With artificial intelligence (AI) capturing investor imagination these days, gold’s recent rally might be a mere blip on the radar. A Sprott Special Gold Report from John Hathaway, managing partner at Sprott Inc. and Sprott Asset Management senior portfolio manager, could be hinting that more upside could be on the near horizon.
Aside from central bank buying, other investors may not be privy to the gold rally. AI and big tech continue to be the persistent theme. Meanwhile, gold continues to push towards new highs almost invisibly.
“For the most part, gold’s 14.12% year-to-date price increase (period measuring 1/01-4/09/2024) has generated only a perfunctory media stir,” the Sprott report said. “However, the indifference of investors in Western capital markets suggests to us that there is significant potential for further upside.”
If gold’s price keeps climbing quietly in the backdrop, that indifference could turn into insistence. Gold exposure via gold-backed ETFs could become vital.
“We believe that if buying by mainstream investors approached flows from 2008-2011 (1,645 tonnes added to gold-backed ETFs), the gold price could potentially rise another 25%, well beyond the recent upwardly revised and always behind-the-curve price targets of banking and brokerage analysts,” Hathaway added.
The report mentioned historical flows into gold-backed ETFs in the last 20 years (Figure 2), which shows a corroboration between gold ETF purchases and gold’s price increases. Gold hit an apex around the pandemic in 2020. Since then, gold ETF purchases have diminished, but gold’s price continued to climb. If subsequent gold ETF purchases start to rise, that could catalyze more upside in the precious metal.
Figure 2. Gold ETFs Flows versus the Gold Price (2004-2024)
Source: Bloomberg. Data as of 4/09/2024. Included for illustrative purposes only. Past performance is no guarantee of future results.
Be Prepared for a Breakout
Prospective investors can get ahead of a potential gold breakout with tangible investments in gold funds or via miners. For the former, consider using the Sprott Physical Gold Trust (PHYS), which is a fund that provides an enhanced physical bullion structure, offering the ease of purchase and sale that comes with being traded on an exchange.
Additionally, an alternate play on the metal’s prices via ancillary gold services like mining offers opportunities in the Sprott Gold Miners ETF (SGDM). The ETF seeks investment results that correspond generally to the performance of the Solactive Gold Miners Custom Factors Index. This index tracks the performance of large gold companies found on Canadian and major U.S. exchanges.
For more news, information, and analysis, visit the Gold/Silver/Critical Materials Channel.
