One day after Trump unexpectedly won the presidential election, a no less surprising announcement came from hedge fund legend and central bank skeptic, Stanley Druckenmiller, who on November 10, told CNBC "I sold all my gold on the night of the election." Why? Because “all the reasons I owned it for the last couple of years seem to be ending", first and foremost his expectations that inflation is now set to spike, forcing money out of safe assets - like gold and Treasuries - and into the US Dollar. Druckenmiller also said he was optimistic that President Donald Trump’s administration would bring deregulation and “serious” tax reform that spurs growth. Those benefits, he said, were expected to outweigh concerns about more protectionist trade policies. “All the reasons I owned it for the last couple of years seem to be ending,” he said at the time, adding he now has a “large bet on economic growth. I’m short bonds, Bunds, Italian bonds, U.S. bonds.”
Almost exactly three months later, Drucknemiller has changed his mind, and overnight the billionaire investor with one of the best long-term track records in money management, said he bought gold in late December and January, reversing the sale he made after the U.S. presidential election. “I wanted to own some currency and no country wants its currency to strengthen,” Druckenmiller said Tuesday in an interview. “Gold was down a lot, so I bought it.”
And while Druckenmiller did nail the initial part of the Trumflation rally, as Trump’s victory sent U.S. equities to a record high and left gold tumbling, in December, both U.S. Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi warned that economic growth could be derailed, comments that spurred Druckenmiller to make his purchase.
Uncertainty over whether Trump will back the House Republican tax plan is another reason Druckenmiller bought gold, he said. The Republican leadership has proposed a 20 percent border-adjustment tax on imports as a way to encourage more manufacturing in the U.S. If instituted, that plan could lead to as much as a 25 percent gain for the dollar, according to various analysts, which would - in theory - lead to a crash in the price of gold. Needless to say, Druckenmiller is therefore not a believer that the BAT is coming any time soon.
As Bloomberg notes, so far Drucknemiller's reversal has paid off, as confusion over Trump’s policies helped rekindle haven demand for the precious metal. Gold is also benefiting from speculation that the Fed may be more cautious in raising U.S. interest rates amid concerns that the new administration’s policies could stifle growth. At about $1,238 an ounce, the highest since the election, the spot price for gold was up almost 10 percent from its December low.