Overconfidence, complacency, recklessness and intoxication appear to characterize today's financial market zeitgeist. An unraveling of the market's speculative euphoria would constitute a near perfect environment for gold bullion and gold mining shares given that the fundamentals have rarely appeared more solid.
During this holiday season, we reiterate our stance that the Federal Reserve’s dual policy agenda of simultaneous rate hikes and balance sheet reduction is crimping global dollar liquidity to the significant peril of reigning financial asset valuations....U.S. residential real estate has hit a brick wall, and in our experience, no economic sector is more reliably predictive of growth trends than housing.
Luskin: "The media is falsely characterizing the Trump/Xi trade negotiation breakthrough as a mere 'truce' or 'ceasefire,' indeed claiming that there isn't even any actual agreement arising from the Buenos Aires summit. This is no 'ceasefire,' as no existing U.S. tariffs are being withdrawn. And there is an agreement — both sides officially say so."
We have maintained that financial asset prices cannot sustain rising rates with this much debt in the global financial system. We have presented our case that Fed rate hikes are already causing financial stress in peripheral markets, and now this stress is washing ashore in the form of cardiac arrest at long-troubled American icons such as GE and Sears.... To us, it seems pretty clear there are growing rumblings for at least a pause in rate hikes. Gold is likely to erupt if this transpires.
Luskin opines that we may be nearing “deal” on the U.S./China trade war. “We’ve been telling clients to look for the word ‘framework’ to emerge in Trump administration rhetoric ahead of the month-end meeting between US President Donald J. Trump and China President Xi Jinping."
During the next few months, we expect asset markets to come to terms with grossly misplaced investor faith in the sustainability of the Fed’s dual policy agenda of simultaneous rate hikes and balance sheet reduction — which amounts to little more than glorified brinkmanship. Recent market weakness supports our contention that Fed tightening is pinching global liquidity to a degree which threatens reigning valuations of traditional financial assets. Got gold?
Investors continue to plow money into expensive assets like U.S. equities while ignoring assets with considerable value, including precious metals and other commodities. We ask a seasoned ETF model portfolio strategist and a precious metals portfolio manager to explain how an investment in gold – and silver – can potentially enhance overall portfolio diversification right now.
Luskin provides a timely analysis of the recent market sell-off. Mid-term elections, the Fed, FANG stocks and a potential trade war with China are all playing a part in October’s market correction. Several of these – especially China – are real and persistent issues. He writes, “Altogether, we’re regarding this as only a correction, not the onset of a new bear market.”
We believe gold sentiment may be turning in our favor. For the first time in 17 years commercial participants in gold futures — generally regarded as the “smart money” — have flipped their COMEX positioning to net long. Reik: "As we await rebirth of western investment demand in gold markets, we suspect an imminent clash between hyper-bearish COMEX spec positioning and staunch global physical demand is about to ignite some short-term pyrotechnics. This should be interesting to watch!”
As investors flee the emerging markets and seek the safety of the U.S. dollar and U.S. equities, they've increased their short positions in commodities. Most surprisingly, and counterintuitively, bets against precious metals (gold, silver and platinum) have reached record levels.
This summer has been a frustrating stretch for gold bugs. Trey Reik writes: “As the scale of emerging markets dislocation expands on a weekly basis, the stored force in collapsing EM currencies is still funneling towards a strengthening U.S. dollar, and in turn reflexively pressuring the gold price.” In the face of this bearish sentiment, we have been encouraging Sprott clients to exploit summer price movements in precious metals to their maximum advantage.
Portfolio Manager Shree Kargutkar believes that "gold may prove to be the ultimate winner given the most recent trade conflicts." Despite the U.S. dollar's recent strength, Kargutkar argues that it is likely to be short-lived and that all the elements are in place for a durable bull market for precious metals and precious metal equities.
Senior Portfolio Manager Trey Reik answers the question: Why isn’t gold doing better? After trading in a bullish consolidation pattern for 18 months, gold appears to have lost some of its mojo. Trump’s June 1 tariff announcements and the U.S. dollar's spring rally have hurt gold and other commodities. Reik counters by arguing that gold’s price stability has been fairly unique among asset classes, and that right now is a fortuitous entry point for portfolio allocations to gold.
