David Einhorn (David Einhorn), a billionaire investor and head of the US hedge fund Greenlight Capital (Greenlight Capital), shared an overlooked theory explaining why the price of gold has risen sharply in recent months.

Gold has repeatedly reached record highs in 2024, but this sudden surge in commodities may come as a surprise. The current macroeconomic environment should have acted as resistance to the rise in gold prices, because the Federal Reserve's long-term high interest rate policy usually makes investments such as bonds more attractive than unprofitable gold.

To clarify the reason for the strong rise in gold, Einhorn proposed a potential theory in his latest letter to investors.

In his letter, Einhorn said, “Although the rise in gold prices may be related to the market beginning to question the sustainability and rationality of America's monetary and fiscal policies, other indicators show that this is not the case.”

Instead, the founder of Green Light Capital mentioned that it has become a “long-term trend” for Eastern countries to buy gold from Western countries.

In a statement, he said, “Perhaps the West has run out of gold that is willing to sell, while demand from the East is still strong, which is enough to push the price of gold higher.”

In fact, according to data from the World Gold Council, central banks around the world have been scrambling to buy gold, buying more than 1,000 tons of gold over the past two years in a row. Among them, the central bank of China is one of the largest buyers. This is a way for the central bank of China to diversify its reserve assets and reduce its dependence on the US dollar. The Central Bank of China has continued to increase its gold holdings for 17 consecutive months, during which time its holdings increased 16%. The World Gold Council revealed that India and Singapore are also actively buying gold to hedge against the risks brought about by global economic turmoil.

Adrian Day, president of Adrian Day Asset Management, said that global purchases are picking up. As far as size is concerned, central banks are still net buyers of gold, although purchases so far this year have been slower than in the past two years. However, purchases in North America are increasing, albeit slowly. Gold ETFs began to see some inflows after experiencing a continuous sell-off for most of last year and earlier this year. Considering that investors, whether individuals or institutions, still grossly underestimate gold assets, even a slight shift in purchasing patterns could be dramatic.

Earlier, top economist David Rosenberg (David Rosenberg) predicted that the price of gold will rise by another 15%, and that if the central banks of major economies consider cutting interest rates, the increase in gold may reach 30%, but he stressed that regardless of whether the US economy finally achieves a soft landing or falls into a deeper recession, gold may rise.

Meanwhile, market expert Ed Yardeni (Ed Yardeni) predicts that the price of gold may soar to $3,500 next year, which suggests that gold has 50% potential upside. He compared the current situation to the 70s of the last century, and believes that the current inflation trend may push gold prices to new highs.

Also, according to billionaire investor Ray Dalio (Ray Dalio) and others, gold can hedge against the risks posed by the US government's high debt. In a recent post, he said he is holding gold because the risk of a debt crisis or an inflation crisis is rising.

Regarding the recent decline in gold, Ole Hansen, head of commodity strategy at Saxo Bank, said that the gold price trend so far may be a healthy adjustment.