“What’s going up? One thing — gold. And silver. That’s what we would expect to happen. It’s impossible to tighten monetary policy with the situation the [Fed] left us in,” Eric Sprott said during Sprott Money’s Weekly Wrap-Up on Friday.
“Everything points to gold. We are within the spitting distance of a new high here. We are very close to setting the record straight that gold’s gone up for two years and we might start launching into much higher and loftier regions as the stock market unfolds,” Sprott said.
And it’s not just about physical gold for Sprott, who noted that there is leverage in gold stocks. “A $100 increase in the price of gold would add 25%-50% to their profits. The stocks are basically at their lowest. The stocks [will] rally very quickly when they go. I’m positive,” he said.
The drivers for higher gold prices are the Federal Reserve’s unsustainable rate increases, trade war fears and a vulnerable stock market.
“If we have three more days like yesterday, we’ll be in a [stock] bear market… It’s amazing to me. And it’s exactly what we would wish for,” Sprott said. “I would put [gold’s] performance down on the crumbling stock market and the incessant increase in short-term interest rates.
Sprott added that the financial market can’t handle Fed’s planned rate hikes, pointing out that the bear market is already overpowering bonds, cryptocurrencies and stocks.
“This financial world can’t take more interest rate increases. We have $350 trillion of debt and another 100 basis point increase in interest cost [would translate to] $3.5 trillion a year of extra interest costs. You could lose half your profits with 100 basis points increase,” he said. “You are going to have consequences in financial markets. That’s by far the overriding consideration. [But, then you have to] throw in the trade wars and the chaos in the White House on top of that.”
Gold prices just finished an outstanding week, posting best weekly gains in nearly two years, up more than $30 on the week following the Fed’s decision to raise rates by 25 basis points.
As Asian markets opened early Monday, April gold futures last traded at $1,346.50 an ounce, down 0.25% on the day, while spot gold on Kitco.com was at $1,345.80 an ounce, down 0.06% on the day.
- Source, Kitco News