Everything begins at the macro level for gold investors. With the precious metal having spent five years in a bear market, and only about three months off its lows, it’s starting to look like now may be a good time to take on more risk in the sector.
For Paul Wong, senior portfolio manager at Sprott Asset Management, that means buying more small and mid-cap companies, many of which are in the project development phase.
What’s driving gold higher these days is monetary policy, which is closely tied to currencies, interest rates and credit. Given the elevated volatility in each of these three markets, it’s easy to see why gold is outperforming most other asset classes.
“The biggest factor is negative interest rates,” Wong said, pointing to the ECB’s move to negative policy rates in the summer of 2014 and Japan following suit in January of 2016.
He noted that since January, roughly a third of all global bond issuance has gone negative, which has again elevated gold’s role as a store of value. “Gold doesn’t pay any interest, but when you go to negative rates, all of a sudden assets that don’t pay any rates are very attractive,” Wong said.
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