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Gold’s recent rally is counterintuitive, as high interest rates generally make bullion less attractive.
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But billionaire investor David Einhorn has a theory that he shared in his latest letter to investors.
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Einhorn suggests that the rise in gold is potentially due to Eastern countries buying gold from Western countries.
Gold has had a record year so far in 2024.
That being said, the sudden rise in commodity prices could come as a surprise. Indeed, the macroeconomic environment was expected to create obstacles to gold price appreciation, as the Federal Reserve’s policy of higher and longer interest rates generally makes other investments like bonds and savings accounts more attractive than metal, because it is not a profitable metal. active.
To explain the strong gold rush, billionaire investor David Einhorn offered a potential theory in his latest investor letter released this week.
“While it is possible that this advance was linked to the market beginning to doubt the sustainability and wisdom of monetary and fiscal policies, other evidence suggests that this was not the case,” said Einhorn in the letter.
Instead, the Greenlight Capital founder said there was a “secular trend” of Eastern countries buying gold from Western countries.
“Perhaps the West is running out of gold it is willing to sell, while demand from the East has remained strong enough to drive up prices,” he said in the statement. .
Indeed, global central banks have been rushing to buy gold, snapping up more than 1,000 tonnes over the past two years in a row, according to data from the World Gold Council – and one of the biggest buyers is China.
The world’s second-largest economy has been crippled for years by a sluggish economy, with a struggling real estate sector, a struggling stock market and persistently high unemployment. This led to his central bank and consumers accumulate precious metals as a stable store of value and as a way for the People’s Bank of China to diversify its reserves away from the dollar.
For 17 straight months, the PBOC has gobbled up gold, increasing its holdings by 16% during that time.
The World Gold Council reveals that India and Singapore have also been hoarding gold to hedge against global economic turmoil.
Growing demand for gold is driving prices higher, with economists forecasting an even faster rise as geopolitical uncertainties and macroeconomic headwinds like inflation fuel more gains.
Best economist David Rosenberg predicted another 15% rise in the price of the yellow metal, with a potential 30% on the table as central banks consider rate cuts, but he stressed that gold can rebound no matter if the economy eventually experiences a soft landing or a deeper recession. .
Market Guru Ed Yardeni, meanwhile, predicts that gold could climb as high as $3,500 by next year, hinting at a 50% upside potential. It draws parallels with the Great Inflation era of the 1970s, suggesting that current inflation trends could propel gold to new…
