Alain Corbani: Gold's Path to US$2,500, Where to Position in Gold Stocks

Alain Corbani, head of mining at Montbleu Finance and manager of the Global Gold and Precious Fund, shares his outlook for the US economy in 2024, explaining that as it weakens in the new year the US Federal Reserve will need to lower rates.

Against that backdrop, he sees the gold price reaching US$2,500 per ounce in the next 18 to 24 months. “Each time the Fed moves from a tightening mode to a pause mode, gold goes up by 50 percent, fivefold,” he said. “So I expect gold to hit US$2,500 in the next 18 months, two years. There’s no reason that that doesn’t happen — none.”

This interview was filmed on December 29, 2023.

#Investing #Mining #Gold

0:00 – Intro
0:31 – Gold’s performance in 2023
4:11 – Fed and rate hikes in 2023
8:37 – How much will the Fed cut?
12:28 – US economy to weaken
17:03 – US dollar and election outlook
22:03 – Gold’s path to US$2,500
24:57 – When will gold stocks move?
29:56 – Gold stocks with potential
33:41 – Outro

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I’m Charlotte McLoud with investing news.com and here today with me is Alan corbani head of mining at monlau and manager of the global gold and precious fund thank you so much for joining me great to have you on thank you very much Charlotte always a real pleasure always

Really nice to be catching up with you it seems like we’re always talking toward the end of the year heading into the new year and here we are again we’re going to get into lots of details about what’s going on with gold and the markets but I thought we could start

With a little bit of a look back at 2023 look at what happened to Gold this past year any takeaways that you have and would like to share with investors um I will start by telling the the viewers uh that uh um it’s when we

When we talk about gold we need to we need to understand real rates we need to understand uh where the uh US currency is heading uh but now that I said it it’s even more important to make it uh to see it in a very simple straightforward way we can complicate the the

The the approach to to to to understanding how gold behaves as much as we want but if we want to make to draw a very simple clear picture for the viewers we just say that each time the Federal Reserve uh moved from a tightening phase to a pause in interest

Rates meaning stop increasing its rate each time this was in 20 this happened in 2001 this happened in 2007 it happened again in 2019 each time the FED moved from a tightening mode to a pause mode gold went up so the call that we’ve had for the last

18 months to say rates are going on we have reached a peak in interest rates we have reached a peak in inflation we have we have reached a peak in in the US currency was based on the fact that the Fed was going to move to a pause mode

And the fact to be on a pause mode does trigger a higher gold price and this is exactly what happened in 2023 so uh but it wasn’t of course as simple as that because until well all the first half of 20 23 nobody knew where inflation was

Heading and you had all sorts of bets of positioning whether inflation was going to go above the uh the the the five the 5% was going uh was going to decelerate re accelerate it was it was all over the map and and to make it even more complicated in Q3 you had an

Outstanding uh growth rate of the of the American economy so this made it even more difficult for the common investor to uh to see clearly and but the the the clear the clear uh Vision was to say uh uh a restrictive monetary policy will uh affect the growth in the economy and

Will force the FED to pause and ultimately to lower its rates and this is exactly what is happening or at least what the market has started to to uh uh price in in the last two months of 2020 okay I really like that I like starting with that simple message and of

Course we’re going to now complicate it but really good to put that out there for people to understand the main point right away and so maybe one thing that we can look at so we talked about that theme of the FED peing rates last year and we have seen this past year they

Went a little bit higher the FED had more gas in the tank than I think a lot of people expected what are your thoughts on on why that was why was it able to raise rates higher than people thought it might because the economy was was strong because the unemployment rate was really

Low uh because consumption was very very very solid and these are normal reasons and and who could could blame the fact they did the job they did they they did what they had to do but I just remind you that back in July 2022 18 18 months ago

Uh there was this the July 26 or 27 fomc meeting and back then uh uh they the the participants mentioned that the nominal nominal fat fund rates they were at 2 and a half 2352 2 and a half% were close to their longer round neutral rate so

Already already back in July of 2022 the Fed was selling you above two and a half% we are starting to be in a restrictive monetary policy which means that we are going to impact the growth meaning we are going to weaken the economy for any any level of federal

Fund rates that would be above 2 and a half% but all the subsidies all the fiscal stimulus all the monetary policies that were extremely extremely generous during the co did impact in a much stronger way uh uh the the strength in the economy and this is why the FED

Had to be a little more aggressive than they thought themselves back in July 2020 but charlock before before you ask me the next question but since July 2022 since the FED said that at two and a half the uh uh Federal fund rates are close to their longer run neutral

Level let me ask you a question how well did gold perform since July 2020 to definitely it’s done very well we’ve seen yes exactly it was it was up 18% more or less gold mines were up 18% and you know what the S&P 500 was up 18%

