[Music] I'm Charlotte Mloud with investing.com and here today with me is John Champellia, CEO of Sprat Asset Management. Thank you so much for being here. Great to have you once again. Yeah, thanks for having me back. Really good to be speaking with you and we're going to go in a little bit of a a different direction to our usual conversations. Usually I have you here talking about uranium. I think we've done copper before, but today I think it makes sense to focus in on gold because


there's so much going on. So, we'll get into the nuances of what's happening in the market. But just to start with the big picture, where do you see gold in the cycle right now? Yeah, that is a very interesting question because I think we are are are not in a typical, you know, business or economic cycle right now and that gold and many other commodities are are obviously uh being very driven by um headlines day-to-day tweets minuteby minute and obviously a lot of disruption from the Trump administration along the


lines of tariffs and and trade wars. So, it's it's really unconventional where we are right now. You know, some of our our team was looking at charts yesterday and I said to them, you know, we're not in an environment where technical analysis is really applicable because, you know, that the environment where we're operating, the backdrop right now is really unpred unprecedented and really being driven by investor sentiment and and an enormous amounts of uncertainty. Yes, I think that's unprecedented is


certainly a correct word to describe what's going on right now. And I know you started to talk a little bit about the drivers. What are the main drivers if we can go into that a little bit more that you're following right now for gold amid all of this uncertainty? Yeah, I think it's important for investors to kind of take a step back and reflect on history um and the current kind of global trading systems and economic orders they sometimes are referred to have really been in place since the end of World War II. So for


decades now um investors have been very accustomed to a set of roles that govern free trade and and obviously um alliances and and long-standing relationships between countries and and that right now is under attack obviously from the Trump administration. And I think the challenge for investors right now um is it's very difficult to predict how this will play out. Is it really just strong armed negotiating tactics? Um, or is this going to lead to a more protracted uh stalemate where countries


don't want to give in and maybe overplay their hands and then it really disrupts economies um and individuals and savings rates and interest rates and you name it, currencies. Um, and I think it really comes down to the marketplace not knowing how to interpret what is happening right now. it's impossible to price risk and I think in that kind of environment um people are really not sure what to do which is why you're seeing massive day-to-day volatility in just about every asset class imaginable and is


really being driven based on as I mentioned you know every tweet every speech every comment uh has the ability to really move the market around and you know the one silver lining in all of that is gold has been a huge beneficiary of that growing anxiety and uncertainty um as it has historically played a valuable role as a safe haven asset. And what that means is if you go back to all the different financial calamities over the last few decades, um whether it was currency or debt related or or equity


market sell-offs, what you've seen historically is that gold has performed really well on a both an absolute and relative basis to other asset classes. And it is doing that exact thing once again. Um, but the other thing that's I think very different for investors to to understand is that in those periods that I mentioned before, the other asset class that tends to do really well are US treasuries and the US dollar. And that's not happening this time around. gold is kind of, you know, stealing the


limelight all on its own as there are, I think, question marks around, you know, US debt, um, US, you know, bond yields and obviously concern about stagflation, which I don't think anybody has thought about for the last 50 odd years. Very true. There there is so many questions about what's going to be coming. And I want to go back to what you're saying about the bond market there because I know all this tariff turmoil and questions about what's going to happen next has created some concerns


there that are a little bit complicated to understand. So what would you want investors to know about the situation we're seeing playing out there? Yeah, it's very important. I mean obviously people are grossly exposed to stocks. I think most people uh stocks represent a large part of their liquid portfolio. But when you think about who the big bond holders are, they are uh sovereign uh governments. They are life insurance companies, banks. And if um and I should say that large holders of US debt are uh


you know foreign entities uh foreign governments, foreign life insurance, if they start to lose faith or trade frictions or whatever with the United States uh uh expand from here, you know, you could see a boycotting so to speak of people selling their US treasuries and dollars or not participating to the same degree in these bond auctions. which are very substantial. As the US government is trying to roll trillions of dollars of debt um from current uh its current balance sheet to future financings, you're starting to see


