Lenzner: Buy Gold if You've Lost Faith in Dollar Strength

Friday, 19 Mar 2010 08:13 AM

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Forbes columnist Robert Lenzner says that “debasement is going to accelerate,” or a lower value is in store, for the U.S. dollar and other currencies.

But, in the meantime, powerful market movers, like George Soros, may be turning gold into the latest “asset bubble.”

“It must still be early in the gold bubble. Two masters of the hedge fund universe, George Soros and John Paulson, have vastly increased their bets on gold,” writes Lenzner.

“Both men have substantially raised their holdings in a Canadian mining enterprise, NovaGold Enterprises.”

Another player in this drama is entrepreneur Tom Kaplan, through his New York-based Electrum Strategic Resources, who holds about 40 percent of NovaGold shares. Kaplan also has a large position in Gabriel,  a Toronto-listed gold miner with an operation in Romania.

Some investors are holding back, at least for now.

Gold exchange-traded funds, or ETFs, led by SPDR Gold Shares is holding assets equal to just 1.5 percent of all the assets of money market funds.

“That indicates the public and the mutual fund industry, except in their precious metals funds, are still very small participants in gold,” writes Lenzner.

“I've met privately with veteran investment managers like Morris Offit of Offit Capital Advisers and learned that gold is fast becoming a more highly weighted asset in portfolios.”

According to Lenzner, the gold bubble is, simply put, a function of the “growing unrest” about the debasement of currencies, not only the dollar, but also the euro and other European currencies whose nations have too great a debt load and must raise gobs of money or risk default.

“Gold's investment glimmer is also a function of growing unease, specifically about the ability of the Obama administration to reduce the budget deficit and finance extending healthcare,” writes Lenzner.

“The rising interest in gold reflects a concern about America's place in the world, an expectation of slower growth in comparison with more dynamic economies in China, India and other developing nations.”

Lenzner said gold should not trade in as volatile a fashion as oil, copper or other commodities dependent on the health of the economic cycle.

There is a good deal of misunderstanding in the gold market, because many financial experts don't believe gold is anything more than a volatile fad, Lenzner wrote. They thought Soros was dissing gold when he called it some weeks ago "the ultimate bubble."

He said Soros' point is that we are not at the "ultimate" stage yet, and buying gold early in the stage of a bubble is eminently rational.

The Wall Street Journal is reporting that gold may become something of an “alternative currency buy” for some investors on the  Commodities Exchange, or Comex.

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