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Gold price is overheating but still has room to hit $2,000 before it consolidates - Sprott's Grosskopf

Kitco News

Momentum in the gold market is slowing down after its historic run to new all-time highs at the start of the week. According to one fund manager, while gold has room to move higher, it is starting to overheat and could be due for some consolidation.

In an interview with Kitco News, Peter Grosskopf, chief executive officer at Sprott Inc, said that gold has enough momentum to push to $2,000 an ounce before there is a significant consolidation period. Although gold has had an impressive run since the second quarter, the market is not overvalued, he said.

"One of the measures I've been increasingly looking at is just the amount of fiscal and monetary stimulus compared to what happened in the GFC," he said. "The levels are so unprecedented. If you just take gold around that as an indicator, gold could be pointing to the mid-$2,000 before it's even properly valued.

"I think we'll see $2,000 in short order and then some consolidation after that. By the end of the year, there should be a healthy two in front of the gold price."

Another factor supporting higher gold prices in the long-term is that the precious metal is still relatively under-owned within the larger financial landscape, Grosskopf said. He added that the participation level in the gold market is about 20%.

Looking at the current market environment of low bond yields, Grosskopf said that he expects participation in the gold market to pick up, especially as all-time highs start to attract more generalist investors. He added that gold continues to look more attractive than bonds.

"Bonds, although they are safe places to park cash with negative real yields, you can legitimately say they have become certificates of confiscation. I mean, it's a guaranteed way to lose money at this stage," he said. "There's going to be a continued, massive move out of the bond market and into things like real assets and gold would lead the pack."

Grosskopf's comments come as the Federal Reserve kicks off its two-day monetary policy meeting. Markets are not expecting any major announcement from the Federal Reserves this week; however, Grosskopf said investors need to keep an eye on government fiscal stimulus proposals.

"The economy's not strong enough on its own to meet expectations. So there isn't a day goes by that we don't talk about new fiscal measures," he said. "So I would look to, yes, more programs, more acronyms, more money, getting handed out."

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.