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Gold is embarking on a broad-based, decade-long bull market, and it’s not a matter of if prices hit all-time highs but when it hits all-time highs, said one of the authors behind the annual In Gold We Trust report.
In an interview with Kitco News, Ronald-Peter Stoeferle, fund manager at Incrementum AG, said that a new monetary policy regime of low interest rates and high inflation is expected to drive gold prices to nearly $5,000 an ounce in the next 10 years.
“I'm pretty confident that we're at the beginning of the second stage of the trend, which is the so-called public participation phase. And this is the phase, which is the longest, and which is actually the most fun part of a bull market,” he said.
In the past two months, central banks and governments around the world have unleashed an unprecedented amount of liquidity into financial markets as the global economy ground to a halt because of the coronavirus. According to the firm’s 14th annual report, $21 trillion dollars have been pumped into the global financial markets.
Stoeferle, said the amount of stimulus used to combat the latest economic crisis represents about 23% of gross domestic product worldwide.
“You could buy all the, the annual gold production 120 times,” he said. “And this is just the beginning. It is basically impossible that we will see significantly higher real interest rates.”
Although the pandemic has created what could be the worst economic crisis since the 1930s’ great depression, Stoeferle said that it has only revealed growing issues in the global economy. He noted that cracks in the economy started to appear in 2019 as the Federal Reserve was forced to cut interest rates three times during the summer.
“The Corona crisis is only the straw that broke the camel's back. There were already lots of signs that the economy is getting weaker,” he said. “Global trade was falling by 0.5% in 2019; we only saw that in 1980.”
Stoeferle added that the response to the pandemic has only added to what was already a looming debt crisis. The only way to get out of this now is through inflation, he said.
In this environment, gold is going to be an important inflation hedge and play an important role in central bank monetary policy, he said.
But it’s not only the physical metal that investors should be looking at. Stoeferle said that a portfolio should a dedicated portion of the precious metal as an insurance and investors should look at the mining sector as an undervalued opportunity.
“I see tremendous value in the mining space. The companies have got much leaner and the leverage on higher gold prices is probably higher than ever,” he said. “But never make the mistake to mix up the virtues of physical goals with the risks and opportunities of mining stocks.”
By Kitco News
