Unlike Stocks, Gold Could Withstand a Rate Raise (Video)

Frank Holmes, Chief Executive at US Global Investors, told Kitco News that an interest rate hike would send the stock market plummeting. In fact, he thinks a drop in the market would far outpace any dip in gold prices. At the same time, problems with mining exploration means that both gold reserves and supply are going to shrink in the next several years. Holmes emphasized that it’s important to ignore the “short-term noise” of asset prices. Gold is an important asset class, and provides a buffer against a plunging stock market.

Highlights from the interview:

“The idea of rates rising in America – the dollar would just rip and the stock market would plunge. It would plunge more in dollar value loss than anyone can imagine compared to gold… the wipeout in the overall stock market would be significantly greater…

“[Referring to lack of new gold discoveries.] I think that’s a big challenge for gold mining companies. The other thing that’s really interesting is that when we’ve had a slowdown of majors in exploration, it’s usually the juniors that pick up in that exploration. But there’s no capital for them to go and explore high-risk exploration opportunities. Therefore, we don’t see a lot of new gold supply coming on for the next 10 years… I think it does bode well that supply is going to shrink over the next 5 years while reserves continue to shrink…

“I think it’s important to recognize the short-term noise can be very disruptive to your overall portfolio… The world is still being run by monetarists. There’s no strong fiscal policy of deregulation, streamliner regulation, tax-free zones, etc., to stimulate what you had pre-2008. So you’re going to live with this low-interest rate scenario. It’s just different. It’s that ‘new normal’ they call it. I think gold is basically an important asset class, but between now and when we get that big holiday season taking place in Ramadan, we’re going to live with this see-saw action.”

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