Gold is flying right now. Prices of the precious metal have soared to record highs due to expectations of interest rate cuts and geopolitical tensions around the ongoing wars in Ukraine and Gaza. After the U.S. Federal Reserve left rates unchanged and penciled in three rate cuts this year, gold prices soared as high as $2,222.39 per ounce — a new record high — on Thursday. The asset has since pared gains to last trade at levels around $2,208. Analysts are expecting gold prices to have even more upside from here . There is a common belief that gold prices tend to rise when interest rates fall, with bonds becoming less attractive as they no longer deliver attractive yields. Top hedge fund manager David Neuhauser is predicting the price of gold to reach $2,500 by the end of 2025, and $3,000 by 2030. “You have yields starting to claw back, you have the S & P [500] near record highs as well. And underneath the surface, you have the Fed looking to potentially cut rates here sometime this year,” Neuhauser told CNBC Pro this week. In updated comments to CNBC Pro after the Fed decision, he said: “The Fed today continued to reflect 3 cuts are coming and with that, gold has now hit an all time high as expected. The USD is weakening therefore commodities should break out and soon be the best asset class given inflation has risen.” A weaker dollar tends to drive up the price of gold as people has more purchasing power to buy more of the precious metal. Neuhauser, who is founder and chief investment officer of Livermore Partners, added that there’s another reason to go into gold. “I think another aspect of why gold is something to go into is that when you look at the massive deficits that are being built in the U.S. and up, they talk about how many trillions in debt we have, I mean, that is going to continue to move higher and then we have an election later this year,” Neuhauser added. He says that regardless of who gets elected in the U.S. presidential election, there’s “still going to be a lot of pressure” to continue stimulating the economy. Under President Joe Biden’s plan, there will be “massive” fiscal spending, he noted. That means it’s unlikely to be a situation where debt gets lower. At some point, the U.S. dollar is going to come under pressure, he said. When the government accumulates higher debt, it may print more money or increase spending, potentially driving up inflation — in this situation investors may turn to gold as a hedge against higher prices. Stock picks Want to play the gold theme via gold miners? Even in this environment, not all gold stocks are equal – with some big miners underperforming despite the record gold price, according to Neuhauser. Examples he named included Newmont and Barrick Gold , which he says have high costs or “difficult geography.” Neuhauser says what matters for gold miners is where they are located as geopolitical risk is a factor. He would pick miners based in OECD countries with “good government relations” and without “crazy royalty rates on taxes,” in safe jurisdictions, and that have great management teams. They should also generate good free cash flow, and can pay dividends. One stock that Neuhauser is bullish on is Canada-listed Amaroq Minerals . “Amaroq is a great ‘pure play’ mineral company that is about to get into production in 2024 with a high-grade, low-cost mine as well as a vast opportunity within copper and nickel and is in an OECD country. It is the last frontier and they have the best licenses,” he said. Neuhauser also named U.S.-listed Coeur Mining , a miner with mostly gold and silver U.S. assets which he says has underperformed for years. “We think that this is the time that the stock could outperform over the next few years because they’ll get to free cash flow, which will be a first right now and they can start potentially paying dividends,” he said. A third stock he named is Canada-listed Wesdome Gold Mines , which he says fits his overall criteria for gold miners. Neuhauser says commodities – including gold and oil – could form up to 25% of investors’ portfolios right now. He concedes that’s higher than the “rule of thumb” which is around 10%. “Because I do think you want to defend yourself against a weakening dollar. You also want to defend yourself against inflation as well,” he said. “And a lot of these companies are trying to pay good yield.”
Source Agencies
