Sprott Inc., the precious metals-focused money manager, sees gold rising by the end of 2017 as weaker-than-expected economic growth drives stock prices lower.
"The next move on gold will be driven by an equity market correction," Chief Executive Officer Peter Grosskopf said in an interview at Bloomberg headquarters in New York. "It's a pretty safe bet that if equity markets start to look volatile and dangerous then a lot of money will flow into gold as a hedge to that."
A recent spate of hawkishness from global central banks has pressured gold prices, which have fallen about 5 percent since early June. The Bank of Canada raised rates on Wednesday for the first time since 2010 and other central banks from the U.S. Federal Reserve to the European Central Bank have indicated their willingness to tighten monetary policy. Gold tends to weaken in periods of rising interest rates, which bolster the U.S. dollar.
Yet Grosskopf said developed economies aren't as strong as some economists are forecasting, and rate hikes may not come as quickly as the market believes.
"We think the underlying economies and the strength of the economies can be debated," he said. "If you look at the underlying statistics, it's a lot less evident that the economy is strong."
Coordinated global rate hikes amid low inflation could pressure stock markets and currencies, said Whitney George, chairman of Sprott USA.
"When you look at the history of the last 20 years, every time central banks have decided it was time to take the punchbowl away we've had quite a dislocation," George said.
Strategists from Toronto-based Sprott see the potential for gold prices to break past $1,400 an ounce by the end of the year under the right conditions, compared with about $1,229 Friday.
"People haven't placed a high priority on having a hedge because the punch bowl seemed to be relatively full," Grosskopf said. "Gold is vastly under-invested by most investors, so it's got a lot of growth ahead of it."
Besides physical gold, Grosskopf also likes emerging producers such as Kirkland Lake Gold Ltd. He also sees potential upside in other metals, including silver, platinum, palladium, cobalt and lithium.
Sprott is in the midst of returning to its roots as an investor in precious metals, natural resources and real assets. The company said in April that it will sell its diversified Canadian mutual fund business to a management-led group for $46 million ($36 million). Sprott's mutual fund net sales have declined for four consecutive quarters.
Sprott's shares have tumbled ever since its 2008 initial public offering. The stock closed at $2.30 Thursday, down 77 percent from its IPO price of $10 a share.
"Overall, the sale will enhance the company's balance sheet position and will further shift Sprott's asset mix toward exchange-listed and resource-oriented products," BMO analyst Nik Priebe said in a note at the time.
Sprott will use the proceeds from that sale to buy back shares and pursue growth opportunities in the U.S. and U.K., including potential acquisitions, Grosskopf said.
The company is particularly interested in growing its presence in the energy and agriculture sectors, George said.
"I have a big interest in agriculture," he said. "Farmland's going through a massive generational shift. Trillions of dollars of value is going to migrate in parts of the country out of traditional farm family hands into professionally managed hands."
George also favors oil-services companies with strong balance sheets and operating leverage, including Helmerich & Payne Inc. and Calgary-based Pason Systems Inc.