Money is Moving into Gold
By Olivier Garret | Published June 4, 2018
Two months ago, we hosted a conference featuring 25 world-famous asset managers, investment experts, and economists who discussed their economic outlook and predictions.
I’m talking big names like “bond king” Jeff Gundlach, David Rosenberg, Louis Gave and others.
As you can imagine, these speakers usually don’t talk much about gold. They’re more concerned with stocks, funds, bonds and the like.
But this year was different.
I’ve never seen so many high-profile investors mention gold as a safety net—and that includes some who were previously hard-core gold bears.
This article is a short report that details what five of these well-known asset managers see coming down the pike over the next few years—and why gold is the best hedge against the looming crisis.
Mark Yusko: Your Purchasing Power Is Being Destroyed
At the conference, Mark Yusko, CIO and CEO of Morgan Creek Capital Management, gave an emotional speech comparing the Fed to a dictator that robs the nation.
He pointed out that despite $20 trillion being injected into the U.S. economy through quantitative easing since 2008, the results haven’t matched the effort…
Everybody’s all excited about QE. Everybody’s all excited about the Fed, but you realize that in the last 10 years, we had the worst growth in the history of America. Let that sink in for a second… 1.4% real growth for the last 10 years. And we have indebted our future to the tune of $20 trillion for nothing.
This increased money supply, he said, resulted in currency devaluation. “This is what dictators do. They systematically acquire the assets, and then they devalue the currency and boost the price of assets.”
He showed a chart that plots the S&P 500 price in nominal terms (blue line) and in gold (pink line).
“Gold is money,” he commented. “It’s real money. For 5,000 years, an ounce of gold has bought a fine man’s suit. So you can see in 2007, we had the housing bubble in nominal terms, but… the value [of the S&P 500] in gold fell. Today, we don’t have a bubble. We have a bubble in nominal prices, so this is what dictators do.”
Put simply, he said, record-high valuations in equity markets are the result of a devalued currency and monetary measures that the Fed pursues: “The purchasing power of the currency is being destroyed right before your eyes, and you’re just not paying attention.”
Jeff Gundlach: Gold Will Break Out in a Big Way
We’re at a juncture in gold, not surprisingly, because it is negatively correlated with the dollar… Now we see a massive base building in gold. Massive. It’s a four-year, five-year base in gold. If we break above this resistance line, one can expect gold to go up by, like, a thousand dollars.
Gundlach was reluctant to predict the probability and timing of this massive gold rally, but he thinks that investing in gold at this price is a no-brainer: “It’s a great time to be buying gold… because one way or the other, this baby’s got to break in a big way.”
Louis Gave: Gold Will Shine in the Coming Inflationary Boom
Louis Gave is the co-founder and CEO of Gavekal Research. The main theme in his keynote speech this year was a once-in-a-generation shift from a deflationary boom to the inflationary boom that we see today.
Below is a four-quadrant framework that Gave uses to determine where we are in the cycle:
According to Gave, these shifts occur every 30 to 40 years, usually as a result of policy errors.
As a method to determine where we are in the cycle, Gave suggested using the gold/bond ratio: “My starting point is always that… over a four-year period, bonds should always outperform gold… When they don’t, when bonds under-perform gold, that’s the market giving you a very important signal.”
He pointed out that gold has been outperforming bonds for the past four years now. “This, to me… means we are moving to an inflationary boom and bust period.”
If that’s the case, Gave told the attendees, the investing environment will radically change.
He suggested that investors reconstruct their portfolios and get out of bonds as a diversification tool because they are not a good diversifier in periods of inflationary booms.