Crisis needed to cycle investors to gold, says Foster

A crisis may be necessary for investors to cycle into gold and gold stocks, Joe Foster, Gold strategist at VanEck, told Mining Journal at the 2024 Precious Metals Summit in Beaver Creek in Colorado, USA.

Foster said that with the gold price at US$2500/oz, it is surprising that gold and gold stocks are not generating greater investor interest or more acquisition activity, but with other investment sectors continuing to perform well, they have little motivation to change.

"When you consider gold at $2500/oz, I'm shocked that more people aren't buying gold stocks. Investors have been focused on tech stocks, NVIDIA and other things that are driving the general market.

There's no reason to own gold stocks if your other investments are doing quite well, and that's been the case. We just haven't seen so far this cycle, the rotation into gold stocks like we've seen in past cycles," said Foster.

Historically high gold prices are forecast to go higher as the US Federal Reserve is expected to start cutting interest rates, and growing concerns about the level of US debt and its budget deficits, even though the candidates for the November US presidential election don't seem to be interested in the latter.

Analysts such as Ronald-Peter Stoeferle, managing partner at Incrementum, expect gold to hit $2600/0z before year-end, while investment bank Goldman Sachs is looking at $2700/oz.

Foster thinks investors need a shock to send them into gold and gold stocks. "I hate to say it, but we need a crisis. The market really needs to get worried about the outlook for the economy, for the debt situation or some other escalation on the geopolitical scene that expands into a more global conflict," he said.

Foster stepped back from his role as portfolio manager at Van Eck in May 2023 and into his new role as gold strategist, where he focuses on smaller gold companies. His focus is on companies that are developing what will become world-class gold deposits, which are becoming rarer.

"They're getting harder and harder to find. Every year, we get one, two or three companies that rise up and produce the results that tell you they're on the right track, with a property that's eventually going to be attractive to a lot of companies," said Foster.

With gold appearing as though it will be higher for longer, Foster thinks it is just a matter of time before the gold companies increase the price at which they calculate their reserves and resources from the level many use today.

"When you look at how they calculate their reserves, they're using a gold price of around $1300-1500/oz, whereas the gold price is at $2500/oz."

"They're stuck between a rock and a hard place here because if you raise your gold price and lower your cutoff grades, your costs go up, and nobody wants to see costs go up. Yet, you want to bring more reserves and new projects into your portfolio. It's a balancing act, and the way they're playing that balancing act is being very selective with M&A, they're picking and choosing," he said.