UPDATE: Gold Will Go Parabolic This Time- Paulson
He's right
Housekeeping: a little over a year ago we posted a videotaped interview with Paulson on Gold.. since then he has bought in the $1750 area, and has to our knowledge not sold. This interview (unlocked link right below), as seemingly mundane as it was spurred curiosity to find out more.
Bottom line: Paulson admitted he was wrong on QE effects back then, underestimated the power of Fed redirecting investment flows, and bought again knowing all this. We’ve been tracking his behavior since then, with no signs of his opinion changing. Here’s his latest update via Zerohedge.
Includes the larest from JPM on stocks TD on CTAs, and GS on oil at bottom
Billionaire John Paulson: You Need Gold, Not Dollars
Billionaire hedge fund manager John Paulson said you’re better off owning gold than dollars.
Why?
Because he thinks the dollar is set up for long-term depreciation as the world drifts toward dedollarisation.
Paulson talked about the dedollarisation trend in an interview with journalist Alain Elkann.
Paulson said the trend is toward dedollarisation, but it will take a while to happen. While the US isn’t the economic powerhouse it once was, it remains dominant in terms of reserves and trade. But other countries, particularly China, have undercut America’s economic power. That is eroding the power of the once-mighty greenback.
Other countries do not want to rely on the dollar as much as they have in the past, and the US also has an enormous deficit with the rest of the world in terms of trade and investment balances that used to be very positive, but now it’s very negative. That points to the intermediate and long-term depreciation of the dollar versus other currencies.”
He also noted that the extraordinary amount of money printing by the Federal Reserve has also undercut faith in the US dollar.
A lot of our growth has been based on fiscal spending that has been financed by the Fed buying the debt of government. The Fed balance sheet has exploded due to ‘quantitative easing’, a polite way of saying ‘money printing’, and inflation resulted. If you had dollars and 9% inflation, this year you lost 9% of your money; interest rates were nowhere close to compensating for that loss.”
With this backdrop, a lot of investors and central banks are looking for an alternative to the dollar. As a result, Paulson said, “gold is rising again.”
I say again because it’s been the reserve currency of the world for thousands of years, a legitimate alternative to holding the dollar or other paper currencies. There has been a significant increase in demand from central banks to replace dollars with gold, and we’re just at the beginning of that trend. Gold will go up and the dollar will go down, so you’d be better off keeping your investment reserves in gold at this point.”
Paulson isn’t merely speculating. Central bank gold buying set a record in 2022.
But why gold and not some other currency, such as the Swiss franc or the euro?
The other currencies will likely rise in value against the dollar, but each has their own issues. The European Central Bank (ECB) has also printed a significant amount of money, and if you keep your money in fiat currencies you face the risk, due to geopolitical events, that your reserves can be seized. As the central banks did with Russia. China probably think that as they have so much of their reserves in dollars, if they get into a geopolitical spat with the Western world over Taiwan or something else there is a possibility these reserves will be frozen, like they did with Russia.”
You avoid that counterparty risk when you hold gold.
If you possess physical gold you don’t face that risk. You also have the potential for appreciation. We’re at the beginning of trends that are going to increase the demand for gold, and inflation and geopolitical tensions will determine the rate at which gold increases. This year gold will appreciate versus the dollar, and also over a three, five and 10-year basis.