investors kind of bo at buying those bonds. And if you ask us, that was one of the reasons why there was a, you know, a pause in the tariffs, the 90-day pause that we saw is the bond market. It wasn't the equity market. The bond market was really starting to show signs of strain. And again, if you run into a credit situation where people don't want to buy your bonds, um, you know, then you you really have a spiral, you know, you have a spiraling situation that could play out. Yeah, I think it's really important to


make sure that people understand what's happening there. So, so that's the bond market situation as it stands right now. Maybe we talk a little bit about what's happening with US equities because there is that volatility and turmoil there. We see investors maybe becoming a little bit worried about what's happening but not quite ready to to let go. So, what is your outlook for for US equities right now? Well, it's hard to believe that just a few months ago, you know, coming out of


the the Trump election win, um stocks were at record highs, there was an incredible amount of optimism around a very pro business deregulation type of uh policy uh and program that the Trump administration was going to roll out. And you know in such a short period of time it is unbelievable how uh business confidence and consumer confidence has flipped upside down because of the extent of the tariffs and obviously supply chains for so many different industries and products are so global today. Um and I


think people were really concerned about you know like we saw in 2020 when supply chains were broken whether this could turn into a very protracted period of self-inflicted you know supply chain breakage and that really creates a lot of uncertainty around how are companies going to import products um at a reasonable cost who's willing to transfer those prices to to consumers and I think there's a lot of misinformation in the market and the reason is simple. I don't think anyone's


really ever had to deal with tariffs to this extent. I think a lot of US consumers thought, oh well the seller of the products are going to be paying the tariffs, right? No, you will be paying the tariffs. The tariffs are applied at point of entry and then the seller the ultimately the seller of that product needs to decide can they transfer through that higher price to the end buyer or you know do do they eat it? And for a lot of products, the margins are very low. And so these tariffs basically


blow up their business models. If you think about, you know, the thousands of people selling products on Amazon or or whatever, uh almost 70% of the products come from China. And if you're applying these exorbitant tariffs, you know, how are people going to adjust to to that reality? So stocks, you know, the the headline numbers are down. Some of the high-flying tech stocks are down 20 to 25%. which was probably healthy because I think they got uh very rich um in valuation up until now. But you know the


stock market is obviously gyrating. You know every company is different in terms of its relative exposure to uh importing part of its uh supply chain and also obviously exporting its products to to other markets in the world which are now entangled um in tariff risk. So it's uh it's it's definitely a challenging period in the equity markets. Yeah. and and definitely the whole tariff situation is so in flux. So, thank you for trying to give us some direction there. I know it's it's pretty tricky


right now. And speaking of other areas where it's it's tricky to know about the direction, I wanted to also bring up these Trump and Powell comments that we've had rearing their heads in the last week or so. So, it seems like Trump has pulled back on all of his comments about firing Powell, but he still does want to see interest rates come down and Powell is pretty resistant to that still. So, curious to know what you think the Fed's path forward will be this year. Yeah. So, this is really uh a


bigger picture issue, not so much about, you know, should rates go down or other 50 basis points. The bigger picture issue here is about the independence of the Federal Reserve from the presidency. And that's the the big picture question that is really rattling market participants because since the creation of the Fed, there has always been a very clear delineation between you know the the independence of each each um each party there and the and Trump obviously is trying to exert incredible influence on the Federal


Reserve to lower interest rates. And the Federal Reserve is kind of digging in here saying, "Look, it's not prudent to do anything right now because we're not sure if we're dealing with a recession or stagflation or or what we're going to be dealing with because the the policy changes obviously are moving so quickly and we don't know what the consequences of those are." So, you know, we've said for a number of months now that the Fed is kind of boxed in. They're not really


sure what to do. Um because they just don't know what the fallout will be from from everything. U you know you're getting information like hey the the discussions with the Chinese have started. No they haven't. Uh this trade war could last 2 or 3 years. You know anything could play out over that extended period of time. So it is uh I think a bigger question around independence of the Federal Reserve and and that is obviously creating some anxiety for investors. Definitely. I think it's creating


