The gold market is moving fast this year and unless investors pay attention to the price action, especially in the gold equities space, they might end up missing out, said Lion Selection Group executive director Hedley Widdup.
Gold prices are up more than 16% since the start of the year, seeing massive gains on the back of the COVID-19 fears as well as extensive monetary policy stimuli across the globe, Widdup told Kitco News on Tuesday.
What we’ve seen recently due to the COVID-19 was completely unpredictable and unparalleled in terms of economic history,” Widdup said on the sidelines of the Mines and Money Online Connect. “COVID-19 has spread fear across the global markets, which led to global responses from central banks and governments to provide stimulus in various ways. Both of those things are very good for gold.”
The outlook for interest rates going forward is also low, which is working in gold’s favor.
However, it was not just coronavirus disruptions that have shifted the sentiment in the gold market, said Widdup, highlighting that investors began paying attention to the gold bull market last year when prices finally breached the $1,300 and then the $1,500 levels.
“There was a shift in sentiment not just towards gold but also gold equities mid-last year, which correspondent with a lot of central banks moving from raising rates to pausing or even re-introducing QE,” he said.
Now, the gold space is witnessing a surge of new investors piling money into various areas of the precious metals market, Widdup pointed out.
“What we are seeing is an influx of buying from investors who typically wouldn’t hold a lot of gold. Now, they are investigating, buying and getting into gold equities,” he said. “Gold equities traditionally have traditionally been an exposure for generalist investors into the gold market.”
Even gold conferences are seeing new people showing up and listening to gold companies’ presentations, Widdup described.
New investors are driven by three elements — low interest rate outlook, negative trading fundamentals in other areas of the financial market, and FOMO (fear of missing out).
“Investors are able to look at the outlook on interest rates and say that gold is a far more sure trade … Alongside the monetary side of things, there is an equal negative trading fundamentals for parts of the market. So if you are long holder of Australian banks, you might be taking some money off the table and looking for a safe place to put it that has positive fundamentals … Investors can also see all the money moving into the space and they know that will push the price up as well. So there is a level of fear of missing out (FOMO),” Widdup stated.
When it comes to choosing how best to invest in the gold space right now, Widdup prefers gold equities because of the leverage effect.
“[The generalist investors] need to turn attention to the gold sector because it is moving and it is moving fast. And there is a good chance that whatever market you invest it and you are underweight gold, you are going to be under-performing the market,” he said. “If you think gold is going up, you can hold gold but gold equities will have a greater leverage effect. Gold equities have easily got two times multiple across the market over the next three-to-five years.”
This gold bull market is just starting out, Widdup said, warning not to expect a bang at the very beginning.
“Gold’s price has a positive trajectory. Gold at $2,000 would be more than enough to keep this activity going. When the gold bull markets start, they don’t start off with a bang, they finish with a bang,” he pointed out.
During the last great bull market, which went from 2001 to 2011, the gold price went up by a factor of six — from $300 to $1,900.
And given that now traders have so much more choices when investing in the gold market, $3,000 an ounce level is certainly within reach, Widdup added, noting that it will take time to get there.
“Emotion drives these things as well. The market is starting to believe that $3,000 is within reach and it definitely believes that $2,000 is within reach. It just needs a couple of catalysts,” he said.