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(Kitco News) - In this challenging economic environment, gold and silver might not be the best safe-haven asset to own, but they might be better than nothing, according to famed investor Stanley Druckenmiller.
The chairman and CEO of Duquesne Family Office LLC said in a fireside chat during the virtual Sohn Conference Tuesday that he currently owns gold and silver but doesn't have a lot of conviction behind the safe-haven investment.
He noted that gold and silver have historically performed poorly in challenging economic conditions. The comments come as Druckenmiller sees potential for an economic hard landing in the U.S. The famed hedge fund manager's lukewarm endorsement of gold and silver comes from the growing de-dollarization trend in the global marketplace.
"It looks to me like the monetary and the fiscal authorities are kind of at the end of their rope, and given the fact that other countries have decided, particularly autocracies, not to hold their reserves and dollars, I'm betting for the time being, against the history of the performance of gold and hard landings," he said. "I could be wrong. Don't go out and buy gold. I could change my mind in a week or two, folks."
Looking at economic conditions, Druckenmiller said that although there is significant uncertainty surging through the global economy, in his hard landing scenario, he could see equity market valuations drop 20% with the unemployment rate rising to around 5%. He noted that his confidence in his economic projections is less strong than usual.
Along with weak economic growth, Druckenmiller said he expects to see further turmoil in the banking sector, even if financial conditions aren't as bad as the 2008 Financial Crisis.
"I am not predicting something worse than 2008, so I don't want to see headlines tomorrow that I said something worse than 2008 is coming. But I think it's naive to not be open-minded to some sort of possibility of that effect," he said. "The banks have got themselves in a balance sheet problem before the loan losses have started."
While Druckenmiller may not be extremely bullish on gold, he is more optimistic about copper, even if investors must be a little patient as the world faces a challenging economic environment. He pointed out that copper suffers a significant supply/demand imbalance but, in the near term, could suffer as recession fears heat up.
"I'm actually afraid to have a meaningful position in it at this point as we approach the hard landing only because I'm not an idiot. I know what happens to the cyclical factors as hard landing starts, but coming out of it, given the move toward EVs, given the usefulness of it in infrastructure for spending, which I think a lot of government policies will try and encourage on their way out, it's hard to believe copper won't be a huge beneficiary," he said.
Gold is underrated – Bridgewater's Karen Karniol-Tambour
Compared to Druckenmiller's tepid gold comments, Karen Karniol-Tambour, co-Chief Investment Officer at Bridgewater Associates, was a lot more bullish on the yellow metal.
"Gold is underrated. It's got a long way to run," she said.
Similar to Druckenmiller, Karniol-Tambour said that gold should do well as the global push to deleverage away from the U.S. dollar remains a long-term support.
She added that gold's growing importance in global currency markets makes it more than just a play against bond markets and interest rates. Historically, gold performs poorly in a rising real interest rate environment because it is a non-yielding asset.
She said that the weaponization of the U.S. dollar after Russia invaded Ukraine last year has reduced the importance of gold's opportunity costs.
"This geopolitical turmoil is not going away," she said. "This is a slow-moving secular support for gold."
At the same time, gold is attractive to generalist investors as inflation remains fairly volatile.
"The fact that inflation is so volatile raises the probability that you are going to get some version of a debasement event where you lose your real purchasing power," she said.
The Sohn Conference is an annual fundraising event that brings together some of the best investors on Wall Street. The money raised goes to fund pediatric cancer research and the MSK Kids, the pediatric program at Memorial Sloan Kettering Cancer Center (MSK). This year the conference has raised more than $700,0000.