anxiety and meanwhile we have recession questions again coming up or I've seen headlines as well asking is there something worse than a recession coming? So acknowledging that it's it's very difficult to tell right now. What's what is your sense of what could be coming for for the US right now? Yeah, I think we're going to have a little bit of a delay in the in the economic data because uh our sense is a lot of companies were accelerating purchases ahead of tariffs. So, there was a lot of


restocking of inventory. It's going to take some time to work that down. So, I think in the short term, the numbers are actually going to look way better than they really are because people were bringing purchases forward. But in the subsequent months, the question is, are products going to be able to get to market uh that aren't going to be completely entangled in in very exorbitant tariffs that could obviously lead to a a retraction in in all kinds of business and consumer spending. You


know, I think a lot of businesses are saying, look, um it's very hard to make big capital uh allocation decisions given all the moving parts right now in the market and what you could have is a real stall out of the economy. At the same time, inflation goes up. And so when those two things happen, it's called stagflation. And as I mentioned, the last time we had a stagflationary environment was, you know, the mid mid uh 1970s, early 1980s, which, you know, most of us weren't really investing in


that period of time. But when I first got into the investment business and and and uh and I was mentored by people that had worked in the investment business in that era, I remember very keenly that they said to me the only thing that worked in that environment was gold and gold stocks. And I never forgot that. And I thought that was very interesting that in that period of of soft economic uh growth and and high inflation that gold was the one thing that kind of uh you know captured a lot of uh investor


interest and performed very well. Well, and I think that brings us perfectly back around to the outlook for gold. I wanted to ask where you see the price going in 2025. Obviously, we've had quite quite a week for gold rising up to the 3500 level, pulling back, but still, of course, at historically high levels. So, for the rest of the year, what are what are your thoughts? Yeah, I mean, obviously, just reflecting on what's played out so far, I mean, it is it is really extreme. you know, having gold go


up 30% in a just a few months on top of last year's 27% gain is really sending a strong signal around people's risk appetite falling and people's concerns about trying to hedge some of these looming portfolio risks are becoming really front and center. So, it's very difficult to see how this is going to play out because again, it is so headline driven. It is so policydriven. Um, and we've never really been in a situation like this before. But I think, you know, it's it's what's interesting


to us is that Western investors are just starting to allocate to gold again and they largely have not since 2020. And that's very interesting to us because when Western investors start getting involved in gold, what you find is the price starts to move. And that's exactly what's happened. Last year it was all about central banks buying gold to some degree. You know, Chinese retail investors. But what you're seeing now is the central banks keep buying. Western investors have returned to buying gold


to hedge against some of these portfolio risks. And then you're also seeing retail Chinese investors really accelerate their purchases of gold because they are concerned about the trade war. They're concerned about currency devaluation which typically happens in a lot of these trade wars. Um and the US dollar has been quite soft against a lot of currencies which again shouldn't usually happen in a financial calamity but again this one is self-inflicted. So the US dollar is is been soft on the back of that. But, you


know, to us, gold could continue to rally here. It's going to be volatile. We we see all these days of plus $100, down $100. Um, so you have to be kind of care careful you don't get overly whipsawed around. But if if if this turns out to be a protracted trade war, if there are more issues in the equity andor credit markets, um, gold will keep going. It'll keep getting a safe haven bid. And uh it's very hard to predict because this this presidency's uh policies are are very hard to predict


and decipher. Absolutely. And I was going to ask you how close are we getting to that mentality shift? I think I've been hearing for the last year or so, you know, when gold gets to this level or this level or this level, that's when investors will will pay attention. But it sounds from what you're saying that that's essentially in progress and we're getting close to the point where we're kind of firing on all cylinders of of demand. Yeah. So we look at demand around the


world in in different ways. One of the barometers we look at are the flows into into gold ETFs globally. And just to put this into context, there's about $375 billion collectively in gold ETFs around the world. And so far this year, they've added about 30 billion of net new flow. So investors have allocated plus 30 billion into um into gold ETFs globally. And obviously the the Spraw physical gold trust, which were the manager of has been a big beneficiary of that. We recently touched the 12 billion uh US


