(Kitco News) - The gold market has taken another hit with prices dropping below $4,500 and testing critical long-term support at its 200-day moving average. Despite the headwinds, one fund manager said that the precious metal’s long-term rally is far from over and higher prices will continue to support the mining sector.
The gold market is seeing short-term selling pressure as growing inflation fears force markets to price potential rate hikes by the end of the year. The threat of higher interest rates raises the opportunity costs of holding a non-yielding asset.
However, in an interview with Kitco News, Tom Winmill, portfolio manager at the Midas Discovery Fund, said that he is looking beyond the short-term weakness as the fundamental drivers behind gold’s rally remain firmly intact, particularly as central banks continue to accumulate bullion and the global economy grapples with mounting structural risks.
“I really don’t see a lot of things that could be bearish for gold in the long-term at this price level,” Winmill said in an interview with Kitco News. “It could be a second wind here for gold.”
One of the most important developments supporting the precious metal market, he said, is the continuing erosion of confidence in the U.S. dollar as the world’s dominant reserve currency.
“With the weaponization of the dollar and the de-dollarization of global GDP, this trend could be in place for a while,” he said. “If the U.S. dollar continues to lose reserve currency prestige, then the dollar gets weaker.
He added that this long-term risk in the U.S. dollar continues to support central bank demand, which is providing a firm floor for the precious metal.
Winmill also pointed out that inflation pressures and slowing economic growth could eventually create an ideal environment for gold. While central banks continue to talk tough on inflation, he doubts policymakers will aggressively tighten monetary policy enough to trigger deep recessions.
Instead, he expects real interest rates to remain relatively low — a historically bullish backdrop for hard assets.
“The next move is probably going to be lower real rates,” he said. “And if that happens, hard assets look a lot better because there’s less opportunity cost.”
Although gold’s consolidation has created short-term uncertainty for mining investors, Winmill believes fears surrounding the sector’s profitability are exaggerated. Rising energy prices and inflationary pressures have weighed on sentiment, but he said many investors underestimate how well-positioned miners are today compared to previous cycles.
“I think the worry is a little overdone,” he said, particularly for underground mining operations that are less sensitive to fuel costs. “A lot of the mining companies embraced alternative energy years ago. This isn’t their first time dealing with higher oil prices.”
The sector has already delivered some of its strongest earnings in years, generating record free cash flow and strengthening balance sheets. Even if margins compress modestly because of higher royalties, labor costs and declining grades, Winmill said the industry remains fundamentally healthier than it was during previous gold bull markets.
“There’ll be inflation, there’ll be higher royalties, labor inflation and financing costs,” he said. “Margins probably won’t expand that much from here, but revenues are still likely to increase.”
That environment favors disciplined operators over speculative exploration plays, he added.
However, Winmill is also warning investors that as gold rallies, weaker companies will inevitably flood the market trying to capitalize on investor enthusiasm.
Winmill said investors should focus on producers with strong balance sheets, consistent free cash flow and disciplined management teams.
He pointed to Agnico Eagle as one of the sector’s standout examples, praising the company’s capital discipline, dividend history and long-term strategic investments.
“That’s what a real management team does,” he said. “They’re focused on reducing costs even while generating enormous cash flow.”
Winmill also said the lack of aggressive merger-and-acquisition activity among senior producers reflects how dramatically the industry has changed. Higher gold prices have already expanded existing reserves, reducing the urgency to acquire ounces in the ground.
“Some of the big guys have more ounces than they’ll be able to mine for decades,” he said.
For investors wondering whether they have already missed the move in mining equities, Winmill said opportunities still exist — but selectivity is becoming increasingly important.
“The real trough in the valuation cycle has probably passed,” he said. “But there are still some good bargains left.”
He described the current environment as a “stock picker’s market,” where disciplined operators capable of generating sustainable returns are likely to separate themselves from speculative companies chasing momentum.
Despite gold’s recent pause, Winmill said the broader bull market appears far from exhausted. Structural deficits, persistent inflation pressures, geopolitical uncertainty and ongoing central bank demand continue to provide strong long-term support for bullion prices.
“We’ll catch our breath and then start running again,” he said.
