Guess Who’s Betting On Inflation!
If you’ve been reading the popular press for the past 6 months, there’s been a slew of articles talking about deflation. I’ve been somewhat skeptical of the long term probability of deflation and have been investing in gold and commodities in anticipation of inflation. Looks like I was a little early to the game (which, on Wall Street is just the same as being wrong!).
Now however, it looks like we are warming up the printing presses and gold has hit $1,000 twice in a week in anticipation of future inflation. Legendary hedge fund manager John Paulson, who made $2.5 Billion last year from his trades, has been betting heavily on gold and his fund has nearly 50% of its assets in gold or gold-related investments like gold mining stocks and ETFs. The gold ETF, GLD reportedly makes up 30% of his fund! He has also taken a large 12% stake in AngloGold Ashanti (ANGJ.J) making him the largest shareholder. According to Reuters, this is not a bet on the company being acquired but rather a bet on inflationary pressures pushing up the price of gold. As opposed to the popular theory of rising prices being a cause of inflation, I like to consider it as an effect of inflation, which is caused by printing money, a side-effect of fiat currency. If you’re unaware about the effects of inflation and how it can ravage the economic (and social) structure of a society, I strongly recommend watching the excellent videos on hyper-inflation.
Another fund which has done well with the gold mining ETF is David Einhorn’s Greenlight Capital, which picked it up at the lowest point of last year and which has more than doubled its investment so far. They both join China in being bullish on gold. Between Paulson’s bullion dollar gold ETF purchase and China’s multi-billion gold bullion purchase, it’s no wonder gold prices have been trending upwards.
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September 13th, 2009 at 11:58 am
I’ve been learning alot lately about the cultural (i.e., US) perception of inflation and deflation arguments. I’m amazed at how many people in the US make judgments about what is a numeric economic issue and imbue it with cultural connotations which may be real, but are certainly not necessary components of an inflation prediction. To link up right-wing/ gun-loving/ survivalists/ gold-bugs all under the same banner and call them crazy (as if these are all the same people, anyway) and associate all inflation-calls to these people is just nuts. Only in the US does that happen. People outside the US are unburdened by such a cultural apparatus and can better see what inflation is plain and simple, I think. For someone to make an inflation call is not at all the same thing as being any of the above or having anything to do with any of the above. I’m not a staunch defender of inflation as if it were some ethical position – don’t get me wrong. I actually have no idea now on how this economic situation will play out. I just think there’s a lot of cultural noise that gets in the way of seeing economic issues clearly.
September 13th, 2009 at 12:08 pm
thats a very astute observation. people also say that gold has been a lousy investment for 30 years (or they used to say so 4 years ago) and so they’re not interested in hearing any other differing opinion.