Bridgewater Associates is the world’s biggest hedge fund. It has assets under management of more than $160 billion. Bridgewater is also the most successful hedge fund of all time by the metric of absolute dollars earned.
By that meaning, if you looked at how many swimming pools Bridgewater could fill with the dollars it has earned for clients, they would fill more pools than any other rival. Over the course of four-plus decades, their sheer volume of profits is unmatched.
That makes Greg Jensen, the co-chief investment officer at Bridgewater, a man worth listening to.
Jensen thinks gold could surge 30% in value, to more than $2,000 an ounce, as a result of the current environment. Jensen is also deeply worried about the dollar.
Jensen more or less sees the same issues we do and highlights the same factors we’ve been writing about in these pages. His primary observation is that the Federal Reserve — the most important central bank in the world — is inclined to let inflation “run hot.”
Nor is it just the Federal Reserve taking a relaxed attitude towards inflation: 49 central banks cut interest rates for a grand total of 71 times last year. The Fed was responsible for three of those cuts.
“There will no longer be an attempt by any of the developed world’s major central banks to normalize interest rates,” Jensen told the Financial Times. “That’s a big deal.”
Jay Powell, the Chairman of the Federal Reserve, has openly admitted he wants more inflation. The Fed is concerned about the risk of prices falling, not rising, if households and businesses get scared or depressed.
“In order to move rates up, I would want to see inflation that’s persistent and that’s significant,” Powell said in December. That is the very definition of letting inflation run hot: Letting inflation trends become durable (persistent) and sizable (significant) before taking any counter-measures.
This is a recipe for the Fed, and other central banks, sitting back and doing nothing even as wage pressures and commodity prices go up. It is also a signal that, if the U.S. dollar starts to weaken, the Federal Reserve won’t try to defend the dollar’s value. In fact, they would probably be pleased to see the dollar fall — as a cheaper dollar makes U.S. exports more attractive.
All of this is wonderful news for gold. Jensen also sees geopolitics as a gold-bullish factor.
“There is so much boiling conflict,” he told the FT. “People should be prepared for a much wider range of potentially more volatile set of circumstances than we are mostly accustomed to.”
The Federal Reserve is worried about future shocks. The potential for a deflationary bust keeps them awake at night more so than the risks of inflation running a little too hot, and then dangerously hot, and then inferno-level hot.
The Fed is also boxed in by an explosive rise in the total amount of U.S. debt. The more debt and deficits that get piled onto the system, the more likely it becomes that the “bust” part of the boom-and-bust cycle leads to full-blown economic catastrophe, rather than a normal business cycle recession.
With inflation and debt levels building simultaneously, Jensen sees the U.S. dollar under threat. He thinks the dollar could even lose its status as the world’s reserve currency. “That could happen quickly, or it could happen a decade from now,” he told the FT. “But it’s definitely in the range of possibilities.”
Then, too, gold is already a mature asset class. The value of all the above-ground gold in the world today is roughly $8 trillion.
The value of all the world’s Bitcoin, on the other hand, is only about $157 billion as of this writing — which is less than the total asset base of a single hedge fund (Bridgewater).
This is partially why, if gold surges as Jensen expects, the comparable move in Bitcoin — coming off a far smaller asset base — could be 10X in size or even more. Perhaps it’s no coincidence that, with gold up 2% on the year as of mid-January, Bitcoin is up more than 20%.
TradeSmith Research Team