Billionaire Crispin Odey, Who's Had A Pretty Terrible Year, Is Betting Everything On Gold
By GCRU Gold News on Sunday, August 14 2016, 01:09 - Permalink
Which brings us to Odey's current investing mindset, and what he believes is the best trade for the future. Needless to say, with a gross notional allocation of 86% of his entire AUM, Odey is rather convinced that it is all about gold.
And this is where gold comes in. Gold was the original currency. It came out of distrust of governments and was chosen because it could not be manufactured at will. Today there are around 300,000 tons of gold extant and each year around 2,700 tons are mined, or less than 1% of the stock of gold. In August of 1971, France bought down Bretton Woods by demanding that the USA support every dollar of credit with a dollar of gold (at the then exchange rate of $35 per ounce). Because the USA had been running a current account deficit since 1963 to fight the Vietnam War, gold reserves only represented 26% of dollars outstanding. Sic finit Bretton Woods.
Today, world GNP stands at $75 trillion and world money supply stands at around $83 trillion – some ten times its level at the start of the millennium. Gold has a value less than $7.5 trillion, of which 57% is for jewellery, 22% is invested and only 17% is held by central banks. So central banks have printed over $80 trillion of money, backed by only $1.27 trillion of gold. The French took fright when they discovered that the USA had been fiddling the books in 1971. But in those days the US gold reserves were only valued at $35 per ounce and still represented 26% of outstanding dollars. Today at $1360 per ounce reserves represent a measly 1.5%. Where are the French this time?
For Odey's sake - who is massively levered to an upside in gold paper futures - and that of his LPs, it would be a welcome change for gold to be repriced appropriately in the near future. Of course, that would necessitate the BIS to stop pummelling gold every other day when the precious metal is about to break out (as happened on Friday), which however is unlikely to happen as another sharp surge in gold would lead to questions about the viability of the current monetary system, collapse faith in central banking, and plunge markets into a historic crash. However, since it is only a matter of time before that happens anyway, as Deutsche Bank explained earlier, the ongoing "financial repression" of the price of gold, is a welcome - and ongoing - opportunity to convert some more fiat into what Odey called the "original currency." After all, for those who truly believe that the existing system is set to collapse, it's not like gold is an actual investment to be redeemed back into fiat terms in the near or not so near future, even if at much higher fiat-denominated prices.