John Ciampaglia, CEO of Sprott Asset Management, joins James Connor of Bloor Street Capital to discuss his outlook for gold in 2025. Ciampaglia discusses Sprott's flagship Physical Gold Trust and dives into why gold is crucial financial asset and portfolio diversified.
Video Transcript
James Connor: John, can you summarize why investors should own gold and include it in their portfolio?
John Ciampaglia: At Sprott, we've been huge proponents of gold for many decades. We view it as not a commodity but a financial asset and an alternative currency. We think it plays an important role in a portfolio, acting as potential insurance or ballast to offset the risks of different asset classes like stocks.
James Connor: John, gold was one of the top-performing metals in 2024. It was up approximately 25%. With this move in gold, I'm curious how the flows were into the Sprott Physical Gold Trust.
John Ciampaglia: Last year, about US$400 million came into the Sprott Physical Gold Trust, which is an enormous amount of money. But relative to the performance of gold last year, we were a little disappointed with that. We thought there would be more investor interest in gold.
I think it was because other asset classes performed very well: things like tech and Magnificent Seven stocks. I think they diverted a lot of the attention away from gold amongst some investor groups, but that's a really good performance for gold. We shouldn’t be disappointed with the flows because I think gold is going to continue to be quite strong in the next few years.
James Connor: Is the gold trust the largest in the Sprott family now?
John Ciampaglia: Yes, it's our flagship fund. It's approaching 15 years old and about US$8.6 billion in size. It's one of the largest in the world, and we're incredibly proud of its success and all of the metal we've been storing on behalf of thousands of investors worldwide.
James Connor: Silver also had a good run in 2024. It slightly outperformed gold. What were the flows like into the Sprott Physical Silver Trust?
John Ciampaglia: Over US$300 million came into the silver trust. The one thing about silver is that everyone has been waiting for it to get back to its 2010 high. We're still quite a bit away from reaching around $50 an ounce, now sitting around $30. We think there is still a lot of opportunity for that to reach its highs back in 2010.
James Connor: In spite of the moves that we saw in the underlying commodities, we haven't seen a corresponding move in the equities. If you look at Newmont, the world's largest gold producer, it was down on the year. If you look at Agnico, the third-largest gold producer in the world, it was up about 30% on the year. Why do you think we're seeing such a huge disparity in the performance of the equities despite the move that we're seeing in the underlying commodity?
John Ciampaglia: It was a very mixed and challenging year for gold equities. Some equities did reasonably well, and some of the smaller-cap names, particularly, did better than their larger-cap counterparts. But as you said, some of the bellwethers, the largest gold miners in the world, struggled last year. Newmont and Barrick underperformed gold quite significantly. I think that isn't very clear for a lot of investors because the reason that you invest in gold stocks is for their operating leverage.
As the price of gold goes up, you would expect a big chunk of that to flow down to their bottom line, and that clearly is not happening universally. Operating challenges and cost overruns drive some of it, and some are geopolitical reasons. In certain countries where mines are located, they're having challenges with local governments. Resource nationalism is on the rise; we're seeing that in parts of West Africa in particular, which greatly impacted the performance of some of those individual gold stocks last year.
James Connor: When you look at the buyers of the gold and silver products, how would you characterize those buyers? Are they institutional or retail?
John Ciampaglia: It's everything. Gold is really a universal asset class. Our funds being exchange-traded are accessible to just about any type of investor as long as they can access that particular exchange. We've seen growing institutional interest in our products in the last few years. I would say that is a big change in the last three years. More and more investors are starting to realize the importance of having physical metals in their portfolios again after largely ignoring them from, I'd say, 2011 to 2020.
This is starting to come back, and it's important because, in aggregate, institutional investors have tiny exposure to precious metals, and many institutions have zero exposure. It doesn't take a lot of capital to start shifting around for that to impact flows and asset prices themselves.
James Connor: Yes. You raise a very good point. One of the things that I read recently was the amount of gold held by central banks. They've been big buyers in the last couple of years, consuming or acquiring 25% of global production, but all the gold held by central banks in the world only adds up to $3 trillion, which is the market cap of many tech stocks in the U.S. right now. I am surprised there hasn't been more interest from central banks and institutional investors.
