Comment: The Midas touch
In an implicit challenge to the strategy of monetary expansion being deployed by central banks, some hedge funds are now buying gold. The gold bulls are reported to include David Einhorn, founder of hedge fund manager Greenlight Capital, as well as Eton Park and TPG-Axon.
The view is apparently shared by many institutional and state investors. Zhang Guobao, head of China's National Energy Administration, has said the country should use part of its nearly USD2trn in foreign exchange reserves to buy more gold and other strategic commodities.
Funds are turning to gold because they are concerned that the response of the US Federal Reserve and other central banks to the economic crisis will eventually result in a significant upsurge in inflation.
'The size of the Fed's balance sheet is exploding and the currency is being debased,' Einhorn is quoted by the Financial Times as writing to investors. 'Our guess is that if the chairman of the Fed is determined to debase the currency, he will succeed. Our instinct is that gold will do well either way: deflation will lead to further steps to debase the currency, while inflation speaks for itself.'
The central banks and political authorities appear to be gambling that the danger of inflation is currently secondary to the risk of deflation as asset prices slump and bank lending remains stubbornly low. Do the hedge fund managers and institutional investors that are betting on gold as a hedge against inflation have the Midas touch? Time will tell.
- By Category
- News from other sites
- Special Reports
- By Location
- Asian Hedge Funds
- BVI Hedge Fund Services
- Bermuda Hedge Fund Services
- Canada Hedge Fund Services
- Cayman Hedge Fund Services
- Channel Islands Stock Exchange
- Future of offshore funds
- Gibraltar Hedge Fund Services
- Guernsey Hedge Fund Services
- Hedge Funds in Germany
- Hong Kong Hedge Fund Services
- Ireland Hedge Fund Services
- Isle of Man Hedge Fund Services
- Jersey Hedge Fund Services
- Jersey Private Equity Services
- Latin American Hedge Funds
- London Hedge Fund Services
- Luxembourg Hedge Fund Services
- Luxembourg Private Equity Services
- Malta Hedge Fund Services
- Middle East Hedge Fund Services
- Singapore Hedge Fund Services
- South African Hedge Fund Services
- Spanish Hedge Funds 2008
- Switzerland Hedge Funds
- US East Coast Hedge Fund Services
- US Hedge Fund Services
- By Subject
Latest Special Report
- By Location