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Wednesday, January 18, 2012

Maybe the fall of the Euro will be the 2012 catastrophe that the Mayans predicted

“We continue to hold gold and gold mining equities, reflecting our concerns that global fiscal and monetary policies continue to tempt fate.”

The above comment comes from the 2011 year-end investor letter of Greenlight Capital, the investment firm run by hedge fund magnate David Einhorn. As one of the more prominent gold bulls of late, Einhorn has held a considerable stake in the SPDR Gold Trust (GLD) for several years and acquired a large position in the Market Vectors Gold Miners ETF (GDX) last year.

Although the majority of Greenlight’s year-end letter did not focus on the firm’s gold positions, Einhorn did note that the yellow metal itself and the GDX were two of Greenlight’s five largest positions as of December 31, 2011.

The letter also discussed several macroeconomic issues that are likely to have an indirect impact on gold prices in the year ahead. Highlights of those include:

The global environment is very complicated. On the one hand, the Federal Reserve has taken a much-needed break from quantitative easing (at least for the moment).

Asia appears to be in much worse shape than it was at this time last year and could be a drag on the world economy going forward.

The European currency crisis has continued to worsen…The latest solution is a work-in-progress treaty being heavily negotiated that, in its current incarnation, will only need to be ratified by a subset of the Eurozone countries. While the leaders have committed in principle, there is significant risk that once the details emerge (and the necessary electorates are consulted), we will discover that some leaders pledged with their fingers cross and, as with prior efforts, this too will fail to get the job done. 2012 may be the year in which the currency crisis will no longer be kept at bay by politicians buying time with empty promises. Maybe the fall of the Euro will be the 2012 catastrophe that the Mayans predicted.

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