Gold seen to surge to fresh highs in 2022, but investors seek currency alternatives

Freshly cast gold ingot bars sit in the foundry at the JSC Krastsvetmet non-ferrous metals plant in Krasnoyarsk, Russia. Gold will surge to fresh highs in the next year, but investors seeking currency alternatives as global debt balloons should look to bitcoin, according to a $7.5bn hedge fund.

Gold will surge to fresh highs in the next year, but investors seeking currency alternatives as global debt balloons should look to bitcoin, according to a $7.5bn hedge fund. Both are likely to rally even as the Federal Reserve moves to taper asset purchases, said Troy Gayeski, co-chief investment officer and senior portfolio manager at SkyBridge Capital. The two are frequently compared by investors, with former Treasury Secretary Lawrence Summers saying cryptocurrencies could stay a feature of global markets as something akin to digital gold. “We’re going to stick to bitcoin and crypto because we just think there’s more upside,” Gayeski said in a telephone interview last week. While there’s more volatility, “you’re going to capture a little bit more juice than you will in gold from that same phenomenon,” he added. Investors are tracking commentary by the US central bank as inflation ticks higher and policy makers move closer to paring the huge asset purchases that rescued the economy from the turmoil caused by the pandemic. The monetary support has driven the Fed’s balance sheet to a record, while muscular fiscal spending has boosted government debt. Both may pose an eventual risk to the dollar’s value, potentially burnishing the appeal of alternatives. “All fiat-currency alternatives – which have all gone through fairly recent substantial corrections – are in a much better place now to handle that eventual taper and gradual slowing of money-supply growth, than they were as they were making higher-highs after higher-highs,” Gayeski said. Both bitcoin and gold have seen substantial swings this year, which unfolded amid a debate about whether the cryptocurrency was drawing demand away from bullion. The digital token soared to a record near $65,000 in April, before plunging. It was last around $36,000. Gold, meanwhile, came close to sinking into a bear market in March, but reversed course to erase year-to-date losses. Leading Wall Street banks are divided on the relative merits of the pair – Citigroup Inc has said gold is “losing lustre” to cryptocurrencies, while Goldman Sachs Group Inc made the case that the two assets can coexist. Tesla Inc boss Elon Musk, whose tweets have roiled bitcoin prices this year, said in May he supports cryptocurrencies over fiat, or paper, currencies. Bullion, which hit a record above $2,075 an ounce last year, has now established a floor, according to Gayeski. A lot of the taper talk concerns have been pulled out of the market, and even when it’s announced, the Fed is not going to start reducing the pace of its purchases until 2022, he said. “Going forward, the probability of gold continuing an uptrend is fairly high, making new highs over the next year,” he said. Even as signs of recovery accumulate, the Fed is still buying $120bn of Treasury and mortgage-backed securities a month, and its balance sheet has surged toward $8tn, about a third of gross domestic product. Talk on tapering that support – which carries the potential to boost Treasury yields and the dollar, tarnishing gold’s appeal – is moving closer. SkyBridge, a fund-of-funds manager, has a small exposure to a gold miner that’s leveraged to a continued gold price rally. Its primary exposures are to US cash-flow-generative strategies, backed by tangible assets, distressed corporate credit and convertible-bond arbitrage among others. The company’s bitcoin fund is up 51.2% since its inception last December through to June 1. SkyBridge founder Anthony Scaramucci has teamed up with First Trust Advisors on an exchange-traded fund that plans to buy and sell bitcoin, and Gayeski expects the Securities and Exchange Commission to approve the product by the fourth quarter of 2021 or the first quarter of next year. “The only reason we exist professionally is to find interesting ways to generate attractive non-correlated returns that also have an attractive risk-reward profile,” said Gayeski. “The mix of strategies in our broader portfolio is amplified by having a small-but-meaningful position in alternatives to fiat currencies like bitcoin.” Meanwhile gold declined yesterday as comments by Treasury Secretary Janet Yellen on inflation raised expectations for fiscal spending, pushing Treasury yields higher. Bullion ticked lower after Yellen said on Sunday that President Joe Biden should push forward with his $4tn spending plans even if they trigger inflation that persists into next year, adding that a “slightly higher” interest rate environment would be a “plus.” That helped boost Treasury rates, making non-interest bearing gold seem less attractive. Gold has been hovering around $1,900 an ounce amid a debate around price pressures and speculation over whether the Federal Reserve will start talks on the idea of tapering its massive bond-buying programme. On Friday, gold jumped as a Labor Department report showed job gains in May fell short of economists’ estimates, diminishing expectations for early monetary tightening. Traders will look to Thursday’s US consumer-price index report for more clues on whether the central bank will be forced to curb inflation. Stagnating prices have led to a slowdown in the revival of investor interest in gold. Hedge funds trading the Comex only marginally increased their net long exposure to the metal, according to weekly CFTC data. Exchange-traded fund holdings have been little changed in recent weeks after seeing inflows through most of May. Spot gold declined 0.2% to $1,887.49 an ounce in London. Prices climbed to $1,916.64 last week, the highest intraday level since January 8. Silver fell, platinum gained and palladium edged lower. The Bloomberg Dollar Spot Index declined 0.1% after dropping 0.5% on Friday.