(Kitco News) - Despite high yields and a strong U.S. dollar, gold is moving higher because of the compelling macro picture, said Brien Lundin, editor of the Gold Newsletter.
In early May Lundin spoke to Kitco Mining at Deutsche Goldmesse in Frankfurt, Germany.
He called the rally surprising and believes it is driven by a combination of factors, including central bank buying, strong demand from China, increased buying from hedge funds and growing unease about global debt levels.
"The buying has been strong despite rising yields and strong dollar," said Lundin. "You see big money moving into the sector, and I think it's [due to] the general macro picture out there."
Investors are shifting allocations toward gold as a hedge against fiat currency risks, said Lundin.
The Federal Reserve is expected to start cutting interest rates, which would be a major catalyst for this gold, but Lundin said big money has already pricing in that eventuality. He sees a fundamental shift with gold acting as a safe haven in an unstable global economy. Lundin believes gold could reach much higher levels, potentially mirroring the 5x to 8x price increases seen in previous bull markets.
One risk factor is the possibility that gold may have already priced in the expected Fed pivot. Lundin believes gold stocks are undervalued because investors both missed the dip while waiting for a correction and don't fully understand what's driving the rally.
Coverage of Deutsche Goldmesse sponsored by Dynacor.
