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With gold approaching $2,000 an ounce in a raging bull market that just won’t let up, it’s time to check in with one of the best fund managers in the business for insights on how to think about the precious metal now.
In a follow-up column next week, I will suggest 17 gold-mining stocks to consider, and offer suggestions on the best way to pick them.
For guidance I turned to Caesar Bryan, a veteran who has managed the Gabelli Gold Fund GLDAX, -2.52% for 26 years. He’s simply crushed his benchmark, the MSCI World/Metals & Mining Index, by 50.5 percentage points over the past year, 13 percentage points annualized over five years and 4 percentage points annualized over 15 years, according to Morningstar. The fund also handily beats the S&P 500 SPX, -0.37%, Dow Jones Industrial Average DJIA, -0.85% and Nasdaq COMP, +0.42% over the past year.
For an outlook on gold, you could do a lot worse than this Brit who may have some of the pirate’s fascination for the metal in his blood because he spent part of his early life in the Caribbean — where pirate ships once roamed.
Bryan deserves credit for being bullish when I started interviewing him on gold in mid-July. Gold has since risen 9% to trade near $1,970 an ounce. This has brought out the inevitable “contrarian” talk on Twitter that gold might be at a top because everyday people at barbers and car-repair shops are bullish. But the Twitter commentators may be the contrarian indictors here. In my experience, everyone’s a contrarian until the moment when you actually need to be.
True, Bryan does expect some consolidation near term following gold’s 28% rise this year. But he remains bullish over the medium term — one to three years — for these reasons.
Reason No. 1: Central banks and governments around the world have gone on a Covid-19 spending-and-borrowing spree to support growth. That creates a lot of risks that may cause serious problems in the economy and even society at large. But those problems will be bullish for gold, a haven in times of crisis.
The situation is dire because governments and central banks never dialed back the fiscal and monetary binge they went on 10 years ago to get us out of the financial crisis. “Now we are in another crisis. It is just more and more, so investors will want to have an insurance policy, and gold is an insurance policy,” says Bryan. “Gold is going higher.”
Reason No. 2: There’s potentially huge inflation on the way, which often stimulates demand for gold. When more dollars chase the same amount of goods, this drives up the dollar price of those goods. Gold is just another one of those goods that gets driven up in price. This isn’t always the case, but it’s a good general rule.
Reason No. 3: This would hurt pensioners and small savers the most, adding to the social tensions already sparked in part by large and growing wealth disparities. The growing wealth divide is partly responsible for the wild protests since late May — another source of unease that supports demand for gold. “Huge parts of the population are struggling and smaller parts of the population are doing well, watching Netflix and eating too much,” says Bryan. This wealth divide may only get worse. That’s because it has been created in part by the Federal Reserve, which has pumped up stocks by injecting so much liquidity into the system. Stock gains disproportionately benefit the wealthy, who have greater exposure to the market. The new injection of Fed stimulus will only make this problem worse, by pumping up stocks more.
Reason No. 4: Confidence in the dollar may be eroded, which also is bullish for gold. “The dollar is a claim on wealth. If we aren’t creating wealth but we are creating a lot more money, that could erode confidence in the dollar,” says Bryan. “Gold will stay strong for a while because I don’t see how we get out of this.”
Reason No. 5: In the background, it always makes sense to have 5% of your portfolio in gold as a hedge. This is one reason gold and the gold exchange traded funds (ETFs) have been a long-standing suggestion in my stock newsletter, Brush Up on Stocks — including on Aug. 12, 2015, when a popular writer in the Wall Street Journal derided gold as the “pet rock” of investments.
That was a great media contrarian indicator on the yellow metal. Gold was near its 10-year low at the time, trading at around $1,150. It is now up 68%. The ETFs I’ve singled out are: iShares Gold Trust IAU, -0.79%, SPDR Gold Trust GLD, -0.74% and VanEck Vectors Gold Miners GDX, -3.47%.
Stay tuned for next week’s column, when I discuss 17 gold stocks to consider buying now, and six key insights on how to select the best ones.
At the time of publication, Michael Brush had no positions in any stocks mentioned in this column. Brush has suggested IAU, GLD and GDX in his stock newsletter, Brush Up on Stocks. Brush is a Manhattan-based financial writer who has covered business for the New York Times and The Economist Group, and he attended Columbia Business School. Follow Brush on Twitter @mbrushstocks.