So nothing is uh um there’s no uh uh coincidence uh the the fact is that we all knew that with a lag we all knew that above Two and A half% we are definitely in a restrictive monetary policy and no matter what ultimately this will impact negatively the growth

Of the economy and this is and it took us exactly much longer than we thought but we got there and if you look at all the the the central the federal regional federal reserves Banks uh and their forecast about the the the growth of the economy in Q4 of

2023 the best forecast two is 2.2% uh you have St Louis fed you have uh Cleveland fed you had the Atlanta fed I mean the range goes from negative growth to Plus 2.2% versus the 5% we had in Q in Q3 2023 so there is definitely uh uh uh

Deceleration in the growth of the economy and this is due to the tightening monetary policy that is impacting the consumption okay so so that gives us a good idea I think of how we got here with the FED where we’re at now looks like we’re at the top of that hiking

Cycle finally although of course the FED is not going to tell us that itself so if we look forward into 2024 we’re started to hear a lot of different predictions on what happens with the fed and rates so want to check in with with you and see where you think rates are

Going to go in next year uh the market is extremely uh reactive respondent and uh and violent in the uh the urns it it it can take in uh uh forecasting uh the direction of of Freights but as it stands today the Market is telling you that the FED will

Cut its uh uh the FED Fone rates by five or six times 6times 25 BPS that’s about 1.5% more or less but the uh projection of the fomc are telling you that they are going to cut their rates three times but not five and definitely not six times so from

Being very conservative the market now is becoming very proactive and thinking you know the FED will have to be much more aggressive lowering its rates than what it’s standing off so and the reason is there are two possible reasons uh one is a weaker economy the economy is going

To slow down more than what we we uh expect uh in that case there won’t be a soft Landing that’s what everybody would like to see or and this can shock a lot of people when I’m going to say it uh or we could move into a deflation uh uh uh uh

Period and and I didn’t say that for the sake of saying it uh I was just looking at the forecast of one Regional uh Central Bank and and basically if we annualize the uh inflation numbers of the FED of Dallas uh the November months annualized would show negative inflation

Deflation and if we take the last six months or the last uh 12 months of in inflation uh uh uh uh we see that we are below the 2% Target of the Federal Reserve so there are some metrics that are telling you that could induce you to

Think that the core pce of three% is actually uh maybe the wrong figure to look at and maybe the next numbers would be much weaker than uh the 3% or or the 2.2 2.1% that the market expects for inflation two years down the road or five years down the road so if the

Prices go down at an accelerated Pace maybe the FED will not maybe the the FED will definitely have to be more aggressive cutting rates so these would be the main two reasons why the FED would be more aggressive okay so we’ve got potentially moving forward into 2024 maybe we’ve got

A soft Landing scenario that’s the one you mentioned everybody wants that one to happen or we could have deflation as you explained so are you leading further to One Direction or another in terms of what you see coming I will respond slightly differently Charlotte I I’m looking at

Some metrics I’m looking at uh the inverted yield curve uh a lot of people talked about about it it was all over uh uh all the the media channels but I still I’m I’m you know the part of the old Fundamental school and an inverted yield curve

Reverting sends you a signal and it sends you a signal that the economy is weakening and it is weakening so that’s number one I’m looking at the these inflation Trends uh I remind you that the uh twoyear inflation expectations moved from four and a half to 2% and

This is sending you another message which is uh consumption is still strong but it’s weakening and uh and there’s a lag let’s keep in mind that there is a lag I’m I’m looking at the leading indicators and they are telling you that they are at deteriorating and I’m looking at the uh

The job openings uh yes yes they are the numbers are higher than those uh in 2019 uh uh preco but they are weakening there are the numbers of job number of job openings is weakening every month so these are figures that you must incorporate in your uh uh in your in

Your analysis then you have uh inflation the last figures about inflation well they are not driven by Supply they are driven by demand so which mean if demand is going to weaken suddenly you will have less inflation and suddenly the forecast of the Federal Reserve of Dallas have uh more significant uh uh

Weight in in your reasoning um I’m looking at real disposable income and it’s it’s flat in the last quarter it was flat so you either spend with your savings or you stop or you reduce your your your spending this is another signal that is telling me that we

Shouldn’t expect much more strength uh in the economy so all this and this is why the market now is more aggressive in forecasting uh lower rates down the road than the Federal Reserve and this to me makes sense and for those who think that the FED has been a little too

Conservative uh or that the market has been too aggressive and that there is a rebalancing that needs to be to take place I would say be patient because right now the numbers that are being printed demonstrate that we are in a weakening economy and not in a rest strengthening economy

