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The Tell: David Einhorn pitches gold at Sohn Conference, warns Fed will fail to tackle inflation

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Greenlight Capital founder David Einhorn pitched gold to his audience at the 2022 all-virtual Sohn Investment Conference, a popular gathering for the hedge fund industry that was formerly held at Lincoln Center in New York City.

In a gloomy presentation where he warned that price pressures would likely worsen despite the Federal Reserve’s efforts to undercut demand by hiking interest rates, Einhorn — who rose to fame for his bet against Lehman Brothers during the run-up to the financial crisis — said that the price of the yellow metal would move substantially higher heading into 2023.

Calling gold “the ultimate reserve asset,” Einhorn warned that “inflation is likely to be much more persistent” as the Fed’s rate hikes actually aggravate the situation, instead of helping to combat it. The presentation included several unfavorable comparisons of Jerome Powell’s Federal Reserve to the institution under former Fed Chairman Paul Volcker, who famously tackled inflation in the 1980s with a program of aggressive rate hikes.

Einhorn added that while both supply and demand are falling, supply is falling more quickly. This, compounded by the fiscal excesses of U.S. federal government spending, would help stoke inflation in the U.S. and globally.

Despite the fact that the U.S. is already facing the highest inflation since 1981, Einhorn said these levels are actually understated, and will likely worsen.

Gold futures
GC00,
-0.35%

for August delivery traded near $1,850 an ounce in electronic trade after falling 0.2% on Thursday to close at $1,852.80 per ounce. Einhorn also slammed the Federal Reserve for failing to raise interest rates quickly enough to help rein in inflation.

Einhorn added that the Fed is “bluffing” about its ability to tame inflation with quantitative tightening, and compared the central bank’s inflation-fighting program to “clearing off your snowed in driveway with an ice cream scooper”.

After several years of lackluster returns, Greenlight has outperformed its benchmark this year, posting a double-digit return in April alone, thanks to its bearish posture, according to a Bloomberg News report.

Einhorn said that the Fed hiking rates could conversely cause inflation to worsen, and warned that the central bank will likely “capitulate” some time in 2023.

Investors are looking ahead to May inflation data expected to be released Friday morning.

U.S. stocks tumbled on Thursday as low trading volume and anxieties about the inflation number undercut stocks, with the S&P 500
SPX,
-2.00%

down 1.7% and the Dow Jones Industrial Average
DJIA,
-1.61%

losing more than 400 points.

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