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Gold Price Outlook Remains Bright, Says Einhorn

Release Date: 
Wednesday, January 12, 2011

GOLD PRICE NEWS – The gold price traded near unchanged Wednesday morning, trading up $1.25 to $1,382.75 per ounce. Today’s marginal gain in the price of gold follows yesterday’s 0.4% rise, a day that saw the gold price and entire precious metals complex move higher across the board. Silver, platinum, and palladium all rose again this morning, trading at $29.65, $1,791, and $804 per ounce, respectively. More cyclically-sensitive commodities, such as oil and copper, posted gains as well on strong appetite for risk among investors.

Coming off ten consecutive years of gains, the gold price continues to be supported by the Fed's quantitative easing program, Europe sovereign debt crisis, and the widespread belief that central bankers across the developed world are willing to sacrifice their currencies in order to stimulate their economies. Commenting on these and other catalysts for the price of gold, hedge fund magnate David Einhorn discussed his outlook for the price of gold and fiat currencies in an interview with King World News.

Einhorn, President of $8 billion hedge fund Greenlight Capital and a prominent gold bull, has been a vocal critic of the Federal Reserve's zero interest rate policy. He contends that the economy can become conditioned to expect interest rates to remain low indefinitely, which causes borrowers to "become very over-extended and over-confident in how much debt they can handle. If at a later time the interest rates end up resetting to a higher level, you can wind up with a real crisis."

As for Greenlight Capital's gold position, Einhorn said that it "reflects our view that the monetary policy doesn't make sense…and you combine it with a very aggressive fiscal policy with deficits that are very large and not likely to contract in any important way with very additionally large longer-term implications."

In the interview, Einhorn points out the misaligned incentives between policymakers’ short-term objectives and those items that are in the best interest of the longer-term fiscal health of the nation. “There is a temptation somewhere along the lines, in an effort to avoid the short-term pain, to create a lot of money,” Einhorn commented. This increase in the money supply is showing up in the rising price of gold and other commodities as investors seek out hard assets to protect against the inflationary consequences of these policies.

Einhorn went on to say that he sees gold "as sort of the inverse of what's going on with the paper monies." He pointed to the ongoing currency debasement in not only the U.S. dollar, but also in the Yen, Euro, and British Pound, noting that policymakers "are in a sort of battle to see who can devalue the fastest." With no end in sight for competitive devaluations across the globe, Einhorn contended that the economic backdrop for the price of gold remains particularly attractive.

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This article is independently provided by and does not represent the views or opinions of Goldline International, Inc. Although the information in this article 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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†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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