Hedge fund bear Crispin Odey says personal gold ownership could become illegal if inflation spikes
- Central banks might outlaw private gold ownership and use the metal to stabilize currencies, hedge fund manager Crispin Odey said in a letter seen by Bloomberg.
- The notoriously bearish investor added to his gold positions throughout April, warning clients that a de-monetizing of gold could happen if governments "feel the need to create a stable unit of account for world trade."
- Such action isn't without precedent. The US forced private gold holders to sell their stakes in 1933 to normalize the dollar's value.
- "History is filled with examples where rulers have, in moments of crisis, resorted to debasing the coinage," Odey wrote.
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Surging inflation could prompt governments to outlaw private gold ownership and use the metal to stabilize currencies, hedge fund manager Crispin Odey said in a letter seen by Bloomberg.
The coronavirus pandemic has forced investors into various safe-havens to ride out violent market swings and recession risks. Gold is one of the biggest winners, leaping to eight-year highs and outperforming risk assets in the year-to-date.
Odey added to his gold holdings throughout April and recently warned clients that governments could crack down on the precious-metal trade if new stores of value are needed during the global economic rebound.
"It is no surprise that people are buying gold. But the authorities may attempt at some point to de-monetise gold, making it illegal to own as a private individual," Odey wrote. "They will only do this if they feel the need to create a stable unit of account for world trade."
Roughly 40% of Odey European's asset value sits in June gold futures, Bloomberg reported, up from 15% at the end of March.
While major currencies are no longer linked to the precious metal, Odey fears the current economic slump might yield Great Depression-era outcomes. The US government began buying privately held gold in 1933 to help bring the dollar's value back to normal levels. Should soaring inflation prevent a smooth economic recovery, central banks could resort to a similar policy, Odey said.
"History is filled with examples where rulers have, in moments of crisis, resorted to debasing the coinage," the fund manager wrote.
Odey's pessimism fueled major gains in March as most risk assets plummeted on pandemic fears. His main fund surged 21% through the month before tumbling 9.5% in April, according to Bloomberg.
Even if central banks resort to private gold purchases, the bearish manager doesn't see authorities overcoming a spike in inflation. Odey sees inflation rates reaching between 5% and 15% within 15 months, and weighing heavily on late-maturity bonds and growth stocks. Policymakers "will fight these prevailing trends for every inch of the way," he projected, adding, "I expect them to lose the fight."
Gold traded at $1,746.55 per ounce as of 10:30 a.m. ET, up 15% year-to-date.
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