Billionaire Hedge Fund Manager “Very Concerned” – Bloomberg

Release Date: 
Friday, July 28, 2017

Gold prices hit a six-week high as the Federal Reserve lowered expectations of an interest rate hike resulting in a lower U.S. dollar.

“Gold prices rose to a six-week high on Friday after weaker than expected U.S. inflation
dampened expectations that the U.S. Federal Reserve will aggressively raise interest rates. Data on U.S. second quarter gross domestic product (GDP) and labour costs also pushed the dollar lower, making bullion more expensive for holders of other currencies. ‘It showed a big fall in annual inflation rates across the board ... so there is no urgency for the Fed to raise interest rates,’ said Commerzbank analyst Carsten Fritsch….” (“Gold hits 6-week high after U.S. data dampens rate hike expectations,” Reuters, 7/28/17.)

Gold ended the week up $14.60, closing at $1,270.10. Silver prices closed at $16.84,up $0.24.

Billionaire Hedge Fund Manager “Very Concerned” About Economy – Bloomberg
Billionaire Hedge Fund Manager Paul Singer told Bloomberg TV that “distorted” central bank policies threaten the economy and financial markets.

“I’m very concerned about where we are in terms of the financial system, the economy, the American economy, the global economy. After nine years of what I consider to be a distorted set of policies oriented to what I regard as monetary extremism, combined with growth-suppressive fiscal policies, regulatory, tax, I think it’s created a distorted recovery and its partially responsible for this exacerbation of inequality that has caused an incomplete recovery has caused this middle-class stress and edginess around the world which has led to fringe policies and fringe thoughts – you know populism.

“After nine years of this artificial levitation on the part of financial assets, high-end real estate, art, the things that rich people buy, what we have today is a global financial system that’s just about as leveraged, and in many cases more leveraged, than before 2008. I don’t think the financial system is more sound. I don’t think the fixes that have been put into place have actually created a sound financial system.

“So, I don’t believe confidence is justified in policy makers and in central bankers and the fact that confidence has not been lost up to now is obvious. But if and when confidence is lost, I think it could be lost in a very abrupt fashion causing, conceivably, a ruckus in stock markets and bond markets and financial institutions.” (“Paul Singer Says He's 'Very Concerned' About Economy,” Bloomberg, 7/26/17.)

Portfolio Manager Bullish on Gold
Joseph Foster, Portfolio Manager and Strategist for investment manager VanEck’s Gold and Precious Metals strategy, wrote that several factors are bullish for gold.

“Since the bear market ended in December 2015, the price of gold and gold shares has been forming a base. We have yet to see a strong catalyst to propel gold off this base but this could be about to change … Fundamentally, we believe the market is well supported around current levels because physical demand in India and China continues to improve, even though the People’s Bank of China (PBOC) has yet to buy gold in 2017 …

“Also supporting this price is the geopolitics in the Middle East and Korea—along with uncertainty surrounding the US political climate and policy—has created a pervasive nervousness globally that benefits gold. Thirdly, the US dollar appears to be in decline. While it did not help gold in June, we expect the historically negative correlation to benefit gold in the longer term. Finally, the positioning in the futures market suggests there could be more buying ahead for gold.

“We continue to be positive on the gold price in the longer term. Based on what we see and hear every day, all of us can imagine possible black swan events that might propel gold much higher. When we look at the economic cycle in the US, we find a more compelling investment case …

“The ‘elephant in the debt room’ remains sovereign debt levels that exploded higher after the last financial crisis and has been growing ever since. A shrinking economy magnifies debt problems and, with interest rates still far below normal, would likely see the Fed again resort to quantitative easing and maybe more extreme intervention, such as debt monetisation. Gold as a sound money alternative can act as a hedge against such risks.” (“Gold remains a solid money alternative given financial risks,” Fund Strategy, 7/26/17.)

Global Debt Threatens Investors - Holmes
U.S. Global Investors CEO Frank Holmes observed that massive global debt could overwhelm investors who haven’t included gold as part of their portfolio.

“Since the start of the year, the five-year Treasury yield, adjusted for inflation, has risen about 150 percent. Normally this would put remarkable pressure on the price of gold—higher yields raise the opportunity cost of buying gold—but over the same period, the U.S. dollar has steadily weakened and is now officially in a bear market. Because gold is priced in dollars, this has been supportive for prices. Year-to-date, the yellow metal is up more than 8 percent …

“All of what I’ve said so far pertains to the near-term. Gold’s medium- to long-term investment case, I believe, looks even brighter. Many unsettling risks loom on the horizon—not least of which is a record amount of global debt—that could potentially spell trouble for the investor who hasn’t adequately prepared with some allocation in a ‘safe haven.’

“According to the highly-respected Institute of International Finance (IIF), global debt levels reached an astronomical $217 trillion in the first quarter of 2017—that’s 327 percent of world gross domestic product (GDP). Notice that before the financial crisis, global debt was “only” around $150 trillion, meaning we’ve added close to $120 trillion in as little as a decade … It goes without saying that this is a huge risk. Some are calling this mountain of debt ‘the mother of all bubbles,’ and we all remember how the last two bubbles ended, in 2000 (the tech or dotcom bubble) and 2007 (the housing bubble) …

“You can probably tell where I’m headed with all of this. Another crisis could be in the works. Savvy investors and savers might very well see this as a sign to allocate a part of their portfolios in “safe haven” assets that have historically held their value in times of economic contraction. Gold is one such asset that’s been a good store of value in such times ….” (“’Mother of All Bubbles’ Keeps Gold in Focus,” U.S. Global Investors Frank Talk, 7/24/17.)

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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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