Aug 192015
 

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?

usdemographics

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.

Chinapop_svg

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).