In response to a Craig Hemke comment that “the ability to convert fiat
and stack physical metal at these depressed paper prices is a gift, not a
disaster”, Chris Powell of GATA noted that “it would be a much more valuable gift for
people in their 20s and 30s than for people in their 60s and 70s. Indeed, for
the latter group it could look more like another ripoff.”
The response got me thinking about generational differences and the
demographic cliff (see this Mauldin Economics article for a summary by Harry Dent about the
demographic cliff). Harry’s work on demographics focuses on the generational
life cycle in respect of spending patterns, which he says
peaks at the age of 46. What I’m more interested in is the peak saving
age, because this may give us some clues to gold demand going forward.
Harry says that “people save the most at age fifty‐four and have the highest
net worth at age sixty‐four”.
This fits in with his peak spending at 46 – after that one would start to
save more in expectation of retirement in 20 or so years – and after 54
saving would start to tail off as one approaches mid 60s and the retirement
phase of one’s life.
The chart below shows the US population by age as at 2014, with my rough
generations based on clear differences in the number of people by age. Can
you see the problem?
As the Baby Boomers get further into retirement they will need
to sell their gold. The problem is that the 15 years worth of
Generation X that is just now coming into their peak savings age are a lot
smaller. More sellers and less buyers is not a recipe for higher prices. This
is something that affects all asset classes, but I do wonder if gold will be
one of the first assets to be sold, rather than dividend paying stocks or
rental properties.
It is coincidental that just as the early Boomers started moving into
retirement age and the late Boomers reached peak saving age that the
gold market was weak? The chart would seem to argue that if you are an early
Boomer best to sell now while your later Boomers are still in saving mode
rather than wait for when Generation X comes along.
If you are a late Boomer then the news isn’t good because it will be about
20 years before the first of the Millennials are reaching peak saving age,
which will be when you are between 70 to 75 years old. However, it is
questionable as to whether Millennials will be big goldbugs. Consider this interview with generation expert Neil Howe who says
that:
“Millennials are much more collective in their orientation and they
are much more optimistic about the future. We do a lot of surveys on
political attitudes by age and Boomers are by far the most pessimistic of all
generations and the most apocalyptical in their values and orientation.
Whereas Millennials are much more practical, collectivist and much more
optimistic about how things are going to turn out.”
“Today, we talk about our Millennials, China talks about their Little
Emperors, you know, the generation which never tasted bitterness, who are
incredibly positive about the future and who trust their parents to educate
them and wanting to join something big – the China Dream.”
It sounds like gold is going to be a hard sell to Millennials. Is
China the saviour? Consider their demographics from Wikipedia
below.
Their “boomers” are a bit younger but by only 5 years or so and they have
the same Western Generation X population drop off problem.
Now I’m not asserting that demographics are the major driver in the gold
market, and there are a lot of other factors to consider, such as different
generational behaviour (eg, Generation X starting families later than Baby
Boomers, so maybe their peak saving age differs), effects of migration, and
whether gold is something people will spend or pass on to later generations
(which probably differs by culture as well). But demographics are certainly
something investors should consider and something I’ll be looking to research
further (and welcoming your helpful suggestions and thoughts).
