Update on Gold and Gold Equities
May 15, 2021 - Sprott CEO Peter Grosskopf joins Asset TV's Jenna Dagenhart to discuss Sprott's outlook for gold and gold equities.
Jenna Dagenhart: Gold is making headlines once again after the safe haven asset had its strongest month of gains since July 2020. Joining us now to share his outlook is Sprott Chief Executive Officer Peter Grosskopf. Peter, before diving in, could you tell our viewers a little bit more about Sprott?
Peter Grosskopf: Sprott has been around for 40 years, which puts us as one of the longest-serving asset managers in the gold sector. In context, 50 years ago is when Nixon took the U.S. dollar off the gold standard. Over this time, we have built an amazing team of people. We've had access to the best DNA in the mining business, including folks like John Hathaway and Whitney George, who are well-known and currently serve as part of our gold investment team.
JD: Since the 2020 gold high of $2,075, gold had been softening until recently. What's changed since then and is it sustainable?
PG: The softening that you're referring to was somewhat expected as people focused on the economic and market recovery, which experienced very strong conditions and other financial markets, such as the bond market, saw a very large move in yields to the upside. Understandably, investors were less than thrilled with gold during that time. Also, stock markets were strong and people were generally focused on the recovery.
Gold then found a substantial base around the high $1,700s, and since then it's been well protected and well bought in the market. Now, investors seem focused on the long term again, showing more willingness to hedge equity and credit positions given concerns over the effectiveness of Fed tapering. As such, I think it's a very healthy environment for gold and we believe it is likely to do well going forward.
JD: How about silver? Why is the "other metal" gaining so much attention?
PG: Silver is an exciting market. It's a small market, so when investment demand increases, it may overwhelm the market. This dynamic is happening since silver is a proxy for gold and is certainly a precious metal that can be used as insurance for inflation and poor market conditions. We are seeing a lot of smaller silver investors buying physical silver today. The story unfolding is that the silver trade is now becoming a longer-term investment. Smaller investors are buying physical silver and chasing that market right now. We also see demand coming from all quadrants and it could easily overwhelm the market. Naturally, the price action in silver could really be more explosive than gold.
JD: Clearly, you like both gold and silver.
JD: What about gold miners? Why should investors consider them in this kind of environment?
PG: The miners are more of a value story at this time. Many gold mining companies have done a good job changing the way they do business, becoming more efficient and more environmentally sensitive. After years of investing in their businesses, they're making great margins and are more willing to expand. Gold companies haven't been cheaper than this in a long time versus the gold price. They've become a value sector and have tremendous operating leverage to the gold price, giving them potential upside. We see their downside being somewhat protected but with high upside potential, especially with higher gold prices.
JD: Finally, can you give us a glimpse of what the coming quarters or years might look like for precious metals?
PG: In terms of a long-term framework, over the next decade, we may have mounting risks associated with monetary and fiscal policy and increasing money supply often associated with modern monetary theory. There may be significant risks of modern monetary theory not working and if it doesn't, we could see unanticipated inflation or rocky market conditions.
The long-term physical accumulation phase is just getting started for gold. We may have an extended period where gold is likely to enjoy advantages over other assets. We, at Sprott, are looking at a very busy time with many investors interested in gold, pointing to a very positive five- to 10-year story.
JD: Peter, we'll have to have you back on at some point soon. Thanks so much for joining us.
PG: Thanks for having me, Jenna.
JD: Thank you for watching. Once again, that was Sprott Chief Executive Officer Peter Grosskopf. I'm Jenna Dagenhart with Asset TV.
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