If you ever wanted more evidence of the viability of this bull market in gold, here you have it. This is what is referred to as institutional buying. What becomes very clear from reading Edward Zore’s comments is that CEO’s are looking for something of value that does not have counter party risk. That is the reason to own gold.
Put the inflation and deflation argument on hold for now. The real reason to own gold is the lack of counter party risk, which is actually a deflationary concern. General Motors filed for Bankruptcy today. Fannie Mae, Freddie Mac, Lehman Brothers, Bear Stearns, Merrill Lynch, Wachovia, WAMU and many others are gone. If you had assets parked there, they too are up in smoke.
CEO’s are beginning to look for shelters to park assets to simply avoid default risk. This is where gold shines. And an ounce of gold today still weighs the same. Don’t get sidetracked by the inflation versus deflation debate.
By Andrew Frye
June 1 (Bloomberg) — Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time the company’s 152-year history to hedge against further asset declines.
“Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor’s in Brooklyn. “In the Depression, gold did very, very well.”
Northwestern Mutual has accumulated about $400 million in gold, and Zore said the price could double or evn rise fivefold if the economy continues to weaken. Gold gained 10 percent last month, the most since November. The commodity has more than tripled since 2000, rising for eight straight years. Gold futures for August delivery slipped $4.80 to $975.50 at 4:03 p.m. in New York.
“The downside risk is limited, but the upside is large,” Zore said. “We have stocks in our portfolio that lost 95 percent.” Gold “is not going down to $90.”
Policyholder-owned Northwestern Mutual, based in Milwaukee, ranks third by 2008 life insurance premiums according to data from the National Association of Insurance Commissioners. The data excludes annuities.
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