(Kitco News) - Although the gold market has seen a significant rise in volatility this past week, the explosive drive to $3,500 shows its potential. Investors should use pullbacks to slowly build a position that represents about 10% of their portfolio, according to one fund manager.
In a recent interview with Kitco News, Ryan McIntyre, Managing Partner at Sprott Inc., said that when compared to overvalued equity markets, gold has plenty of room to go higher in the long term.
He added that in the current environment, gold has the potential to build a new foundation above $3,000, so investors don’t need to be nervous about gold at current levels.
“I would be much more scared of U.S. equities than gold,” he said. “It's undeniable that U.S. equities are very expensive.”
McIntyre noted that he expects equity markets to continue to struggle as inflation remains stubbornly high, forcing the Federal Reserve to maintain a neutral monetary policy. He added that it's only a matter of time before companies have to adjust their forward earnings guidance to reflect the higher interest rate environment.
“I can see a lot of headwinds for equities. Maybe it's because rates are going up, because now people are demanding more for holding fiat currencies. Or many investors are afraid of a recession. It makes complete sense to me why people are diversifying away from U.S. equities and into other assets like gold,” he said. “The returns for gold will be no worse than the returns from U.S. equities for potentially the next decade. But I think the risk profile is much better.”
The bullish comments come as gold prices have fallen sharply from their recent all-time high of $3,500. Spot gold last traded at $3,327.90 an ounce, up 1% on the day. However, prices are down roughly 5% from Tuesday’s overnight all-time high. Meanwhile, gold prices are up nearly 27% since the start of the year.
McIntyre said that he expects gold prices to remain well supported through 2025 as investors face more than just a potential recession that weighs on equity markets.
He added that the problems brewing in global financial markets have risen to the sovereign level.
“Corporate issues like we've been solving for, basically, the last generation, are pretty straightforward,” he said. “However, solving various sovereign issues, particularly with the United States, given that it's obviously the largest economy in the world, is just a much grander scale of risk. There's really only one solution to that risk, and that literally is physical gold.”
Gold’s drive to $3,500 pushed prices up 11% this month, which would have been gold’s best monthly performance since November 2011. The rally was driven by significant uncertainty as President Donald Trump escalated his trade war with China, placing 145% tariffs on imported Chinese products.
Last week, Trump also picked a fight with Federal Reserve Chair Jerome Powell, complaining about the central bank’s neutral monetary policy and even expressing the desire to fire him. The Federal Reserve is independent from the government, and the president can only remove the Chair “for cause.”
Trump has since changed his tune, saying earlier this week that he has "no intention" of firing Powell, whose term ends in 2026. He also eased some of his rhetoric regarding China.
McIntyre noted that the uncertainty surging through financial markets goes beyond economics. He explained that wanting to fire the head of the Federal Reserve creates uncertainty over the rule of law in America. He pointed out that faith in the United States was being eroded as both the U.S. dollar and Treasuries sold off.
Although markets have since calmed down, McIntyre said that the damage is already done and it's going to take time for the U.S. to regain that lost trust.
“I don’t think the U.S. dollar is going to lose its reserve currency status overnight. It’s not going to happen tomorrow, but it's clear that people are using it less and less,” he said. “I think we will continue to see countries hold either more of their own currencies or something that is independent, like gold.”
McIntyre pointed out that central bank demand will continue to underpin gold prices, making it an attractive safe haven for investors, even at elevated prices.
Along with gold re-establishing itself as an important global monetary asset, McIntyre said that sentiment in the marketplace also shows gold still has plenty of upside potential.
He noted that the rally in 2011, which drove gold to its previous all-time highs at $1,900 an ounce, created a mania in the mining sector and drove valuations in the sector to record highs.
He also noted that in 2011, consumers were flooded with “sell your gold for cash” advertising. He explained that interest in gold has not reached that manic level.
“There is some enthusiasm for gold, but when people start getting really excited about the gold equities because they think gold can’t go wrong, that is when we know the market is peaking,” he said.
| TIME | |||||
|---|---|---|---|---|---|
| Sydney | Tokyo | Ha Noi | HongKong | LonDon | NewYork |
| Prices By NTGOLD | ||
|---|---|---|
| We Sell | We Buy | |
| 37.5g ABC Luong Bar | ||
| 6,616.20 | 6,031.20 | |
| 1oz ABC Bullion Cast Bar | ||
| 5,509.30 | 4,959.30 | |
| 100g ABC Bullion Bar | ||
| 17,492.80 | 15,892.80 | |
| 1kg ABC Bullion Silver | ||
| 1,896.60 | 1,521.60 | |
Powered by: Ngoc Thanh NTGold
- Online: 38
- Today: 2847
- Total: 5648702