𝚐𝚘𝚕𝚍 𝚒𝚜 𝚝𝚑𝚎 𝚜𝚞𝚗, 𝚎𝚟𝚎𝚛𝚢𝚝𝚑𝚒𝚗𝚐 𝚎𝚕𝚜𝚎 𝚒𝚜 𝚓𝚞𝚜𝚝 𝚘𝚛𝚋𝚒𝚝𝚒𝚗𝚐.

George Gammon: Hugh Hendry, back on the Rebel Capitalist show. Why don’t you start off by telling me about your love affair with gold during the early 2000s? And what do you think of the barbarous relic today?

Hugh: That’s a great question, George.

George: Thank you.

Hugh: Because I’ve lived a long and interesting life. And at the very beginning of my hedgefund career, yes, I did have a global macro hedge fund. I launched it in the final quarter of 2002. For the first six months, I was buying the barbarous relic. I was buying it at…300 bucks. And Gordon Brown was the Premier, or was he? I don’t know if he was the Prime Minister. He was certainly the Treasury Secretary of the UK government.

An astute Scotsman, well regarded, sober analysis. And he concluded that gold was a barbarous relic. And after whatever two, three hundred years of accumulating gold, the British government, in its infinite lack of wisdom, at the bottom of a 20-odd-year bear market in gold, sold half of their reserves.

George: And I didn’t know that. You didn’t know that?

Hugh: And they signposted it, like, you know: “Next Wednesday, there’s going to be a big sale, a big drop.” And they weren’t the only ones, the Swiss Bank and others.

It was the tiredness of a long bear market. I think from 1982, the S&P had gone up at least tenfold, and gold having peaked in 1980, let’s say from 800 bucks, had lost two thirds.

The attraction for me had arisen partly from my analysis on the increasing creep and economic significance of China, and how it was being felt in the tired bear-markets for metals processing, refining, metal-bashing businesses that hadn’t received a bid for 10, 15 years. Smart investors would opinion,

“We buy growth companies; we don’t buy these companies.” Prejudice had crept into the investment deck.

But what lit it up for me was the NASDAQ bear market of 2000, the peak and then the tumult. And it wasn’t just NASDAQ; all equity markets had a profound 50% drawdown. But gold did nothing. And on a relative basis, it broke out. It went, “Hey, I’m over here. I’m feeling better.”

I was always attuned to the cosmic wavelength of relative asset performance. And so I was intrigued by that, and I was accumulating. Gold in 2003 was like trying to buy and hold Bitcoins in, I don’t know, 2017 or something. It was up and down, up and down, very volatile. I remember maybe March, I was down 12%. Can you imagine? One month. And it’s my sixth month in.

George: On that position or the whole fund?

Hugh: The whole fund. I mean, the whole fund was just, I had leveraged. I’d seen the future. I’d gone to Milan, it’s in my memoirs, I’d gone to see the soccer derby between the two Milanese teams in this great cathedral of cement, the San-Siro. I’d gone with an investment partner, and he kept talking about gold.

And I don’t know, we went out, we drank a lot of champagne, we spoke to a lot of beautiful women. I woke up in the morning with a pizza stuck to my chest. And I had this epiphany, this understanding. I’d seen the future.

And again, we were still in the entrails of this global crisis, a 1-in-50, 1-in-100-year bear market event for stocks. Interest rates were on their way to 1%, which was radical back then. Quantitative easing in Japan. Then suddenly it all filtered through my mind.

I came back from Milan. My ex-wife thought I was on mushrooms, but I was on the gold. And I made 50% that year. That was my year of maximum gold deployment. I kept it around in the portfolio up until 2007, 2008. Then I went to zero because I was preparing for the second once-in-a-hundred-year bear market—the Great Financial Recession just five years later. And I correctly figured out that even gold would be liquidated in the ensuing market crash

Then… I didn’t get caught up in the “quantitative easing is the death of the dollar.” If you remember, gold, having halved during the great financial crisis, bottomed in the summer of 2009. And I think, did it triple between 2009 and 2011?

George: I know it just went straight up until 2011.

Hugh: Yeah, exactly. So I didn’t really… I was intellectually consumed by trying to explain and trade QE as not being hyperinflation. And gold was the opponent, if you will.

Let’s summarize: I picked up this massive gold roach in 2003. I took a big puff. I inhaled. I made 50%. That puff underwrote 15 years of hedge fund management. And I’ve been fascinated with it ever since.

But I’ve not really running a risk book since 2017. In terms of today, everyone’s fed up listening to me because it’s in a clear and undeniable trend. I mean, here we are, my God, almost the arc of half of my lifetime, and gold has gone from $300 to $5,000. It’ll be $6,000 before summer. So what’s that? It’s gone up 20-fold since 2003.

And I keep saying, yeah… I’m done with it. Cycles, long, long cycles. And I salute it. I applaud it. But I ain’t gonna chase it here. My conceptual problem is the mass: the market value of the entirety of the proven and probable reserves of gold, plus everything that’s been taken from the ground, times the present market price, gives us a mass close to $40 trillion.

Gold is one of these cop-outs, as is fine wine, as is a Modigliani, you know, painting or art most alternative assets. You don’t have to answer the question of valuation or what it’s worth. And gold’s one of them. The grandaddy of them all.