Billionaire hedge fund manager Paul Singer said that gold’s best quarter in 30 years is probably just the beginning of a rebound as global investors -- including Stan Druckenmiller -- weigh the ramifications of unprecedented monetary easing on inflation.
“It makes a great deal of sense to own gold. Other investors may be finally starting to agree,” Singer wrote in an April 28 letter to clients. “Investors have increasingly started processing the fact that the world’s central bankers are completely focused on debasing their currencies.”
Gold for immediate delivery rallied 16 percent in the first three months of the year, the biggest quarterly surge since 1986, as the Federal Reserve refrained from tightening and central banks in Europe and Japan pressed on with negative interest rates. Druckenmiller, the billionaire investor with one of the best long-term records in money management, said last week gold is his largest currency allocation and the bull market in stocks was exhausted.
If investors’ confidence in central bankers’ “judgment continues to weaken, the effect on gold could be very powerful,” Singer wrote in the letter. “We believe the March quarter’s price action could represent something closer to the beginning of such a move than to the end.”
Spot gold has rallied 20 percent this year, trading at $1,272.59 an ounce at 6:02 a.m. in New York, as investors poured funds into bullion-backed exchange-traded products. The commodity, which dropped for the past three years, remains more than 30 percent below its September 2011 high.
Singer’s outlook contrasts with the view from Goldman Sachs Group Inc. While the New York-based bank revised its bullion forecasts higher in a May 10 note, its commodity team including Jeffrey Currie still expects weaker gold prices over the next 12 months.
Goldman’s new forecasts put bullion at $1,200 an ounce in three months, $1,180 in six and $1,150 in a year, up from $1,100, $1,050 and $1,000, according to the report. There’s limited room for further gains as the Fed will probably tighten in September, and may move in July, Goldman said.
Like Singer -- who in 2013 predicted the metal may be “rediscovered” by investors needing to own something “real” -- other backers of gold this year have highlighted concern central bank policy makers may be losing their credibility. Gold may advance to as much as $1,400 over the next 12 months, BNP Paribas SA said in April, citing rising investor concern about the efficacy of central banks’ policies to sustain growth.
Singer, whose firm Elliott Management Corp. oversees about $28 billion, got a measure of vindication for his longstanding call as gold rallied last quarter amid speculation that the Fed will be slow to tighten monetary policy as global risks persist and lending rates in the euro area and Japan fell below zero.
Elliott Management’s main fund, Elliott Associates, was up 2.7 percent in the first quarter, according to the investor letter.
In addition to expressing his gold view through options, Singer is backing a new venture focused on royalties, streaming, and other forms of investments in the mining industry that will be led by Shaun Usmar of Barrick Gold Corp. Usmar stepped down from his post as chief financial officer of the world’s largest bullion producer last month.