david einhorn

Is Deflation Looking to Pop the Gold Bubble?

If Goldman Sachs is publicly bullish on gold, is that a good thing or bad thing for gold bulls? Wall Street’s notorious trading house published a report on gold last week setting a price target of US$1,300 in the next six months. The report cited several factors. But before we get into them, we’ll confess it made us a bit nervous. Whenever any broker is saying one thing, you have to wonder if they’re actually doing the opposite. That said, Goldman did make a point that is true of an asset in a bull market: it requires corrections to shake out the speculators and weak hands from time to time. Following the June high north of $1,250 the net speculative long positions declined. Traders took profits. And so did momentum players in the exchange traded funds market. But then something happened that Michael Pascoe and Rory Robertson did not expect. The gold bubble did not pop. Because it’s not a bubble. The momentum players departed and the price found plenty of support. It’s now around US$1,220. Goldman says the big catalyst for a move higher (other than its announcement leading to a stampede of money into gold short-term) is a repricing of U.S. growth expectations for the rest of this year and all of next. Maybe it’s a fear trade, or just bearishness on U.S. corporate profits when unemployment keeps rising. Either way, about the only dubious chart we saw in the whole report is the one showing lower U.S. real interest rates and the gold price (exhibit five). As those cool cats in statistics say, correlation is not causation. It’s possible low rates give speculators fuel to play in the gold market. But it’s more likely, we reckon, that U.S. rates are low because the bond market is pricing in a deflationary scenario. So why would gold rise in a deflationary scenario? Good question! It brings us full circle to the argument fund manager David Einhorn made when we announced his gold position: you buy gold when you think monetary and fiscal policy are bad (we’re paraphrasing). Whether it’s inflation or deflation matters less than something unconventional and bad is going down. Gold does well in that environment, what with it being real money and all. Whether you like it or not, more and more governments across the world are spending out of an empty pocket. They’re spending to give money to people who have lost jobs as a result of the structural shift in the labour markets. That shift came from globalisation. The money might keep people above water for …

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David Einhorn Adds African Barrick Gold (LON:ABG), Increases Gold Exposure

David Einhorn, hedge fund manager of Greenlight Capital, said he’s increasing his exposure to gold, and has bought African Barrick Gold (LON:ABG) shares, primarily because they’re lower priced than other miners.Einhorn recently said at an investment meeting of Greenlight Capital, that ‘We tend to think of gold as a currency, I think there’s going to be a lot of inflation.” Citing the sovereign

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