‘Anti-bubble’ fund sees gold at $3,000

A hedge fund manager who has returned 47% this year by betting on gold and US treasuries says the next decade is going to be marked by inflation that central banks are powerless to control.

Diego Parrilla, who heads the US$450-million Quadriga Igneo fund, says unprecedented monetary stimulus is fuelling asset bubbles and corporate debt addiction — rendering interest-rate increases impossible without an economic crash.

In the ensuing market mania, the manager whose portfolio is loaded up with cross-asset hedges says gold could rise to between $3,000 and $5,000 an ounce in the next three to five years, up from the current price of $1,800.

“What you’re going to see in the next decade is this desperate effort, which is already very obvious, where banks and government just print money and borrow, and bail everyone out, whatever it takes, just to prevent the entire system from collapsing,” Mr Parrilla said in an interview from Madrid.

While traditional funds are tasked with generating steadily positive returns over time, Mr Parrilla’s fund is predisposed towards hedging the next big crash while generating capital over time. Managers with a tail-risk bias position themselves for extreme market events, typically bucking mainstream views.

The Wall Street consensus is sanguine on the price pressures spurred by record stimulus spending, and calls for faster inflation have turned out to be wrong for years.

From Mr Parrilla’s perspective, stimulus packages have exacerbated deeper issues within the financial system, such as central banks that have kept interest rates near zero for more than a decade and are willing to rewrite the policy rule book in a crisis.

The value of his defensive portfolio has jumped as virusfuelled fear ripped through markets in February and March. The fund is about 50% invested in gold and precious metals, 25% in US treasuries and the rest in options strategies that profit from market chaos, such as calls on gold and the US dollar. “This is the part that makes us super explosive,” he said.

Mr Parrilla describes his process as a search for “anti-bubbles” — unusually cheap assets that do well when bubbles burst.

“What we’ve seen over the last decade is the transformation from risk-free interest to interest-free risk, and what this has created is a global series of parallel synchronous bubbles,” he said. “One of the key bubbles is fiat currency, and one clear anti-bubble in this system is gold.”