by Kurt Kallaus
Financial Sense
Smart Money Shifts to Gold
With Billionaires George Soros, Stanley Druckenmiller, Paul Singer and what seems like every analyst on the planet talking up Gold, what can go wrong? In fact, it’s impressive that the alleged “Smart Money” has also surged into Gold ETF’s (exchange-traded funds holding Gold assets). Looking back over 7 years there is an impressive correlation of appreciating Gold prices when ETF funds attract positive quarterly investment inflows and falling prices when the tide rolls back out. This is hardly a leading indicator, but at least the previous Bull and Bear markets showing here illustrate rather persistent up and down cycle correlation until the party is over. It’s likely that any future Gold ETF inflows will be reduced compared to the stellar rush to buy gold in the 1st quarter 2016. Was this mostly Billionaires and Bear market positioned fund managers suddenly rushing in to grab prices as Oil doubled in price from its January low? OR is it as Bulls like to say: the debt levels and banking system have reached extremes that are about to send the US Dollar plunging and precious metals soaring? We think this first leg is merely a surge from hedge funds being underinvested and repositioning to hedge the general commodity rally led by oil and the implied inflation weighting.