Although gold prices have fallen below the 4,500 USD/ounce threshold and tested the 200-day moving average - an important technical support zone in the long term, many experts still believe that the upward trend of this precious metal is not over.
Talking to Kitco News, Mr. Tom Winmill - Portfolio Manager at Midas Discovery Fund said that the current selling pressure mainly comes from concerns about prolonged inflation, causing the market to increase bets on the possibility that central banks, especially the Fed, will maintain higher interest rates for longer or even raise interest rates at the end of the year.
High interest rates increase the opportunity cost of holding gold – an asset that does not generate returns, thereby putting pressure on the price of precious metals in the short term.
However, according to Mr. Winmill, the foundational factors supporting the gold market are still intact. It is noteworthy that gold buying demand from central banks continues to remain at a high level in the context of the global economy facing increasing structural risks.
I don't see many really negative factors for gold in the long term in the current price range. This may be a gold accumulation phase before entering a new upward phase," he said.
One of the most important drivers supporting gold is the gradual decline in confidence in the USD as a global reserve currency.
According to Mr. Winmill, the trend of dedollarization is taking place in many economies, while the increasing use of the greenback as a geopolitical tool is causing many countries to step up diversification of foreign exchange reserves in gold.
If the USD continues to lose its position as a global reserve currency, the weakening pressure of the greenback will continue," he said.
He believes that this trend is creating a solid support for gold prices through the continuous net buying activities of central banks around the world.
In addition, persistent inflation and the prospect of slowing economic growth may also create a favorable environment for gold in the medium and long term.
Although central banks still maintain a tough stance on inflation, Mr. Winmill believes that the possibility of monetary policy tightening excessively to push the economy into deep recession is not high.
I think the next step is likely to be a reduction in real interest rates. If that happens, tangible assets like gold will become more attractive due to reduced opportunity cost holdings," he said.
For the gold mining business group, Mr. Winmill believes that the market is overestimating the risks associated with production costs.
According to him, many mining enterprises today have a significantly better financial foundation than previous price increase cycles. Many companies have proactively invested in renewable energy and cost-saving solutions for many years.
This is not the first time mining businesses have faced high energy prices," he said.
The gold mining industry is currently recording high free cash flow, a significantly improved balance sheet and better resilience to inflationary pressure.
Although labor costs, mining royalties and financial costs may increase, Mr. Winmill believes that businesses' revenue will continue to benefit from the high gold price level.
The profit margin may not expand further, but revenue still has room for growth," he said.
In that context, he recommended that investors should focus on businesses with healthy financial balance sheets, stable cash flow and disciplined management teams instead of chasing speculative stocks.
He highly appreciates businesses like Agnico Eagle for their ability to control costs effectively, maintain stable dividends and pursue long-term development strategies.
“That is what creates a truly quality management team. They focus on reducing costs even when creating a huge amount of cash,” he said.
Although believing that the most attractive valuation period of gold mining stocks may have passed, Mr. Winmill still sees many notable investment opportunities for businesses with good fundamentals.
He described the current period as a "market for people who know how to choose stocks", where businesses that generate sustainable profits will gradually break away from the group that only benefits from speculative sentiment.
Regarding long-term prospects, Mr. Winmill affirmed that the gold price rise market has not yet come to an end. Factors such as demand for gold from central banks, prolonged inflationary pressure, geopolitical instability and global economic imbalances are still creating a solid support foundation for the precious metal.
We are just taking a break to regain strength. After that, gold can completely continue its journey of price increase," he concluded.
