Just the Beginning?

Last week we wrote of investment legend Stand Druckenmiller’s $300m bet on gold.  Stan is famous for making aggressive “home run” bets on one class.  He famously made $1b on his shorting of the British pound in 1992.  His call looks to be playing out right now.  It’s way too early for “I told you so’s” but it is timely to reflect on exactly why he made this investment and what that might mean for “where to from here”.  Economic commentator Andrew Hecht summarised a recent interview with Druckenmiller well as follows:

“If Stan Druckenmiller is right and gold becomes a home run trade for him, it will provide a scary commentary for fiat currencies around the world. Since the global financial crisis in 2008, central banks have used a number of tools to stimulate the economies of nations around the world. The United States had a policy of quantitative easing that ended just last year. Europe introduced that same policy this year. In China, the government cut interest rates four times thus far in 2015; they introduced new rules to inhibit selling on their equity market, floated an infrastructure bond and devalued their currency all in an attempt to jump-start their economy. For years, central banks and governments around the world have held interest rates down in an attempt to stimulate economic activity. Perhaps all of these cheap money policies are finally catching up and this is not good news for fiat currencies such as the dollar, euro, yen, Swiss franc, yuan as well as others.

Gold bulls rejoiced recently when the news that Stan the Man had joined their ranks. They had been emboldened by the rally in gold, which took it over the $1135 resistance level last week. However, if Druckenmiller is correct and hits yet another home run, this time in the gold market, it will be very bad news for almost every other asset class in the world. Stanley's bet is that there may be nowhere to run and nowhere to hide except gold as the chickens come home to roost in terms of the backlash from cheap money policies over the past seven years.”