Insights

Hathaway: "Going forward, unless the Fed continues to expand its balance sheet, it risks a meltdown in equity and bond prices that could exceed the damage of the 2008 global financial crisis....With continued advances in gold prices in 2020, the return potential for gold mining shares — the still unloved orphans and pariahs of the investment universe — should prove to be very compelling."

2019 marked the best performance for the precious metals complex in nearly a decade. Gold bullion closed the year at $1,517 (gaining 18.31% for the 12 months). Silver bullion ended the year at $17.85 (up 15.23% in 2019). Platinum climbed 21.56% in 2019, and palladium soared 54.24%. Gold mining equities showed notable strength, finishing 2019 up 46.97% as measured by Sprott Gold Miners ETF (SGDM).

Gold mining stocks have soared almost 30% so far in 2019, as of November 15. Over the last 12 months, the sector is up 40%. Some investors may assume that gold stocks have run their course. On the contrary, we think that the gold mining equities still have a great deal of upside to offer.

Gold bullion has seen a double-digit YTD advance in 2019, and gold mining equities have also posted notable returns. Tocqueville Asset Management's John Hathaway and Ryan McIntyre join Ed Coyne, Senior Managing Director at Sprott Asset Management, to discuss their outlooks and suggest the optimal gold portfolio allocation for most investors.

Given gold’s sharp rise since May, September’s correction was not unexpected. We believe it is reflective of a new consolidation phase, and likely to be short term in nature. All factors that we consider to be significantly correlating to gold bullion indicate that we are still in the early stages of a major long-term advance.

In our view, gold’s role as a non-correlating store of value has rarely offered more portfolio utility than it does today....The most troubling legacy of contemporary central banking has been the emergence of negative nominal interest rates. The fact that they actually exist, only highlights the dire nature of global financial imbalances. 

The debate over gold’s place in a modern investment portfolio has been well covered. Call it the “Pet Rock” versus the “End of Fiat Currency” grudge match. But the facts are not subject to such intense interpretation....An enormous transformation of the gold market can occur once digital gold attracts the volumes needed to make it a serious business.

July was positive for both gold and silver, which were propelled by the Fed’s interest rate cut on July 31, its first cut in 11 years. Any hope that this is a "one and done" rate hike has quickly been dashed with the latest U.S.-China trade war salvo. The long-term picture remains firmly intact. Gold and silver continue to rise as the market adjusts to a new central bank easing cycle.

Gold has moved above the critical $1,400 mark for the first time in nearly six years. We believe that gold may be decisively breaking out of a six-year cycle and that this may be the beginning of a powerful multi-year rally. It's an opportune moment for CEO Peter Grosskopf to share his guidance on gold investing.

A two month bitcoin rally has reignited the gold-versus-bitcoin debate. We view such either-or comparisons of gold and bitcoin as somewhat specious, because we see little commonality between the two assets. Gold continues to function as a reliable store of value and productive portfolio-diversifying asset. In contrast, bitcoin continues to augment its reputation as a highly erratic speculation. Bitcoin’s investment merits, at least to date, have proven distinctly different from gold’s portfolio utility.

"Most investors do not realize that gold is one of the world’s most liquid currencies and assets, trading with volumes equivalent to those of the euro or U.S. Treasury bond benchmarks. Although similar in philosophy, gold blows Bitcoin away on any measure by which the two can be compared....Perhaps now is finally the time for investors to benefit from a 'life preserver' while others enjoy the card game on the decks of the central bank-piloted Titanic."

We believe a new gold mining mergers and acquisitions (M&A) cycle has been ignited, and we expect this merger boom to accelerate over the next several years. The tepid gold price environment since 2011 has forced many gold producers to decrease their focus on exploration and this has caused a significant drop in new discoveries, at a time when global gold reserves are being depleted.

We suspect gold equities are poised for a span of significant nominal and relative performance. We have entered a new mergers and acquisitions (M&A) cycle which we believe will provide a strong catalyst for gold miners in 2019.

Silver News is part of  The Silver Institute, a nonprofit international association that draws its membership from across the breadth of the silver industry. This includes leading silver mining houses, refiners, bullion suppliers, manufacturers of silver products and wholesalers of silver investment products. To follow is a recent interview Silver News conducted with Sprott Asset Management CEO John Ciampaglia.

Financial Journalist Liz Claman interviews Ed Coyne, EVP at Sprott Asset Management, on his 2019 outlook for gold bullion and gold equities. 

We believe that gold bullion and gold mining equities may be poised for a multi-year uptrend. Gold bullion beat U.S. equities for the month of December, the fourth quarter, and the full calendar year of 2018. We suggested throughout 2018 that the catalyst for gold’s next important rally would be growing recognition that the Fed’s current tightening cycle was reaching a conclusion.

