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Gold has the potential to double once the Federal Reserve begins to tighten and hike rates to fight off hotter-than-expected inflation, said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
"If you inflation adjust gold for its 1980 high, it can go to $2,500, it can overshoot $3,000 plus," Boockvar told Michelle Makori, editor-in-chief of Kitco News. "Silver … can get back to its highs of $50 plus. Name me one asset that's down 50% from its record high. I can't really think of many other than silver."
Boockvar is bullish on precious metals because of his inflation and slower growth outlook. "Inflation is not transitory. And that will be the most important thing in determining the direction of the economy and the markets. I don't expect a reversion back to pre-COVID levels," he said.
This sticky inflation is what is forcing central banks around the world to begin tightening. And the next major step will be raising rates. And that has major implications.
"We are now on the cusp of global tightening, and however glacial, it's going to have major repercussions," he explained. "Since 2010, every notable market correction coincided with the end of QE. So I'm not going to be delusional and think the Fed and other central banks are going to tighten, and there's not going to be a problem."
The Federal Reserve gave a clear signal that they will start tapering in November, with the CME FedWatch Tool now anticipating a 43% chance of a rate hike as soon as June.
However, the obstacle for the Fed is how far behind the curve it is, added Boockvar. "You have the most intense inflationary pressure since the 1970s. And the Fed is going to do seven months of tapering, and rates are still going to be at zero," he said.
This is why Boockvar doesn't see anything more compelling than investments in gold and silver. Both metals have found their bottom and are ready to resume their bull rallies, he said.
"Gold and silver bottomed in December 2015, just as the Fed started raising interest rates for the first time in seven years. Gold went up with interest rates in the 1970s. The federal funds rate in the mid-2000 went from 1% to 5.25%, and gold doubled," he noted.
The gold mining industry is also a winning trade right now. "The miners are very cheap, and they're not getting any respect [despite] paying healthy dividends," Boockvar stated. "When we think about the good mining companies that have the all-in sustainable costs of $800, even $900, and they can sell gold at $1,800, that's a pretty large profit margin that these companies haven't had in a while."
Watch the video above to find out why Boockvar thinks the economy could "flatline" in the third quarter. Follow Michelle Makori on Twitter: @MichelleMakori (https://twitter.com/MichelleMakori).
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