Bridgewater: Gold Could Push Above $2,000 as Fed Ignores Inflation

Peter Schiff has been saying the Federal Reserve is going to let the inflation monster loose and this is going to be good for gold. Some people in the mainstream are starting to pick up on this theme.

During a recent interview with the Financial Times, Bridgewater Associates co-chief investment officer Greg Jensen said gold could surge over $2,000 as central banks embrace higher levels of inflation.

Bridgewater ranks as the world’s biggest hedge fund.

Jensen said he thinks the Federal Reserve, in particular, will let inflation “run hot” for a while.

There will no longer be an attempt by any of the developed world’s major central banks to normalize interest rates. That’s a big deal.”

Jensen is not engaging in mere speculation. Fed Chairman Jerome Powell has indicated that the central bank is prepared to ignore inflation.  In practice, it appears the central bank has abandoned the mythical 2% target. Powell now talks about a “symmetrical” 2% target, which allows inflation to rise above 2% to make up for the time it was below that number. And Powell has flat out said that it would take a “really significant” and “persistent” move up in inflation before the central bank considers rate hikes. As Peter has put it:

They’re not even considering raising rates right now. So, the only thing that they’ll do is cut rates or leave them alone … This is a very dovish stand for the Fed to take. Probably the most dovish stance I’ve ever seen the Fed take with respect to its supposed tolerance for inflation.”

Jensen said this means that even if inflation does begin to show signs of rising, the Fed won’t be preemptive in fighting it as it has in the past.

That akes off the table, in the short term, the normal reason cycles end … For most of the post-World War II recessions, the Fed dealing with inflation has ended the cycle.”

Jensen also said he wouldn’t rule out the Fed taking interest rates all the way to zero this year. Peter has been saying for months that the Fed won’t stop cutting rates until it hits zero.

What the Fed has assured the markets is that under no circumstances will they raise rates. That no matter what the data is, the only decision that the Fed has to make is do rates stay the same or do they go down. And I think that’s the only reason that the stock market has rallied. It’s based on that ‘Powell Put,’ where the fear of a rate hike is no longer in the market. But I do think at some point next year, the economy will be weakening, or maybe we will get a sell-off in the stock market, and the only way for the Fed to try to prop the market back up would be to start doing more rate cuts. And they will supply them as soon as the market demands them.”

Jensen also expressed concern about the US dollar, saying skyrocketing deficits and aggressive US foreign policy could threaten the greenback’s position as the world’s reserve currency.

That could happen quickly or it could happen a decade from now. But it’s definitely in the range of possibilities. And when you look at the geopolitical strife, how many foreign entities really want to hold dollars? And what are they going to hold? Gold stands out.”

This is the primary reason central banks are buying gold.

Peter has expressed similar concerns about the dollar.

We need foreigners in the dollar and this threatens that. I mean, again, America is flexing muscles that it really doesn’t have — threatening sanctions against other nations. And I think there could be a repercussion that would really hit us where it counts and that’s in the wallet. Because if we get a move out of the dollar — you know, we’re not really seeing a flight into the US Treasury market. We didn’t see a move up in the dollar as a safe haven. It was just gold. And I think if the dollar really starts to fall, I think that’s going to accelerate the move up in both gold and oil, but create a bigger problem for the US economy as consumer prices and rise into the next recession.”

Peter has said as a hedge, he prefers gold. As he has explained:

If you think there’s going to be more inflation, you buy gold.