John Ciampaglia: I think 2024 was the year of the central bank buying gold. I think they had the single biggest impact on the gold price and the flows. It wasn't just China. Everyone talks about how China is basically recycling their U.S. dollars and U.S. treasuries into hard assets like gold. There's a very interesting chart you can look at in terms of looking at the holdings of U.S. treasuries by the Chinese government and their holdings of gold. It's basically a mirror image: one going down, one going up.
We think the recycling trend will happen for a long time. Yes, China will try to talk the price of gold down. It gets a little bit too hot in its minds, but we think that's not going to be effective and that they're going to be steady buyers of gold in the long term. It's not just the Chinese Central Bank. We've seen the Indian Central Bank, the Turkish, the Singaporean, and the Polish. They've all been buying large quantities of gold. This is part of a shift in their foreign exchange reserves. They're moving away from paper currencies and adding more hard currency, which is gold.
We think this is part of the bipolarization of the world. Geopolitical risks are changing, and we think it's going to favor gold in the long term. In sharp contrast, when you look at gold ETFs, a good barometer of institutional interest, they were in net outflows for the fourth consecutive year last year. So even though the price of gold appreciated meaningfully last year, institutional investors were net sellers. All you need to do is have some of that institutional buying power come back into the gold market, and you can have a very powerful set of buyers all moving in the right direction.
James Connor: You just mentioned that you think institutions were net sellers of gold. We did see the price of gold fall off after the U.S. election in November. Why do you think that was the case?
John Ciampaglia: Leading up to the election, there was a lot of uncertainty in the market regarding who would win. Everybody thought it was going to be very close. In the end, it wasn’t. We think there was a lot of pre-election positioning, both in the futures market and the physical market, but mostly in the futures market. When the election outcome was concluded, we think a lot of that was unwound, and we saw some unwinding of those positions.
There was also some euphoria that lifted stocks and cryptocurrencies around Trump's pro-business stance and low taxes. But a little bit of that has worn off, and reality is setting in. There's growing anxiety about trade wars, tariffs, currency depreciation, ballooning debt, deficits, and interest payments. I think you're starting to see gold reassert itself here a bit as people view some of the geopolitical and macroeconomic risk factors differently.
James Connor: You just touched on inflation. Stanley Druckenmiller, a well-known U.S. investor, has said one of the biggest threats he sees in 2025 is a re-acceleration of inflation. One of the things he cited was lower taxes and higher tariffs, and he thinks that's going to be inflationary. What are your thoughts on that? What will higher inflation or re-ignition or re-acceleration in inflation do to the price of gold?
John Ciampaglia: Last year, we had the Federal Reserve cut interest rates a number of times on the back of inflation slowing down. Interestingly, since the last interest rate cut, the U.S. Treasury yield has gone nowhere but up, which is counterintuitive. If the Fed is in an easing mode, why are longer-term bond yields going up? It's because the bond market is concerned about everything you just outlined.
They want to be paid for what they believe will be higher inflation, whether that comes from the deficits that are out of control or tariffs and the inherent inflation that those will import into the U.S. The bond market is basically a strong barometer of what expectations are. Now I think the expectation is that the Fed will not cut as many times as previously thought in 2025. Higher interest rates are also very inflationary. If you think about things like mortgage interest and other consumer debt, if rates stay high, that's not going to help inflation either.
James Connor: The 10-year has moved quite high in the last few months, going from the lower 3.60 up to 4.50 or 4.60. The U.S. dollar has also caught a bit, and this is negative for gold. But gold's been hanging in relatively well.
John Ciampaglia: I think you raise a good point that in spite of higher treasury yields and a strong U.S. dollar, gold has been very resilient. I think it's because gold is simply reasserting itself as a financial and monetary asset. It's being sought by central banks around the world. It's also being sought by a number of investors around the world who are increasingly concerned about holding their own local currencies or assets.
I think China is a good case study. China is a country of huge savers. If you think about the types of options that Chinese investors have to put their capital into different asset classes, a lot of them don't look very attractive right now. The real estate market is going through a 2008 type of reset like we had in North America. Their stock market has been under pressure for years. So that leaves gold. That's something that they have a lot of history and affinity with. We see continued buying by Chinese investors into gold products.
