Hinde Capital's Ben Davies On The Gold Market

Zero Hedge recently posted several insightful pieces from Hinde Capital, among which the fund's presentation on the ECB's role as the European Commission's whore, and more recently, its presentation on Gold as the "currency of first resort" (recreated below). Last week, fund manager Ben Davies, who previously ran trading for RBS Greenwich Capital in London where he managed a macro portfolio, gave a must hear interview to King World News, in which Ben covers various in depth topics on the gold market and shares his views on "unimaginable price possibilities for the final culmination of the gold bull." Among the things covered are the Andrew Maguire whitsleblower case, David Einhorn's transition from paper to physical gold storage (he notes the storage and indemnification risk), on whether the US government actually owns the hold it represents to holding (noting the demonstrative busting of the very unimpressive Russian spy ring), Russian gold reserve accumulation, where he detours into noting that while gold was 25% of Russian reserve holdings in 2000, it has since plunged to just 5% even as the country has been hoarding gold indicative of the massive currency creation across the world - as currency reserves have grown globally by $7.5 trillion. Ben touches upon the recently popularized concept by Jim Rickards, about an alternative currency basket (aka a new China-Russia-Germany axis) backed by actual physical resources (a modified version of the much dreaded gold standard): "there will be a standardization, a basket of currencies somewhere in the world, that will then become a competing reserve currency very quickly overnight." Most relevantly, Davies answers what he thinks the fair price of gold is: "between $10,000 and $15,000."

He continues: "If you took all the global monetary bases, and I take the G-20 in that case, we currently have a currency that is only backed by gold at 0.26%, and if you look back on a historical precedent, back in the '40-'60's, banks typically have a backing of 40%. In the 1980's that backing got back to 120-140%." This indeed shows that in the 1980s gold was overvalued, at least from an M1 standpoint. The same can not be said about our current mad money printing period.

So what does Ben think the FV of gold is? "If I said gold is to be at 40% just in terms of US encumberment, you can argue for a case of $70-80 trillion's worth of dollars, then we would have a price of $36,000. And if were to halve that, we would have a price of between $10-15,000."

How would the repricing mechanism occur? "If we were not to get a standardization before, I believe like all bull markets, there would be a mania point. There is an eligibility for gold, and it is being considered as money. Gold has really been considered a barbaric relic - I was ridiculed on the floor in 2003, 2004 for even trading gold. When people like Faber asked the question how many actually hold gold, only 2-3% put their hands up. If we see more QE2, if we see more purchases of assets [by the Fed], it would horrendously denigrate the balance sheet of the Fed, which is already not worth the paper it is sitting on, I think in that situation gold is going to be considerably higher." 

Much more in the full interview.

Full interview with Ben Davis can be found here, while below we repost the fund's most recent extended letter on gold, for those who may have missed it the first time around.

Comments

[AUD]

Nope, can't agree that the comment is no big deal.

Gold has the greatest utility of any commodity, you can exchange it for ANY^* other, that's why it is money.

I think he pulls his opinions from his beHinde.

*Except dollars, pounds, Euros etc etc soon enough.

[RockyRacoon]

OK.  Just a semantics situation.  That's easily resolved.

[DrLamer]

Modern trading and investment are mostly... naked - because  there is a lot of worthless "investment" papers around the world (add here "naked shorts" without real coverage, without cover). And all modern economists simply do not see what is going on, and what is the cause of this mess.

Take a look at what exactly The Main Economic Manual of All Times says about today's situation:

Book of Revelation 3.18 (Apocalypsis):

"I counsel you to buy from me gold refined by fire, so that you may be rich, and white garments so that you may clothe yourself and the shame of your nakedness may not be seen, and salve to anoint your eyes, so that you may see."

Words "gold refined by fire" mean "METAL GOLD, not paper gold".

And it does not matter by how many digits the price of metal gold is expressed in electronic "dollars".

Because GOLD is a trust, and modern electronic dollar is not. Because...

Book of Haggai 2:8:

"The silver is mine, and the gold is mine, saith the LORD of hosts."

You see? Creator The Lord strongly advises to all honourable readers of ZeroHedge to buy metal gold - as a coverage for all market transactions in a near future.

[Grand Supercycle]

Updated DOW chart:

http://stockmarket618.wordpress.com

[GFORCE]

Let's just mark it up to $200,000 and save all the hassle.

[dollydog]

For those interested in the original Ben Davies interview that led to his appearance on King World News, here's the link: http://www.cnbc.com/id/15840232/?video=1538347357&play=1

don't knock it. but cnbc's european output is superior to its american counterpart...

[grunion]

Why do so many of those who post on this site seem to be quite enamored with cnbc. There are a number of other sources and yet generally, I usually see only cnbc or bloomb cited. Reason?

[RockyRacoon]

Rashly assuming that you watch TV at all, what is your source of news?  I, for one, could always use an alternative.  Watching video on the net takes some input from me and supplants other net activity, so taking the inert route (TV) is pretty easy. Thanks for sharing.

[trav7777]

Am yet to see any cogent analysis of gold's price trend that mentions the Peak in 2000...

Instead people would rather cry bubble and conspiracy.

The demand for gold is driven by the desire of people to use it as a storage of their wealth in alternative to paper.

WE in the US act as if our paper is immutable...most in other nations have seen vastly higher rates of devaluation, collapse, financial crises, etc.  I marvel at the paper bugs...what would they say to a Brazilian, Argentine, venezuelan, Russian, indian?

As long as the world produces wealth, people will seek to denominate some of theirs in gold or other physical commodities.  But yearly supply of gold is now decreasing.  Put 2 & 2 together, sheesh

[Island_Dweller]

If gold is "just a commodity", then instead of shorting gold and silver, why don't TPTB have a massive gold bubble and drive the price up to $10,000 or $50,000?  It could be just like the internet stock scam.  Lots of stories in MSM talking about gold, IPOs for new mines, lots of stock splits, you remember the game; don't you?

Then at the end, only "fools" would be left owning the gold.

Oh, maybe that's why........

[JLee2027]

Gold is not a commodity and a rising price threatens TPTB because it exposes the monetary system as a fraud.

[No More Bubbles]

^{_{If I said gold is to be at 40% just in terms of US encumberment, you can argue for a case of $70-80 trillion's worth of dollars, then we would have a price of $36,000. And if were to halve that, we would have a price of between $10-15,000.}}

PURE LUNACY!

[Island_Dweller]

Not to mention poor math skills.  Last I checked half of 36,000 is 18,000 (not 10 to 15,000)