In this report, we employ the analytical framework of periphery to core. We have organized this letter around evidence that the Fed’s dual policy goals are straining financial conditions in peripheral components of four critical sectors: emerging markets, global financial institutions, U.S. corporate credits and U.S. consumer credits.
Senior Portfolio Manager Maria Smirnova champions Sprott's bullish view on silver. Despite silver’s recent tepid performance, fundamentals remain very compelling, and the supply/demand outlook has never been more supportive of a strong price. Silver is enjoying an uptick in industrial demand being driven in part by the high-tech auto industry, given a global move toward electrification and automation powered by solar technology.
Sprott is pleased to be a major sponsor of the Incrementum's 12th edition of the annual In Gold we Trust report, which discusses three fundamental turning points affecting the global monetary system. Report authors Ronald Peter Stoeferle and Mark Valek refer to these as “Monetary Turns of the Tide”, and write that “Gold will definitely contribute to staking out a comfort zone in the turmoil of the tidal changes that we have discussed.”
The 2018 Annual Meeting comes at a time of high volatility for elevated equity markets and ahead of expected interest rate hikes from the Federal Reserve. Sprott Media’s Albert Lu spoke with Sprott USA’s Chairman, Whitney George, about Buffett’s responses to some of the tough questions and the inevitable fundamental shifts on the horizon.
Senior Portfolio Manager Trey Reik responds to Warren Buffett’s distaste for gold, staunchly reconfirmed by Buffett at the May 5 Berkshire Hathaway Annual Shareholder Meeting. Reik finds Buffett's gold-versus-stocks comparison self impeaching, and suggests that a prudent allocation to gold could improve the risk-adjusted returns even for Berkshire Hathaway.
Senior Portfolio Manager Trey Reik cautions us on the dramatic increase in the Libor-OIS spread. He sees a black swan now unfurling in U.S. financial markets: the Fed is on the verge of major policy error by underestimating the blunt force of the monetary brakes it is applying via rate hikes and QT, Quantitative Tightening.
Sprott Asset Management CEO John Ciampaglia examines the relative merits of gold and cryptocurrencies as these two alternatives to traditional fiat currencies duke it out in the “monetary” boxing ring of investor sentiment.
Despite soaring equity markets and higher interest rates, gold bullion has quietly gained approximately 23% over the past 2 years (1/1/2016 – 12/31/2017). We believe advisors should be mindful of the significant emerging risks that could negatively impact financial markets. In this webcast, we explore how an investment in gold can potentially enhance overall portfolio diversification in a changing market environment.
The calm of equity markets across the world was rudely interrupted in February by a sudden spike in volatility which impacted virtually every asset class. Volatility across equities, bonds, currencies and commodities rose sharply. Gold bullion declined a modest 2.08% during February, and its relative lack of volatility merits notice.
Senior Portfolio Manager Trey Reik looks beyond the short-term damage of the Feb. 5 market selloff, and explores why the current fed tightening cycle is likely to increase the stress on individual consumers and inflict damage across a broad spectrum of financial assets.
Ed Coyne, Executive Vice President at Sprott Asset Management discusses how an allocation to gold and silver can complement equities in an investment portfolio, and why Sprott advocates a 5% to10% allocation for most investors. Coyne also introduces the Sprott Physical Gold and Silver Trust (CEF), which represents the successful takeover of Central Fund of Canada.
With the beginning of the new year, we have entered a seasonally strong period for gold bullion and gold equities. Gold bullion posted a strong gain of 3.23% in January, ending the month at $1,345.15 per ounce. Even so, investor sentiment towards gold and gold equities continues to remain relatively muted.
Portfolio Manager Whitney George reviews his approach to value investing: “We just try to identify great businesses and buy them when they go on sale. Given the current backdrop, we expect our disciplined approach to be rewarded with attractive opportunities for investment throughout 2018.”
Insights from Sprott
- WGC - Gold: The Most Effective Commodity Investment
- WGC - The Relevance of Gold as a Strategic Asset
- WGC - Gold Outlook 2021
- WGC - Gold Mining’s Contribution to the UN Sustainable Development Goals 2020
- World Silver Survey 2021
- Silver's Growing Role in the Automotive Industry - Jan. 2021
- Silver's Important Role in Solar Power - June 2020
- Silver's Role in a 5G Connected World - March 2020