All eyes are on the FOMC meeting today, with the Federal Reserve expected to raise rates by 75 basis points instead of 50, as inflation continues to stagger the economy. Some investors, like chairman and chief owner of McEwen Mining Corp, Rob McEwan, do not think the Fed will be able to tame inflation. McEwan sees gold hitting $5,000 over the next few years as inflation continues to rise. McEwan noted, “The horse is already out of the barn.”
During the double-digit inflation of the ’70s and ’80s, gold and gold mining stocks were big winners, and we could be seeing similar conditions returning to the market. As such, investors should perhaps kick the tires on gold ETFs like the Sprott Physical Gold Trust (PHYS). Miners were also particularly strong performers, so ETFs like the Sprott Gold Miners ETF (SGDM) or the Sprott Junior Gold Miners ETF (SGDJ) could thrive in a high inflation environment.
The Federal Reserve’s anticipated rate hikes will “chill the real estate market further,” said McEwen. “The speculative stocks and cryptos are already reflecting it.”
David Einhorn, founder of Greenlight Capital, also doubts the Fed’s ability to reign in record inflation. “The Fed is bluffing,” Einhorn said at the Sohn Investment conference last Thursday. “The Fed doesn’t really have the tools to stop the inflation. When the Fed has to choose between fighting inflation and supporting the Treasury, I think it has to pick the Treasury. At that point, it’s best to have some gold.”
Einhorn also sees the growing geopolitical tensions as supporting the case for gold, noting that “When countries don’t trust each other over bonds, and currencies, gold becomes the ultimate reserve asset. Gold as a percentage of total reserves remains staggeringly low. The question is whether there’s enough gold to back the currency reserves? The answer is for the price of gold to go higher, perhaps much higher.”
Gold is down about 0.75% on the year, outperforming the broader markets, all of which have been pummeled. The S&P is down 22% on the year. McEwan said to Kitco, “It takes time for people to shift from a belief that everything’s getting bigger and better, to ‘oh, maybe I have to protect something.’ And then the gold starts moving.”
With the FOMC looming today, gold started Wednesday off with some momentum, snapping a two-day losing streak.
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