Hedge funds & Gold
During the last decade Gold in US dollars has achieved a compound annual growth rate which has outperformed most asset classes. In real terms gold reflects the destruction of paper money over time. Since money printing is likely to accelerate dramatically in coming years, gold will continue to outperform most asset classes in spite of the unprecedented manipulation of gold and silver by central banks and bullion banks. The latter has created an extremely high risk environment for those funds without at least some allocation to Precious Metals.
Many Hedge Fund Managers have recognised the importance of gold. Ray Dalio: “There is no reason not to hold gold”. Kyle Bass: “Buying gold is just buying a put against the idiocy of the political cycle”. David Einhorn: “As the result of the Fed’s destructive Jelly Donut Policy I will keep a substantial long exposure to gold”.
Hedge Funds & Gold
Due to the fragile state of the world economy, the risk to investors are major. Whether we get an deflationary implosion or what MAM thinks is more likely, hyperinflation, physical gold stored outside the banking system will protect enhance hedge funds returns in both scenarios.
The key is not whether MAM is correct or not in its assumptions. What is more important for hedge fund mangers is to protect against the eventuality of either scenario happening. To hold physical gold is likely to be a successful strategy in either event.
The difficulty for hedge fund managers is to determine what percentage of physical gold should be held in the portfolio. MAM recommended to its private investors in 2002 to put up to 50% of assets in physical gold stored outside the banking system when gold was $300. Gold has appreciated considerably since then but even the current much higher levels will be seen as a bargain in the next few years of unlimited money printing. For a hedge fund any asset allocation upgrade into physical gold is likely to enhance returns substantially.
Evaluating counterparty risk should take a much higher priority in a fragile financial system. Is the bank or custodian where assets are kept safe? Will bond issuers (whether government or private) repay their debts with stable or debased money? What is the risk of default of bond issuers?
To protect counterparty risk is vital in a world where most governments are virtually bankrupt and can only survive with money printing and where the banking system only survives by valuing toxic assets at maturity value rather than market value.
Gold is the only AAA risk!
Physical gold stored outside the banking system protects investors against both a deflationary implosion and inflation/hyperinflation. It also gives investors “insurance” against counterparty risk and is likely to enhance returns substantially. GoldSwitzerland can provide Hedge Funds with protection for a relevant percentage of their assets. GoldSwitzerland has a pricing offer for Hedge Funds that is competitive with any other method of acquiring gold. Please contact us for details.