Hedge fund boss Baha sees gold at $3,000-$5,000
Christian Baha, the head of Austrian fund firm Superfund and representative of the hedge fund industry in Oliver Stone movie Wall Street 2: Money Never Sleeps, is predicting that the gold price could rise to between $3,000 and $5,000 over the next five to 10 years.
Baha, who says he has more than half his personal wealth in gold and silver, either physically or in units in Superfund funds denominated in the precious metals, believes that an unprecedented phase of quantitative easing by central banks is driving a bubble in government bonds, but that gold offers real value.
“Do you think paper money has any intrinsic value? I don’t believe so. Gold has real value,” Baha said in a recent interview.
“If gold goes down to $1,200 or $1,000 then I’m going to buy more. I really don’t care. They’re just printing new money.”
Gold fell around 5.2 percent on Friday April 12 and a further 8.4 percent on Monday April 15 – the biggest two day drop in 30 years – as investors fretted over a possible 400 million euro gold sale by debt-laden Cyprus and the possible ending of the U.S. Federal Reserve’s bond-buying stimulus by the end of the year.
The fall came as a surprise to investors, many of whom had seen the precious metal as a hedge against future inflation induced by ‘quantitative easing’ by central banks.
Numerous banks, who had been forecasting a higher gold price, were caught out, as were some hedge funds, including billionaire John Paulson, who saw his $700 million gold fund lose 27 percent in April.
Baha, a former policeman whose cameo in the Gekko sequel came thanks to his friendship with the director, said he bought gold as the price fell, buying on both the Friday and the Monday.
He added that inflationary pressures set to drive gold higher could also push the yields on 10-year German and French government bonds – currently 1.46 percent and 1.99 percent – to 10, 15 or 20 percent.
“Governments more and more are being obliged to buy their own government bonds, which means the bubble is even bigger than before, and so the gold price will be driven higher than before,” he said.
“A gold price of $3,000 to $5,000 in the next 5 to 10 years will be just the start.”
Of course, others are more cautious. Manny Roman, chief executive of hedge fund firm Man Group, told guests at the recent Financial News Awards in London that the price of gold should fall to $1,000. And chart analysts told Reuters last week that a breach of the April low of $1,322 could set up bigger losses towards levels not seen since mid-2010.
But Baha was not the only manager trading gold after its fall.
Patrick Armstrong, CIO at Armstrong Investment Managers, used derivatives to profit from his view that the “loose monetary policies of the West” would support higher gold prices in the medium term although there would be no dramatic rebound in the short-term.
Armstrong said in a note to clients last month that he used the jump in implied volatility to sell put options – the right to sell – with a strike price of $1,270. Options cost more when volatility is higher.
He then used some of the proceeds to buy call options with a $1,370 strike price, which let him profit from a rebound in the price of gold. He also sold deep out-of-the-money call options with a $1,480 strike price.
The strategy has so far proved profitable, with gold briefly rising above $1,480 earlier this month before falling back to $1,381 on Tuesday.