dollar mark in assets in that fund. So that's been a real winner for our clients. Um, but 30 billion, if you think about it, yeah, that's a really big number, but in the grand scheme of capital markets and capital pools and and market cap companies that are in the trillions, it's still pretty small. Uh, which tells you that the the money is moving, but it's not moving on mass. You know, there was a lot of chatter about a week ago about, oh my gosh, the gold trade is crowded now. I mean I had to


laugh given most investors I talked to uh and these would be mostly institutionally they want institutional investors would generally tell me they have little to no gold in their portfolio. So we we don't think it's crowded whatsoever. If you look at the gold allocations against long-term historical uh metrics, we gold ETFs as a percentage of overall uh ETF assets uh are about 2%. And at that last cycle peak, which is I think 2011 uh we peaked out at about 8%. So yes, we've gone up as as the value of other ETF assets has


gone down and gold has gone up, but 2% is not warning uh a flashing warning us that it's a crowded trade at this point. Okay. I think that gives us a good idea of your outlook for gold and what's happening in the market. But you mentioned gold stocks as well. Gold stocks are something that will do well in this environment that is most likely coming toward us. I know for quite a while there's been a lot of talk about the gold price and gold stock disconnect where the price is so high and the gold


stocks weren't performing as well as investors would have hoped. I know that's started to to close at this point but at the moment are gold stocks performing as you'd expect in this price environment or do they still have catching up to do? Yeah, it's a really great question and last year it was a huge disappointment for many gold stocks as they lagged the price of gold pretty meaningfully and obviously that was you know driven by some very company specific issues. Uh some of those issues


are obviously being worked through, but uh the gold stocks are kind of doing what exactly they're they're supposed to be doing so far in 2025, which is you know they're up 40 50% when you know the price of gold is up about 30 and obviously some gold stocks are up even more than that. So they are capturing um that that lift from the underlying commodity. we are starting to see um a kind of a stabilization in their cost structure which is one of the the things that has hurt some of their operating


leverage over the last few years as costs have gone up. But here's an interesting thing. If you think about the costs uh the cost inputs for gold mining, energy is a big one and things like diesel are a big one. And with the price of oil and diesel really coming off, that is going to start to help that operating leverage effect that you'd expect with these gold companies. Labor is another big cost. And again, that that could soften if we start to see some softness in the economy. So, the


companies are finally starting to put in some really good operating results and profitability and cash flow levels. You know, the big question is what are they going to do with the money? Are they going to increase dividends? Are they going to buy back stock? Are they going to make strategic acquisitions? I think it's going to be a real test for a lot of these management companies to see, hey, you finally are are making these windfall profits. What are you going to do with it? How are you going to reward


shareholders? Uh, and that's something we're obviously watching very closely. Yeah. And that ties into another question I wanted to ask you. So during the last gold bull market, a lot of these big gold companies were criticized pretty heavily for what they ended up doing with their money, whether it was paying for expensive acquisitions or or something else. People didn't like what they were doing. So any any thoughts on what we're seeing so far or or what would you like to see them do ideally?


Yeah, know you rais a really valid point. in the last cycle they were being incentivized to make transactions that that you know grew production at and often with very low grade mines. Um that is long behind us. Um many of those management teams are long gone. The balance sheets have been been corrected and companies are way more disciplined. And I think there's also a much more shareholder I think scrutiny and pressure being applied on these management teams to you know not repeat the mistakes of the past. So when the


acquisitions that that have played out in the last few years they've been much more strategic in nature uh more about scale and building liquidity or moving away from you know kind of single mind exposure. they have not uh in many cases brought big big premiums because they tend to be more strategic in nature. Um and so that's one thing that I think investors were probably disappointed by but you know you would hope that the synergies would come over time and and those acquisitions would work. Um there


h there obviously have been a lot of acquisitions in the last few years and you know there's always kind of a culling process. You buy a collection of mines, you keep some, you sell some. that process has kind of worked through the system uh now and and I think everybody's happy with what they have, but um it's definitely something that we think will will continue to play out. I don't think we're in this uh period of, you know, hyperactive M&A activity. I think people are really trying to ensure


