Why Stoeferle sees gold rising to US$4800/oz
‘We're now entering the sweet spot for gold and gold miners’
Incrementum AG managing director, partner and fund manager Ronnie Stoeferle says the gold price may wane in the coming weeks but maintained a bullish 2030 price target of US$4800 an ounce.
Stoeferle, who is a co-author of the In Gold We Trust report, outlined what he described as the “new gold playbook” and why gold remains undervalued.
He told the Gold Forum Americas that it was once unthinkable that the gold price would reach all-time highs during a phase of sharply rising real interest rates.
Stoeferle said central bank buying was a key driver of the new playbook.
“Central banks used to be net sellers, obviously, then during the GFC, they became net buyers,” he said.
“But actually, since the Russian invasion of Ukraine, central banks are actually absorbing up to 30% of annual mine production, so gold is making a comeback as a neutral monetary reserve asset.
“Why? Obviously, we have seen US$400 billion of Russian foreign exchange reserves being frozen by the US and the EU, a move that would go down in monetary history.
“Gold, obviously, is free from having any counterparty risk, and it has become an obvious choice for central banks, especially in emerging markets, as they realized they have to look for stability and they have to look for a hedge against US dollar risks, and especially counterparty risk.”
Stoeferle said demand for gold was rising due to interest from emerging markets.
“It seems that Western investors have initially turned down the invitation to the gold party,” he said.
“Now that the party seems to be gaining momentum, the big question is, when will they come back? Will they come back late to this party when it's already in full swing, and then at a much higher price of admission?”
Despite gold being widely discussed, Stoeferle said a Bank of America study showed that 71% of US advisors have less than 1% gold in their portfolios.
“Now, what could change the lack of interest? What could bring Western investors back into the gold camp?”
Stoeferle said it could be a recession.
“If you have a look at the yield curve inversion, it's actually not the inversion, but rather the un-inversion,” he said.
“That is actually the signal that a recession is about to come. We have seen one of the longest yield curve inversions, and now, just recently, last week, we have seen the un-inversion of the yield curve.
“Now why is it important for gold? Because gold actually has a tremendous job as a portfolio hedge in times of recession.”
Stoeferle said the traditional portfolio would comprise 60% equities and 40% bonds.
Under the new gold playbook, Stoeferle recommends 45% stocks, 15% bonds, 15% safe haven, gold, which is physical stored gold, 10% performance gold, 10% commodities, and 5% Bitcoin.
“Based on our calculations, the optimum gold allocation is at a range of 14-18% so whenever somebody tells you they’ve got a 2% allocation in gold, you can say that's basically useless from a portfolio allocation point of view,” he said.
Stoeferle said the chance the gold price doubles in the coming years can’t be ruled out.
“We're now entering the sweet spot for gold and gold miners,” he said.
However, he warned there could be a correction in the coming weeks as the market digests the first US interest rate cut, expected tomorrow morning.
Incrementum uses two parameters, M2 money supply and the implicit gold coverage ratio, to calculate a gold price target.
“And based on that model, we arrive at a price target of US$4800 by the end of this decade,” Stoeferle said.
“Now that might sound like a lot, but actually from here, this is an annual growth rate of 11% until the year 2030,” he said.
“I don't think this is really an outrageous price target.
“And the interesting thing is, actually this model is very heavily skewed to the right, so based on this model, actually significantly higher price levels are more likely than lower prices.”