Stan Druckenmiller is going big on gold.
Druckenmiller is one of the world’s most successful and respected traders. As a hedge fund manager from 1986 to 2010, he generated an incredible average annual return of 30%.
Druckenmiller was also George Soros’s right-hand man at Quantum, Soros’s famed hedge fund. Quantum’s now legendary 1992 trade shorting the British pound was Druckenmiller’s idea. It made Quantum about $1 billion. People say the trade “broke the Bank of England.”
Most professional investors preach diversification. But Druckenmiller says he’s successful because he’s not afraid to concentrate his bets when he really believes in a trade. He calls it “being a pig.”
The first thing I heard when I got in the business, not from my mentor, was bulls make money, bears make money, and pigs get slaughtered.
I’m here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. I think diversification and all the stuff they’re teaching at business school today is probably the most misguided concept everywhere.
• Druckenmiller just made a $300 million bet on gold…
Druckenmiller’s fund recently bought $300 million worth of SPDR Gold Trust (GLD), an ETF that tracks the price of gold. It’s a huge bet, even for a big-time trader like Druckenmiller. He put 20% of his fund’s money into this trade, and it’s his largest position.
Druckenmiller seems to like gold for the same reasons Casey Research likes gold. He has harshly criticized the Federal Reserve for creating the frothy conditions that led to the 2008 financial crisis. And he says the Fed’s policies today are more reckless today than ever.
…if you look at the real root cause behind the financial crisis, we’re doubling down. Our monetary policy is so much more reckless and so much more aggressively pushing the people in this room and everybody else out the risk curve that we’re doubling down on the same policy that really put us there…
The Fed cut interest rates to nearly zero after the financial crisis. This has encouraged all kinds of bad investing and reckless speculation. When the banks pay microscopic interest rates, people get desperate and pile into junk bonds, stocks, and real estate. This drives asset prices higher and higher…which creates a lot of danger.
It also leads to depreciating paper currencies…which will eventually lead to much higher gold prices. In just the last year, the Japanese yen has dropped 18% versus the US dollar. The euro has dropped 17%…the Australian dollar has dropped 20%…and the Canadian dollar has dropped 17%.
Regular readers know this is part of the “Currency Wars.” Governments are devaluing their currencies in an attempt to stoke their economies. Politicians think that making a currency cheaper (usually by printing more currency units) will provide an economic stimulus.
It doesn’t work. If devaluing currencies were the path to prosperity, countries like Zimbabwe and Venezuela would be the richest countries on Earth…instead of economic basket cases.
• Gold has been struggling…
The price of gold has fallen 41% since hitting an all-time high in August 2011. Druckenmiller’s huge bet indicates that he thinks the bottom is finally in.
Druckenmiller has made a career out of getting big calls like this correct. We wouldn’t want to bet against him.
If you agree that gold is near its bottom, you could buy physical gold or shares of GLD like Druckenmiller. That could easily give you a 50-to-75% gain in the coming years.
If you want a chance at much bigger gains, consider investing in gold stocks. Gold stocks are highly leveraged to the price of gold. In a bull market, gold stocks rise much more than the price of gold. It’s common for the best-run gold companies to increase by 20-to-1 or even 30-to-1 during a gold bull market.
International Speculator is our advisory focused on the best small gold stocks with huge upside potential. Right now, gold stocks look like they’re near the end of one of the worst bear markets in history. In fact, gold stocks are cheaper today than they’ve been in at least twenty years…as we’ll show you in a moment.
International Speculator will teach you how to position yourself in the best gold stocks before the next bull market begins. Click here to read more about the opportunity we have to buy gold stocks today… at prices we probably won’t see again for another twenty years once the bull gets going.
Chart of the Day
Today’s chart compares the NYSE Arca Gold Miners Index (HUI), an index of gold mining stocks, to the price of gold. The higher the ratio, the cheaper gold stocks are compared to gold.
This ratio has averaged 3.3 since 1996. Today, the ratio is 9.3…nearly three times its historic average.
As you can see, gold mining companies haven’t been this cheap in at least two decades.
Delray Beach, Florida
August 17, 2015