Billionaire Hedge Fund Manager – Gold Undervalued And Underrepresented In Portfolios

Release Date: 
Friday, September 16, 2016

Gold prices fell this week as a stronger dollar and new inflation numbers supported speculation that the Federal Reserve would raise interest rates.

“Gold hit a two-week low on Friday after data showing faster-than-expected growth in U.S. consumer inflation last month helped support the case for the Federal Reserve to raise interest rates later this year. Inflation is a key factor the U.S. central bank considers when deciding monetary policy. While the prospect of a hike at the Fed's policy meeting next week remains remote, a new Reuters poll of 100 economists indicated a 70 percent chance of a December rise….” (“Gold slides to two-week low after U.S. inflation data,” Reuters, 9/16/16.)

Gold ended the week down $17.80, closing at $1,311.00. Silver prices closed at $18.86, down $0.27.

Billionaire Hedge Fund Manager – Gold Undervalued And Underrepresented In Portfolios
The financial website The Market Oracle reported that another billionaire has joined the chorus of investors and institutions who believe gold is a critical component of a diversified portfolio.

“In past issues, we’ve documented increasingly concerned billionaires warning of dangerous economic times. Many have favored gold as an alternative allocation in a world where $13 trillion-worth of debt is negative yielding, interest rates are artificially suppressed and we’re on the brink of major wars.

“The newest addition to this gold-loving billionaire’s club, is none other than hedge-fund manager Paul Singer. At CNBC’s Delivering Alpha Investors Conference this week, the founder of the $27-billion Elliott Management Fund, the 17th largest hedge fund in the world, mentioned that at current prices gold is ‘undervalued’ and ‘underrepresented in many portfolios as the only … store of value that has stood the test of time.’

“Singer, along with numerous other hedge-fund managers, has been increasingly outspoken in his criticism of the Federal Reserve and other central banks for creating dangers in the market unlike any in what he terms the ‘5,000 year-ish’ history of finance. Singer noted that ‘it’s a very dangerous time in the global economy and global financial markets...’

“Earlier in the conference, prior to Singer, Ray Dalio who is the manager of the largest hedge fund in the world, Bridgewater Capital, was also vocal about the diminishing returns provided by government debt held by central banks. ‘There’s only so much you can squeeze out of the debt cycle,’ he said. He went on to say that central banks are at a point now where their ability to stimulate is limited.

“Seated next to Dalio was Former Treasury secretary Timothy Geithner who voiced concern about limited ‘tools in the keynesian arsenal,’ that probably wouldn’t be enough to offset the next recession. Geithner obviously believes that a recession is on the way. Dalio and Singer are trying to convey the same message. A massive crunch is looming….” (“Another Billionaire Warns of Catastrophic Depths Not Seen in 5,000 Years – and Emphasizes Gold,” The Market Oracle, 9/16/16.)

Wealth Planner Advises Investors To Consider 15% Gold Allocation
Erika Nolan, founder of the wealth planning firm 1291 Group of Americas, told Kitco News that gold should be in every portfolio as a recognized store of wealth.

“I think gold is absolutely critical – we are big believers in having real stores of wealth of which gold is one of the most proven… people ask, 'Erika, can I put my money here, can I put my money there' and my answer is, 'how much gold do you have?’ You absolutely have to have some gold in your portfolio...

“I think the fundamental shift that is underway in the West and also in the emerging markets has changed the way you have to look at investing. So for us, one of our core components in almost every one of our portfolios is some form of what we call alternative assets because you have to include them… We are advocating 15% [of uncorrelated assets] be in gold… In unique times, gold is absolutely something you need in a portfolio….” (“A 15% Gold Allocation? This Wealth Builder Says ‘Yes.’” Kitco News, 9/16/16.)

Gold Can Mitigate Portfolio Risk And Increase Investment Returns – World Finance
The financial magazine World Finance reported that falling confidence in the world currencies and concerns over market volatility has boosted gold prices as investors seek a recognized safe haven asset.

“The price of gold (in USD terms) has performed admirably this year, rising 25 percent in the first six months and outperforming major asset classes including stocks, bonds and many commodities. According to Juan Carlos Artigas, Director of Investment Research at the World Gold Council: ‘The rise in price is mainly as a result of ongoing market uncertainty around Brexit, the US elections, a shift in market expectations in favour of far slower rate hikes in the US, and continued changes in monetary policy…’

“William Adams, Head of Research at FastMarkets, pointed out that prices turned a corner around the start of the year, reversing ways on what was then a downward trend… ‘It’s a strong rally that looks to have further to go, but not without corrections along the way’, according to Adams…

“Pent up demand coming back to the market ‘after a couple of years of waiting for the right conditions’, according to Artigas, also means many investors have raised their strategic gold allocations. Price momentum likewise results in stronger flows from some investors who want to ensure they do not miss out on higher prices. These factors, again according to Artigas, ‘make gold a highly attractive liquid asset for those searching for returns with a low tolerance for risk’…

“Adams agreed with the sentiment that rising gold prices reflect diminishing confidence in currencies more generally, and an insurance against some unfavourable developments in the financial system…Looking to the future, Adams maintained that, while there is reason to feel bullish in the medium term, the short-term outlook is not without its complications. Namely, ‘there is risk of a profit-taking sell-off, as the funds trading Comex have record gross and net long positions, so they are sitting on large unrealised profits that they may want to secure…’

“In short, the strength of the gold price is a reflection of the ongoing global market uncertainty, which, according to Artigas, ‘supports gold’s role as a highly-liquid asset that can mitigate risk and boost investment returns’.” (“Brexit drives up gold prices,” World Finance, 9/15/16.)

Gold Is Effective Tool Against Market Volatility – Koesterich
Russ Koesterich, CFA, the head of asset allocation for BlackRock’s Global Allocation team, wrote that gold is a cheap and effective tool for market volatility.

“While investors appear more convinced that the Federal Reserve (Fed) will indeed hike rates later this year, real yields remain well below where they started the year and even further below their long-term average. In other words, monetary conditions continue to be incredibly loose and supportive of gold.

“But there is another reason to maintain a position in gold: Historically, it has been a cheap and effective hedge against equity volatility. It’s true that market volatility has been unusually low lately but is expected to rise. While there are several ways to mitigate the impact of rising volatility, historically gold has been one of the more effective tools...

Interestingly, gold’s value as a hedge has historically been most pronounced during those periods when you need it the most… For investors comfortable with the notion that the market will continue to advance on the back of an improving economy, there is less of an argument for gold. Under that scenario, volatility is likely to remain low while rates will probably creep higher. Lower volatility and higher rates will both be headwinds for the precious metal. However, for those worried about excess complacency and rising volatility, it is worth remembering that gold generally works best in a portfolio when you need it the most.” (“Gold Still A Good Hedge When Volatility Rises,” Financial Advisor, 9/12/16.)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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