Interview
Sprott CEO Says He’s Bullish on Gold in the Near-Term Thanks to China Buying
John CiampagliaApril 12, 2024 | (5 mins 6 secs)
John Ciampaglia, CEO of Sprott Asset Management, joins CNBC Fast Money to talk about the gold market and explains how central banks and overseas buyers are driving current demand.
Video Transcript
Melissa Lee: For more on all things gold, let's bring in Sprott's John Ciampaglia. He is the firm CEO. John, it's great to have you with us.
John Ciampaglia: Great to be back.
Melissa Lee: I guess Costco shoppers are buying gold, but central banks are buying most of it here. Do you see that trend continuing?
John Ciampaglia: We’ve seen a meaningful shift over the last 18 months or so, as central banks around the world are starting to increase the percentage of gold in their foreign reserves. China is clearly leading the way there. They have a voracious appetite to add more gold. We think this is part of a de-dollarization trend. But it's not just China. Central banks in Turkey, Singapore, and Poland have been big gold buyers for the last two years.
Melissa Lee: Do you think the gold miners need to catch up? Do you think they'll catch up to the degree that it matches the rise we've seen in gold? Or do you think the central bank forces are so strong that they make the physical asset more advantageous?
John Ciampaglia: We often tell our clients that you must think about gold and gold miners in two different buckets. Gold has a unique set of attributes that it brings a portfolio. It’s acting as a financial asset for these central banks worldwide. Gold miners provide a lot of operating leverage and optionality to a higher gold price. Historically, in bull markets, they have outperformed.
In the last couple of years, I would say they've lagged. That's just because there's been a strong underpinning of central bank gold-buying support, and we haven't seen that same support from institutional and retail investors for gold stocks. Part of that was because profit margins were under pressure, as inflation had eroded some of their profitability. But in the last six weeks, gold stocks have performed much better. I think that's a very healthy sign that there's some appetite returning.
Timothy Seymour: John, it's Tim. Thanks for joining us. I guess the institutional part of this move should be emphasized because spot pricing gold is ultimately what analysts do and create many of their models for. You have to see upgrades, even for miners, based on this. But get back to the core investors who have followed Sprott forever and invested in your funds. It seems to me that this gold move is underrepresented by institutions. Can you speak to that?
John Ciampaglia: You raise a good point. I would say that overall if you take a look at how gold is positioned right now across portfolios, it's at a very low percentage. It doesn't take much rebalancing from different asset classes into gold to move the price. I think that's what we're seeing right now with central banks. As our market strategist, Paul Wong, recently wrote, they seem to be totally price insensitive to the gold price. They just keep buying when it's available.
When you think about institutional investors, the best barometer for their interest in demand for gold is in the ETFs, and we track those daily. They've been in net redemption globally for the last year or so, which tells us that institutional investors are not interested in gold.
Now, that's starting to change a little bit. We've seen some green shoots. Our physical gold trust [Sprott Physical Gold Trust (PHYS)] raised over $35 million of new capital today, so we'll be buying gold on Monday. We are starting to see some green shoots, but it's really been Eastern investors, including Chinese retail investors, underpinning the demand. Western investors have largely ignored this rally, which we think over time, especially if we start to see some heightened geopolitical risks, we will shift back to the safe haven.
Melissa Lee: Do you think that's just the geopolitical risk that will catalyze Western institutional investors to buy gold? Historically, is there an allocation we should consider in terms of the gold market? Western institutional investors typically allocate this much to gold; right now, they are at this level.
John Ciampaglia: If you look at those numbers right now, we think they are somewhere in the sub 2% range in terms of their overall allocation. At the height of the last bull market, it was close to 8%. We're way off those cyclical highs. As I said, it doesn't take a lot of capital to start moving around buckets. I think the safe haven element of gold, if we have an escalation of Middle East tensions, is clearly going to be one of the catalysts that will bring more Western money back into gold.
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