Let’s start with your outlook for gold – looking at demand, pricing, and more. Where do you see this heading over the coming year?
Demand has been steady, but what will have the most impact on gold this year is, first, the price has reached new all-time highs and it appears it will stay there, unlike what’s happened previously. All indications are that a new bullish trend is now in place. Second, this was kickstarted by weak economic data that market participants believed would force the Fed to lower interest rates sooner than they anticipated. In most cases since the 1970s, gold has risen during periods where interest rates were falling. That is the backdrop for 2024, and why I am bullish on the price.
What are the key drivers influencing the market at the moment?
“All eyes on the Fed” is still alive and well, and what the Fed does has a direct impact on all markets. But a big part of what they do is respond to economic and market events, so if we go into a recession, stock market crash, or election surprise, the markets will react to those events. And in each of those instances, the gold price historically has usually risen. There’s a lot of risk in the system at the moment, and given how vulnerable it all is, it demands that one own a meaningful amount of gold.
Gold surpassed the US$2,000 mark leading to a decrease in the dollar value and Treasury yields. This turnaround has been a significant positive development for investors in gold, with spot prices reaching US$2,185/oz. Do you see this positive trend continuing despite volatile markets?
Volatile markets argue for higher gold prices. But yes, I think the trend of higher gold prices is here—the trend is your friend as they say, and that applies to gold as well. The ceiling is now the floor, meaning we could see it drop back down to US$2,000 or wherever your favourite technical analyst draws the line, but that would be a buying opportunity, perhaps one of the last few. By the end of the year, I expect gold to be materially higher than where it started. The exception would be something catastrophic that slams all markets, but even then, I see gold rebounding before most other asset classes.
I think the trend of higher gold prices is here — the trend is your friend as they say, and that applies to gold as well
Gold prices aren’t rising as drastically in relation to inflation, particularly with the currently CPI indicating a 40-year high in price changes for everyday goods and services. Why do you think gold prices have been sluggish to react?
The gold price has actually held up well, but it has not risen like one would expect with higher inflation. Probably the biggest reason is that other markets were doing well—tech stocks, AI stocks, crypto, etc., so Wall Street and Main Street weren’t enticed to enter the gold market. Why buy a boring metal or a dirty mining stock when Apple and Nvidia and bitcoin were all the rage? Gold will have its day though, including the miners, and perhaps that’s starting now.
China’s gold market kicked off 2024 marking its strongest January on record for wholesale gold demand, additionally, the People’s Bank of China continued its gold acquisition streak for the 15th consecutive month. Do you see record gold buying from the China and the central banks continuing?
Central bank gold buying remains at record levels, and a big reason is because those countries want to diversify out of the US dollar, to not be so beholden to it. That desire continues, so I expect to see elevated levels of gold buying from CBs.
In China, virtually every segment of their society is buying gold—their central bank has bought gold for 15 consecutive months as you highlighted, physical gold withdrawals from the exchange were the second highest on record in January, gold ETFs are now at record high levels, Swiss exports into China jumped last month, and retail buying of gold is at elevated levels. Why are the Chinese buying so much gold? They have their own concerns, but it’s clear they see gold as a hedge against everything going on both domestically and internationally. We should have the same view.
Looking at the junior end of the market, what does it take for a company to gain investment interest?
Junior companies can gain interest lots of ways—sometimes that interest is warranted, sometimes it is not. Our job as investors is to look past any arm-waving and evaluate a company on its own merits. The simplest way to do that is to use the three legs of the stool: people, politics, and property. In that order. Your conviction rate in a stock goes up when you are investing in the best people, which doesn’t mean someone with a good resume, but a CEO or geologist that has created shareholder value in the past. One must also screen for politics; there are many instances where a great project was destroyed by politicians in the region and the stock blew up. Last, when looking at a project itself, it must be what I always wanted from my grandma’s chocolate chip cookies: big and rich. It must have that potential because if not, investors won’t care. I go into great detail about how to identify potential winners in my book PAYDIRT, along with asking 16 industry experts what they look for.
And who is currently investing in this end of the market?
Almost no one. In fact, the trading volume on the Venture Exchange, where many junior stocks live, was at an historic low in December. That is starting to change, and once it kicks into high gear, we will see some quick doubles and triples in these tiny juniors. Not every stock will do that of course, but the point is there will be some “easy” money made when sentiment finally shifts and we see the generalist investor, even the mining investor that left the sector, return. I’m positioning for that very thing right now.
To read more insights from Jeff Clark, go to https://thegoldadvisor.com/
