Despite falling below $5,000 recently, fundamental demand drivers could continue to push the precious metal higher through the rest of the year.
As noted by a Sprott Precious Metals report, prices hit an apex in January before pulling back by month’s end due to a technical sell-off. Nonetheless, geopolitical fragmentation and global de-dollarization could keep prices afloat.
Gold Demand Drivers Persist
Central bank buying has been one of the ongoing catalysts for gold prices as neutral reserve assets continue to command a premium. This is especially the case as geopolitical tensions heighten alongside widening fiscal deficits and increased bond issuance.
“Holding another country’s currency increasingly means bearing geopolitical risk, not just economic risk,” the report said. “Rising deficits and unrelenting debt issuance have weakened the supply-demand equilibrium for sovereign bonds just as geopolitical risk around ownership is increasing.”
In this current landscape, Sprott noted that gold’s repricing is a reflection of this geopolitical risk. Compared to fiat currency, gold carries no counterparty risk and supply isn’t controlled exclusively by central banks. The fundamental reality is that in a world with ballooning debt and ongoing geopolitical tensions, the demand for gold tends to increase.
“The breakdown of U.S. restraint, the weaponization of financial infrastructure, rising fragmentation in trade and technology, and a growing distrust of political neutrality in monetary systems are forcing nations and sovereigns to rethink what constitutes safe assets,” the report said.
That said, the prospects for gold appear favorable. This is especially so for buy-and-hold investors with eyes on the long-term horizon.
“Gold’s longer-term drivers—capital flight risk, erosion of the U.S. Federal Reserve’s independence and the search for outside money—remain intact despite the volatility,” the report added.
Capitalizing on Potential Opportunity
As mentioned, any manifestations of price weakness can present an opportunity.
One of the easiest ways to get pure play gold exposure is through a fund like the Sprott Physical Gold Trust (PHYS). Investors holding shares of PHYS avoid the logistics of storing the precious metal. Additionally, the fund adds a degree of flexibility by allowing investors to convert their shares into physical bullion for a more tangible investment feel.
For more news, information, and analysis, visit the Gold/Silver/Critical Minerals Channel.
Disclosures
Please read the Trust’s Prospectus carefully before investing. This material must be preceded or accompanied by the Prospectus.
Sprott Physical Gold Trust (the “Trust”) is a closed-end fund established under the laws of the Province of Ontario in Canada. The Trust is available to U.S. investors by way of a listing on the NYSE Arca pursuant to the U.S. Securities Exchange Act of 1934. The Trust is not registered as an investment company under the U.S. Investment Company Act of 1940.
The Trust is generally exposed to the multiple risks that have been identified and described in the prospectus. Please refer to the prospectus for a description of these risks. Relative to other sectors, precious metals and natural resources investments have higher headline risk and are more sensitive to changes in economic data, political or regulatory events, and underlying commodity price fluctuations. Risks related to extraction, storage and liquidity should also be considered.
Past performance is no guarantee of future results. One cannot invest directly in an index.
Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of investment losses. ETFs are considered to have continuous liquidity because they allow an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses, affect the Fund’s performance.
Sprott Asset Management USA, Inc. is the Investment Adviser to the ETFs. ALPS Distributors, Inc. is the Distributor for the ETFs and is a registered broker-dealer and FINRA Member. ALPS Distributors, Inc. is not affiliated with Sprott Asset Management USA, Inc. or VettaFi.
Exchange Traded Funds (ETFs): SETM, LITP, URNM, URN, COPP, COPJ, NIKL, SGDM, SGDJ, SLVR, GBUG, METL
Physical Bullion Funds:PHYS, PSLV, CEF, and SPPP.
Gold and precious metals are referred to with terms of art like store of value, safe haven and safe asset. These terms should not be construed to guarantee any form of investment safety. While “safe” assets like gold, Treasuries, money market funds and cash generally do not carry a high risk of loss relative to other asset classes, any asset may lose value, which may involve the complete loss of invested principal.