So I would definitely think that we are in a weakening economy we and this will uh require lower rates and the market has pressed this in but I don’t think that the market has been too aggressive I really don’t think because this goes back to what I was telling you

Earlier Charlotte I was telling you back in July 2022 the Federal Reserve mentioned that neutral longer run rates and for them it was 2 and a half% so the market now is pricing uh fed fund rates at the end of 24 at 3 375 4% so it’s

Still way above the neutral longer run rate of 2 and a half% so rates can go lower and will go lower that’s that’s that’s obvious to me and they will go lower because they will respond to weaken economy and weaker Pro and probably weaker inflation numbers okay I think that gives a clear

Idea of what you’re thinking there and I want to throw one more thing into the mix which is the US dollar so you mentioned before we’ve seen peak in the US dollar and I was reading just the other day a Bloomberg article that was saying this is looking like it’s going

To be the worst year for the dollar since 2020 so I want to get your thoughts on the dollar what it’s looking like in 2024 if we’re going to see that weakness processed uh yes we are and uh but keep in mind we are really pragmatic here uh

At Mo so keep in mind that the US currency will only weaken only when the economy will require a competitive currency and when inflation will not be a problem inflation is starting not to be a problem anymore maybe we are fast forwarding quickly but probably 3 months

6 months down the road we will all know that inflation is not a problem any that’s number one if inflation is in control and if the economy is weakening this is when Corporate America the treasury the Federal Reserve they will all ask for a weaker currency and this is

Where we’re when we’re going to have it and the fact that the US dollar has started to weaken demonstrates the fact that we are heading into this direction but if we have suddenly higher inflation numbers or a stronger economy than the present forecast we might have you know a hiccup

In in in in the uh the the weakening trend of of the currency and this is noral and this is to be expected but the dollar will weaken when the economy will need some stimulus to revive uh uh uh its competitiveness I think it’s also worth

Mentioning this is going to be 2024 will be an election year in the US and there are certain trends that we see in these election years so would that have any bearing on on these event going on in the economy it it it it we used to say uh uh in 2023 that

History demonstrated that the Federal Reserve never never ever uh increased its uh fund rates in the last 18 months before uh uh um a presidential election this was we use this uh uh statement just to validate our scenario that traes were going to go lower and not higher and this is what is

Happening and now to to make the statement that the FED will not increase its rates it’s it’s granted now it’s granted in December at the end of the month of December 2023 this is granted because the market has accepted this statement but the Market wasn’t sure about this statement three months ago

But the reality is that the FED stays neutral or cut its rates before a presidential election the 18 months prior to a presal election so don’t expect the FED to uh to play against the economy in the next in the next 12 months and and there’s one little uh um uh example I

Give to uh to uh uh to the investors of the F when when I talk to them I I will always remember um uh uh Elizabeth Warren uh the senator US senator El Elizabeth Warren and she was criticizing J Powell and she was telling him your policy is to put

American people out of work this is what she was telling him that was a year ago so do you expect that the chairman of the Federal Reserve is going to take any responsibility for putting people uh uh out of work in the next 12 months before the presidentti election obviously not

So the FED will be neutral the FED will be supportive uh for for a stronger economy and the FED will be supportive for the equity Market in general okay so I think that gives us a great idea of what’s going on in the US the landscape there so let’s go back to

Gold so definitely we have gold at historically high levels right now there’s excitement in the industry but people also have I think a lot of questions about what’s coming next because they’ve seen gold come up here and go back down so when you look forward to 2024 against so the backdrop

That we’ve been discussing what do you see happening with the price the Will the Market will need to uh digest the fact that uh the 4% 3 and a half% uh fed fund rates expected by the end of 2024 is a very conservative Target the market needs to start um pricing in the

Fact that we’re not the FED is not going to stop at 3 and a half% that the FED will go much lower than that and this is what the FED did each time it started uh uh a cycle of of flowing rates so um imagining a second and imagining a

Second that the economy can sustain of three and a half 4% tenure rates when it’s uh it’s indepted to two levels are not seen uh uh uh in in in four decades um when inflation is not an issue anymore um is not realistic so the FED will lower its rates and will continue

Continue lowering rates because the economy is going to continue weakening and this is and this is what the market needs to know for gold continue performing well so we need a fed to become much more friendly than what it has been so far uh in

20123 and gold will do will do fine and and gold will will do well and if I and let me remind you the the the statement we made at at the introduction uh uh that each time the FED move from a tightening mode to a pause mode gold goes up by 50%

Five so I expect gold to hit $2,500 in the next 18 months uh two years no reason that doesn’t happen none okay and if we’re talking about gold we’ve got to talk about the gold stocks as well people are also wondering when we’re going to see those start to

