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(Kitco News) - Despite gold's failed attempt to break to new all-times, the precious metal still has room to move higher, according to one market strategist.
In an interview with Kitco News, James Robertson, an analyst at Grant's Interest Rate Observer, said that the potential for the Federal Reserve to end its most aggressive tightening cycle is creating a lot of volatility in financial markets and gold remains an attractive hedge against monetary policy mayhem.
He added that last month's banking crisis with the failure of Silicon Valley Bank and Signature Bank along with the collapse of Credit Suisse, one of Europe's largest banks, shows that pressure in the global economy is starting to build and the "rivets are starting to pop."
"The monetary disorder that we have seen is far from over, and right now, we are just waiting to see how it will spread," he said. "This will continue to support gold prices."
Robertson's bullish outlook on gold comes as the precious metal is holding support just above $2,000 Friday after falling from a 13-month high posted Thursday. Heading into the weekend, June gold futures last traded at $2,019 an ounce, down 1.77% on the day.
Robertson said that gold has room to move higher as Western retail investors are just starting to jump back into the gold market. Speculative positioning in gold remains below the August 2022 highs, even as bullish momentum has increased in recent weeks.
According to monthly data from the World Gold Council, March was the first time the gold market saw net monthly inflows into global gold-backed exchange-traded products ending ten months of consecutive outflows.
Although Robertson is optimistic that gold prices will continue to increase through 2023, he said that one area in the gold sector where he sees real value is in equities. He added that gold mining stocks have significantly underperformed the precious metal; however, in a bull market, this sector traditionally outperforms because of its leverage.
While up from its long-term lows hit in 2015, NYSE Arca Gold Bugs Index, compared to the price of gold bullion, is well below its historical average; the ratio currently trades around 13 points.
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The raw commodity also continues outperforming The VanEck Gold Miners ETF (NYSE: GDX), a basket of the world's top gold producers. GDX is up 23% in the past month, but the index is still 13% off its 52-week high.
Robertson said that with well-supported gold prices, he expects it is only a matter of time before generalist investors jump back into the mining sector.
As for specific segments in the gold sector he likes, Robertson said investors need to look at streaming and royalty companies.
"Royalty and streamers will offer a little bit less leverage, but they're more insulated from production risks of an operating mine," he said.
On the mining side, Robertson said that generalists might want to focus on smaller gold producers as they have significantly more upside potential, especially as larger producers look to replace lost ounces.
"For generalist investors, there is a small margin of safety among smaller producers in safe jurisdiction because they have some cash flow," he said.
