In a recent interview, hedge fund manager and billionaire John Paulson spoke about the current situation in the gold market, as well as about gold's prospects as an investment asset.
The prominent hedge fund and CEO of Paulson & Co. believes that gold performs best when inflation is high. The last time gold went parabolic was in the 70s, when the inflation rate stayed at double digits for two years.
The reason for this dynamic is that there is only a very limited amount of investment-grade gold available in the world. If a large amount of capital is taken out of investments that yield only losses and channeled into the obvious alternative — that is, gold — the price of gold will grow due to a disequilibrium of supply and demand.
This is why John Paulson considers gold a good investment at this point. He thinks that the recent explosion of money supply will lead to even higher inflation, even exceeding the current forecasts.
The gold market has lost some of its appeal, since investors are preoccupied by the issue of tapering — the Fed's planned reduction of bond purchases. At least this is the opinion of the commodity analysts at Bank of America: the bank's latest forecast predicts a price of $1,900 per ounce of gold by the end of 2021, according to Kitco News.
However, it's also expected that the average price of gold in Q4 will amount to just $1,800. Bank of America also expects the price to fluctuate around $1,800 for the whole first half of 2022. The analysts believe that the bullish dollar and growing Treasury yields will put pressure on the gold market.
The forecast stresses that the macroeconomic landscape is still bearish for gold. The only real growth factor is high inflation, but the ongoing expectations of tapering by the Fed can cause gold prices to stagnate until the end of the year.
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