Kitco.com – Gold’s fear-driven selloff should be bought – Sprott’s Grosskopf
(Kitco News) – Last week’s surprisingly hawkish tone from the Federal Reserve may have driven the speculative hot money out of the market. Still, the CEO of one of the largest precious metals firms in the world said that gold’s long-term potential remains firmly intact.
In an interview with Kitco News, Peter Grosskopf, chief executive officer of Sprott Inc, which manages more than $17 billion, said that he is not paying much attention to the latest projections from the U.S. central bank that highlights potentially higher interest rates in two years.
He added that government spending and excessive debt worldwide would force the central bank to keep interest rates low for the foreseeable future. He said that he sees gold’s 5% drop in reaction to the Federal Reserve’s hawkish forecast as a buying opportunity.
“What we have seen is a lot of short-term money move out of the market,” he said. “The long-term picture for gold hasn’t changed at all; it just gets more and more compelling. We think these fear-driven dips should be bought.”
Grosskopf said that the growing inflation threat is what makes gold so compelling. He added that not only will the Federal Reserve be forced to keep interest rates low, but they are underestimating rising consumer price pressures.
He explained that government spending is creating a unique inflationary environment. Government support and rising unemployment benefits are forcing companies to raise wages to attract workers. This, in turn, will lead to higher input costs, which will be passed on to consumers.
Not only does Grosskopf see the prospect of higher inflation, but he added that there is growing potential that the U.S. and global economies start to slow down by the end of the year. He explained that growth has been strong since the start of the year as consumers unleash pent-up demand caused by the COVID-19 restriction. However, he added that the pace of current consumption wouldn’t be sustainable.
Grosskopf pointed to slowing growth in the housing sector as a sign of how fast the economy can cool down from the current pace.
Although gold prices will continue to be sensitive to rising interest rate expectations, Grosskopf said investors need to pay closer attention to the bigger picture: real interest rates. Even if the Federal Reserve does start to raise interest rates in two years, Grosskopf said that rising inflation will keep real rates in negative territory.
Grosskopf added that the latest projections from the Congressional Budget Office (CBO) have even confirmed the low real rate regime. In its latest forecasts, the CBO budgeted that they expect inflation to run ahead of nominal rates to the extent that real rates will stay negative through 2028, effectively codifying the current policy of financial repression of US bond holders.
“I think that the risks to these projections are to the downside as I expect we will see a lot higher inflation,” he said.
Although gold prices are struggling to attract momentum and push back above $1,800 an ounce, Grosskopf said it wouldn’t take much to push gold prices back to $2,000 an ounce by the end of the year.
“Can gold prices move $250 to the upside in a few months? Sure, it can. We have seen that happen many times before,” he said. “When you look around, everything’s at a record. We are at peak equity markets, peak debt, the Fed’s balance sheet is at a record. that pendulum has absolutely swung as far as it possibly can. That is why the gold market is so compelling right now.”
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