Despite recent volatility and a consolidation phase above $2,500 an ounce, gold retains significant upside potential, according to Eric Strand, Founder of AuAg Funds. In a recent Kitco News interview, Strand projected a fair value of gold at around $4,000 an ounce, underscoring his belief that current prices are still relatively cheap.
Strand acknowledged that gold might experience some fluctuations in the near term but maintains a bullish long-term outlook. “We may see some volatility at the current price, but we think that anything below $4,000 is cheap,” he said. “Long-term, the market is nowhere close to being overvalued.”
Key Points from Strand’s Analysis:
Debt and Money Printing Dynamics: Despite the Federal Reserve’s aggressive tightening and reduced money supply, U.S. sovereign debt has surged to over $35 trillion. Strand emphasized that while the money supply has decreased, the underlying issues of debt and money printing persist. “The players may have changed, but the printing and the paper remain the same,” he noted.
Historical Context: Strand referenced 2011, when gold reached an all-time high above $1,900 an ounce but then faced a prolonged bear market. At that time, although the Federal Reserve had introduced zero-interest rates and quantitative easing, government debt was comparatively lower. Today, with the debt-to-GDP ratio at 122.3%, Strand does not anticipate a repeat of the past bear market conditions.
Political Will and Spending Habits: Strand pointed out the lack of political will to alter spending patterns. “Politicians have realized that to be elected, they need happy voters. You don’t get happy voters by raising taxes and cutting spending,” he said. This lack of incentive to halt money printing is expected to contribute to continued inflation pressures.
Impact of Federal Reserve Policies: Strand highlighted that although the Federal Reserve has raised interest rates to combat inflation, global deficit spending will likely prevent consumer prices from remaining subdued for long. “Consumers need to protect their purchasing power and wealth as inflation continues to rise,” he advised.
Gold’s Role and Future Outlook: While acknowledging current momentum waning, Strand views this as a consolidation phase before a potential rise. He anticipates that with the Fed likely to cut interest rates, gold will gain renewed appeal. “Gold is significantly under-owned compared to historical norms. The global allocation in gold is around 1%. If that normalizes to 5%, it would be transformative for the gold price,” he said.
Opportunities in the Mining Sector: Strand also pointed to the mining sector as an attractive investment opportunity, noting that mining companies have underperformed gold despite improved cash flow and margins. “The mining sector offers a second chance for investors if they missed the gold rally,” he said. He believes the sector will continue to offer value as inflation pressures ease and wage pressures decrease.
Broader Investment Trends: Strand anticipates that broader interest in the gold market and mining sector will grow as investors become more receptive. He emphasized the critical role of mining in the global economy, particularly with increasing electrification and the demand for metals. “We cannot electrify the world if we don’t mine,” he concluded.
In summary, Strand remains optimistic about gold’s future, suggesting that while current prices may seem high, they still represent a buying opportunity relative to his long-term forecast. The mining sector, he believes, will also offer significant value moving forward.
