Sprott CEO Peter Grosskopf’s latest piece highlights the resiliency of precious metals amid a challenging year and underscores the fundamentals that support a strong 2022 in the space.
Looking into 2022, Grosskopf expects more of the same for a while. The Fed tapering plans could drive rates higher, and negative real rates continue to spur massive flows into the equity and risk markets. He foresees persistent inflation, pinning that to the flood of global monetary stimulus and tight labor markets where workers are holding out for higher wages to address the rising cost of living.
Discussing how the Fed plans to approach this, Grosskopf says, “It seems to us that a ‘fake taper’ is the real game plan. To justify that statement, we point to a) the Congressional Budget Office’s 10-year budget, which continues to rely on low nominal and negative real interest rates and b) the Fed’s continued readiness to provide massive repo facilities in the event of market fluctuations (no different than printing money to buy government or mortgage debt). It appears that the game plan of the Fed and the U.S. Department of the Treasury, which is now a mathematical imperative, is for the continued financial repression of savers, plain and simple.”
How Precious Metals Fit In
The risk of rising rates and tapering have held back gold and silver, despite otherwise ideal circumstances for precious metals. The fundamentals for gold continue to get stronger as money supplies and debt grow. “Sentiment indicators and technicals are slowly building the case for a resurgence in gold’s long-term rally, as noted by the 100-year Dow/Gold ratio near all-time peaks (Figure 5) and with the potential for a sharp mean-reversion.”
Gold equities, meanwhile, are trading at exceptionally low valuation when compared to the S&P 500, which indicates a potential correction on the horizon.
According to Grosskopf, Sprott plans “to focus on specialty minerals, which encompasses many targets that could benefit from new products designed to make quality investment options available and liquid to a wider range of investors.”
Investors can get exposure to gold through the Sprott Physical Gold Trust (PHYS). PHYS is fully allocated to gold that is safely stored, easy to buy or sell, and redeemable. The Sprott Physical Silver Trust (PSLV) does the same thing for silver. Meanwhile, gold equities exposure can be attained through the Sprott Gold Miners ETF (SGDM) and the Sprott Junior Gold Miners ETF (SGDJ).
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