In a telephone interview with Kitco News, Ronald-Peter Stoeferle, fund management at Incrementum AG and an author of the annual In Gold We Trust report, said that now is the time to look at adding gold to a portfolio as sentiment can't get much worse than it already is.
"Gold is doing exactly what it should be doing. When everyone was worried about the pandemic, they couldn't buy enough gold. Now that the economy is improving, everyone hates it. Nobody wants to hold gold anymore," he said. "This means we are close to a bottom. From a contrarian point of view, gold has a pretty nice set up."
Stoeferle added that he sees resilient strength in gold despite the negative headlines and strong headwinds buffeting the market, including rising bond yields, record equity market valuations, an improving economic outlook and even record bitcoin prices.
"We have seen gold prices correct, but I have no doubts about this long-term bull market," he said.
Last week gold prices bounced off a double bottom below $1,700 an ounce. Stoeferle added that gold is still more than $200 above last year's lows and current prices still represent impressive margins for gold producers.
While the gold market has suffered because of rising nominal bond yields, Stoeferle said he sees the bond market selloff as short-sighted.
"Because of all the money that has been pumped into financial markets, rising deficits around the world, we simply can't afford significantly higher significantly higher rates," he said. "The financial system is still too fragile to handle higher real interest rates."
Stoeferle said that equity markets, at record valuations, are incredibly dependent on the Federal Reserve's ultra-loose monetary policies. He added that there is potential for a substantial correction if the central bank started to talk about reducing their balance sheet.
"The taper tantrum of 2013 would look like a kindergarten party compared to what we would see now if the Fed even talked about slow down its purchase," he said.
Stoeferle added that the world is seeing a paradigm shift in government spending and the days of conservative budget policies have disappeared. He also said that if the bond market continues to sell off at its current pace, the Federal Reserve will be forced to step and cap bond yields.
"Powell is trying to play the tough guy with markets, but I think at some point he will give in," he said. "I think we're really close to a breaking point."
Not only does Stoeferle see the Federal Reserve and other central banks keeping interest rates lows, but the threat of rising inflation means that real interest rates will. Stoeferle added that a lot of companies are getting very nervous as commodity prices rise across the board.
"We are seeing the price of everything rise. People really try to get out of paper money and get into real assets. It's not a healthy market right now and gold at current levels offers investors real value," he said.
Along with holding gold, Stoeferle said investors should look at the mining sector.
Although gold is off its August record highs, the mining sector is expected to continue to see solid margins and generate unprecedented free cash flow.
"The mining sector is in a very healthy environment and creating real value for investors," he said.