On May 20, one of Europe’s highest-profile hedge fund managers, Crispin Odey, said that governments might soon ban private gold ownership because they lose control of inflation due to the coronavirus crisis. In a letter to investors unearthed by Bloomberg, Odey wrote:
“It is no surprise that people are buying gold. But the authorities may attempt to de-monetize gold, making it illegal to own as a private individual. They will only do this if they feel the need to create a stable unit of account for world trade.”
Odey, who is a long-standing critic of many central bank policies, is famous for his apocalyptic predictions. He increased the gold position in his flagship Odey European Inc. Fund in April. June gold futures holdings represented 39.9% of the fund’s net asset value at the end of April. That percentage was up from 15.9% at the end of March.
A stake in Barrick Gold Corporation was the most significant single long equity position. Barrick is the second-biggest gold miner in the world. According to this letter, the fund gained 21% in March and was down 9.5% in April.
The Governments May Act
Fears of government confiscation is a frequently proposed theme that exists among various gold ardent supporters. They point for the precedent to the U.S. government’s forced purchases of private bullion holdings in 1933, which came as part of a devaluation of the dollar.
The gold price was raised from $20.67 an ounce to $35. That value remained until the United States ended the gold standard in 1971. Currently, with most of the major currencies no longer linked to gold, there is no form of indication that central banks and governments are considering any similar move.
Gold futures for June delivery increased by 0.4% to $1753.20 an ounce at 7:38 a.m. on the Comex in New York. That price is nearly a seven-year high. Odey previously compared the current COVID-19 pandemic to the Great Depression that happened in the 1930s.
He said that the central banks would fail to contain inflation since the economy will, in the end, recover from the effects of global lockdowns. He wrote:
“History is filled with examples where rulers have, in moments of crisis, resorted to debasing the coinage.”
Gold Will Benefit
Odey is among many other analysts convinced that gold would benefit as high inflation follows the health crisis. However, the current market measures of inflation expectations indicate that it is far from a consensus view.
High inflation would majorly hurt the long-dated bonds and growth stocks, according to Odey. He cited forecasts for inflation rates of 5% to 15% within 15 months. He wrote:
“I very much expect that the authorities will fight these prevailing trends for every inch of the way, but I also expect them to lose the fight.”
Odey is famous for his eye-catching comments and bearish market outlook. He predicted in 2016 that a potential recession and higher inflation would arise after the Brexit vote. That would cause the UK stocks to plunge 80%.
In 2017, he told investors to look out for the “Minsky moment.” In that instance, he was referring to the term inspired by economist Hyman Minsky to describe an abrupt market collapse after the exhaustion of credit.