One of the founding partners of the excellent Real Vision TV, who is also a former Goldman Sachs employee and hedge fund manager, had some strong words on gold recently.
Even after the price has pulled back sharply in recent days. Read on to see why he favours gold currently…
By Justin Spittler
The price of gold should be a lot higher…
At least, that’s what Raoul Pal thinks. Pal is one of the world’s top “big-picture” investors. He used to work at Goldman Sachs and run a giant hedge fund, until he made so much money that he retired.
Today, Pal writes The Global Macro Investor, a research letter read by some of the world’s biggest money managers. Recently, Pal came out in defense of gold.
You see, gold has cooled off after climbing 25% over the first six months of the year. It’s down 8.5% since August. And it’s coming off seven straight down days, its worst losing streak since 2013.
Gold’s recent selloff has many investors worried. But not Pal. He thinks investors could soon take shelter in gold…which could cause the price to double from current levels.
Today, we’ll explain why Pal is so bullish on gold. But let’s first look at why gold has been struggling.
• The U.S. dollar is soaring right now…
The U.S. Dollar Index, which tracks the dollar’s performance versus major currencies like the euro and Japanese yen, is up 5.7% since May. And that’s been a major drag on the price of gold.
Like most commodities, the dollar is priced in gold. This means gold gets “cheaper” when the dollar gets more expensive.
There are a few reasons why the dollar has done well recently:
- There was a flight to safety after Brexit. This pushed many foreign investors into the U.S. dollar and U.S. assets, which a lot of investors still consider safe havens.
- The Federal Reserve is “doing less” than other major central banks right now. It’s not printing money like the European Central Bank and Bank of Japan. It’s not cutting interest rates either.
- The Fed is also talking about raising interest rates. If the Fed does this, U.S. assets will “pay” even more than European and Japanese assets. And that’s bullish for the U.S. dollar.
• The dollar could head higher in the coming months…
The chart below shows the performance of the U.S. dollar over the past two years. You can see the dollar recently broke out of a “wedge” pattern.
This means the dollar will probably keep rising, at least in the short term.
Now, most investors think this is a reason to avoid gold. But Pal is actually bullish on gold and the U.S. dollar right now.
• Like us, Pal thinks the U.S. economy is headed for tough times…
MarketWatch reported last week:
Pal’s core presumption — one he’s held since 2014 — is bad news for the U.S.: He is convinced the country is headed for recession within a year. “The business cycle points to that,” he said, “and 100% of all two-term elections have had a recession within 12 months since 1910.”
According to Investopedia, the business cycle is the “fluctuation in economic activity that an economy experiences over a period of time.” When the economy is growing, it’s called an expansion or a recovery. When the economy is shrinking, it’s called a recession.
According to the government, the U.S. economy has been recovering since 2009. The current recovery is now more than seven years old, making it one of the longest recoveries in U.S. history. It’s also been one of the weakest recoveries on record. The U.S. economy has grown just 2.1% over the last seven years. That’s about half as fast as the economy’s historical growth rate.
• Pal isn’t the only big-time investor worried about the U.S. economy…
Pal does have some prominent company: Savita Subramanian, Bank of America’s head of equity strategy, recently predicted the same; Janus Capital’s Bill Gross spoke of a lagging U.S. recovery in his September investment note; and bond investor Jeffrey Gundlach showed a chart during a recent webcast that revealed the start of a recession. And Wilbur Ross sees one coming in 18 months.
• A recession would almost certainly be bad for stocks and bonds…
But it could cause the price of gold to surge. After all, gold is the ultimate safe-haven asset. Investors buy gold when they expect stocks or the economy to struggle.
Of course, Dispatch readers know that the U.S. government will likely do whatever it takes to prevent a recession. It could “print” more money or slash interest rates again.
Pal says more easy money would be good for gold. MarketWatch reported:
Should his prediction come true, Pal says, gold prices could double. If central banks want to get active and combat a slowing economy, he says, they will try to stimulate the economy via printing money or more easing, all of which plays “into the hands of gold.”
• The “smart money” has loaded up on gold…
Stanley Druckenmiller, one of the greatest traders ever, recently put about $300 million of his own money into gold.
George Soros, another legendary investor and Druckenmiller’s former trading partner, also placed a huge bet on gold earlier this year when he invested $264 million in Barrick Gold (ABX), the world’s largest gold miner.
Jeffrey Gundlach, chief executive of DoubleLine Capital, has a lot invested in gold and gold stocks, too.
According to Pal, “all the really serious thinkers are interested in gold.”
• Now could be the perfect time to buy gold…
With the dollar rising, many investors aren’t thinking about gold. Some have even thrown in the towel on gold.
We think these people are making a big mistake. As we’ve explained today, the strong dollar has been a drag on gold prices. But the dollar won’t stay strong forever.
You see, the U.S. dollar is merely the “least awful” major currency to own right now. But when the U.S. economy runs into trouble again, the Fed will do what every other central bank does when this happens: flood the financial system with money. This will hurt the dollar and benefit gold.
• Gold could skyrocket even if the U.S. economy can “put off” the inevitable recession…
To understand why, watch this brand-new presentation.
As you’ll see, a new “gold law” is set to take effect just two months from now. When it does, 1.6 billion people will have access to the global gold market for the first time in more than four decades.
E.B. Tucker, editor of The Casey Report, says this could trigger a full-blown “gold-buying frenzy.” An estimated $3 TRILLION could flood a tiny corner of the gold market.
Opportunities like this almost never happen. And yet, the mainstream media hasn’t said a peep about this.
You can learn more about this upcoming event by watching this newly released video. We’ll also tell you the exact date to circle on your calendar AND how to make the most money off this incredible opportunity. Hint: It has nothing to do with buying gold coins.
Chart of the Day
Raoul Pal doesn’t like U.S. stocks right now.
Today’s chart compares the Institute for Supply Management (ISM) Manufacturing Index with the year-over-year performance of the S&P 500. The ISM measures the health of the manufacturing industry. According to MarketWatch, it’s one of Pal’s most trusted economic indicators.
You can see that the ISM closely tracks the performance of the S&P 500. When it rises, U.S. stocks usually do, too. But that’s not happening right now.
Today, the S&P 500 (blue line) is rising, while the ISM (red line) is falling. Pal says this is a very bad sign for the U.S. economy. MarketWatch reported:
“It peaked in 2011 and has been bouncing around 50 for a while now,” he said. “The moment it starts to get to 47, 46, the odds of a full-on recession explode to 85%. We’re very close now, getting to the point where the probability is very high.”
It’s not the only key economic indicator that’s screaming recession, either:
“There’s a difference between the narrative, which is what you’re being told, versus the reality of the economic data,” said Pal. “It’s in no one’s interest ahead of the election to say the U.S. economy is a mess — [that] world trade freight shipments, container shipments, retail sales, restaurant sales, factory orders, durable orders are all showing a recession.”
If the flood of bad economic data continues, the Fed will almost certainly print more money or cut interest rates. And that could easily send gold prices through the roof.