Gold price is not out of line with fair value, lots of upside potential - Charlie Morris

The gold market is seeing some significant selling pressure as it breaks below critical psychological support at $1,900 an ounce; however, one fund manager said that prices are still holding a healthy premium above fair value.

In an interview with Kitco News, on the sidelines of the Denver Gold Forum, Charlie Morris, chief investment officer at ByteTree Asset Management, said that he currently sees gold's fair value around $1,600 an ounce.

He explained that when gold prices were hovering around $1,900 an ounce, the market was trading with about a 15% premium. He added that valuations are in line with the fundamental factors driving the precious metal. There is still plenty of upside potential, he said.

"There's a little bit of a speculative premium on top of 15% is not a big deal. 50% would be, would be pretty extreme," he said. "I think that we're slightly ahead of ourselves in the gold, in the gold market, but quite rightly so because the fundamentals and the narrative are so strong at the moment."

In May, in a commentary written for the London Bullion Market Association, Morris made a case for gold to push to $7,000 an ounce by the next decade. He said that he hasn't seen anything in the last few months to change his long-term price target.

He added that low interest rates, coupled with rising inflation pressures, will continue to push gold prices higher.

"The framework makes sense because if real interest rates continue to fall and we get a 4% long-term inflation expectation, 50% inflation over the next 10 years -- 4% compound, 10 years roughly speaking, 50%," he said. "And the speculative premium (on gold moves) from 15% to say 50%, because, because you would do it in a, in a strong market, you put this together and you have a rational case for $7,000."

Along with gold, Morris’ ByteTree also invests in cryptocurrencies. Morris said that while a lot of investors see the two investments in conflict with each other, he sees them complimenting each other. He added that both of them are stores of value and protect investors against the debasement of fiat currencies.

"Obviously, Bitcoin is risk-on and gold is risk-off," he said. "You put it together, you've got diversification."

By Neils Christensen

For Kitco News