they're first and foremost taking advantage of this incredibly high gold price. And one thing I should mention is that this is an industry thankfully that no longer sells gold forward like it did many many years ago. And so they should be able to capture that upside and other industries don't you know don't uh operate that way. So we don't have that legacy kind of hedging to to to really offset the gains we're seeing in the in the spot price. So that that is very positive and companies should be able to


really deliver good earnings. I know we had one company today deliver uh very strong numbers. Okay. Yeah, that's a really good point to bring up. And talking a little bit more about the gold stocks, I think investors are are looking at what's happening with the gold price. They know the gold stocks are following and will continue to follow. Each person is is different of course, but how should investors try to play this scenario right now? I think there's maybe an attitude that at some


point we're going to get these across the board gains in gold stocks, but I'm starting to hear more that people should focus on not buying a basket necessarily, but focusing in on specific companies. So curious about your thoughts on how investors may want to approach this. Yeah, I don't think there's any right or wrong answer here. It really comes down to how much time and effort people want to put into in, you know, uh, analyzing and tracking individual companies. Obviously there is


always company specific risk uh no matter how large and how established a company is. Um there are obviously growing cases unfortunately of resource nationalism which means when the price of a commodity goes up those local governments where those mines uh reside often put out their hand looking for a bigger piece of the pie. So you know you have to be careful about not being too narrowly uh exposed to any one company. um mining is difficult. So, uh a diversified approach is is always the the prudent way to go uh to diversify


some of the company specific risks away. But, you know, just going back to gold mining stocks, the one interesting comment I'd like to make, I talked about the gold uh in net flows that we've seen into the physical gold ETFs. But what's interesting is uh if you look at the relative sizes between gold physical gold ETFs and gold mining ETFs, it's about 10 to1 in favor of physical gold. And the other thing that's really interesting is that the gold mining ETFs that we track globally are actually in


net outflow. So people are actually selling into this strength. Uh which again tells you it is not a crowded trade that people are not, you know, falling over themselves trying to buy these companies. There's definitely been good performance and I think generalists are starting to take notice um of of the company results but it has been a very different uh dynamic in terms of aggregate flows. Um at SPRA we obviously have a range of different actively and passively managed offerings that uh I


would encourage you to go and and learn about uh on our website. Um but again it's it's not a one-sizefits-all strategy. there are many different approaches to to try to get exposure to the sector. Yeah, I think that's kind of the good thing about it is people can figure out what works best for them and and there's an option out there that will work. So, good to go over that as well. And just before I let you go, we've covered a lot about what's going on with gold, but any any final thoughts


you would leave investors with about gold or or could be about another commodity depending on on what your thoughts are right now? Yeah, I mean obviously we're in a period of of um extreme volatility. Uh we are experiencing single day volatility events that we have not seen since the spring of 2020 and we all remember what was going on then. So it is very nerve-wracking for investors. I I think it's the best approach is to be diversified, make sure you've got exposure to a number of different asset


classes um and not get whipsoted around because these markets will do that to you right now. Um and you know just um I think it's I think this is an environment where you want to be a bit more conservative with your investments. There's just a lot of risks in the system and um but you also can't be out of the markets because as we've seen there's been single days where you know the things pop 8% and when some headline comes out or something was said. So, it's it is a challenging environment um


right now to invest in and I think diversification and trying to keep a medium to long-term time horizon are probably going to serve you well. Okay, I think that's great thoughts to end on. So, thank you very much for coming on to go over what's happening in gold. It was nice to go in a little bit of a different direction this time and we'll be sure to have you back and and talk about some other commodities the next time we we speak. Really good to have you here. Thanks for having me. It was a


great chat, of course. And once again, I'm Charlotte Mloud with investingnews.com and this is J Champellia. Thank you for watching. If you like this video, make sure you hit the like button and subscribe to our channel. We'd also love to hear your thoughts, so leave us a comment below. [Music]