The NEXT Greatest Trade Ever: Billionaire Gurus Increasingly Point to Gold
Mega investors have been talking up the merits of gold ownership lately. For example, the billionaire hedge fund manager who executed the “greatest trade ever” in 2007 is now pounding the table about the opportunity in hard money.
John Paulson rose to fame during the subprime mortgage crisis of 2007-2008 when his fund bet big that housing-related financial assets would crash.
Paulson loaded up on derivative instruments designed to rise in value as mortgages blew up. He cashed in for himself and his investors to the tune of $20 billion.
Paulson’s feat was detailed in Wall Street Journal reporter Gregory Zuckerman’s book, The Greatest Trade Ever.
The greatest opportunity today may be to trade out of paper and digital assets and into hard assets. That’s John Paulson’s current investing thesis.
In an interview published Monday morning by Bloomberg Wealth, he issued a shocking forecast for the future of unbacked digital tokens that have lately been all the rage: “Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless. Once the exuberance wears off, or liquidity dries up, they will go to zero.”
Regardless of whether cryptos become completely worthless, they could become worth a lot less when speculators and technophiles move on to a new craze.
Bitcoin, Dogecoin, and the like have little utility beyond being a perceived as alternative stores of value. By contrast, the usefulness of physical gold and silver extends far beyond their historic role as money or their potential to function as money in the future.
Even if, as the naysayers claim, precious metals are no longer relevant as monetary assets (despite the fact that they continue to be accumulated by central banks around the world), gold and silver are in demand by high-tech industries, jewelers, mints, and others who value the metals’ physical properties.
John Paulson notes there is “a very limited amount of investible gold” compared to an ever-expanding money supply, priming the monetary metal for its moment.
He anticipates that gold prices will be squeezed to the upside as investors exit low-yielding cash and fixed-income instruments in search of inflation protection.
Paulson isn’t a newcomer to the gold market. Back in late 2009, he put a massive chunk of his firm’s assets into precious metals-related investments.
“As an investor I became very concerned about having my assets denominated in U.S. dollars,” he said. “I looked for another currency in which to denominate my assets. I feel that gold is the best currency.”
Other billionaires and large institutional investors are accumulating gold as well. Many of them understandably prefer to keep quiet about their bullion holdings. But word is getting out.
The technology company Palantir surprised analysts who discovered it purchased $50 million worth of gold bars in August.
Billionaire investor Jeffrey Gundlach just suggested that gold is going higher, a lot higher.
Among other potentially bullish catalysts, the “Bond King” sees the Federal Reserve Note declining further, leading to a big rally in gold once it breaks out of its recent trading range.
Gundlach told Yahoo Finance, “My number one conviction looking forward a number of years -- I’m not talking about the next few months at all, I’m talking about several years -- is that the dollar is going to go down. I think ultimately gold is going to go a lot higher, but it’s really in hibernation right now.”
Gundlach went on to discuss why a dollar decline is inevitable due to insurmountable debt levels. He further suggested that the U.S. is simply falling behind on the global stage, a problem existing for a generation now.
U.S. consumption is increasingly shifting to China, and that is also affecting the greenback. The dollar’s status as the global reserve currency of choice is under attack, and its days may be numbered as such.
Gundlach suggested that U.S. monetary policy is putting forth the notion that the United States could care less about its reserve currency status, and he thinks a decline of at least 25% is coming in the years ahead.
Meanwhile, Steve Forbes, Chairman and editor-in-chief of Forbes Media, also believes better days are ahead for the yellow metal.
Forbes recently discussed a variety of issues that support higher gold prices. He argues massive sovereign debts combined with ultra-low interest rates are likely to have a major impact on global financial markets in the years to come.
Regardless of whether one cares to listen to the views of billionaires (they definitely aren’t always right about everything), there is currently a strong fundamental case for higher precious metals prices in the years ahead.
Supply is becoming increasingly difficult for the mining industry to expand while new sources of demand are emerging constantly.
The fiscal and monetary backdrop has perhaps never been more bullish for hard assets. Massive sovereign debt levels are putting pressure on central bankers to pump up the currency supply and let loose on inflation.
Finally, geopolitical risks are a wild card for a potential surge in safe-haven demand for bullion.
The next great trade is setting up to be moving out of financial assets for hard assets.
To be sure, keeping some cash on hand for emergencies is wise. But banking one’s future on dollar-denominated instruments comes with a big downside; namely, inflation as it erodes the value of conventional investment portfolios.
If billionaire hard money holders are right, the big upside ahead is in precious metals.