Druckenmiller Loves Gold, Hates Fed

Hedge fund master Stanley Druckenmiller has had one of the strongest performances in stock market history, generating a return of about 30 percent over a 30-year period. That is in line with another legendary investor, Peter Lynch, who produced an annual return of 29 percent.

Interestingly, Druckenmiller and Lynch both quit because of the toll it took on them to maintain those type of returns. Sorry. If we want to live longer, we'll just have to settle for a piddly 20 percent annual return or so.

For some time Druckenmiller has blasted the Federal Reserve for keeping interest rates near zero, saying it has changed the behavior of companies, which instead of using cash to build the businesses, they are using it for leveraged buyouts, mergers and stock repurchase schemes.

Interpreting this as a negative, Druckenmiller has taken a huge stake in SPDR Gold Shares (GLD), investing $323,626,000, which comes to 2.8 million shares. That's more than double any of his other holdings at this time.

when asked about why he put such a large portion of his investment portfolio in GLD, Druckenmiller said when he sees something that gets him excited, he's willing to take that step.

Talking a lot about risk/reward ratio over the years, he obviously sees something in gold that has a lot of potential at this time. I agree with him.

Gold ETFs Acquiring Record Tons of Gold

SPDR Gold Trust GLD.PGLD.A, also known as GLD, asserts the gold bullion it owns has risen by over 100 tons to 970.57 tons recently, which marked the largest weekly increase in the history of the gold-backed exchange-traded fund.

SPDR Gold Trust, the world's largest gold-backed ETF, said its holdings rose nearly 5percent on to record levels. Gold prices surged, implying significant buying.

Investors who are expecting years of inflation and worldwide economic volatility are pouring money into securities backed by gold bullion, helping turn what has been a safe haven into a mainstream asset class.

GLD is now the second biggest U.S. ETF, with market value of $27.5 billion, which ranks it behind only the popular SPDR S&P 500. GLD owns at this time more gold bullion than the entire government of Japan, according to the World Gold Council.

Another big gold ETF player, COMEX Gold Trust IAU.P, said its holdings also rose to a record high 70 tons.

Gold ETFs are listed on stock exchanges and offer investors exposure in bullion without having to take physical delivery. Sponsors of the funds buy a matching amount of physical gold and keep it in bank vaults.

The extraordinary rally in bullion originates from the inflationary expectation arising from the U.S. government's misguided borrowing of over $2 trillion to finance a bank rescue plan and to enact a pathetic package to stimulate the world's biggest economy in efforts to reverse a global slowdown.

While there was recent talk about a shortage of physical gold bullion as more investors turned to gold as a safe haven, that doesn't seem to be the case, as some say there are not any problems at all for gold ETF authorized dealers to acquire gold bars to create new shares.

The existing low yield of currencies and U.S. Treasury bonds because of stimulus plans by central banks made gold - which produces no interest - more attractive to investors.