Palladium has been a standout performer, more than doubling in price in three years 2016 to 2018. YTD the white-hot metal is up 4.99% as of January 10, 2019. Palladium’s rise is best understood by analyzing its unique supply-demand dynamics. Russia and South Africa account for nearly 80% of the world's production, and a chronic supply deficit keeps pushing prices higher. 

Palladium is a key component for ICE autocatalysts. While the escalating U.S.-China trade war hurt many commodities in 2018, palladium continued to rise. Spot palladium gained 18.6% in 2018 and has climbed 124% since the beginning of 2016.

During this holiday season, we reiterate our stance that the Federal Reserve’s dual policy agenda of simultaneous rate hikes and balance sheet reduction is crimping global dollar liquidity to the significant peril of reigning financial asset valuations....U.S. residential real estate has hit a brick wall, and in our experience, no economic sector is more reliably predictive of growth trends than housing. While the Fed's December 19 rate hike has been baked in the cake, we do not anticipate any additional rate hikes in 2019.

We have maintained that financial asset prices cannot sustain rising rates with this much debt in the global financial system. We have presented our case that Fed rate hikes are already causing financial stress in peripheral markets, and now this stress is washing ashore in the form of cardiac arrest at long-troubled American icons such as GE and Sears.... To us, it seems pretty clear there are growing rumblings for at least a pause in rate hikes. Gold is likely to erupt if this transpires.

Platinum is one of the rarest of metals but often flies under the radar. In Part 2, we look at platinum supply-demand dynamics and explain why we believe that Platinum is too cheap to ignore. 

During the next few months, we expect asset markets to come to terms with grossly misplaced investor faith in the sustainability of the Fed’s dual policy agenda of simultaneous rate hikes and balance sheet reduction — which amounts to little more than glorified brinkmanship. Recent market weakness supports our contention that Fed tightening is pinching global liquidity to a degree which threatens reigning valuations of traditional financial assets. Got gold? 

We believe gold sentiment may be turning in our favor. For the first time in 17 years commercial participants in gold futures — generally regarded as the “smart money” — have flipped their COMEX positioning to net long.  Reik: "As we await rebirth of western investment demand in gold markets, we suspect an imminent clash between hyper-bearish COMEX spec positioning and staunch global physical demand is about to ignite some short-term pyrotechnics. This should be interesting to watch!”

Platinum is one of the rarest of metals but often flies under the radar. In Part 1, we provide a Platinum Primer and explain why we are bullish on this essential metal, which plays a critical role in the automotive, industrial and jewelry sectors. 

As investors flee the emerging markets and seek the safety of the U.S. dollar and U.S. equities, they've increased their short positions in commodities. Most surprisingly, and counterintuitively, bets against precious metals (gold, silver and platinum) have reached record levels.

This summer has been a frustrating stretch for gold bugs. Trey Reik writes: “As the scale of emerging markets dislocation expands on a weekly basis, the stored force in collapsing EM currencies is still funneling towards a strengthening U.S. dollar, and in turn reflexively pressuring the gold price.” In the face of this bearish sentiment, we have been encouraging Sprott clients to exploit summer price movements in precious metals to their maximum advantage. 

Portfolio Manager Shree Kargutkar believes that "gold may prove to be the ultimate winner given the most recent trade conflicts." Despite the U.S. dollar's recent strength, Kargutkar argues that it is likely to be short-lived and that all the elements are in place for a durable bull market for precious metals and precious metal equities.

Senior Portfolio Manager Trey Reik answers the question: Why isn’t gold doing better? After trading in a bullish consolidation pattern for 18 months, gold appears to have lost some of its mojo. Trump’s June 1 tariff announcements and the U.S. dollar's spring rally have hurt gold and other commodities. Reik counters by arguing that gold’s price stability has been fairly unique among asset classes, and that right now is a fortuitous entry point for portfolio allocations to gold.

In this report, we employ the analytical framework of periphery to core.  We have organized this letter around evidence that the Fed’s dual policy goals are straining financial conditions in peripheral components of four critical sectors:  emerging markets, global financial institutions, U.S. corporate credits and U.S. consumer credits. 

Senior Portfolio Manager Trey Reik responds to Warren Buffett’s distaste for gold, staunchly reconfirmed by Buffett at the May 5 Berkshire Hathaway Annual Shareholder Meeting. Reik finds Buffett's gold-versus-stocks comparison self impeaching, and suggests that a prudent allocation to gold could improve the risk-adjusted returns even for Berkshire Hathaway.

