Billionaire investor David Einhorn has proposed an overlooked theory for the recent surge in gold prices. Despite high interest rates typically making gold less attractive, Einhorn suggests that Eastern countries are buying gold from Western nations, driving up prices. This "secular trend" has seen global central banks, particularly China, India, and Singapore, snapping up gold to diversify reserves and hedge against economic uncertainty.
China, in particular, has been aggressively buying gold for 17 months, increasing its holdings by 16%. This is likely due to its struggling economy, with a sluggish property sector, flailing stock market, and high unemployment rate, leading to a desire for a stable store of value. The People's Bank of China is also looking to diversify its reserves away from the US dollar.
Einhorn's theory suggests that the West may be running out of gold it is willing to sell, while Eastern demand remains strong, forcing prices higher. This is supported by data from the World Gold Council, which shows central banks have bought over 1,000 tonnes of gold in the past two years.
Economists predict the gold rally will continue, with potential gains of 15-30% driven by geopolitical uncertainties and macro hurdles like inflation. Top economist David Rosenberg expects another 15% upswing, while market guru Ed Yardeni predicts gold could surge to $3,500 by next year, a potential 50% upside.
Other investors, like billionaire Ray Dalio, see gold as a hedge against risks stemming from high government debt levels. Dalio recently stated that he owns gold due to the rising risk of a debt or inflation crisis.
Overall, Einhorn's theory suggests that the gold rally is not just a short-term market fluctuation but a longer-term trend driven by fundamental shifts in global demand and supply. As Eastern countries continue to buy gold, prices are likely to remain strong, making it an attractive option for investors seeking a safe-haven asset.
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