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(Kitco News) – Inflation at a 40-year high and rising interest rates around the world are creating a lot of pressure in financial markets, pushing the global economy into recession and possibly causing a sovereign debt crisis. According to one fund manager, the macroeconomic background is creating a perfect storm for gold prices and gold mining stocks.
In an interview with Kitco News, Sean Feiler, president and chief investment officer at Equinox Partners, said he expects it will only be a matter of time before gold prices rise as economic risks continue to grow. The investment firm is a leading long-term investor with more than $700 million in assets under management.
“Looking at the financial markets, you find that there is a spark, and you only need one small spark to make a fire,” he said.
The comments come at a time when heightened geopolitical risks increased demand for gold as a safe haven, pushing prices to $1800 an ounce. Feiler said the next stage in gold’s rally will be when the Federal Reserve starts focusing on interest rates.
He added that the US central bank is tightening its monetary policy aggressively because it has so far been behind the curve. He said he does not expect the Fed to be able to control inflation and that as the US economy continues to weaken, it will have to abandon the current tightening cycle.
“I expect the Fed to turn into a pivot in the second half of the year,” he said.
But a recession isn’t just a recession that investors have to worry about. Higher interest rates mean that countries that dumped unprecedented amounts of liquidity into financial markets in the past two years now face higher service costs. Weiler noted that emerging markets are already suffering from a debt crisis.
“The International Monetary Fund announced, in the early part of the summer, that the sovereign debt crisis of the developed world had not yet arrived, which is very ominous,” he said.
In this environment, Feiler said, he expects central banks to continue to build up their gold reserves, possibly increasing the pace of buying over the rest of the year.
He said that the biggest factor in the gold market is actually the central bank’s participation in the market. “In a recent survey, I watched a number of countries announce their intention to buy gold. Central banks are eager to position themselves for a world where the dollar is not the world’s only reserve currency. Gold seems to feature prominently in those accounts.”
The World Gold Council noted last week that central banks bought 59 tons of gold in June. In the first half of this year, central banks bought 270 tons of gold. The World Gold Council noted that central banks bought 180 tons of gold in the second quarter.
“This is a continuation of the strong buying we saw last year, and we now expect the central bank’s full-year request for 2022 to be on par with 2021 levels,” WGC said in a recent comment.
Villiers added that when the world’s largest gold buyers continue to buy, the price should go up.
With gold continuing to rise, Fieler also expects gold miners to see an improvement in their valuations. He added that mining stocks are waiting for a fresh recovery in the gold market and are preparing to break through.
He added that the current valuations are very attractive.
“You can buy two products with low, sustainable cash costs, attractive cash flow, rock-solid balance sheets, and rock-solid balance sheets,” he said. “Dundee Precious Metals will be a good example of a company that will have more than half of its market capitalization in net cash by the end of this year. Endeavor Mining is the top 10 producer generating 5% of its market capitalization through dividends and stock buybacks this year. The math is attractive Extremely “.
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