Is Gold Price Targeting Another Breakout Above $2,000/oz?

People are interested in gold because they are concerned about future purchasing power. The market is still debating whether the US Federal Reserve (Fed) can raise interest rates up to seven times this year and whether or not inflation will ease significantly. That’s why gold hasn’t really broken out in my view yet – the market is focused on relatively dovish views.

The trigger for gold could be if inflation surprises to the upside or if the market accepts that seven US rate hikes are a bit too aggressive. This would cause the price of gold to break out.

I consider gold to be “risk-free” money. So do central banks – that’s why they usually have huge gold reserves. You understand what is risky and what is not. I think gold measures the future purchasing power of each and every currency issued by the government.

Because of this, you see that they are all mined at different rates compared to gold. People say you can’t rate gold, but I think gold rates everything else. Demand for physical gold is increasing, in fact it has steadily increased throughout my career as individuals want to own physical gold as a hedge and central banks buy more.

The market for silver is a tenth the size of gold – but the price of silver is highly correlated to that of gold. I believe when gold breaks out you will see market participation grow significantly and silver will also outperform – we think this is very dramatic.

Unlike gold where all mined gold is available to the market, silver is not as it is consumed by industry and in small amounts by investors. The silver market tends to be more volatile than gold, but in the broadest sense, gold follows silver.

We definitely believe there is a strong case for investors to own gold and silver bullion; Mining stocks theoretically offer more upside potential, but they certainly also carry more downside risk. If there is broader participation in the physical gold market, we believe miners’ share price valuations will benefit.

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