Hedge fund & Gold
In the last 10 years Gold in US dollars has achieved a compound annual growth rate of almost 20%! No other asset class and probably no Hedge Fund has had returns even approaching these levels. In real terms gold is not going up. Gold is just reflecting the destruction of paper money. Gold is not going up but other asset classes such as stocks and property as well as currencies have all collapsed against gold in the last 10-13 years. Most of these asset classes are down 80-85% against gold in the 2000s. Since money printing is likely to accelerate dramatically in coming years, gold will continue to outperform most asset classes.
Many Hedge Fund Managers have recognised the importance of gold and are major holders of the yellow metal. As Ray Dalio says “There is no reason not to hold gold”. And many Hedge Fund Managers agree with him like Kyle Bass: “Buying gold is just buying a put against the idiocy of the political cycle”, or David Einhorn: “As the result of the Fed’s destructive Jelly Donut Policy I will keep a substantial long exposure to gold” and John Paulson agrees and holds a major investment in 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.
Portfolio Enhancement
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.
Counterparty risk
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.