As gold has gotten crushed this year, hedge funds have backed out of the trade, according to Anthony Scaramucci. And the managing partner of SkyBridge Capital, often viewed as one of the most-connected people on Wall Street, believes there will be no reason for them to get back in anytime soon.
"Guys like [John] Paulson are always going to have a steady position in gold," Scaramucci said. "It's a very good diversifier for their overall aggregate personal net worth. But in general, most of the hedge funds have backed out of this trade."
Scaramucci believes that "when they write the history of this period," financial historians will remark that "gold should've worked, it could've worked, it would've worked, but it didn't work in this environment."
He then went on to list the four reasons why it won't get any easier to own gold.
1. Central bankers are exercising caution
Scaramucci notes that investors often hold gold to hedge against an inflationary catastrophe. The problem? The inflationary wolf is not exactly knocking at the door.
"There's a lot of very wealthy people that are going to own gold as a defensive hedge for what they're fearing is that whole Weimar Republic thing, where either the Europeans or the United States aggressively prints money, where the multiplier effect kicks in on the banking side, and you get this out-of-control inflation," Scaramucci said, referring to hyperinflation that occurred under the German democratic system in place between 1919 and 1933.
But Scaramucci says these gold bugs just aren't doing their research. "If you read the minutes from the Federal Reserve, or if you look at the essays that Ben Bernanke just recently published, you will discover that your central bankers, particularly in the United States, understand this issue very well. And that's one of the main reasons that gold has not worked in this environment."
The Fed minutes make clear that the Fed is keeping a close eye on inflation, and is keeping risk factors in mind. For instance, the latest Fed meeting minutes, from the July 18-19 meeting, note: "Although the staff saw the outlook for inflation as uncertain, the risks were viewed as balance and not particularly high."