Why Stanley Druckenmiller Changed His Mind About Gold
After the election, hedge fund manager Stanley Druckenmiller made headlines by announcing that he had sold all of his gold on November 8.
He said that the way he foresaw the economy going in the future, he wouldn’t need it anymore, and that other investments would be sounder. However, it seems now that he’s reversed his position and is again buying gold. This is further proof that, no matter what happens in the short term, gold is always the wisest long term investment strategy.
Gold and the Economy After the Election
Selling all of his gold may actually have been a smart decision for Druckenmiller—but only in the short term. After the election, it was all over the news that the stock market had plummeted that night. Indeed, the Dow went down by 870 points in just a few hours as the results came in. What didn’t get as much coverage, though, is how, as stocks were falling, the spot price of gold soared by nearly $70 an ounce, topping out at $1,336.70.
Still, Druckenmiller’s plan wasn’t just to make a quick profit off of the panic. Rather, he believed that the Dow would be bullish for the foreseeable future. Tax reform and other policies of the new administration would lead to overall economic growth, but that gold, bonds, and other traditional “safe haven” investments would drop.
Furthermore, he cited rising inflation rates as a reason for the sell. While they remained at a range of 0-0.25% for most of the previous administration, the Fed bumped them up to 0.25-0.5% at the end of 2015, then to 0.5-0.75% a month after the election. These are small amounts, but Druckenmiller believed the trend would continue, and that the inflation would lead investors away from gold and precious metals and to the U.S. dollar instead.
A Reversal of Position
It was less than two months before Druckenmiller changed his mind about the precious metal. Contrary to his prediction, the U.S. Dollar Index began to see significant declines beginning in late December, through January. Therefore, wanting to own currency, he went back to gold in late December and January, which was attractively low at the time.
The investment seems to have paid off, too. While experts were originally forecasting that gold would see record lows this year, the reality is quite the opposite. In fact, it’s gone up by 7.9% this year already, while the Dow has only risen by about 1%.
Gold as a Long Term Investment Strategy
It’s important to remember that gold is not a “get rich quick” investment. If something has the potential for a high yield in a short amount of time, it typically carries with it a much higher risk of failure as well. However, gold can be counted on to perform well consistently over time.
Case-in-point: some economists decried gold over the last few months of 2016. It’s true that the second half the year trended towards bearish for the metal, and even its spike on election night was short lived, with the spot price falling back to $1,273 an ounce by morning. November and December saw a decline from gold’s peak in July. However, if you had put your money into the metal at the beginning of 2016, by the end of December you would have seen not a loss, but an 8.5% increase in your investment.
Gold as a Safe Haven
Gold may have highs and lows, but over time it rises. This is what makes it a good safe haven investment. The stock market, on the other hand, is volatile and unreliable. Some experts are predicting a crash in 2017. Others say things might not get quite to that point, but that the current upward trend is still about to go down significantly.
When the market crashed in 2008, investors lost a total of $2 trillion in retirement savings. As a result, retirement became a luxury that many people couldn’t afford. As devastating as this downturn was, it taught us a valuable lesson: investments can turn on a dime, so it’s important to protect yourself.
That’s why having a gold IRA is so crucial. As a safe haven asset, gold gives you something to fall back on when the markets go down. Plus, it tends to go up when other markets decline. So when your stocks lose their value, your gold investment picks up the slack and prevents you from suffering what would otherwise be a devastating loss.
A hedge fund manager like Stanley Druckenmiller knows that. That’s likely why he couldn’t stay away from gold for very long. Other experts as well have a bullish outlook for gold in 2017 and beyond. If you’re saving for your retirement, now is the time to invest in the precious metal, while its price is still relatively low. Your portfolio will thank you.
‘GoldSafe provides regular commentary and analysis of gold, currencies and the global economy. All articles published here are to inform, not influence. Only you can decide the best place for your money, and any decision you make or don’t may put your money at risk. GoldSafe’s fundamental strategy requires the ownership of physical gold and does not recommend gold derivatives, ETFs or any paper substitute.’