Billionaire Sam Zell Buys Gold: Right Move, Wrong Reason

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Investment guru Sam Zell is buying gold for the first time. Zell claims "Supply is shrinking."

Please consider Billionaire Sam Zell Buys Gold for First Time in Bet on Tight Supply.

Gold’s dimming supply prospects have caught the eye of one billionaire.

“For the first time in my life, I bought gold because it is a good hedge,” Sam Zell, the founder of Equity Group Investments, said in a Bloomberg TV interview. “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 a most nonexistent,” Zell said. “All of the money is being used to buy up rivals.”

Misunderstanding Supply

Zell is correct about capital, about new mines, and about gold being a hedge.

Zell is wrong about supply. The supply of gold increases every month, albeit at a diminishing rate.

Since gold is not used up, the supply of gold is nearly every ounce ever mined, including gold in jewelry. The supply does not include gold buried and forgotten about or otherwise lost, gold in antiques, gold in historical treasures, etc.

At every price point, someone has to decide to hold on to their gold or sell it. Someone has to hold 100% of the supply, 100% of the time and that supply is constantly increasing.

Supply is not tight. Zell confuses supply with production as do most analysts.

But Zell is correct about gold being a hedge, perhaps not how he intends it. Gold is a hedge against central banks and runaway credit expansion.

Gold a Measure of Faith in Central Banks

As I have pointed out, gold moves primarily in response to faith in central banks.

Mike "Mish" Shedlock

Comments
No. 1-14
truthseeker
truthseeker

Mish am I in the penalty box with Wagner?

everything
everything

To correct one poster, silver is in massive glut and has been, and look at it's performance, very poor. It's like expensive copper, and 60% of it comes along with copper mining. We have years of above ground supply due to it being poor mans gold, coin/bar demand over the years really built up the supply. Now, GOLD, at least I believe that since so many central banks are now stacking it physically by the ton like never before in history we cannot know what the true price really is. That's some incredible artificial demand. Futures for gold, years coming, are flat.

Christian dk
Christian dk

SO why does a billionair that thinks that gold is/will be in short supply, miss the fact that silver IS in short and limited supply, and IS used/wasted exactly because it is so cheap that its not / yet worth trying to recycle, and even the primary silver miners are mining and selling silver BELOW production costs. To Sam Zell, if you want to make a few billion dollars, I am for hire, for only 1 % of profits. The risk of challenging the fake money empire is falling off your penthouse balcony, so better move to ground floor first. Mike

hmk
hmk

If you want to buy physical gold to keep yourself I found JM Buillion has the lowest premium to spot price. I would only want to keep the gold myself secured the way you find best. Some local dealers may also give good prices you'll have to check.

Realist
Realist

Hi Mish. I have been following your blog for several years. I enjoy reading many of your posts and agree with some of your views (like the importance of free market capitalism, technology, skills and education). However, I struggle to understand your position on gold.

I started buying gold in the late 70s and early 80s when near double-digit inflation was rapidly depreciating the value of major currencies and the threat of runaway hyperinflation was real. At one point, gold may have reached as much as 10% of my investments. Today it’s more like 2%. Over the intervening years I have diversified my inflation protection into more productive real assets. At the same time the threat of inflation continues to diminish. I am perplexed by your constant promotion of gold as a significant part of someone’s Investments.