Gold prices are starting to shine once again as the Fed tries to enter the final game of the current tightening cycle. But according to one portfolio manager, investors should look to the mining industry if they want to realize value.
Gold is an important allocation that will never change in portfolios!
Sprott Inc. Managing partner Ryan McIntyre says that while there is too much focus on precious metals, the equity side of the market is being forgotten, creating a huge imbalance in valuations. In this context, McIntyre makes the following statement:
I always think of physical gold as an important strategic allocation that will never change in your portfolio. From a gold stock perspective, this is where investors can get a lot more tactical.
Companies take positions for higher gold prices
McIntyre states that sentiment in the mining industry is rather bleak. He also states that it is a challenging environment for companies trying to raise money. McIntyre notes that these two factors highlight a key low point in the market. So he says it won’t take much to raise the sensitivity. McIntyre also states that companies have significantly improved their balance sheets and are better positioned to take advantage of higher gold prices. Based on this, he comments:
It won’t take much to raise awareness in the mining field. There is a lot of fear among investors from the precious metal bull market. But I definitely think there’s an element of value in gold stocks that wasn’t there a few years ago.
What should investors look for?
Ryan McIntyre also explains his views on what investors should look for. McIntyre says top manufacturers with solid production and consistent cash flow are reasonably safe investments for generalist investors. However, he adds that valuations in this sector are quite balanced.
Also, McIntyre cites, another industry that investors can look into is streaming and royalty companies, as they continue to invest in precious metals without incurring significant production costs for a miner. In this context, he says, investors should look to royalty companies with well-diversified pipeline production. When it comes to smaller companies, McIntyre notes, the further you go down the spectrum, the more value there is in the market. But he also adds that there is more risk.
No doubt gold prices will be higher in the long run!
Ryan McIntyre also comments on what it takes to get investors back into the industry. In this context, he says, high gold prices should eventually create a positive mood in the market. The bullish outlook coincides with a period when gold prices tested the critical resistance of $1,980. Meanwhile, gold prices could make a fresh move towards $2,000 if the Fed signals it’s finished raising interest rates next week. But McIntyre says investors shouldn’t pay too much attention to short-term fluctuations. He recommends focusing more on long-term trends. In this context, McIntyre makes the following assessment:
It’s hard to say what will happen to gold prices in the next six months. However, it is unquestionable that prices will be higher in the long run. There is no doubt about it!
Gold is an island unto itself!
Ryan McIntyre also underlines central banks’ demand for gold. He states that this is a sign that governments are taking steps to reduce their risk against a possible global debt crisis. McIntyre adds that in this environment with no geopolitical or third-party risk, it makes sense to have some gold. From this, he concludes:
Gold is an island unto itself. It is completely independent of everything else in your portfolio. That’s why you need to have a strategic position.
Fed cannot afford to raise interest rates any further
cryptocoin.comAs you follow, the Federal Reserve remains hawkish for now. But McIntyre says the tightening cycle is close enough to final rates. According to McIntyre, the Fed cannot afford to raise interest rates any further. Because huge debt levels and falling money supply will prevent this. He expresses his views on this matter as follows:
The biggest problem is that you don’t know when sovereign debt will become a problem until it becomes a problem. The worst that can happen is that things get out of control and borrowing costs rise. This is the last thing you want when you have a high debt load.
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