VRIC: Looming US dollar crisis could send gold prices ‘through the roof’

Ballooning US deficits and a dearth of opportunities to mine gold in geopolitically stable jurisdictions are two major reasons to be bullish on the metal, an annual investor forum in Vancouver heard.

“At some point there will be a US dollar crisis. It’s going to happen in our lifetimes, probably sooner rather than later, and when that happens, gold will go through the roof,” Fiore Group president and CEO Frank Giustra said Sunday during a panel discussion at the Vancouver Resource Investment Conference.

Concerns over inflation, rising geopolitical tensions and unprecedented buying from central banks have all played a part in propelling gold to record highs in recent months. Spot gold topped $2,740 per oz. on Tuesday, Trading Economics data show. It’s gained about 36% in the past year.

Although newly installed US President Donald Trump has vowed to tackle the federal government deficit, having appointed Tesla CEO Elon Musk to engineer massive spending cuts, Giustra is skeptical.

Treasury Department data show the US federal deficit hit $710.9 billion for the quarter ended Dec. 31 — a 39% jump from the year-earlier period.

“The fiscal situation in the US is beyond repair,” said Giustra, an inductee this month into the Canadian Mining Hall of Fame. Under the Trump administration, “it’s my estimation that the fiscal deficits will continue to go up exponentially,” he said. “I think it’s completely out of control. And I think you you’ll see that it’s all going to come to a head soon.”

Inflation boost

Trump’s second term could provide a further spark for gold prices, conference attendees were told. Key electoral pledges such as new import tariffs, reshoring and mass migrant deportations – which would shrink the US labour pool – all threaten to boost inflation.

Gold’s scarcity is another element that should provide support for prices, according to Goldmining (TSX: GOLD; NYSE-A: GLDG) CEO Alastair Still.

Unlike bitcoins, “you can’t create more gold,” Still said. “It’s a finite amount. It’s found where it is, there is a limited supply of it. That’s what makes it scarce. That’s what gives it value.”

Worldwide gold reserves have dwindled by about 40% in the last 12 years, Gold Royalty (TSXV, NYSE-A: GROY) chairman and CEO David Garofalo said at the conference. Garofalo, a 30-year industry veteran, ran Goldcorp until its 2019 sale to Newmont (TSX: NGT; NYSE: NEM). Goldmining owns about 13% of Gold Royalty.

“It seems the world is often shrinking in geopolitically stable jurisdictions where you want to operate in,” Still said. “We’re seeing challenging environments. Having a solid operation with a solid reserve in a geopolitically stable jurisdiction, those types of resources are becoming increasingly scarce. That’s one of the factors driving price here.”

Price forecast?

None of the panelists shared a specific forecast for gold prices.

As reserves dwindle, rising production costs are putting pressure on large mining operators, Garofalo said. As a result, he argues, investors should be focusing on junior miners due to their potential as takeover targets.

“Where you want to be in the industry is in the development-stage assets, the ones that are going to populate the pipelines that these larger scale companies are going to desperately require,” Garofalo said. Junior miners “are the ones that do all the heavy lifting and exploration.”

Behemoths such as Newmont or Barrick Gold (TSX: ABX; NYSE: GOLD) “have to continually gobble up other companies, play Pac-Man, to replace a sub optimal production and reserve level that’s simply not sustainable,” he said.

“To sum it up, large scale operators in our universe are doomed. They’re facing a squeeze from declining reserves.”