers are also investing in gold, with interest seriously stoked by the absence of low-risk investments offering decent yields, thus forcing investors to look elsewhere.

Philip Klapwijk, global head of metals analytics at London consulting firm GFMS, recently told The Wall Street Journal he "strongly" expects gold prices to log heftier gains this year than last. Klapwijk says rock-bottom, near-zero interest rates make gold a "competitive alternative to holding money in a bank account."

David Donora, head of commodities at money manager Threadneedle Investments, which has $1 billion in its commodities funds, has no plans to reduce the fund's current 11% gold exposure.

"We're feeling pretty bullish on gold and consider those long-term fundamental drivers that have been supporting the market very much intact," Donora told The Wall Street Journal.

Just after noon Monday, gold was trading at $1,676.20 an ounce in New York.

For more tips on investing in gold, check out Money Morning's Ultimate Guide to Gold in 2013.

Related Articles and News:

Money Morning:
Will the Debt Ceiling Be Good for Gold and Silver
Money Morning:
Gold Prices: Have We Reached Peak Gold
The Wall Street Journal:
Gold Bulls Are Holding On
Barron's:
Pimco's Bill Gross on How to Play "Credit Supernova"
Reuters:
Russia c. bank to keep buying gold--Ulyukayev

About Money Morning (http://moneymorning.com)
Money Moves the Markets; Money Morning Lets You Move First

We’re in the midst of the greatest investing boom in almost 60 years. And rest assured - this boom is not about to end anytime soon.

You see, the “flattening of the world” continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially ; and a technological revolution even in the most distant markets on the planet.

The bottom line is this: With U.S. influence slipping, and the dollar declining as well, investors who think too narrowly about this transformation will face years of meager returns. But those who embrace this new global reality can make themselves very wealthy.

# Over the next 25 years, America’s share of the worldwide economic pie will slip from 28% to 24%…

# Even as Asia’s share almost doubles ;which means it will account for a whopping 55% of the global economy by 2030.

The big brokerage firms are making a killing on the global boom. Yet Wall Street reserves the timeliest information - and the best profit opportunities - for its partners or wealthiest clients. And the Securities and Exchange Commission doesn’t help the everyday investor much either. The second sad fact is this: While you can buy any U.S. or Canadian stock you want, the SEC prohibits you from purchasing many of the available international stocks.

The reason: Foreign companies that haven’t registered with the SEC are off-limits to most U.S. individual investors.

Our worldwide research staff includes former investment bankers, international financiers, emerging markets specialists and veteran financial journalists.

Our experts know that certain capital flows essentially act as a “leading indicator” of future profit opportunities. These are opportunities that you won’t be reading or hearing about anywhere else.

Each weekday morning, in a readable style you can digest in just a few minutes, you will reap the benefits of our research and expert experiences. Indeed, Money Morning will bring you: # The latest reports on China, Japan, Emerging Europe, and the other global hot spots where most investor wealth will be created in the months and years to come…

# Reports on companies you’ve likely never heard of - even though they’re poised to sell billions worth of their wares to “new middle class” customers around the world…

# Information on the U.S. companies shrewd enough to cash in on this boom in global;

# The latest developments in banking, interest rates, foreign investment and other global investing topics;

# Advice on how to invest in currencies, precious metals, commodities and energy

# Inside news on the hottest investments, including water, uranium and private equity…

# And news on rules and regulations, financial trends and strategies - and any other “market intelligence” that you will need to become a shrewd-and-successful investor in the greatest global investing boom most of us will ever see.

Money does move markets. But Money Morning lets you move first.