Sprott Global Investment Executive Kenton Ralph Toews looks more closely at how commodities, relative to equities, are at their most undervalued in decades. Gold is especially inexpensive relative to the S&P 500. 

Senior Portfolio Manager Trey Reik presents analysis suggesting the Fed’s dual agenda of rate hikes and QT balance-sheet reduction is already straining global liquidity to the peril of reigning financial asset valuations.  In order to arrest deflationary forces, at least in part of their own making, we expect the Fed to scale back telegraphed FOMC policy by yearend. 

Sprott Asset Management CEO John Ciampaglia examines the relative merits of Gold and cryptocurrencies as these two alternatives to traditional fiat currencies duke it out in the “monetary” boxing ring of investor sentiment.

With the beginning of the new year, we have entered a seasonally strong period for gold bullion and gold equities. Gold bullion posted a strong gain of 3.23% in January, ending the month at $1,345.15 per ounce. Even so, investor sentiment towards gold and gold equities continues to remain relatively muted.

Senior Portfolio Manager Trey Reik looks beyond the short-term damage of the Feb. 5 market selloff, and explores why the current fed tightening cycle is likely to increase the stress on individual consumers and inflict damage across a broad spectrum on financial assets.

With the beginning of the new year, we have entered a seasonally strong period for gold bullion and gold equities. Gold bullion posted a strong gain of 3.23% in January, ending the month at $1,345.15 per ounce. Even so, investor sentiment towards gold and gold equities continues to remain relatively muted.

Portfolio Manager Whitney George reviews his approach to value investing: “We just try to identify great businesses and buy them when they go on sale. Given the current backdrop, we expect our disciplined approach to be rewarded with attractive opportunities for investment throughout 2018.”

Gold bullion rose a respectable 13.09% in 2017, posting its strongest annual gain since 2010. Senior Portfolio Manager Trey Reik explores why gold's performance stacks up well against other alternative asset classes.

Senior Portfolio Manager Trey Reik takes a closer look at Trump's tax reform. Eager for the tax bill to pass, Trump boasts in a recent tweet, “It will be the BIGGEST TAX CUT and TAX REFORM in the HISTORY of our country!” We disagree. 

Portfolio Manager Shree Kargutkar says, "gold is likely to benefit in early 2018 from its traditional first quarter strength."  He also explains why gold mining equities are cheap right now, and why high-quality miners are positioned for strong earnings performances.

Maria Smirnova, Senior Portfolio Manager, discusses precious metals, and how it is getting much harder to find new deposits, given the drop-off in exploration budgets. She explains how an allocation to gold and silver in an investment portfolio can reduce volatility.

Senior Portfolio Manager Trey Reik examines the interplay between gold bullion and gold equities. This relationship has been noteworthy in 2017, given an anomalous performance gap that we believe may provide investment opportunity for precious metals investors.

Portfolio Manager Shree Kargutkar explains that while investment allocations to gold bullion and gold equities have been somewhat muted in 2017, we are now seeing signs of renewed interest in gold. Bridgewater Associates, the world's largest hedge fund, has been on a recent buying spree.

Senior Portfolio Manager Maria Smirnova shares key takeaways from the Silver Institute’s 3rd Silver Industrial Conference that focused on “Silver’s Evolving Role in Science and Technology.” Smirnova looks at silver’s expanding role given its use in solar, automotive, electronics and healthcare applications, and explains why we are bullish on the metal.  

Senior Portfolio Manager Trey Reik presents a collection of empirical evidence we view as compelling support of gold’s productive role as a portfolio-diversifying asset. He also addresses the disinterest in precious metals among institutional investors. He argues that given the current financial risks confronting investors, gold’s purchasing-power-protection seems an incredibly precious commodity.

Senior Portfolio Manager Trey Reik explains we he believes that "virtually every measure of domestic and global debt is significantly worse today than at its financial-crisis peak." He recaps gold bullion's performance in August, which despite the continued fervor for U.S. financial assets, has posted solid year-to-date gains, and broke through resistance at $1,300.

Senior Portfolio Manager Trey Reik discusses why gold has spent the past seven months in a tight trading range between $1,200 and $1,300 per ounce. Given the stored force inherent in such a trading pattern, history suggests a breakout, whether up or down, is likely to be characterized by a steep slope. The question remains, which direction will gold follow?

Senior Portfolio Manager Trey Reik addresses the explosion of interest in cryptocurrencies, especially bitcoin. He attributes the growing interest in digital currencies to a concern shared by many gold investors: resentment over the financially repressive policies of global central banks. But the investment merits of gold and bitcoin are substantially different.