Continued low interest rates and rising government debt could weaken the US dollar in coming years and create potential tailwinds for gold and gold stocks, says a Fidelity portfolio manager.
“I’m constructive on gold producers, based on record margins that are driving earnings and free-cash-flow generation,” says Steve Calhoun, manager of Fidelity® Select Gold Portfolio (FSAGX).
Calhoun also sees potential for continued merger-and-acquisition activity in the industry, which he believes could be a catalyst for certain companies, as well as a possible infrastructure bill in Congress that Calhoun thinks could add significantly to deficit spending—possibly influencing the dollar and gold prices further.
To change his bullish outlook, Calhoun would need to see efforts to raise interest rates and/or austerity measures by politicians, each of which he thinks looks unlikely.
“The Federal Reserve is signaling its plans to keep rates low for longer, even if inflation rises above 2%,” he explains.
“And even with a $2.3 trillion deficit predicted by the end of the year, reducing spending doesn’t seem to be a priority.”
Calhoun is focused on gold miners in Canada, Australia, and the US, where land rights are protected by law. Notable holdings at the end of January included Australia-based miners Northern Star Resources (NESRF) and Evolution Mining (CAHPF), as well as Canadian miners Alamos Gold (AGI) and Agnico Eagle Mines (AEM).
Fidelity® Select Gold Portfolio held securities mentioned in this article as of its most recent holdings disclosure. For specific fund information, including holdings, please click on the fund trading symbol above.
The gold industry can be significantly affected by international monetary and political developments such as currency devaluations or revaluations, central bank movements, economic and social conditions within a country, trade imbalances, or trade or currency restrictions between countries.
Fluctuations in the price of gold often dramatically affect the profitability of companies in the gold sector.
Changes in the political or economic climate, especially in gold producing countries such as South Africa and the former Soviet Union, may have a direct impact on the price of gold worldwide.
The gold industry is extremely volatile, and investing directly in physical gold may not be appropriate for most investors.
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