Perform a little bit better what are your thoughts there what are the catalysts that might spark some more interest in in the gold M stocks it’s what what is what is interesting is the perception and the fact the perception is gold mines are performing poorly very poorly

But let’s again repeat what I said earlier since July 2022 when the FMC U uh uh made the statement about the longer run neutral rates gold was up 18% 17% uh gold mines were up the same way 17 18% uh my point here is to say those gold

Mines did as well as gold even though they had to fight strong historical strong headwinds I.E inflation there they had to fight inflation on all fronts whether it was coming from the supply side or whether it was coming from uh uh the salary side

So this and and they did as well as gold so but in a much more volatile way so they could have been up 40% and down 10% and another up 20% so all what the investors are remembering is I lost 20% I lost 30% from the peak of the mini

Cycle of the last 18 months they forget that over the last 18 months their investment in Gold stocks were up 15 16 17 18% so um I you I we have tons of reasons to be harsh uh on on gold mines on gold companies but I must say that

They could have done more more poorly than what they did and and and the fact that they performed as well as gold is that this appointment but not when you you incorporate the hurdles they had they had to meet and and run up against and inflation was a a total a total uh

Uh uh the uh expenses that items on the expense side that were uh historically in in nature high in nature so uh would have I liked to show our investors that the fund did better than gold that billion of course but but wait a little bit be a little

More patient and assuming I’m right in my forecast on inflation assuming I’m right on uh our forecast on rates which are going to go lower in that case inflation cost inflation will not become a number one issue for those gold mines anymore and The Leverage that you expect from this

Investment uh class will suddenly deliver so what I’m saying is that patience in this case is is required um but and you can be disappointed expecting at least a performance twice as as as as uh as high as the one on billion for for gold the gold mines but

But it’s just to me a question of time and to look at the inflation in of the costs today is as if I’m looking uh with a back view mirror this is the past this is the past this is not the future if there is any inflation or uh an expense

Item that that could be an issue and is an issue and is identified and priced in it’s salaries and and the market has already Incorporated 5% increase in salaries for 2024 exactly like the market in general I mean salaries are up yes and and gold mines

Uh face the same dilemma but the supply side is not an inflationary uh uh um source of of pressure anymore okay one more question on the gold companies so you’ve told me before the global gold and precious fund you have a pretty broad mandate so you can

Look at different sizes of companies you can look at companies across the precious metal sector so I’m wondering right now what types of companies are you seeing the most opportunity in at the moment we the weakness our weakness has been to all we identify the trends but where you

Usually a little bit early in identifying friend so I’ve always said and I repeat it that gold is cyclical and uh uh the correlation between gold and gold mines is very high about 80% and therefore gold mines are cyclical that’s number one and in a cycle you have two phases and we have

Entered the second phase the first phase is where we restructure we uh focus on uh strengthening the balance sheet and we focus on profitability and we get rid of as many marginal assets as possible that’s phase one then we move to phase two and why do

We move to phase two because the Mandate is changing with a higher gold price the Mandate of those companies is changing the shareholders of these companies change their requests Suddenly It’s not anymore I want you to focus on financial discipline it’s I want to see not only

The financial discipline but I also want to see some growth so and I will not pay any premium until I see uh growth coming uh in the pipeline and this is exactly where the fund is position the fund is positioned in companies which could uh provide growth gr to other

Companies or companies which have a profile of uh uh production uh production growth so and that would be about 50% of the fun so we believe in growth because growth has always been the theme of the second phase of a bull cycle for goat okay I think that makes a lot of

Sense that’s everything for me today unless you had any final advice or words that you wanted to leave investors with as we’re heading toward the new year um no no no Charlotte I think we have covered all the all all the um uh uh topics uh um around gold and gold mines

But uh Common Sense this is this is really what what I would like everybody who’s listening to us to to to focus on Common Sense too much debt weakening economy uh weaker savings uh this means lower rates this means and lower inflation and uh this should be an

Environment favorable for for for gold and the cyclicality of the gold uh uh uh sector is telling us that we haven’t been close to the peak of uh of of this cycle so a few more years ahead of us uh before before we hit that peak in this bull

Cycle and then it will be time to uh review our uh our strategy but in the meantime we we stay we stay uh we maintain the course okay very good summary thank you so much for coming on to talk about everything that’s going on with gold the

US economy really great to hear your thoughts heading into the new year thank you very much anot for having me of course and once again I’m Charlotte McLoud with invest news.com and this is len corbani with M thank you for watching if you like this video make sure you subscribe to

Our Channel we’d also love to hear your thoughts so leave us a comment below we’ll see you next Time