James Connor: You just touched on China, the second-largest economy in the world, representing 20% of global GDP. What happens there has a big impact on the rest of the world. It is slowing down. Europe is slowing down. We still have pretty good growth in the U.S., growing at 2.5 to 3%. But if we get a slowdown in the U.S. for whatever reason, what would this slowdown in the global economy mean to the gold price?
John Ciampaglia: I think it'll be resilient. The current scope of buying that we're seeing in the market will ultimately drive the gold price, which is very central bank-driven. Central banks are not as sensitive as investors in terms of the price of gold. This means that if they have a policy objective of X percent of the reserves in gold, they're just going to buy gold at whatever price until they reach that objective. I think gold is more insulated against some of those shocks.
But going back to your comment about China, it is weighing on many investors today. For years, the Chinese economy grew at 7 or 8% per annum; now, we're talking about 4 or 5% at most. That is weighing on a lot of investor sentiment because it is such a big economy, and it is very important to many different metals, given how many metals they consume and how high a percentage of metals they process in the country.
The greatest impact on metal markets in the last few months has been this anxiety about whether the Chinese economy will shake off its situation. Government stimulus doesn't seem to be changing sentiment, and I think a lot of people are taking a wait-and-see approach.
James Connor: John, maybe you can summarize why investors should own gold and why it should be a part of their portfolio.
John Ciampaglia: We've been huge proponents of gold in Sprott for many decades. We view it as not a commodity but a financial asset and an alternative currency. We think it plays an important role in a portfolio, acting as potential insurance, or ballast, to offset the risks of different asset classes like stocks. One of the things you notice about bonds right now is it's not playing that offsetting hedge right now with equities because bond yields are going up, which means bond prices are going down.
Given the very high levels of debt and the growing anxiety about inflation, gold could be a more effective hedge than bonds right now. It should be the cornerstone of a portfolio; it should be a strategic asset allocation. We don't think it's an asset you should try to time. It should just sit there and accumulate value over time, which it has historically done.
We haven't advocated that people put a huge amount of their portfolio into gold, but we think it should be a small part of their portfolio to complement the other, more risky assets they may own.
James Connor: Sprott has done a great job creating many resources for investors to learn about gold, silver, and various other metals. Where do they go if they want to access this information?
John Ciampaglia: Our website has a ton of content that our market strategists and portfolio managers write and blog about every month. We've got a great podcast, we bring in a lot of special guests who are subject-matter experts, and we're huge believers and proponents of investor education, which is why we do all these events and spend so much of our time writing and talking to people. I would encourage people to visit the website, our insights section, and our blog section to start their learning journey there.
James Connor: John, thank you for sharing with us all about Sprott and its various gold and silver products.
John Ciampaglia: Thanks for having me. It's been great chatting.
Important Disclosure
Sprott Physical Gold Trust and Sprott Physical Silver Trust (the “Trusts”) are closed-end funds established under the laws of the Province of Ontario in Canada. The Trusts are available to U.S. investors by way of listing on the NYSE Arca pursuant to the U.S. Securities Exchange Act of 1934. The Trusts are not registered as investment companies under the U.S. Investment Company Act of 1940.
The Trusts are generally exposed to the multiple risks that have been identified and described in the prospectus. Please refer to both Sprott Physical Gold Trust prospectus and Sprott Physical Silver Trust prospectus for a description of these risks.
Relative to other sectors, precious metals and natural resources investments have higher headline risk and are more sensitive to changes in economic data, political or regulatory events, and underlying commodity price fluctuations. Risks related to extraction, storage and liquidity should also be considered.
Gold and precious metals are referred to with terms of art like store of value, insurance, ballast, safe haven and safe asset. These terms should not be construed to guarantee any form of investment safety. While “safe” assets like gold, Treasuries, money market funds and cash generally do not carry a high risk of loss relative to other asset classes, any asset may lose value, which may involve the complete loss of invested principal.
Past performance is no guarantee of future results. You cannot invest directly in an index. Investments, commentary, and opinions are unique and may not be reflective of any other Sprott entity or affiliate. Forward-looking language should not be construed as predictive. While third-party sources are believed to be reliable, Sprott makes no guarantee as to their accuracy or timeliness. This information does not constitute an offer or solicitation and may not be relied upon or considered to be the rendering of tax, legal, accounting or professional advice.
