“Portugal Gold” is priced at 44 dollars (41 euros). Kylie Kirschner
Gold’s recent rally is counterintuitive because high interest rates typically make gold less attractive.
But billionaire investor David Einhorn has a theory, which he presents in his latest letter to investors.
Einhorn suspects that the rise in gold prices could be due to eastern countries buying gold from western countries.
This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by a real editor.
Gold has had a record-breaking year so far in 2024. Still, the commodity’s sudden rise may come as a surprise. That’s because the macroeconomic environment should actually be counteracting gold’s price rise, as the Federal Reserve’s policy of raising interest rates typically makes other investments such as bonds and savings accounts more attractive compared to the metal, which is not a high-yield asset.
To explain the sharp rise in gold prices, billionaire investor David Einhorn offered a possible theory in his latest letter to investors published this week.
“While it is possible that the increase was related to the market beginning to doubt the sustainability and wisdom of monetary and fiscal policy, other evidence suggests that this was not the case,” Einhorn said in the letter .
Instead, the Greenlight Capital founder said there was a “secular trend” of countries in the East buying gold from Western nations. “Perhaps the West is running out of gold it is willing to sell, while demand from the East remains strong enough to drive up the price,” he said in the statement.
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In fact, the world‘s central banks have bought more than 1,000 tons of gold in the last two years, according to data from the World Gold Council – and one of the biggest buyers is China.
The world‘s second-largest economy has been suffering for years from a sluggish economy, an ailing real estate sector, a weak stock market and a persistently high unemployment rate. This has led China’s central bank and consumers to hoard precious metals as a stable store of value, allowing the People’s Bank of China (PBOC) to diversify its reserves away from the dollar.
The PBOC has gobbled up gold for 17 consecutive months, increasing its holdings by 16 percent during that time. According to the World Gold Council, India and Singapore have also bought gold to hedge against global economic turmoil.
Soaring demand for gold is driving up the price, and economists predict the rally will continue to grow as geopolitical uncertainties and macroeconomic hurdles like inflation fuel further gains.
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Top economist David Rosenberg predicts the yellow metal’s price will rise another 15 percent, with a potential of 30 percent, as central banks consider interest rate cuts. However, he emphasized that gold can rise regardless of whether the economy ends up experiencing a soft landing or a deeper recession.
Market guru Ed Yardeni, meanwhile, predicts gold prices could rise to $3,500 by next year, suggesting a potential upside of 50 percent. He draws parallels to the Great Inflation era of the 1970s and suggests that current inflation trends could push gold prices to new heights.
Others, like billionaire investor Ray Dalio, believe gold can hedge the risks posed by high levels of national debt. In a recent post, he said he owned gold because the risk of a debt or inflation crisis was increasing.
Read the original article in English here.
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