Did you know… the size of the gold market is a fraction the size of all other asset classes? This means that it only takes a small amount of capital inflows or outflows, or buying and selling, to make a big impact on the price.
This presents a risk and an opportunity. As a risk it means that it can easily fall down when traders need to take profits as we saw last Friday. As an opportunity it means that if only a fraction of the funds of the other asset classes moves into gold, the gold price will move significantly.
Popular belief is that USD 1350 per troy ounce is the bottom and never to be seen again gold price. Most senior gold miners use USD 1200 per troy ounce to value their reserves. At USD 1570 that is a maximum downside of between 14% and 23%. How many other assets do you know which can boast that maximum downside?
How small is the gold market in comparison to other asset classes? Refer to the table below. The World Gold Council says the size of the physical gold market is larger than many stock and bond markets. This is true but I think too granular a comparison. Gold is not an alternative to just one stock market. It is an alternative to ALL stock markets. As an asset class, it is an alternative to all other asset classes. It should be compared as such.