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(Kitco News) - It is not easy being a gold investor as the U.S. economy continues to see healthy growth and equity markets climb higher; however, according to one market analyst, right now might be the best time to be a contrarian and protect your portfolio.
"As far as I'm concerned as a safe-haven asset and portfolio diversifier, gold never loses its shine," said Douglas Groh, Managing Partner, Sprott Inc, in an interview with Kitco News.
Groh pointed out that year-to-date, the average gold price is well above $1,900 an ounce and is establishing a new trading realm, with all-time highs still in the cards for 2023. He noted that gold has done exactly what it's supposed to do, even as the Federal Reserve maintains its aggressive monetary policies.
Although general investor optimism could weigh on the gold market as prices trade at a three-month low and test initial support around $1,900 an ounce, Groh said now is a strategic time to look at gold. He explained that investors need to recognize gold's value as a long-term diversification tool instead of looking for quick gains.
Unfortunately, he added that most investors only look at gold when the market has strong bullish momentum.
"Unfortunately, I think investors are attracted to gold in a faddish way. They only look at it when it is fashionable and dynamic. A dynamic market will create news and then people will kind of jump on board; for better or worse and more for the worse," he said. "The better way to invest in gold is to be a contrarian."
Groh noted that it is challenging to be a contrarian investor as they are constantly forced to question the prevailing narrative. Using the latest FOMO (fear of missing out) momentum in artificial intelligence in the tech sector, Groh said that investors should examine the narrative of how this is expected to change the world.
"Are these innovations and products going to change our lives, answer all our questions and stop climate change? What happens if this doesn't happen and the dream isn't realized? It might be good to have some gold to protect your portfolio," he said.
As to other potential risks in the global economy, Groh said there is still the possibility that a recession will hit, and the world still doesn't know the full impact rising rates will have on specific sectors of the economy like commercial real estate.
Groh noted that growing global debt is also not being addressed but will need to be.
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Along with gold, Groh said that silver is another major contrarian play. He added that it is hard not to be bullish on silver when the world continues to transition to green energy.
One reason why silver isn't outperforming gold in a bullish environment is because of specific factors in the precious metal market, he said.
Helping provide a floor in the gold market and creating the new trading realm is surging demand from central banks.
"Central banks are buying gold because they want diversification in their reserves relative to the U.S. dollar. That is going to be an ongoing trend. It's not just a 2023 event," he said. "Central bank demand really pushes up the floor for gold."
