Gold market lacking tourists to create manic rally – GraniteShares

The gold market has seen unprecedented investment demand, which has driven prices to their highest levels in nine years, but according to one fund manager the market still has room to move higher.

In an interview with Kitco News, Will Rhind, founder and CEO of GraniteShares said that unprecedented central bank monetary and government fiscal stimulus measures will continue to drive gold prices to new all-time highs.

“In terms of where we are today, gold certainly have more room to go because I think this crisis has more room to go. There’s going to be more stimulus,” he said.

Not only is the Federal Reserve expected to keep interest rates near the zero-bound range for the foreseeable future, Rhind said that he also sees inflation pressures picking up. He explained that one of the key differences between the 2008 Great Financial Crisis and today’s COVID-19-induced economic crisis is the breath of the destruction.

Rhind explained that in 2008 the crisis was mostly in the financial sector but now the broader economy is impacted by the coronavirus.

“[In 2008] there was money printing that was largely kept confined within the banking system. It wasn’t put out into the, into the broader economy. This time around it’s the broader economy that’s been hit. Although there’s money, certainly going into the bank this time, the banks have got all the incentive in the world to lend that money and to get that money into the economy. Then obviously the government’s not just relying on banks to do that. They’re giving people money directly,” he said.

Although the market has seen strong momentum since mid-2019, Rhind said, gold still hasn’t experienced the manic investment phase. He explained that the “tourists” aren’t investing in gold yet.

“The tourists for the most part is a classic momentum investors,” he said. “In terms of the parabolic move, tourists are just going to be looking at the chart. They are going to be looking at the momentum.”

As to how much gold an investor should hold in their portfolio, Rhind said that research his firm conducted last year showed that in an environment of low interest rates, the right allocation is 35%. He added the conclusion from the research has only gotten stronger as the Federal Reserve has brought interest rates down to zero and pumped massive amounts of liquidity into financial markets.

“It’s only gotten better for gold and the allocations only gotten higher. While 35% was the optimum for this particular study, what it showed you was that any addition of gold benefit of the portfolio from a Sharpe ratio perspective,” he said.