Central Banks Are Buying Gold To Hedge Against Threat Of Sovereign Debt Crisis – Equinox Partners

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(Kitco News) – Inflation at its highest level in 40 years and rising interest rates around the world are creating a lot of stress in financial markets and pushing the global economy into a recession and potentially creating a crisis of sovereign debt. A fund manager says the macro backdrop is creating a perfect storm for gold prices and gold mining stocks.

In an interview with Kitco News, Sean Fieler, president and chief investment officer of Equinox Partners, said he expects it will only be a matter of time before gold prices go down. are increasing as economic risks continue to grow. The investment firm is a leading long-term value investor with over $700 million in assets under management.

“Looking at the financial markets, the fire is on, and it only takes a small spark to ignite the fire,” he said.

The comments come as rising geopolitical risks have increased demand for safe-haven gold, pushing prices to $1,800 an ounce. Fieler said the next leg of gold’s rally will be when the Federal Reserve begins pivoting on interest rates.

He added that the US central bank had tightened monetary policy aggressively because it was so far behind the curve. He said he does not expect the Federal Reserve to be able to get inflation under control and that as the U.S. economy continues to weaken it will be forced to abandon its current tightening cycle.

“I expect the Federal Reserve to pivot in the second half,” he said.

But it’s not just a recession that investors need to worry about. Rising interest rates mean countries that have flooded financial markets with unprecedented amounts of liquidity over the past two years are now facing higher servicing costs. Fieler noted that emerging markets are already experiencing a debt crisis.

“The IMF, at the beginning of the summer, said that the sovereign debt crisis of developed countries was not yet here, which was a bad omen,” he said.

Fieler said in this environment, he expects central banks to continue to increase their gold reserves and may even increase the pace of purchases throughout the year.

The most important factor in the gold market is actually central bank participation in the market,” he said. “In a recent survey, you saw a number of countries pre-announcing their intention to buy gold. Central banks are keen to preposition themselves for a world where the dollar is not the world’s only reserve currency. Gold seems to figure prominently in this calculation.”

Last week, the World Gold Council noted that central banks bought 59 tonnes of gold in June. For the first half of this year, central banks bought 270 tons of gold. The WGC noted that central banks bought 180 tonnes of gold in the second quarter.

“This is a continuation of the strong buying we saw last year and we now expect central bank demand for 2022 to be at the same level as 2021 levels,” the report said. WGC in a recent comment.

Fieler added that when the biggest buyers of gold in the world continue to buy, the price will have to rise.

As gold continues to climb, Fieler also expects gold miners to see their valuations improve. He added that mining stocks are waiting for another rally in the gold market and are about to break out.

He added that current valuations are extremely attractive.

“You can buy producers with low and sustainable cash costs, attractive cash flows, strong and strong balance sheets,” he said. “Dundee Precious Metals would be a good example of a company that will have more than half of its market capitalization in net cash by the end of this year. Endeavor Mining is a top 10 producer returning 5% of its market capitalization through dividends and share buybacks this year. The calculation is very attractive.

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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