(Kitco News) - The gold market continues to move from one record close to another, even as its all-time highs remain elusive, which should attract investors’ attention, according to one fund manager.
Regardless of whether the gold’s four-day rally to $2,150 an ounce is sustainable or not, prices are going higher in the long term, said Ryan McIntyre, Managing Partner at Sprott Inc., in an interview with Kitco News.
Although some analysts are warning investors that the gold market is a little overstretched and could see a correction by the end of the week, McIntyre said that investors should ignore the near-term price action and focus on the bigger picture.
“Long-term, this is not the top for the market,” he said.
McIntyre pointed out that gold’s rally started in earnest Friday following disappointing manufacturing data. He said that he expects recession fears to continue to grow, creating further safe-haven demand for the precious metal.
He explained that even after gold’s latest move, it is still undervalued compared to the S&P 500.
“We’re getting more indications of a slowing economy, so people's first thoughts are rates, right,” he said. “How do you take advantage of a rate cut? To me, it's not necessarily clear that people should be buying the S&P 500. To me, it's much more obvious that if you want to take advantage of rate cuts, you don’t do it with an over-bought market; gold is the far more logical avenue.”
McIntyre said it’s not surprising that the gold market is finally starting to attract some significant bullish momentum. While investors have been shunning gold for most of 2023, central banks have more than made up the difference, he added. Despite higher bond yields and a relatively stronger U.S. dollar, gold has held support above $2,000 an ounce through the majority of the new year, driven by central bank demand.
McIntyre added that he expects central banks to continue to buy gold even at higher prices.
“I would bet that central banks are not going to relent on buying gold because it makes less and less sense owning other people's currencies in a growing disaggregated world, filled with uncertainty,” he said. “Investors are starting to recognize this trend and I think we will start to see new money flow back into ETFs, which could be the second leg that drives prices higher.”
Like central banks, McIntyre said that as the global economy weakens, investors will see gold as an independent hedge against risk.
“Gold is one of the best alternatives you have to the problems we see in the world today. It remains the best antidote to a recession, an overvalued S&P 500, and frankly to the geopolitical tensions around the world,” he said.
Gold has potential and so do gold miners
As attractive as the gold market remains, McIntyre said that he expects it will only be a matter of time before gold mining companies see significant momentum.
Analysts have noted that even with gold prices above $2,000 an ounce, sentiment in the mining sector has been fairly pessimistic.
McIntyre pointed out that while everyone has been chasing the momentum in the tech sector, they have been ignoring mining equity; however, he added that the trend is starting to shift, and higher gold prices will only add more value in an already undervalued sector.
As to what segment of the mining sector has the most potential, McIntyre said that the large-cap producers remain the most attractive.
“With gold prices where they are, these producers are literally printing money,” he said. “I don’t even think you have to wait for a buying opportunity. The gold miners are so beat up, there is plenty of room to buy.”
