How Do I Know that Institutional Money is Still not on Board with Gold?

February 12, 2007 – If you look at this chart for Newmont mining (NEM) as of February 9, it illustrates that large institutional money is still not on board with gold yet and in addition, for this reason, this a solid anchor for your gold portfolio. How do I know from looking at this chart that institutional money is not on board yet? Because NEM is the most well known major gold stock (actually it may be the only one though I’m not sure) that is a component of the U.S. S&P 500 index. As such, this is the one stock that all institutional managers are familiar with and the one they will dump loads of money into once they finally get on board with gold.

newmont.jpgGold has risen about $60 an ounce since the beginning of the year, or roughly 10%, yet the price of Newmont has only risen from $44.20 a share at the begging of the year to $45.81 as of February 9th, or just a measly 3.6%, amazingly underperforming the price of gold itself!   Why is this amazing? Because the strongest, best gold stocks typically will outperform the actual appreciation in the price of physical gold by multiples of 2, 3, 5, and even higher. This statistic tells me, as Newmont is the most prominent gold stock of the lot in the eyes of institutional fund managers (note not our eyes, but in the eyes of institutional managers) that they are not on board yet at all.

So why would I say that if you haven’t already bought Newmont, that it’s not too late to buy Newmont now? Because when the rest of the thundering sheep herd out there finally climbs on board, so will all the institutional managers, and since the overwhelming number of institutional managers in the United States have no idea how to evaluate gold stocks to choose the best ones, they will undoubtedly just dump money into the “safe” gold stock – which I believe will be Newmont if I had to pick one stock.

Although I’m sure that Canadian institutional managers are much more knowledgeable about selecting gold stocks since a great deal of “resource” stocks trade on the Toronto and Vancouver exchanges, still given the relative size of the U.S. stock market in comparison to the Canadian market, U.S. fund managers that eventually start investing in gold stocks will influence the price of gold stocks with their purchases, and Newmont is the stock most likely to benefit from their realization, even if it comes late in the game.

By far, Newmont won’t be the gold stock that will appreciate the most or grant investors legendary profits. In order to achieve this, you simply must take the time to learn how to identify great gold stocks. Or for that matter, stocks of any asset class because even though I’ve blogged about gold quite a bit, it’s just not gold, but other asset classes as well. There are other classes of stocks that I have not yet once discussed in my blog, but even though they have risen 80% to 130% since I bought them over the last eight months, there is still more considerable upside. Our maalamalama members know what these asset classes on, and hopefully, they’ll all be on board as well to benefit in the coming year. It’s not about following the media and the institutional buyers that will make you wealthy. It’s about beating them to the punch.


J.S. Kim is the founder and Managing Director of maalamalama, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.

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