(Kitco News) - It’s no surprise that gold is trading above $3,100 an ounce as the global economy is running on fumes. And the precious metal has room to move higher as the quality of credit declines and deficits increase, according to one fund manager.
“There are more and more people buying gold, not because they think prices are going to outperform the consumer price index, but because they think in a world where credit is being abused, you don't necessarily want to be a creditor,” said Keith Weiner, CEO and founder of Monetary Metals.
Weiner’s comments come as spot gold prices trade above $3,100 after gaining roughly 20% in the first quarter.
In the current environment, Monetary Metals sees more demand for gold as an important monetary asset compared to silver.
“While we would expect the silver price to rise with the gold price (as it has done so far), we predict it will be reluctant and will lag behind gold both in magnitude and possibly timing,” the firm said in its official price forecast, published last month.
Although Weiner does not expect the U.S. dollar to lose its reserve status anytime soon, he does expect its purchasing power to continue to fall. At the same time, Weiner also noted that on the global stage, President Donald Trump’s import tariffs, which have ignited a global trade war, will prompt more nations to diversify away from the U.S. dollar.
“I don't think the dollar is going anywhere anytime soon. But people are more conscious of the U.S. dollar’s limits,” he said. “It’s like playing musical chairs. At some point, the music is going to stop, and you don’t want to be the last one standing. Maybe I'm three, five, or ten years early, but it’s infinitely better to be three years early than one hour late.”
Weiner said the biggest support for gold remains growing global and U.S. debt. Although the U.S. government has launched significant austerity measures, cutting funding to different programs and laying off workers, Weiner said that this won’t be enough.
“If the government did manage to find $1 trillion in savings, we would only be back to the halcyon days of the post-crisis. Even then, we were writing about how breathtakingly large the deficits were. You would have to find $2 trillion in savings just to at least stop digging deeper.”
While $1 trillion in savings would be drastic, Weiner said that would probably not push the economy into a recession, but added that there are worse things than a recession. He explained that as the U.S. labor market slows with a rising unemployment rate, the risk of a credit event grows as defaults rise.
“This debt spiral didn't happen yesterday, the spiral didn't happen under Biden,” he said. We've been spiraling out of control for decades.”
Not only will gold prices do well in this environment, but Weiner said that a critical segment is starting to see value in holding the precious metal. He is seeing growing interest from institutional players and family offices.
“If you look at all the other asset classes, it's hard to find anything to believe in. Equity markets are long overdue for a correction. I also wouldn't necessarily want to bet on real estate, so what else are you going to buy?” he asked.
At the same time, while gold has seen a significant rally in the last 12 months, Weiner said that he is less concerned about a 2011 selloff as the dynamics in gold have changed. He pointed out that the gold market is much less leveraged than it was nearly 20 years ago, and less susceptible to a sharp selloff.
