Gold Prices Dip, But Fund Manager Sees Long-Term Rally Intact

Excerpt from the article by Neils Christensen

The gold market has experienced a downturn, with prices falling below $4,500 and testing the critical 200-day moving average support. Despite this short-term selling pressure, attributed to inflation concerns and speculation of interest rate hikes, one fund manager, Tom Winmill of the Midas Discovery Fund, believes the long-term rally for gold is far from over. He argues that fundamental drivers, such as central banks’ continued gold accumulation and global economic structural risks, remain intact.

Winmill highlights the declining confidence in the US dollar as a dominant reserve currency, partly due to its weaponization and the trend of de-dollarization in global GDP, as a key factor supporting gold. This persistent risk to the dollar underpins central bank demand for precious metals, creating a solid foundation. He also anticipates that inflation and economic slowdown will ultimately create a favorable environment for gold.

While central banks may tighten policy, Winmill doubts they will aggressively hike rates to trigger deep recessions, expecting real interest rates to remain relatively low, which historically benefits hard assets like gold. “The next leg up will likely be lower real rates. And if that happens, hard assets will look much better because the opportunity cost will be less,” he stated. Regarding the mining sector, Winmill acknowledges concerns about profitability due to rising energy and inflationary pressures but considers them exaggerated. He points out that many mining companies have a strong financial position and have adopted alternative energy sources, making them less sensitive to fuel costs. He believes the sector is healthier now than during previous gold bull markets, with companies demonstrating strong profits, record free cash flow, and strengthened balance sheets. Even with potential increases in royalties, labor costs, and a slight decrease in valuations, Winmill expects revenues to still rise. He advises investors to focus on companies with robust balance sheets, stable cash flows, and disciplined management.

Agnico Eagle is cited as an example of a company with strong capital management, dividend history, and strategic investments. The current lack of significant merger and acquisition activity among top producers suggests that companies have sufficient existing reserves, reducing the immediate need to acquire more. Winmill believes opportunities still exist in mining stocks, emphasizing the importance of selectivity in what he calls a “stock-picker’s market.” In conclusion, despite the recent pause in gold prices, Winmill maintains that the broader bull market is intact, supported by structural deficits, persistent inflation, geopolitical uncertainty, and ongoing central bank demand. He anticipates that gold will experience a temporary consolidation before resuming its upward trend.