ILast week, Charlotte McLeod of the Investing News Network interviewed Shree Kargutkar, Portfolio Manager at Sprott Asset Management, to discuss his outlook for gold and silver.
In 2019, spot gold rose 18.13% and surged 25.12% before hitting a muted 2021 as the yellow metal consolidated. Kargutkar expressed surprise at the flip-flop enthusiasm displayed by investors, noting that despite persistent negative real rates, inflation and global deficits, investors have reduced their bullion allocations in 2021.
Discussing inflation, Kargutkar noted that it goes beyond monetary policy, as supply chain bottlenecks have driven up the price of everything. The Fed has a “dual mandate” to ensure maximum employment and price stability. If he raises rates too quickly, it could contract the economy. If it goes too slowly, it will not be able to control inflation. “I think the Fed can choose the lesser of two evils, which for now is to ensure economic stability is maintained. And therefore, I currently think the Fed will increase, but not with the aggressiveness necessary to significantly reduce the inflation that we are seeing right now,” Kargutkar said.This is positive for gold and could take it out of consolidation and into an uptrend.
The other important factor for gold, Kargutkar noted, is investor demand. In 2020, physical demand from China and India declined sharply, and this weakness continued in the first half of 2021. However, Asian imports surged in the second half. “I expect demand to continue for India and China well into 2022, and we are starting to see early signs of investors returning to gold,” Kargutkar said.
Equity Opportunity Hits
Kargutkar predicted a huge opportunity in precious metals stocks, noting, “I’ve been following this space for over a dozen years now, and I’ve never seen anything close to the valuations we see in gold stocks. precious metals today. “Precious metals producers are flipping capital, expanding their balance sheets and posting record margins as the price of gold rises. A dearth of exploration over the past decade means some companies have the potential to create incredible value for their shareholders.
Kargutkar sees gold and silver miners struggling with inflation and supply chain challenges, but noted record high margins offset that. “For companies operating in certain parts of the world, especially those operating remotely, supply chain logistics and procurement have never been more important than they are today, and that is due to all the issues we are having on the supply chain side.. This is a trend we are watching very closely.
Silver has value both as a precious metal and as an industrial metal. Kargutkar noted that demand for silver has been overwhelmingly tilted towards its industrial side, and he doesn’t see that changing much in 2022. “I think the key driver in 2022 will be the emphasis that institutional investors and large retail investors will start paying for silver ETFs and if they allocate silver to either ETFs or bullion funds or physical metal I think that’s going to be the biggest driver in this concerning the price of money.
He went on to point out that palladium and nickel have seen far more shortages than silver, but there is still a chance that silver could climb to $30 an ounce. This would require a move of around 25%, and Kargutkar noted that “silver tends to make big moves on a regular basis.”
When asked if he was more bullish on gold or silver, Kargutkar hedged, noting that he was bullish on both metals but for different reasons. “Gold has been a store of value for thousands of years, and with persistent inflation and sluggish economic growth, I can’t help but be bullish on gold as an asset allocation. assets. But as a speculator, I’m just as bullish on silver. It’s more volatile than gold, but silver tends to do even better when gold is doing well. I think the Silver has more advantages than gold if we talk about price appreciation only from the perspective of percentage price appreciation.
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