(Kitco News) - Although gold continues to tread water, unable to break above $2,700 an ounce, it will not lack bullish catalysts in 2025, according to one fund manager.
In a recent interview with Kitco News, Chris Mancini, associate portfolio manager of the Gabelli Gold Fund (GOLDX), said that the main catalyst he is watching is ongoing economic uncertainty and its impact on consumer prices.
“What happens with inflation will determine what happens to gold,” he said. “I think that gold goes up because there'll be increased uncertainty surrounding the economy and inflation.”
Mancini’s bullish outlook comes as inflation remains stubbornly elevated at the start of 2025. Expectations are growing that inflation will persist as President-elect Donald Trump moves forward with plans to extend and expand his 2017 tax cuts and support the manufacturing sector through global tariffs.
“The bottom line is that the Republican agenda is inflationary in that tax cuts will push more liquidity into the system,” he said.
Mancini acknowledged that gold has struggled as an inflation hedge; higher consumer prices and a healthy labor market have forced the Federal Reserve to shorten its easing cycle. Markets are currently pricing in only one rate cut this year.
However, Mancini added that a global trade war could slow the economy and weaken the labor market. He noted that there is significant economic uncertainty, and economists cannot completely discount the threat of an economic slowdown or even a recession.
“The key for investors will be to watch the labor market. Weakness in the labor market will prompt the Federal Reserve to cut rates even if inflation remains elevated,” he said. “If the market starts to sniff some stagflation, then I think gold will do well.”
While gold is expected to perform well this year, following the roughly 27% gains in 2024, Mancini said that investors should pay even more attention to the mining sector. Despite gold’s historic gains, mining equities have lagged behind.
Mancini said that investors are still hesitant to enter the mining equities because the sector has a history of poor investment capital management. However, he explained that 2024 marked a turning point for the market, and as companies continue to prove themselves, he expects capital to flow back into the sector.
“It has been a miserable couple of years, but given that sentiment has been so bad, the only direction it can go from here is up,” he said. “Fundamentally, the sector is in good shape, and costs are being managed. In this environment, gold miners should do well. We’re not that far from $3,000, and if gold goes there, it will be hard for investors to ignore the sector.”
Even if gold prices remain in their current range, Mancini said that miners will continue to see solid margins and cash flow.
As investors begin to wade into mining equities, Mancini advised that they focus on producing assets for now, as these will directly benefit from higher gold prices. He added that smaller producers with high-quality single mines could be attractive acquisition targets as larger producers look to increase their production.
