Gold is making a comeback after its biggest single-day price plunge in three decades. The sell-off happened almost two weeks ago as investors became less concerned about inflation.
The precious metal has become a popular way for investors to protect themselves from the threat of sharply rising prices. Many experts consider that a possible scenario in coming years as central banks pump cash into their stalled economies to fuel growth. Those policies are a key reason why an ounce of gold trades at nearly four times the price it did 10 years ago.
So with little concern about inflation on the immediate horizon, is gold’s run finally over? No, say the managers of two mutual funds that invest in stocks of gold mining companies. Both see the recent price decline as a buying opportunity, and say long-term inflation risks remain.
“The thesis for maintaining exposure to gold and gold mining stocks hasn’t changed,” says John Hathaway of the Tocqueville Gold fund. “If anything, with the price decline, the thesis has improved.”
It’s not unusual to hear wild predictions about gold because it is a notoriously volatile investment.
The latest flash point came April 15, when gold tumbled 9 percent to $1,361 an ounce, its largest drop since 1983. Over two trading days, the price fell a total 13 percent to the lowest level in more than two years.
Some of the ground has been made up. On Thursday, gold posted its biggest gain in 10 months, to $1,462.
It’s still not yet back to its pre-April 15 price, but it’s far above the $300 to $500 range that gold traded for in the 1980s and ’90s.
What’s next? Here are the outlooks from two fund managers who are eager to see gold prices rebound. Like most precious metals funds, these two have lost more than 30 percent year-to-date.
In interviews this week, Hathaway and Dan Denbow discussed the factors that drove gold prices down sharply last week, as well as their outlooks. Below are excerpts:
JOHN HATHAWAY
Tocqueville Gold
(TGLDX)
4-star rating
from Morningstar
Opportunistic investors, including hedge funds and the trading desks at some big banks, saw weakness in the gold market and exploited it. The central banks in the U.S., Europe and Japan are all basically printing money to stimulate their economies. The policymakers may be running out of options. Economic growth is stagnant on a global basis. Gold prices have languished recently because stock market returns have been good since 2008, and inflation remains tame.
DAN DENBOW
USAA Precious Metals
and Minerals (USAGX)
4-star rating
The latest disappointing numbers on China’s economic growth spooked everyone. But gold prices had been on weak legs for a couple months. Mostly, it’s due to a lack of interest in gold from investors, who have focused on the strong recent performance of stocks. It’s a big change from six months ago, when it was hard to find an expert who was bearish about gold. Everybody was worried about the U.S. government hitting its debt ceiling limit, and the potential for a ratings downgrade, and the automatic government spending cuts that are now in effect. But the worst-case scenarios didn’t occur, and people didn’t worry too much. That’s when they started selling gold. In the short term, I expect more volatility.