Takeaway: We added GLD to Investing Ideas on the long side on 5/19.

Stock Report: Gold (GLD) - HE GLD T 5 26 16

THE HEDGEYE EDGE

Our Macro team’s proprietary Growth, Inflation, Policy Model (GIP Model) is a proven model that accurately front-runs the second derivative direction of inflation-adjusted growth. The most important call-out is that our growth estimates for 2016 (year-over-year) remain WELL BELOW Wall Street and Central Bank consensus forecasts:

  • Hedgeye: +1.4%
  • Bloomberg Consensus: +1.8%
  • Central Bank: +2.2%

In conclusion, the Fed remains out to lunch with their expectation for growth, and once they come around the Hedgeye view, the policy playbook calls for incremental easing on the margin. The Fed may be running out of bullets on this front, but they can always print money (which may be the ultimate endgame – see below for more details).

INTERMEDIATE TERM (TREND)

From a quantitative perspective Gold (GLD) is flashing a BULLISH signal on both a TRADE  (three weeks or less) and a TREND (3 months or more) duration in our proprietary risk management model.

If growth continues to surprise to the downside (discounted in the Treasury curve) and the Fed moves to devalue the U.S. dollar on the margin, gold outperforms. Gold performs best when interest rates and the U.S. dollar are both moving lower at the same time.

LONG TERM (TAIL)

Looking at the longer-term picture of the U.S. dollar may be the best argument for owning gold. Global central bankers are printing money, expanding balance sheets, and pushing rates to zero.

We are reaching a point where leverage is at unprecedented levels (think Fed balance sheet, corporate debt, and pension/municipal liabilities), and interest rates cannot move lower (no incremental easing available – “Big Bang Theory”). A deleveraging manifests when leverage and the ability to ease are exhausted which would likely end in a combination of debt forgiveness and money printing. Under this scenario when the Central Bank moves to print its way out of debt, you’ll be hung out to dry if you don’t have some exposure to gold. Scary stuff.

ONE-YEAR TRAILING CHART

Stock Report: Gold (GLD) - HE GLD C 5 26 16