Bloomberg Singer Says Gold Rally Just Beginning as Goldman Sees Losses … Billionaire hedge fund manager Paul Singer said that gold’s best quarter in 30 years is probably just the beginning of a rebound as global investors — including Stan Druckenmiller — weigh the ramifications of unprecedented monetary easing on inflation. “It makes a great deal of sense to own gold. Other investors may be finally starting to agree,” Singer wrote in an April 28 letter to clients. – Bloomberg
When we simplify the terms of the argument, we can understand it. In this case, gold’s escalating value against the wounded dollar has little to do with oil prices or China’s economic vitality.
There are two reasons actually. Let’s explain.
Well over $100 trillion has been printed by central banks since 2008 in a vain attempt to generate economic momentum.
Nothing much has happened. Economies around the world are in various stages of recessions and depressions.
This is a momentous occurrence. From academia to industry, and government too, people should be proclaiming that Keynes is dead.
Instead … nary a peep.
But it is true. If these past seven years have shown us anything, they have shown us that Keynesianism is a dead letter.
You can’t elevate economies by stuffing them with money.
Economies are more complex than that. And people aren’t stupid. Not today, anyway.
They notice a lot of money coming into the economy and they don’t necessarily believe prosperity is just around the proverbial corner.
Certainly that’s what has been happening. Businesses don’t want to lend money because they don’t know whether the counter-party is solvent.
Individuals don’t want to “invest” because of a similar uncertainty.
The stock market has been rising, it’s true (as we predicted not long ago) but even this upward momentum is not doing much more than keeping up with inflation.
Gold, on the other hand, has performed better than any other asset class in the 2000s – rising from around $200 to nearly $2,000.
And now gold is on the move again, reaching $1,300.
More from Singer: “Investors have increasingly started processing the fact that the world’s central bankers are completely focused on debasing their currencies.”
This is a simple, persuasive fact.
Goldman, meanwhile, believes gold will end the year near $1,200 because oil prices have firmed along with the Chinese stock market.
Both of these statements are speculative indeed.
Oil prices may have firmed for now but that certainly doesn’t mean they cannot retreat.
And China’s economy surely shouldn’t provide investors with a heady sense of optimism, given the grimness with which Chinese officials themselves regard the system.
There are other professionals in the market that share Singer’s perspective.
The billionaire Stan Druckenmiller said last week gold is his largest currency allocation. He also stated the current equity bull market was exhausted after a seven-year run.
Here are some figures:
Spot gold has rallied 20 percent this year … as investors poured funds into bullion-backed exchange-traded products. The commodity, which dropped for the past three years, remains more than 30 percent below its September 2011 high.
Also, Goldman despite a bearish end-of-year forecast just revised its bullion estimates higher in a May 10 letter. BNP Paribas SA believes gold could hit $1,400 in the next few months.
Goldman believes gold’s growth against the dollar will be slowed by further Fed rate hikes. But during the 1970s, rate hikes had little effect on gold prices until Volcker hiked hard in the early 1980s.
In this case, the chances of sustained hikes seem fairly slim, given what just happened to the market when Yellen hiked a quarter point.
Additionally, it seems quite evident that central banks are looking for inflation and generally seek a looser funds flows.
Even Yellen, who speaks of higher rates because of “recovery” regularly contradicts herself.
When it comes to gold, then, there are two salient facts.
First, the stock market is seven years old.
Second, central banks are obsessed with liquidity as they try to create price inflation and economic recovery.
This is one of those times when circumstances proclaim a given trend in an emphatic manner.
Conclusion: One way or another, sooner or later, it is gold’s time (and silver’s). And maybe that time has already begun.