If the Federal Reserve is planning to cut interest rates this year as far as markets are predicting, there’s one trade that should beat the rest, reckons hedge-fund billionaire Paul Tudor Jones, founder of the Tudor Investment Corporation. “If I had to pick my favourite trade for the next 12 or 24 months, it’d probably be gold,” he tells Bloomberg News. “I think if it goes through $1,400 an ounce, it goes to $1,700…quickly. It has everything going for it in a world where rates in the US are conceivably going to zero.”
It’s not so long ago – most of last year, in fact – that the US central bank was aiming to keep raising rates steadily. What has happened to derail the process so rapidly?
Tudor Jones blames escalating protectionism and the trade war between the US and China in particular. “This rate-rising cycle was cut short because of the tariffs, so we need to see what impact they’re going to have.” That’s presented both the Fed and investors with a challenge that most of them haven’t seen before.
“Remember, we’ve had 75 years of expanding globalisation and trade, and we’ve built the machine around the belief that that was the way the world was going to be. Now all of a sudden it’s stopped and we’re reversing that.”
Tudor Jones reckons that the consequences could be ugly. “We haven’t seen tariffs since 1929/1930… I think it will have a bigger impact economically than the market thinks” it will. Indeed, “it’s possible that we go into recession… and that rates in the US go back to zero, and of course, in that situation gold’s going to scream”.