Gold is taking off as inflation is just getting started
Look for gold prices to take off as inflation pressures continue to rise as global economic activity picks up and continues to recover from the COVID-19 pandemic, according to Frank Holmes, CEO and chief investment officer of U.S. Global Investors.
The gold market saw its best week since early May as investors were jolted by hotter than inflation pressures after the U.S. Consumer Price Index reported an annual rise of 6.2% in October. This is the most significant jump in inflation in more than 30 years.
Holmes said that governments focused on new environmental initiatives and transitioning to green renewable energy, prices will only go higher.
"[Governments are] creating policies that cut out any oil from Venezuela. You can't propel a ship around the world because it has a higher sulfur content. So a low crude oil gets banned and wipes 25% of all the big ships. Now you've got to replace those, and that's going to cost you tons of dollars and time," he said. "Some of these policies don't think about the big global picture."He added that as bad as inflation is, consumers, know that it is a lot worse in the real economy.
"Mr. market out there knows inflation is greatly understated," he said. "If you used shadow statistics, which uses the 1980 algorithm, inflation is at 14%."
Holmes added that gold is now starting to move because it is such an unloved and undervalued asset.
"If you look at the two-year government bond, the five-year government bond and the 10-year government bonds, gold should be priced substantially higher," he said.
Along with gold, if investors want exposure to the evolving green energy revolution, Holmes said that silver and copper are attractive assets.
"So silver is going to have a big boom, along with copper; there's no doubt with all these infrastructure and climate change policies. 20% of silver demand is now going in solar panels," he said.
As precious metals prices continue to rise, Holmes said that mining equities will start to take off. However, he noted that miners need to adjust their business model to create new value and attract new investors.
Using the crypto market as an example, Holmes said that many digital miners hold on to the coins they mine, generating value for the company. He added that if gold companies started holding on to their gold, they would have more attractive balance sheets.
He also said that mining companies should be promoting their businesses the way crypto companies do, attracting younger investors. He pointed out that this summer, a crypto conference in Miami attracted around 15,000 people. This is happening all over the world, he said.
"These young kids, they want to invest in companies where management believes in the product," he said. "Take a look at how often you see CEOs of gold mining companies actually buy their own stock? They milk it off stock options. They don't buy their own stock. By Neils ChristensenFor Kitco News
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