From the September 2013 issue of Futures Magazine • Subscribe!

Ben Davies: Turning adversity into gold

FM: Going back to gold, Jim Sinclair recently was quoted as saying he could see it going as high as $50,000 an ounce. Do you have any projections?

BD: If I’m consistent in what we’ve been talking about, I certainly can envision outcomes based on macro analysis, but we always wait for a signal generation. I don’t believe in absolutes; I believe the Gaussian curve description is not representative of complex systems. Why it would get to $50,000 an ounce is in my mind because these fiat currencies have completely collapsed. At that point it’s not about value anymore but complete distrust of the system, although I would question at what point supply would come on and lead to dishoarding at a level where there would be an arbitrage opportunity whereby you could divest yourself of physical gold assets to buy other assets at lower prices. I don’t know if he was saying all prices will be at that level, or whether just gold will be at that level. 

I would say for gold to be at that level, everything else will be much higher in price. With the technological advances in energy, barring a complete collapse of the monetary system, I find that difficult to see. I’ve been very consistent in saying, all things equal, $6,000 based on the backing of the monetary system as it stands and all the credit. If you look at the $220 trillion market capitalization of all assets, clearly that has been way in excess of the growth of gold. I suspect that credit will rescind and gold value will go up to somewhere in between, which for me is around $5,000-$6,000 an ounce. As a visionary of monetary changes, I’m not sure I can bring myself to envision $50,000 yet.

FM: We’ve talked about a lot of different topics here. Finally, what are the next steps for you professionally and for your firm, Hinde Capital?

BD: The most exciting development for us is we have received huge recognition; even being in this magazine is fantastic. We’re not one of the big boys and to have recognition more and more over the last five years from lots of major publications means that our message is getting across. We have a unique fund; we have a unique message. In terms of staying within the bounds of traditional investment management, we’re setting up a global macro fund. The distortions that have been created by central banks and governments at this point will lead to far more ruptures and trends within the marketplace that we will look to exploit because we want to create a capital return, hopefully adjusted for inflation a real return, that protects their purchasing power. That’s our aim. It’s very exciting that I feel I can complement my promotion of monetary reform while focusing more clearly on my first love — trading and investing. Developing a new fund is very exciting. 

From my own personal perspective, I’ve wanted to create a business that aligns itself heavily with investors. I do think the hedge fund model is likely over for the institutional players. The days of upfront fees after a period of poor performance and not having to return them are over. There’s a disproportionate payout, and in conversations with friends who reminded me of my integrity, fund businesses will have less of a short life and can be more about building investor value if they align themselves with long-term investors, private equity firms or family offices that take a stake in thier businesses. They help with the operating capital, because it is very difficult for a mid-size firm to survive beyond five years. The average shelf-life of a hedge fund is very short, probably under four years, and we’ve been going seven years, which is a testament to our investors and how we structure our funds. It’s about being aligned with our investors, changing the fee structure for longer-term performance. That’s a much more authentic approach, and is one you either embrace or be forced upon anyway.

Additionally, I’m in the process of putting all these thoughts we discussed today into a more succinct format in a book , which will depict how we got here and where we may be going, and have a proper debate about alternative and virtual currencies and solutions rather than just knocking how we got here. Maybe that’s for my own edification, but it is also about the education process, because a lot of people don’t understand what’s happening with money and why it’s so important for our belief systems and generational sustainable wealth. People need to understand sound money.

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