Why The World’s Largest Hedge Fund is Buying up More Gold Now Than Ever

Rebecca Patterson, chief strategist at top hedge fund Bridge Water Associates, sat down for an interview with Pensions and Investments earlier in the week to explain how Bridge Water is preparing for a ‘prolonged stagflationary period’ (high inflation with low to negative growth).

Patterson claimed that Bridgewater have gone back over a century to evaluate the investment proposition of gold within the similar macroeconomic conditions to those that we are seeing today. Aside from gold being generally a steady rock in an otherwise turbulent market, Patterson also noticed an alarming trend that investors can easily become accustomed to ‘persistent elevated inflation.’

She went to warn investors about becoming overly comfortable holding cash, and by extension not being proactive enough in the event of inflation worsening.

“Stagflation is a real risk and people need to take a step back, look at their portfolios and say, ‘Do I have enough in my portfolio that if that scenario plays out, I’m not going to be vulnerable?’”

As a consequence of their research into the long-term outlook of gold, Bridge Water Associates have substantially increased their position in precious metals.

Furthermore, the current short-term outlook for precious metals can also be considered very appealing, as there is a strong increase in Asian demand. China specifically, has increased their imports to 80 tonnes of gold in July alone, double June’s imports and 8 times May’s imports. If this steep increase in month to month purchasing continues China’s buying pressure alone could have a significant impact on price moving forward.  

“How much gold are you going to need? Like, this much, at least…”

On the FED front, Patterson is of the personal belief that the continuation of the interest rate hikes is at best a lesser of two evils, as opposed to a catch-all solution.

“The Fed’s in an unenviable place, if they tighten too much, they risk exacerbating the recession,” she said. If they don’t tighten enough, they’re not going to get inflation where they want it and they could risk their credibility.”

As we saw with last week’s CPI figures, the market had priced in some economic improvement  prior to the news that inflation had worsened. A similar situation could be at play here in the event of a further larger than expected rate rise, which again could see traditional risk on assets such as shares continue to fall and gold start to rally.

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