Greg Jensen, co-chief investment officer of Bridgewater Associates, the world’s largest hedge fund, says gold could surge to a record high above $2,000 an ounce as central banks embrace higher inflation and political uncertainties increase.
Mr Jensen, who helps oversee more than $160bn at the Connecticut-based group, told the Financial Times he believed the Federal Reserve, in particular, would let inflation run hot for awhile and “there will no longer be an attempt by any of the developed world’s major central banks to normalise interest rates. That’s a big deal”.
At the same time, Bridgewater sees political turbulence on multiple fronts as slowing US economic growth exacerbates the divide between rich and poor while tensions rise with China and Iran.
Against that backdrop, Mr Jensen said in a telephone interview that gold prices, now trading at about $1,550 an ounce, could gain 30 per cent and should be considered in investors’ portfolios.
“There is so much boiling conflict, that gold being part of a portfolio makes sense to us,” he said. “People should be prepared for a much wider range of potentially more volatile set of circumstances than we are mostly accustomed to.”
Jay Powell, Federal Reserve chairman, has worried that inflation expectations — predictions among households and businesses of what price increases will be — could continue to drop, dragging down actual inflation. Last month, he said: “In order to move rates up, I would want to see inflation that’s persistent and that’s significant.”
Mr Jensen said even if inflation reaches the central bank’s 2 per cent target, “the Fed won’t be pre-emptive”. That stance, he added, “takes off the table, in the short term, the normal reason cycles end . . . For most of the post-World War II recessions, the Fed dealing with inflation has ended the cycle.”
Fears over a slowing global economy prompted 49 central banks around the world to cut rates 71 times in 2019, according to JPMorgan data. The Fed reduced interest rates three times last year, taking its current target range for short-term borrowing costs to 1.5 per cent to 1.75 per cent.
Mr Jensen said he would not rule out the possibility that the Fed could slash rates to zero this year as it looks to avoid recession as well as disinflationary pressures.
Mr Jensen said gold should rally as central banks allow higher inflation and the US budget and trade deficits balloon. These developments, he added, could eventually threaten the US dollar as the world’s reserve currency.
“That could happen quickly or it could happen a decade from now,” he said. “But it’s definitely in the range of possibilities. And when you look at the geopolitical strife, how many foreign entities really want to hold dollars? And what are they going to hold? Gold stands out because it’s nobody else’s liabilities as a possibility.”
Although US rate cuts have bolstered US equity markets, Mr Jensen said the group was “more cautious” on US stocks, describing them as “frothy”.
He warned that “most of the world is long equity markets in pretty extreme situations”, particularly in the US, raising the appeal of emerging markets.
“A decade-long outperformance of the US is now being extrapolated and so people are generally under geographically diversified,” Mr Jensen said.
US stocks ended 2019 with their best year since 2013, with the benchmark S&P 500 rising nearly 29 per cent.
The group’s flagship Pure Alpha strategy, which bets on macroeconomic trends, was essentially flat in 2019, while its All Weather fund gained 16 per cent for the year.